<PAGE> 1
As filed with the Securities and Exchange Commission on October 5, 1995
Registration No. 33-26305
-----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 16 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 18 /x/
------------------------------
THE PNC(R) FUND
(Formerly, NCP Funds)
(Exact Name of Registrant as Specified in Charter)
Bellevue Corporate Center Edward J. Roach
400 Bellevue Parkway Bellevue Corporate Center
Suite 100 400 Bellevue Parkway
Wilmington, Delaware 19809 Suite 100
(Address of Principal Executive Wilmington, Delaware 19809
Offices) (Name and Address of Agent
Registrant's Telephone Number: for Service)
(302) 792-2555
Copies to:
Morgan R. Jones, Esq.
DRINKER BIDDLE & REATH
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
----------------------------
It is proposed that this filing will become effective (check appropriate box)
/x/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE> 2
Registrant has previously registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933, as amended, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant's
initial 24f-2 Notice for its fiscal year ended September 30, 1994 was filed on
October 7, 1994.
<PAGE> 3
THE PNC(R) FUND
(SERIES A AND SERIES B INVESTOR SHARES OF THE OHIO MUNICIPAL
MONEY MARKET PORTFOLIO, PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO, NORTH CAROLINA MUNICIPAL
MONEY MARKET, VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
AND NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO)
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
- -------------- --------
<S> <C> <C>
PART A PROSPECTUS
1. Cover page . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expense Table
3. Condensed Financial Information . . . . . . . . . . . . . . . . . Financial Highlights
4. General Description of Registrant . . . . . . . . . . . . . . . . Cover Page; Investment
Policies;
Description of
Shares
5. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . Management
6. Capital Stock and Other Securities . . . . . . . . . . . . . . . . Cover Page; Dividends
and Distributions;
Description of
Shares
7. Purchase of Securities Being Offered . . . . . . . . . . . . . . . Purchase and Redemption
of Shares;
Dividends and Distributions
Net Asset Value
8. Redemption or Repurchase . . . . . . . . . . . . . . . . . . . . . Purchase and Redemption
of Shares -
Redemption of
Shares
9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 4
THE MONEY MARKET PORTFOLIOS
INVESTOR CLASS
(JANNEY MONTGOMERY SCOTT, SERVICE ORGANIZATION)
The PNC(R) Fund (the "Fund") consists of twenty-six investment portfolios.
This Prospectus relates to five of those portfolios (collectively, the
"Portfolios") which are being offered under this Prospectus to investors
establishing accounts through Janney Montgomery Scott with the following
objectives:
OHIO MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from Ohio
income tax as is consistent with maintaining liquidity and stability of
principal. It pursues this objective by investing primarily in short-term
municipal obligations issued by the State of Ohio and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("Ohio Municipal Obligations").
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level
of current income exempt from Federal and, to the extent possible, from
Pennsylvania income tax as is consistent with maintaining liquidity and
stability of principal. It pursues this objective by investing primarily in
short-term municipal obligations issued by the Commonwealth of Pennsylvania
and its political subdivisions, agencies, instrumentalities and authorities
and tax-exempt derivative securities relating thereto ("Pennsylvania
Municipal Obligations").
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level
of current interest income exempt from Federal and, to the extent possible,
from North Carolina income tax as is consistent with maintaining liquidity
and stability of principal. It pursues this objective by investing primarily
in short-term municipal obligations issued by the State of North Carolina
and its political subdivisions, agencies, instrumentalities and authorities
and tax-exempt derivative securities relating thereto ("North Carolina
Municipal Obligations").
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from
Virginia income tax as is consistent with maintaining liquidity and
stability of principal. It pursues this objective by investing primarily in
short-term municipal obligations issued by the Commonwealth of Virginia and
its political sub-divisions, agencies, instrumentalities and authorities and
tax-exempt derivative securities relating thereto ("Virginia Municipal
Obligations").
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from New
Jersey income tax as is consistent with maintaining liquidity and stability
of principal. It pursues this objective by investing primarily in short-term
municipal obligations issued by the State of New Jersey and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("New Jersey Municipal Obligations").
This Prospectus relates to Series A Investor Shares ("Series A Shares" or
"Shares") representing interests in each Portfolio. Series A Shares of the
Portfolios are sold and redeemed at net asset value without any purchase or
redemption charge imposed by the Fund. Series A Shares of the Ohio Municipal
Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal
Money Market, Virginia Municipal Money Market and New Jersey Municipal Money
Market Portfolios are intended for residents of Ohio, Pennsylvania, North
Carolina, Virginia and New Jersey, respectively.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated July 24, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800)422-6538. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS July 24, 1995
(as revised on October 5, 1995)
<PAGE> 5
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
NORTH NEW
OHIO PENNSYLVANIA CAROLINA VIRGINIA JERSEY
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ --------- --------- ---------
SERIES A SERIES A SERIES A SERIES A SERIES A
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Advisory fees(1).................................. .06% .06% .06% .05% .05%
12b-1 fees(2)..................................... .50 .50 .50 .50 .50
Other operating expenses.......................... .29 .29 .29 .30 .30
--- ----- --- --- ---
Administration fees(1).......................... .10 .12 .05 .02 .02
Other expenses(1)............................... .19 .17 .24 .28 .28
--- --- --- --- ---
Total operating expenses.......................... .85% .85% .85% .85% .85%
=== === === === ===
</TABLE>
- ------------------
(1) Advisory fees are net of waivers of .39%, .39%, .39%, .40% and .40% and
administration fees are net of waivers of .05%, .03%, .10% .13% and .13% for
the Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Virginia Municipal Money Market and New
Jersey Municipal Money Market Portfolios, respectively. The investment
adviser and the administrators are under no obligation to waive or continue
waiving such fees, but have informed the Fund that they expect to waive or
continue waiving such fees as necessary to maintain the Portfolios' total
operating expenses during the current fiscal year at the levels set forth in
the table. The expenses noted above under "Other expenses" are estimated
based on the level of such expenses for the Fund's most recent fiscal year.
Securities dealers, financial institutions and other industry professionals
may charge their clients additional fees for account services.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Ohio Municipal Money Market Portfolio........ $9 $27 $ 47 $ 105
Pennsylvania Municipal Money Market
Portfolio.................................. 9 27 47 105
North Carolina Municipal Money Market
Portfolio.................................. 9 27 47 105
Virginia Municipal Money Market Portfolio.... 9 27 47 105
New Jersey Municipal Money Market
Portfolio.................................. 9 27 N/A N/A
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolios will pay. Investors bear these
expenses since they reduce the amount of income paid by the Portfolios to
investors as dividends. The information in the table for the Ohio Municipal
Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal
Money Market and Virginia Municipal Money Market Portfolios is based on the
advisory fees, administration fees and other expenses payable after fee waivers
by the particular Portfolio for the fiscal year ended September 30, 1994, as
restated to reflect 12b-1 fees borne by Investor Shares and to reflect revised
fee waivers. The table estimates fees, expenses, waivers and assets for the New
Jersey Municipal Money Market Portfolio for the current fiscal year. Total
operating expenses would have been 1.29%, 1.27%, 1.34%, 1.38% and 1.38% for
Series A Investor Shares of the Ohio Municipal Money Market, Pennsylvania
Municipal Money Market, North Carolina Municipal Money Market, Virginia
Municipal Money Market and New Jersey Municipal Money Market Portfolios,
respectively, without such fee waivers. See Footnote 1 to the Expense Table,
"Financial Highlights--Background", "Management", "Distribution of Shares" and
"Description of Shares" for a further description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 6
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in each
Portfolio--Service, Series A Investor and Institutional Shares. The shares of
each class in a Portfolio represent equal pro rata interests in such Portfolio,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Under the Fund's Service Plan, Service
Shares bear the expense of fees at an annual rate not to exceed .15% of the
average daily net asset value of each Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of each Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Description of Shares" for a description of the Service Plan
and shareholder support activities. Series A Investor Shares bear the expense of
the Fund's Distribution and Service Plan at an annual rate not to exceed .55% of
the average daily net asset value of each Portfolio's outstanding Series A
Investor Shares. See "Distribution of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
During periods in which fees relating to the Service Plan and shareholder
support activities and to the Distribution and Service Plan were not charged to
a Portfolio's Service Shares or Series A Investor Shares, respectively, the
financial data in the tables below pertaining to Service Shares or Series A
Investor Shares of such Portfolio are identical to the financial data relating
to Institutional Shares of the Portfolio for such periods or to what such
financial data would have been had Institutional Shares in the Portfolio been
outstanding for such periods (except, in each case, for the number of Service
and Series A Investor Shares outstanding).
The SEC requires that this Prospectus contain Financial Highlights for each
class of each Portfolio described herein. Because the public offering of Series
A Investor Shares of the Virginia Municipal Money Market Portfolio had not
commenced during the six month period ended March 31, 1995, the tables below
present only information pertaining to Service Shares and Institutional Shares
of the Virginia Municipal Money Market Portfolio. No shares of the New Jersey
Municipal Money Market Portfolio were issued prior to the date of this
Prospectus.
Except for the financial data relating to the six month period ended March
31, 1995, the financial data included in the tables below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolios is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
3
<PAGE> 7
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
------------------------------------- ------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 6/10/93(1) ENDED YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94
----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- --------
Income from investment operations
Net investment income............................... 0.0174 0.0252 0.0073 0.0159 0.0225
Net realized gain (loss) on investments............. -- -- -- -- --
----------- -------- -------- ----------- --------
Total from investment operations................ 0.0174 0.0252 0.0073 0.0159 0.0225
----------- -------- -------- ----------- --------
Less distributions
Distributions from net investment income............ (0.0174) (0.0252) (0.0073) (0.0159) (0.0225)
Distributions from net realized capital gains....... -- -- -- -- --
----------- -------- -------- ----------- --------
Total distributions............................. (0.0174) (0.0252) (0.0073) (0.0159) (0.0225)
----------- -------- -------- ----------- --------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= ========== =========
Total return........................................... 1.76% 2.55% 0.73% 1.60% 2.27%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 12,191 $ 10,521 $ 12,026 $ 47,993 $ 44,066
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.25%(2) 0.13% 0.10%(2) 0.55%(2) 0.40%
Before advisory/administration fee waivers........ 0.73%(2) 0.77% 0.83%(2) 1.03%(2) 1.04%
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 3.54%(2) 2.56% 2.45%(2) 3.21%(2) 2.29%
Before advisory/administration fee waivers........ 3.06%(2) 1.93% 1.72%(2) 2.74%(2) 1.65%
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
-------------------------------------
SERIES A
SERVICE INVESTOR
CLASS CLASS
------- ------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
6/1/93(1) ENDED 10/5/93(1)
THROUGH 3/31/95 THROUGH
9/30/93 (UNAUDITED) 9/30/94
-------- ----------- --------
<S> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00
-------- ----------- --------
Income from investment operations
Net investment income............................... 0.0074 0.0150 0.0199
Net realized gain (loss) on investments............. -- -- --
-------- ----------- --------
Total from investment operations................ 0.0074 0.0150 0.0199
-------- ----------- --------
Less distributions
Distributions from net investment income............ (0.0074) (0.0150) (0.0199)
Distributions from net realized capital gains....... -- -- --
-------- ----------- --------
Total distributions............................. (0.0074) (0.0150) (0.0199)
-------- ----------- --------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00
========= ========== =========
Total return........................................... 0.75% 1.50% 2.01%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 15,239 $ 5 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.23%(2) 0.75%(2) 0.62%(2)
Before advisory/administration fee waivers........ 0.96%(2) 1.22%(2) 1.26%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 2.23%(2) 2.94%(2) 1.94%(2)
Before advisory/administration fee waivers........ 1.50%(2) 2.47%(2) 1.30%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 8
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
------------------------------------- ------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 6/1/93(1) ENDED YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94
----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- --------
Income from investment operations
Net investment income............................... 0.0170 0.0247 0.0078 0.0156 0.0221
Net realized gain (loss) on investments............. -- -- -- -- --
----------- -------- -------- ----------- --------
Total from investment operations................ 0.0170 0.0247 0.0078 0.0156 0.0221
----------- -------- -------- ----------- --------
Less distributions
Distributions from net investment income............ (0.0170) (0.0247) (0.0078) (0.0156) (0.0221)
Distributions from net realized capital gains....... -- -- -- -- --
----------- -------- -------- ----------- --------
Total distributions............................. (0.0170) (0.0247) (0.0078) (0.0156) (0.0221)
----------- -------- -------- ----------- --------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= ========== =========
Total return........................................... 1.72% 2.49% 0.78% 1.57% 2.24%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 187,858 $158,102 $ 2,242 $ 137,297 $ 60,560
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.25%(2) 0.16% 0.09%(2) 0.55%(2) 0.42%
Before advisory/administration fee waivers........ 0.66%(2) 0.73% 0.97%(2) 0.96%(2) 0.99%
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 3.41%(2) 2.64% 2.15%(2) 3.17%(2) 2.31%
Before advisory/administration fee waivers........ 3.00%(2) 2.07% 1.27%(2) 2.76%(2) 1.75%
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------
SERIES A
SERVICE CLASS INVESTOR CLASS
------------- -------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
6/11/93(1) ENDED 12/28/93(1)
THROUGH 3/31/95 THROUGH
9/30/93 (UNAUDITED) 9/30/94
-------- ----------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00
-------- ----------- ---------
Income from investment operations
Net investment income............................... 0.0074 0.0146 0.0153
Net realized gain (loss) on investments............. -- -- --
-------- ----------- ---------
Total from investment operations................ 0.0074 0.0146 0.0153
-------- ----------- ---------
Less distributions
Distributions from net investment income............ (0.0074) (0.0146) (0.0153)
Distributions from net realized capital gains....... -- -- --
-------- ----------- ---------
Total distributions............................. (0.0074) (0.0146) (0.0153)
-------- ----------- ---------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00
========= ========== =========
Total return........................................... 0.74% 1.47% 1.58%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 8,919 $ 105 $ 139
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.32%(2) 0.75%(2) 0.65%(2)
Before advisory/administration fee waivers........ 1.20%(2) 1.16%(2) 1.22%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 2.42%(2) 2.91%(2) 2.11%(2)
Before advisory/administration fee waivers........ 1.54%(2) 2.50%(2) 1.54%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
5
<PAGE> 9
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SERIES A
CLASS CLASS CLASS
------------------------------------- ------------------------ -----------
FOR THE FOR THE
FOR THE FOR THE PERIOD FOR THE PERIOD
SIX MONTHS PERIOD 11/01/94(4) PERIOD 2/14/95(1)
ENDED YEAR 5/4/93(1) THROUGH 4/29/94(1) THROUGH
3/31/95 ENDED THROUGH 3/31/95 THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 (UNAUDITED)
----------- -------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- -----------
Income from investment operations
Net investment income........... 0.0174 0.0249 0.0097 0.0135 0.0099 0.0041
Net realized gain (loss)
on investments................ -- -- -- -- -- --
----------- -------- -------- ----------- -------- -----------
Total from investment
operations................. 0.0174 0.0249 0.0097 0.0135 0.0099 0.0041
----------- -------- -------- ----------- -------- -----------
Less distributions
Distributions from net
investment income............. (0.0174) (0.0249) (0.0097) (0.0135) (0.0099) (0.0041)
Distributions from net realized
capital gains................. -- -- -- -- -- --
----------- -------- -------- ----------- -------- -----------
Total distributions......... (0.0174) (0.0249) (0.0097) (0.0135) (0.0099) (0.0041)
----------- -------- -------- ----------- -------- -----------
Net asset value at end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= ========== ========= ==========
Total return....................... 1.75% 2.52% 0.97% 1.35% 0.99% 0.41%
Ratios/Supplemental data
Net assets at end of period
(in thousands)................ $ 118,224 $ 69,673 $ 34,135 $ 406 $ --(3) $ 3
Ratios of expenses to average
net assets
After advisory/administration
fee waivers................. 0.16%(2) 0.10% 0.10%(2) 0.53%(2) 0.36%(2) 0.66%(2)
Before advisory/administration
fee waivers................. 0.71%(2) 0.76% 0.81%(2) 1.19%(2) 1.02%(2) 2.99%(2)
Ratios of net investment income
to
average net assets
After advisory/administration
fee waivers................. 3.52%(2) 2.53% 2.35%(2) 3.30%(2) 2.54%(2) 3.32%(2)
Before advisory/administration
fee waivers................. 2.97%(2) 1.87% 1.64%(2) 2.64%(2) 1.87%(2) 1.00%(2)
<CAPTION>
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
---------------------------------- -----------
FOR THE
FOR THE FOR THE PERIOD
SIX MONTHS PERIOD 10/11/94(1)
ENDED 7/25/94(1) THROUGH
3/31/95 THROUGH 3/31/95
(UNAUDITED) 9/30/94 (UNAUDITED)
----------- ------------------ -----------
<S> <C> <C> <C>
Net asset value at beginning of
period............................ $ 1.00 $ 1.00 $ 1.00
----------- ------- -----------
Income from investment operations
Net investment income........... 0.0171 0.0053 0.0149
Net realized gain (loss)
on investments................ -- -- --
----------- ------- -----------
Total from investment
operations................. 0.0171 0.0053 0.0149
----------- ------- -----------
Less distributions
Distributions from net
investment income............. (0.0171) (0.0053) (0.0149)
Distributions from net realized
capital gains................. -- -- --
----------- ------- -----------
Total distributions......... (0.0171) (0.0053) (0.0149)
----------- ------- -----------
Net asset value at end of period... $ 1.00 $ 1.00 $ 1.00
========== =============== ==========
Total return....................... 1.72% 0.53% 1.50%
Ratios/Supplemental data
Net assets at end of period
(in thousands)................ $ 18,634 $ 13,831 $ 400
Ratios of expenses to average
net assets
After advisory/administration
fee waivers................. 0.10%(2) 0.10%(2) 0.40%(2)
Before advisory/administration
fee waivers................. 0.70%(2) 1.02%(2) 1.00%(2)
Ratios of net investment income
to
average net assets
After advisory/administration
fee waivers................. 3.44%(2) 2.89%(2) 3.23%(2)
Before advisory/administration
fee waivers................. 2.84%(2) 1.97%(2) 2.63%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
(4) Reissuance of shares.
6
<PAGE> 10
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Ohio Municipal Obligations. The
Portfolio may also invest in short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Common Investment Policies" for a description of Municipal
Obligations. Portfolio obligations held by the Portfolio will have maturities of
13 months or less as determined in accordance with the rules of the SEC.
The concentration of investments in Ohio Municipal Obligations raises
special investment considerations. While diversifying more into the service and
other non-manufacturing areas, the economy of Ohio continues to rely in part on
durable goods manufacturing largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. As a result, general
economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture is an important segment of the Ohio economy, with over half the
State's area devoted to farming and approximately 15% of total employment in
agribusiness. In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the national figure of 5.5%. However,
for the last four years the State rates were below the national rates (5.5%
versus 6.1% in 1994). The unemployment rate and its effects vary among
particular geographic areas of the State. There can be no assurance that future
national, regional or state-wide economic difficulties and the resulting impact
on State or local government finances generally will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of particular obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "Investment Policies--Common Investment
Policies" for a description of other securities in which the Portfolio may
invest.
------------------------------------
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Pennsylvania Municipal Obligations.
The Portfolio may also invest in Municipal Obligations (including related
tax-exempt derivative securities). See "Common Investment Policies" for a
description of Municipal Obligations. Portfolio obligations held by the
Portfolio will have maturities of 13 months or less as determined in accordance
with the rules of the SEC.
The concentration of investments in Pennsylvania Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of the Commonwealth of Pennsylvania and its
political subdivisions, agencies, instrumentalities and authorities could
adversely affect the value of the Portfolio and its portfolio securities.
Although the General Fund of the Commonwealth (the principal operating fund of
the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax increases
and spending decreases helped return the General Fund balance to a surplus at
June 30, 1992 of $87.5 million and at June 30, 1993 of $698.9 million. The
deficit in the Commonwealth's unreserved/undesignated funds of prior years also
was reversed to a surplus of $64.4 million as of June 30, 1993. Rising
unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates place
increased pressures on the tax resources of the
7
<PAGE> 11
Commonwealth and its municipalities. See the Statement of Additional Information
for further discussion of investment considerations associated with Pennsylvania
Municipal Obligations and see "Investment Policies--Common Investment Policies"
for a description of other investment policies.
------------------------------------
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in North Carolina Municipal
Obligations. The Portfolio may also invest in Municipal Obligations (including
related tax-exempt derivative securities). See "Common Investment Policies" for
a description of Municipal Obligations. Portfolio obligations held by the
Portfolio will have maturities of 13 months or less as determined in accordance
with the rules of the SEC.
The concentration of investments in North Carolina Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities and authorities could adversely affect
the value of the Portfolio and its portfolio securities. Growth of North
Carolina tax revenues slowed considerably during fiscal 1990-92 requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in the timing of certain collections and payments,
and other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993 and
1994, however, ended with a positive General Fund balance of approximately $500
million each year on a budgetary basis. By law, 25% of such positive fund
balance was required to be reserved in the General Fund of North Carolina as
part of a "Savings Reserve" (subject to a maximum reserve of 5% of the preceding
fiscal year's operating appropriation). An additional portion of such positive
fund balance was reserved in the General Fund as part of a "Reserve For Repair
and Renovation of State Facilities," leaving the remaining unrestricted fund
balance at the end of each such year available for future appropriations. See
the Statement of Additional Information for further discussion of investment
considerations associated with North Carolina Municipal Obligations and see
"Investment Policies--Common Investment Policies" for a description of other
investment policies of the Portfolio.
------------------------------------
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Virginia Municipal Obligations. The
Portfolio may also invest in Municipal Obligations (including related tax-exempt
derivative securities). See "Common Investment Policies" for a description of
Municipal Obligations. Instruments held by the Portfolio will have maturities of
13 months or less as determined in accordance with the rules of the SEC.
The Portfolio may also purchase obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government are backed by the full
faith and credit of the United States. Others are backed by the right of the
issuer to borrow from the U.S. Treasury or are backed only by the credit of the
agency or instrumentality issuing the obligation. No assurance can be given that
the U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the taxing,
8
<PAGE> 12
revenue-collecting and spending authority of Virginia issuers or otherwise
affect the ability of Virginia issuers to pay interest, repay principal, or any
premium. Certain of these developments are described herein. Due to Virginia's
proximity to Washington, D.C. and the concentration of military installations in
Northern Virginia and the Tidewater area, Federal government spending is an
important factor in Virginia's economy. The Federal government has a greater
impact on Virginia relative to its size than any other state except Alaska and
Hawaii. While Federal employment in 1992 accounted for 10.0% of Virginia's
personal income (compared with a national average of 3.3% in that year), it
ranked behind services (19.7%), wholesale and retail trade (10.6%) and
manufacturing (10.5%). The Commonwealth experienced a decrease in its General
Fund balances from fiscal 1989 to fiscal 1990 and again from fiscal 1990 to
fiscal 1991, reflecting the effects of a nationwide recession and increasing
expenditures. General Fund balances have increased since fiscal 1991. In fiscal
1994, revenues increased 6.0% from the previous year, while total expenditures
increased by 4.5%. Revenues exceeded expenditures by $731.2 million, an increase
of 20% over fiscal 1993. See "Special Consideration Regarding Investment in
Virginia Municipal Obligations" in the Statement of Additional Information. See
also "Investment Policies--Common Investment Policies" for a description of
other investment policies.
------------------------------------
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in New Jersey Municipal Obligations.
The Portfolio may also invest in Municipal Obligations (including related
tax-exempt derivative securities). See "Common Investment Policies" for a
description of Municipal Obligations. Portfolio obligations held by the
Portfolio will have maturities of 13 months or less as determined in accordance
with the rules of the SEC.
The concentration of investments by the New Jersey Municipal Money Market
Portfolio in New Jersey Municipal Obligations raises special investment
considerations. The State of New Jersey generally has a diversified economic
base consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is a major recipient of Federal
assistance and, of all the states, is among the highest in the amount of Federal
aid received. Therefore, a decrease in Federal financial assistance may
adversely affect the financial condition of New Jersey and its political
subdivisions and instrumentalities. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and the ability of New Jersey and
its political subdivisions and instrumentalities to meet their financial
obligations. In addition, because New Jersey maintains a balanced budget which
restricts total appropriation increases to only 5% annually with respect to any
municipality or county, the balanced budget plan may actually adversely affect a
particular municipality's or county's ability to repay its obligations. See the
Statement of Additional Information for further discussion of investment
considerations associated with New Jersey Municipal Obligations and see
"Investment Policies--Common Investment Policies" for a description of other
securities in which the Portfolio may invest.
9
<PAGE> 13
------------------------------------
COMMON INVESTMENT POLICIES
This section describes certain investment policies that are common to the
Portfolios. Each Portfolio's investment objective and policies may be changed by
the Board of Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. Each Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in an
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds in unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit a
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. Each Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolios
do not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of their investment objectives.
10
<PAGE> 14
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, each Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by a Portfolio within the limits prescribed by the 1940 Act.
Each Portfolio currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio or by the Fund as a whole. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory fees and other expenses the Portfolio bears directly in connection with
its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit a Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the particular Portfolio, and
will be determined to present minimal credit risks by the adviser. The absence
of an active secondary market with respect to particular variable and floating
rate instruments, however, could make it difficult for a Portfolio to dispose of
a variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when a Portfolio is not entitled to exercise its
demand rights, and a Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. Each Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolios from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases of such opinions.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. Each Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of a Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of
the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. Each Portfolio may
purchase securities which are not registered under the 1933 Act but which can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by the adviser or sub-adviser, acting under guidelines approved and
11
<PAGE> 15
monitored by the Board, that an adequate trading market exists for that
particular security. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio during any period that
qualified institutional buyers become uninterested in purchasing these
restricted securities.
OTHER INFORMATION ON INVESTMENTS. During normal market conditions, up to
20% of each Portfolio's net assets may be invested in securities which are not
Municipal Obligations and at least 65% of the total net assets of each of Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal
Money Market Portfolios will be invested in Ohio, Pennsylvania, North Carolina,
Virginia and New Jersey Municipal Obligations, respectively. During temporary
defensive periods, each Portfolio may invest without limitation in obligations
which are not Municipal Obligations and may hold without limitation uninvested
cash reserves. Such securities may include, without limitation, bonds, notes,
variable rate demand notes and commercial paper, provided such securities are
rated within the relevant categories applicable to Municipal Obligations set
forth above, or if unrated, are of comparable quality as determined by the
adviser or sub-adviser, and may also include, without limitation, other debt
obligations, such as bank obligations. Each Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held by it. Under a stand-by
commitment, a dealer agrees to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. Each Portfolio will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
Each Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent a
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. Each Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. The amount of information regarding
the financial condition of issuers of Municipal Obligations may not be as
extensive as that which is made available by public corporations, and the
secondary market for Municipal Obligations may be less liquid than that for
taxable obligations. Accordingly, the ability of a Portfolio to buy and sell
tax-exempt securities may, at any particular time and with respect to any
particular securities, be limited.
The Portfolios are classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolios may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolios may use are described in an Appendix to the Statement of
Additional Information.
12
<PAGE> 16
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
Each Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed as to a Portfolio except upon the
affirmative vote of the holders of a majority of the Portfolio's outstanding
shares.
1. No Portfolio may borrow money or issue senior securities, except
that each Portfolio may borrow from banks for temporary purposes in amounts
up to one-third of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of such
borrowing. No Portfolio will purchase securities while its aggregate
borrowings (including borrowings from banks) in excess of 5% of its total
assets are outstanding. Securities held in escrow or separate accounts in
connection with a Portfolio's investment practices are not deemed to be
pledged for purposes of this limitation.
2. In addition, each Portfolio may not purchase securities which would
cause 25% or more of the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no limitation
with respect to the purchase of (a) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (b) instruments issued by
domestic banks (which may include U.S. branches of foreign banks); (ii)
wholly-owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the
activities of the parents; and (iii) utilities will be divided according to
their services, for example, gas, gas transmission, electric and gas,
electric and telephone will be each considered a separate industry. For
purposes of this limitation, a security is considered to be issued by the
entity (or entities) whose assets and revenues back the security.
3. Each Portfolio will invest at least 80% of its net assets in AMT
Paper and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by a Portfolio that exceeds the fundamental investment
restrictions stated above must be reduced to meet such restrictions within the
period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolios, see the Fund's Statement of Additional Information.
13
<PAGE> 17
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
The following procedures are only applicable to purchases of Shares by
investors establishing accounts through Janney Montgomery Scott ("JMS") and its
affiliates. Other investors should refer to the Fund's regular Prospectus for
information on purchasing Shares.
INTRODUCTION
Series A Shares are sold to the public and to Service Organizations (as
defined below) acting on behalf of their customers. See "Distribution of
Shares." JMS will act as Service Organization for its customers and customers of
its affiliates with respect to all Shares offered by this Prospectus.
Series A Shares in the Portfolios may be purchased without a sales load
through an account maintained by the investor with JMS or its affiliate (a "JMS
Account") in accordance with procedures established in connection with the
requirements of the JMS Account. All purchase orders are transmitted by JMS
directly to PFPC Inc. ("PFPC"), the Fund's transfer agent.
PURCHASES THROUGH A JMS ACCOUNT. Purchases of Shares may be effected
through an investor's JMS Account through procedures established in connection
with the requirements of the JMS Account. In such event, beneficial ownership of
the Shares will be recorded by JMS and will be reflected in the account
statements provided by JMS to such investors. JMS may impose minimum investor
account requirements. Although JMS does not impose a sales charge for purchases
of Shares, depending on the terms of an investor's JMS Account, JMS may charge
an investor's JMS Account fees for automatic investment and other services
provided to the JMS Account. Information concerning JMS Account requirements,
services and charges should be obtained from JMS. This Prospectus should be read
in conjunction with any information received from JMS.
JMS may offer investors the ability to purchase Shares under an automatic
purchase program (a "Purchase Program") established by it. An investor who
participates in a Purchase Program will have his "free-credit" cash balances in
his JMS Account automatically invested in Shares designated by the investor as
the "Primary Janney Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement may be established by JMS and
the Fund. In addition, JMS may require a minimum amount of cash and/or
securities to be deposited in a JMS Account for participants in its Purchase
Program. The description of the particular JMS's Purchase Program should be read
for details, and any inquiries concerning a JMS Account under a Purchase Program
should be directed to JMS. A participant in a Purchase Program may change the
designation of the Primary Janney Class at any time by so instructing JMS.
If JMS makes special arrangements under which orders for Shares are
received by PFPC prior to 12:00 noon Eastern Time, and JMS guarantees that
payment for such Shares will be made in Federal Funds to the Fund's custodian
prior to 4:00 p.m. Eastern Time on the same day, such purchase orders will be
effective and Shares will be purchased at the offering price in effect as of
12:00 noon Eastern Time on the date the purchase order is received by PFPC.
GENERAL
Investor Shares may be purchased on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business.
Series A Shares are sold at the net asset value per share of the Portfolios
next computed after an order is received by PFPC. It is the responsibility of
JMS to transmit orders received by it from investors to the Fund's transfer
agent in a timely manner.
14
<PAGE> 18
Purchase orders for shares of each Portfolio that are received by PFPC
before noon will be executed at noon. If payment for such orders is not received
by PFPC by 4:00 p.m., the order will be cancelled and notice thereof will be
given to JMS. Orders received by PFPC after 12:00 noon will not be accepted. The
Fund may in its discretion reject any order for shares.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
The following procedures are only applicable to redemptions of Shares by
investors owning Shares through a JMS Account. Other investors should refer to
the Fund's regular Prospectus for information on redeeming Shares.
REDEMPTION OF SHARES IN A JMS ACCOUNT
Investors owning Shares through a JMS Account may redeem some or all of
their Shares of the Portfolios in accordance with the procedures pertaining to
their JMS Accounts at any time. To do so, a written request in proper form must
be sent to JMS by mail at Janney Montgomery Scott, 1801 Market Street,
Philadelphia, PA 19103-1675. It is the responsibility of JMS to transmit
redemption orders to PFPC and to credit its customers' JMS Accounts with the
redemption proceeds on a timely basis. There is no charge for a redemption.
JMS will also redeem each day a sufficient number of Shares to cover debit
balances created by transactions in the JMS Accounts or instructions for cash
disbursements. Shares will be redeemed on the same day that a transaction occurs
that results in such a debit balance or charge.
JMS reserves the right to waive or modify criteria for participation in a
JMS Account or to terminate participation in a JMS Account for any reason.
PAYMENT OF REDEMPTION PROCEEDS
The redemption price for Series A Shares of a Portfolio is the net asset
value per share of the Portfolio next determined after the request for
redemption is transmitted by JMS and received in proper form by The PNC Fund c/o
PFPC. While the Fund intends to use its best efforts to maintain each
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending on a Share's
net asset value at the time of redemption. See "Description of Shares."
Payment for Shares redeemed is made by check mailed within seven days after
acceptance by PFPC of the request and any other necessary documents in proper
order. Such payment may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the Shares to be redeemed have been
recently purchased by check, payment of redemption proceeds may be delayed for a
period of up to 15 days after the purchase date, pending a determination that
the check has cleared.
INVESTOR PROGRAMS
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EXCHANGE PRIVILEGE
The SEC requires that this Prospectus disclose the exchange privilege
applicable to Investor Shares. The exchange privilege is not available to
investors owning Shares through JMS Accounts. After appropriate authorization, a
shareholder may exchange Shares of a Portfolio for Investor Shares of any other
investment portfolio of the Fund at the net asset value per share of each class
of shares next determined after the transfer agent's receipt of a request for an
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<PAGE> 19
exchange, plus any applicable sales charge. Unless an exception applies, a
front-end sales charge or a contingent deferred sales charge will be charged in
connection with exchanges of Shares for Series A Investor Shares and Series B
Investor Shares, respectively, of the Fund's non-money market portfolios. See
"Description of Shares." No exchange fee is imposed by the Fund.
Shareholders who wish to exchange Series A Shares of a Portfolio for
Investor Shares of a non-money market investment portfolio of the Fund may
choose between Series A Investor Shares and Series B Investor Shares. Series A
Investor Shares of a portfolio are sold at the net asset value for Series A
Investor Shares of the portfolio plus the applicable front-end sales charge.
Series A Investor Shares of the Fund's non-money market portfolios bear the
expense of payments under the Distribution and Service Plan at an annual rate
not to exceed .55% of the average daily net asset value of each portfolio's
outstanding Series A Investor Shares. See "Distribution of Shares." Series B
Investor Shares of a portfolio are sold at the net asset value for Series B
Investor Shares of the portfolio. A deferred sales charge is deducted if Series
B Investor Shares are redeemed within six years of purchase. The deferred sales
charge deducted upon the redemption of Series B Investor Shares decreases over
time. Series B Investor Shares of the Fund's non-money market portfolios bear
the expense of payments under the Series B Distribution Plan at an annual rate
not to exceed .75% of the average daily net asset value of each portfolio's
outstanding Series B Investor Shares. Series B Investor Shares of the Fund's
non-money market portfolios also bear the expense of the Series B Service Plan
at an annual rate not to exceed .25% of each portfolio's outstanding Series B
Investor Shares. See "Distribution of Shares," "Shareholder Servicing" and
"Description of Shares." Shareholders should read the prospectus for the
non-money market portfolios of the Fund before exchanging Shares of a Portfolio
for Series A Investor Shares or Series B Investor Shares of a non-money market
portfolio. The public offering of Series B Investor Shares in certain investment
portfolios of the Fund may not commence on the date of this Prospectus.
Prospectuses for the other portfolios of the Fund and information on the
availability of Series B Investor Shares of such portfolios can be obtained by
calling the Fund's Distributor at (800) 422-6538.
If the exchanging shareholder does not currently own shares of the
investment portfolio whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
dealer of record as the account from which shares are exchanged, unless
otherwise specified in writing by the shareholder with all signatures guaranteed
by an eligible guarantor institution as defined above. In order to participate
in the automatic investment program or establish a systematic withdrawal plan
for the new account, however, an exchanging shareholder must file a specific
written request. The exchange privilege may be modified or terminated at any
time, or from time to time, by the Fund on 60 days' notice to affected Portfolio
shareholders. THE FUND, PFPC AND PDI WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY,
COST OR EXPENSE FOR ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY
BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE
GENUINE, THE FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE,
INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT
REGISTRATION (SUCH AS THE NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT
NUMBER, RECENT TRANSACTIONS IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL
SECURITY NUMBER, ADDRESS AND/OR BANK).
In establishing a new account by exchange, the dollar value of shares
acquired must equal or exceed the investment portfolio's minimum for a new
account; if making an exchange to an existing account, the dollar value must
equal or exceed the Fund's minimum for subsequent investments. If any amount
remains in the investment portfolio from which the exchange is being made, such
amount must not drop below the minimum account value required by the Fund.
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<PAGE> 20
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Investor Share of each Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. Each Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of each Portfolio is determined
independently of the other Portfolios.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values their
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under "Valuation of
Shares." There can be no assurance that net asset value per share will not vary.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and each Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), an indirect wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank
serves as the sub-adviser for each of the Portfolios. PNC Bank, whose principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19107, is a subsidiary of PNC Bank Corp. PNC Bank Corp. is a multi-bank holding
company.
As adviser, PIMC is responsible for the overall investment management of
each Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolios. PNC Bank, as sub-adviser for each of
the Portfolios, provides research and credit analysis and certain other
services. In entering into portfolio transactions for a Portfolio with a
broker/dealer, the investment adviser and sub-adviser may take into account the
sale by such broker/dealer of shares of the Fund, subject to the requirements of
best execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolios, PIMC is entitled to receive from each Portfolio a fee, computed
daily and payable monthly, at an annual rate of .45% of the first $1 billion of
each Portfolio's average daily net assets, .40% of the next $1 billion of each
Portfolio's average daily net assets, .375% of the next $1 billion of each
Portfolio's average daily net assets and .35% of the average daily net assets of
each Portfolio in excess of $3 billion. The Fund paid PIMC advisory fees at
annual rates of .44% and .40% of the average daily net assets of the Ohio
Municipal Money Market and Pennsylvania Municipal Money Market Portfolios,
respectively, for the year ended September 30, 1994, and PIMC waived advisory
fees at the annual rates of .01% and .05% of the average
17
<PAGE> 21
daily net assets of such respective Portfolios for that year. For the year ended
September 30, 1994, PIMC waived all advisory fees with respect to the North
Carolina Municipal Money Market Portfolio. For the period ended September 30,
1994, PIMC waived all advisory fees with respect to the Virginia Municipal Money
Market Portfolio. During the same periods, PIMC reimbursed expenses at the
annual rates of .04%, .02%, .05% and .24% of the average daily net assets of the
Pennsylvania Municipal Money Market, Ohio Municipal Money Market, North Carolina
Municipal Money Market and Virginia Municipal Money Market Portfolios,
respectively. See "Management--Expenses" for a discussion of PIMC's voluntary
fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of each Portfolio. Such sub-advisory fees have no
effect on the advisory fees payable by each Portfolio to PIMC. For the year
ended September 30, 1994, PNC Bank waived all sub-advisory fees with respect to
the Ohio Municipal Money Market, Pennsylvania Municipal Money Market and North
Carolina Municipal Money Market Portfolios. For the period ended September 30,
1994, PNC Bank waived all sub-advisory fees for the Virginia Municipal Money
Market Portfolio. See "Management--Expenses" for a discussion of the
sub-adviser's fee waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809, and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of each
Portfolio's average daily net assets, .13% of the next $500 million of each
Portfolio's average daily net assets, .11% of the next $1 billion of each
Portfolio's average daily net assets and .10% of each Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at the annual rates of .01% and .01% of the average daily
net assets of the Ohio Municipal Money Market and Pennsylvania Municipal Money
Market Portfolios, respectively, for the year ended September 30, 1994, and the
Administrators waived combined administration fees at the annual rates of .14%
and .14% of the average daily net assets of such respective Portfolios for that
year. The Administrators waived all combined administration fees with respect to
the North Carolina Municipal Money Market Portfolio for the year ended September
30, 1994. The Administrators waived all combined administration fees with
respect to the Virginia Municipal Money Market Portfolio for the period ended
September 30, 1994. During the same periods, the Administrators reimbursed
expenses at the annual rates of .01%, .01%, .02% and .08% of the average daily
net assets of the Ohio Municipal Money Market, Pennsylvania Municipal Money
Market, North Carolina Municipal Money Market and Virginia Municipal Money
Market Portfolios, respectively. See "Management--Expenses" for a discussion of
the Administrators' voluntary fee waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
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<PAGE> 22
------------------------------------
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio (such
as Series A 12b-1 fees for Series A Investor Shares) will be borne solely by
such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by any
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC and PFPC are subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Investor Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Investor
Shares. It is not anticipated, however, that any such change would affect a
Portfolio's net asset value per share or result in a financial loss to any
investor.
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<PAGE> 23
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Shares of each Portfolio are offered on a continuous basis by the
Distributor. The Distributor is a registered broker/dealer with principal
offices at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund's Board of Trustees has adopted a Distribution and Service Plan
("the Plan") for Series A Shares.
Under the Plan the Distributor is entitled to payments by each Portfolio
for: (i) direct out-of-pocket promotional expenses incurred in connection with
advertising and marketing Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Fund Shares. Service
Organizations may also provide support services such as establishing and
maintaining accounts and records relating to shareholders for whom the Service
Organizations are the dealer of record or holder of record for shareholders with
whom the Service Organizations have a servicing relationship. "Direct out-
of-pocket promotional expenses" include amounts spent by the Distributor in
connection with advertising via radio, television, newspapers, magazines and
otherwise; preparing, printing and mailing sales materials, brochures and
prospectuses (except for prospectuses used for regulatory purposes or for
distribution to existing shareholders); and other out-of-pocket expenses
incurred in connection with the promotion of Shares.
Upon proper authorization by the Fund's trustees, expenses covered by the
Plan may also include other expenses the Distributor (or any other person) may
incur in connection with the distribution of the Fund's Shares including,
without limitation, expenditures for telephone facilities and in-house
telemarketing or in connection with shareholder servicing.
Payments under the Plan will not exceed .55% (annualized) of the average
daily net asset value of each Portfolio's outstanding Series A Shares. Janney
Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103-1675, will act as
Service Organization for the Series A Shares offered by this Prospectus. Service
Organizations may charge their clients additional fees for account services.
Customers who are beneficial owners of Series A Shares should read this
Prospectus in light of the terms and fees governing their accounts with Service
Organizations.
Payments under the Plan which are expenses of a Portfolio's Investor Shares
are for distribution and/or other services rendered for or on behalf of the
Investor Shares of such Portfolio. However, joint distribution financing with
respect to Shares of the Portfolios (which financing may also involve other
investment portfolios or companies that are affiliated persons of such a person,
or affiliated persons of the Distributor) will be permitted in accordance with
applicable regulations of the SEC if and when such regulations are adopted.
If in any month the Distributor expends more monies than are immediately
payable under the Plan because of the percentage limitations described above
(or, due to any expense limitation imposed on a Portfolio, monies otherwise
payable by a Portfolio to the Distributor under the Plan are rendered
uncollectible), the unpaid expenditure may be "carried forward" from month to
month until such time, if ever, as it may be paid. In addition, payments to
Service Organizations (which may include the adviser and its affiliates) are not
tied directly to the Service Organizations' own out-of-pocket expenses and
therefore may be used as they elect (for example, to defray their overhead
expenses). See "Description of Shares."
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of each Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the particular Portfolio involved. Each Portfolio's net income is
declared daily as a dividend (i) to shareholders of record immediately prior to
the determination of net asset value made as of
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<PAGE> 24
the close of regular trading hours on the NYSE on days on which net asset value
is determined, or (ii) to shareholders of record immediately prior to 4:00 p.m.
(Eastern time) on days on which there is no determination of net asset value.
Consequently, shareholders whose purchase orders are executed at 12:00 noon
(Eastern time) receive dividends for that day. On the other hand, shareholders
whose redemption orders have been received by 12:00 noon (Eastern time) do not
receive dividends for that day, while shareholders of each Portfolio whose
redemption orders are received after 12:00 noon (Eastern time) do receive
dividends for that day. For dividend purposes, a Portfolio's investment income
available for distribution to holders of Investor Shares is reduced by accrued
expenses directly attributable to that Portfolio and the general expenses of the
Fund prorated to that Portfolio on the basis of its relative net assets. A
Portfolio's net investment income available for distribution to the holders of
Series A Shares will be reduced by the amount of other expenses allocated to
that Portfolio's Series A Investor Shares, including fees payable under the
Fund's Distribution and Service Plan. See "Purchase and Redemption of Shares"
and "Distribution of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolios do not expect to realize net long-term capital gains.
All dividends paid with respect to a Portfolio are reinvested in the form
of additional full and fractional Investor Shares of the same series of such
Portfolio, unless a shareholder elects to receive dividends in cash. Such
election, or any revocation thereof, must be made in writing to PFPC, and will
become effective with respect to dividends paid after its receipt by PFPC.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situations.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as a Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
Each Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in these Portfolios should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns for informational
purposes and that in two circumstances such amounts, while exempt from regular
Federal income tax, are taxable to persons subject to alternative minimum and
environmental taxes. First, tax-exempt interest and "exempt interest dividends"
derived from certain private activity bonds issued after August 7, 1986
generally will constitute an item of tax preference for corporate and
noncorporate
21
<PAGE> 25
taxpayers in determining alternative minimum tax liability and for corporate
taxpayers in determining environmental tax liability. Each Portfolio may invest
without limitation in such private activity bonds. Second, tax-exempt interest
and "exempt interest dividends" derived from all other Municipal Obligations
must be taken into account by corporate taxpayers in determining certain
adjustments for alternative minimum and environmental tax purposes. In addition,
investors should be aware of the possibility of state and local alternative
minimum or minimum income tax liability on interest from such private activity
bonds. Shareholders who are recipients of Social Security Act or Railroad
Retirement Act benefits should further note that tax-exempt interest and "exempt
interest dividends" derived from all types of Municipal Obligations will be
taken into account in determining the taxability of their benefit payments.
Each Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable. Such percentages will apply uniformly
to all distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of a Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Ohio
Municipal Money Market, North Carolina Municipal Money Market and Virginia
Municipal Money Market Portfolios, the loss will be disallowed for state tax
purposes to the same extent, even though, for state income tax purposes, some
portion of such dividends actually may have been subject to state income tax.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Portfolios
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by each Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio
personal income tax, or municipal or school district income taxes in Ohio will
not be subject to such taxes on distributions from the Ohio Municipal Money
Market Portfolio to the extent that such distributions consist of interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States) ("U.S.
Obligations"), provided that the Portfolio continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Ohio Municipal Money Market
Portfolio consists of Ohio Municipal Obligations or similar obligations of other
states or their subdivisions. (It is assumed for purposes of this discussion of
Ohio tax considerations that these requirements are satisfied.) Corporations
that are subject to the Ohio corporation franchise tax will not have to include
distributions from the Ohio Municipal Money Market Portfolio in their net income
base for purposes of calculating their Ohio corporation franchise tax liability
to the extent that such distributions either constitute exempt-interest
dividends or consist of interest on Ohio Municipal Obligations or U.S.
Obligations. However, shares of the Ohio Municipal Money Market Portfolio will
be included in a corporation's net worth base for purposes of calculating the
Ohio corporation franchise tax. Distributions consisting of gain on the sale,
exchange or other disposition
22
<PAGE> 26
of Ohio Municipal Obligations will not be subject to the Ohio personal income
tax, or municipal or school district income taxes in Ohio and will not be
included in the net income base of the Ohio corporation franchise tax.
Distributions attributable to other sources will be subject to the Ohio personal
income tax and the Ohio corporation franchise tax. For additional Ohio tax
considerations, see "Taxes" above.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder
attributable to interest realized by the Pennsylvania Municipal Money Market
Portfolio from Pennsylvania Municipal Obligations or attributable to insurance
proceeds on account of such interest is not taxable to individuals, estates or
trusts under the Personal Income Tax imposed by Article III of the Tax Reform
Code of 1971 (in the case of insurance proceeds, to the extent they are exempt
for Federal Income Tax purposes); to corporations under the Corporate Net Income
tax imposed by Article IV of the Tax Reform Code of 1971 (in the case of
insurance proceeds, to the extent they are exempt for Federal Income Tax
purposes); nor to individuals under the Philadelphia School District New Income
Tax ("School District Tax") imposed on Philadelphia resident individuals under
authority of the Act of August 9, 1963, P.L. 640.
Income received by a shareholder attributable to gain on the sale or other
disposition by the Pennsylvania Municipal Money Market Portfolio of Pennsylvania
Municipal Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Municipal
Money Market Portfolio for more than six months, the School District Tax.
No opinion is expressed regarding the extent, if any, to which shares, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not
subject to any of the personal property taxes currently in effect in
Pennsylvania to the extent that the Portfolio is comprised of Pennsylvania
Municipal Obligations. The taxes referred to include the County Personal
Property Tax imposed on residents of Pennsylvania by the Act of June 17, 1913,
P.L. 507, as amended.
NORTH CAROLINA TAX CONSIDERATIONS. Interest received in the form of
dividends from the North Carolina Municipal Money Market Portfolio is exempt
from North Carolina state income tax to the extent the distributions represent
interest on direct obligations of the U.S. Government or North Carolina
Municipal Obligations. Distributions derived from interest earned on obligations
of political subdivisions of Puerto Rico, Guam and the U.S. Virgin Islands,
including the governments thereof and their agencies, instrumentalities and
authorities, are also exempt from North Carolina state income tax. Distributions
paid out of interest earned on obligations that are merely backed or guaranteed
by the U.S. Government (e.g., GNMAs, FNMAs), on repurchase agreements
collateralized by U.S. Government securities or on obligations of other states
(which the Portfolio may acquire and hold for temporary or defensive purposes)
are not exempt from North Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina
Municipal Money Market Portfolio on the sale or exchange of certain obligations
of the State of North Carolina or its subdivisions that were issued before July
1, 1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
VIRGINIA TAX CONSIDERATIONS. Subject to the provisions discussed below,
dividends paid to shareholders by the Virginia Municipal Money Market Portfolio
and derived from interest on obligations of the Commonwealth of Virginia or of
any political subdivision or instrumentality of the Commonwealth or derived from
interest or dividends on obligations of the United States excludable from
Virginia taxable income under the laws of the United States, which obligations
are
23
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issued in the exercise of the borrowing power of the Commonwealth or the United
States and are backed by the full faith and credit of the Commonwealth or the
United States ("Virginia or U.S. Obligations"), will be exempt from the Virginia
income tax. Dividends paid to shareholders by the Portfolio and derived from
interest on debt obligations of certain territories and possessions of the
United States (those issued by Puerto Rico, the Virgin Islands and Guam) will be
exempt from the Virginia income tax. To the extent a portion of the dividends
are derived from interest on debt obligations other than those described above,
such portion will be subject to the Virginia income tax even though it may be
excludable from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and
derived from capital gains from the disposition of Virginia or U.S. Obligations
will be taxable to the shareholders. To the extent any portion of the dividends
are derived from taxable interest for Virginia purposes or from net short-term
capital gains, such portion will be taxable to the shareholders as ordinary
income. The character of long-term capital gains realized and distributed by the
Portfolio will flow through to its shareholders regardless of how long the
shareholders have held their shares. Capital gains distributed to shareholders
derived from Virginia obligations issued pursuant to special Virginia enabling
legislation which provides a specific exemption for such gains will be exempt
from Virginia income tax. Generally, interest on indebtedness incurred by
shareholders to purchase or carry shares of the Portfolio will not be deductible
for Virginia income tax purposes.
As a regulated investment company, the Portfolio may distribute dividends
that are exempt from the Virginia income tax to its shareholders if the
Portfolio satisfies all requirements for conduit treatment under Federal law
and, at the close of each quarter of its taxable year, at least 50% of the value
of its total assets consists of obligations the interest on which is exempt from
taxation under Federal law. The Portfolio intends to qualify under the above
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
NEW JERSEY TAX CONSIDERATIONS. It is anticipated that substantially all
dividends paid by the New Jersey Municipal Money Market Portfolio will not be
subject to New Jersey personal income tax. In accordance with the provisions of
New Jersey law as currently in effect, distributions paid by a "qualified
investment fund" will not be subject to the New Jersey personal income tax to
the extent that the distributions are attributable to income received as
interest or gain from New Jersey Municipal Obligations, or as interest or gain
from direct U.S. Government obligations. Distributions by a qualified investment
fund that are attributable to most other sources will be subject to the New
Jersey personal income tax. If the New Jersey Municipal Money Market Portfolio
qualifies as a qualified investment fund under
24
<PAGE> 28
New Jersey law, any gain on the redemption or sale of the Portfolio's shares
will not be subject to the New Jersey personal income tax. To be classified as a
qualified investment fund, at least 80% of the Portfolio's investments must
consist of New Jersey Municipal Obligations or direct U.S. Government
obligations; it must have no investments other than interest-bearing
obligations, obligations issued at a discount, and cash and cash items
(including receivables); and it must satisfy certain reporting obligations and
provide certain information to its shareholders. Shares of the Portfolio are not
subject to property taxation by New Jersey or its political subdivisions. To the
extent that a shareholder is subject to state or local taxes outside New Jersey,
dividends earned by an investment in the New Jersey Municipal Money Market
Portfolio may represent taxable income.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
The foregoing is only a summary of certain New Jersey tax considerations
generally affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with specific reference to their own tax situations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 97 classes (19 classes of "Series B
Investor Shares" and 26 classes each of "Series A Investor Shares," "Service
Shares" and "Institutional Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes five Portfolios of the Fund
which are classified as non-diversified companies under the 1940 Act. In
addition, the Board of Trustees has authorized the issuance of additional
classes of shares representing interests in other investment portfolios of the
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Distribution of Shares."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Holders of Series A Investor Shares bear the fees described under
"Distribution of Shares" that are paid to the Distributor under the Fund's
Distribution and Service Plan. Similarly, holders of a Portfolio's Service
Shares bear the expense of fees described in the prospectus for such shares that
are paid under the Fund's Service Plan. Payments under the Service Plan will
cover expenses relating to the support services provided to beneficial owners of
Service
25
<PAGE> 29
Shares by certain institutions. Such services are intended to supplement the
services provided by the Fund's Administrators and transfer agent to the Fund's
shareholders of record. In consideration for payment of up to .15% (on an
annualized basis) of the average daily net asset value of Service Shares owned
beneficially by their customers, institutions may provide one or more of the
following services to such customers: processing purchase and redemption
requests from customers and placing orders with the Fund's transfer agent or the
Distributor; processing dividend payments from the Fund on behalf of customers;
providing sub-accounting with respect to Service Shares beneficially owned by
customers or the information necessary for sub-accounting; and other similar
services. In consideration for payment of a service fee of up to a separate .15%
(on an annualized basis) of the average daily net asset value of Service Shares
owned beneficially by their customers, institutions may provide one or more of
these additional services to such customers: responding to customer inquiries
relating to the services performed by the institution and to customer inquiries
concerning their investments in Service Shares; providing information
periodically to customers showing their positions in Service Shares; and other
similar shareholder liaison services. Institutional Shares bear no shareholder
servicing or distribution fees. As a result of these different fees, the net
yields on the Fund's Institutional Shares will generally be higher than those on
the Fund's Service Shares and the net yields on the Fund's Service Shares will
generally be higher than those on the Fund's Series A Investor Shares if
payments by the Portfolios under the Service Plan and the Distribution and
Service Plan are made at the maximum rates. Standardized yield quotations will
be computed separately for each class of Shares. Series A Investor Shares of the
Portfolios are exchangeable at the option of the holder for Series A Investor
Shares in another money market Portfolio and for Series A or Series B Investor
Shares in the Fund's non-money market investment portfolios. Series A Investor
Shares of the Fund's non-money market portfolios are offered to the public at
the net asset value per share plus a maximum sales charge of 4.50% of the
offering price on single purchases of less than $50,000; the sales charge is
reduced on a graduated scale on single purchases of $50,000 or more and certain
exemptions from the sales charge may apply. The sales charge does not apply to
exchanges of Series A Investor Shares among the Fund's non-money market
portfolios or to exchanges of Series A Investor Shares in the Fund's money
market Portfolios offered by this Prospectus for Series A Investor Shares in
another money market Portfolio. Series B Investor Shares of the Fund's non-money
market portfolios are subject to a maximum contingent deferred sales charge of
5.0%. The deferred sales charge decreases over time. Series B Investor Shares
may be exchanged for Series B Investor Shares of another investment portfolio of
the Fund without the payment of any deferred sales charge at the time the
exchange is made. Unless an exception applies, a sales charge will be charged
when Series A Investor Shares of the money market Portfolios are exchanged for
Series A Investor Shares or Series B Investor Shares of the Fund's non-money
market portfolios. See "Investor Programs--Exchange Privilege."
On September 29, 1995, PNC Bank held of record approximately 79% of the
Fund's outstanding shares, and may be deemed a controlling person of the Fund
under the 1940 Act. PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank
holding company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND'S INVESTOR SHARES AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE INVESTOR SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each Portfolio may advertise its "yield" and "effective
yield" for Series A Shares. Both yield figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the
income generated by an investment in a Portfolio's Investor Shares over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the
26
<PAGE> 30
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a Portfolio's Investor Shares is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. A Portfolio's "tax-equivalent yield" may also be
quoted from time to time for Investor Shares of a Portfolio, which shows the
level of taxable yield needed to produce an after-tax equivalent to such
Portfolio's tax-free yield for Investor Shares. This is done by increasing such
Portfolio's yield for Investor Shares (calculated as above) by the amount
necessary to reflect the payment of Federal (and state and local for the Ohio,
Pennsylvania, North Carolina, Virginia and New Jersey Municipal Money Market
Portfolios) income tax at a stated tax rate.
Performance data of Investor Shares of a Portfolio may be compared to that
of other mutual funds with similar investment objectives and to other relevant
indexes or to ratings or rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
In addition, certain indexes may be used to illustrate historic performance of
select asset classes. For example, the yield of Investor Shares of a Portfolio
may be compared to data prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc. and Weisenberger Investment Company Service.
Performance information may also include evaluations of the Portfolios published
by nationally recognized ranking services and information as reported by
financial publications such as Business Week, Fortune, Institutional Investor,
Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of Investor Shares of a Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Investor Shares will fluctuate and are not necessarily representative of future
results. Any fees charged by Service Organizations directly to their customers
in connection with investments in Investor Shares are not reflected in the
yields of Investor Shares, and such fees, if charged, will reduce the actual
return received by customers on their investments.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to Janney Montgomery Scott, 1801 Market Street,
Philadelphia, PA 19103-1675, toll free 1-800-JANNEYS.
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- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Table.................................... 2
Financial Highlights............................. 3
Investment Policies.............................. 7
Investment Limitations........................... 13
How to Purchase Shares........................... 14
How to Redeem Shares............................. 15
Investor Programs................................ 15
Net Asset Value.................................. 17
Management....................................... 17
Distribution of Shares........................... 20
Dividends and Distributions...................... 20
Taxes............................................ 21
Description of Shares............................ 25
Performance Information.......................... 26
Reports and Inquiries............................ 27
</TABLE>
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER AND CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
CO-ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR
Provident Distributors, Inc.
Radnor, Pennsylvania
DISTRIBUTOR
Provident Distributors, Inc.
Radnor, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
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[LOGO]
PROSPECTUS
THE JANNEY
MONTGOMERY SCOTT
MONEY FUNDS
OHIO MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
NORTH CAROLINA MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
NEW JERSEY MUNICIPAL MONEY
MARKET PORTFOLIO
- -----------------------------------------------------
JULY 24, 1995
(as revised on October 5, 1995)
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<PAGE> 32
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 33
This filing includes the prospectuses for Service Shares, Investor Shares
and Institutional Shares of the Money Market, Municipal Money Market,
Government Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, International Fixed Income, Government Income,
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Index
Equity, Small Cap Value Equity, International Equity, International Emerging
Markets and Balanced Portfolios of The PNC(R) Fund (the "Fund"). The
above-referenced prospectuses are incorporated herein by reference to
Post-Effective Amendment No. 15 to the Fund's Registration Statement on Form
N-1A filed with the Securities and Exchange Commission on May 11, 1995.
<PAGE> 34
THE PNC(R) FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to shares ("Shares") representing interests in the Money
Market, Municipal Money Market, Government Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Virginia Municipal Money Market, New Jersey Municipal Money Market,
Value Equity, Growth Equity, Index Equity, Small Cap Value Equity, International
Equity, International Emerging Markets, Balanced, Small Cap Growth Equity, Core
Equity, Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term Bond,
Government Income and International Fixed Income Portfolios of The PNC Fund (the
"Fund"). The Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal
Money Market Portfolios are hereinafter collectively called "Money Market
Portfolios," and the other Portfolios are hereinafter collectively called
"Non-Money Market Portfolios." This Statement of Additional Information is not
a prospectus, and should be read only in conjunction with the Prospectuses of
the Fund relating to the Non-Money Market Portfolios dated January 30, 1995,
and the Prospectuses relating to the Money Market Portfolios dated July 24,
1995, as amended from time to time (the "Prospectuses"). Prospectuses may be
obtained from the Fund's distributor by calling toll-free (800) 441-7379.
This Statement of Additional Information is dated July 24, 1995 (as revised on
October 3, 1995) . Capitalized terms used herein and not otherwise defined
have the same meanings as are given to them in the Prospectuses.
CONTENTS
<TABLE>
<S> <C>
Page
----
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Advisory, Administration,
Distribution and Servicing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information Concerning Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
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<PAGE> 35
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR
THE PROSPECTUSES IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUSES 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 PROSPECTUSES DO
NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE FUND'S DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE> 36
INVESTMENT POLICIES
The following supplements information contained in the Prospectus
concerning the Portfolios' investment policies. A description of applicable
credit ratings is set forth in Appendix A hereto. Except as indicated, the
information below relates only to those Portfolios that are authorized to
invest in the instruments or securities described below.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio other than the Municipal
Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market,
North Carolina Municipal Money Market, Virginia Municipal Money Market and New
Jersey Municipal Money Market Portfolios (the "Municipal Portfolios") may
invest in reverse repurchase agreements. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and
interest rate. Such agreements are considered to be borrowings under the
Investment Company Act of 1940 (the "1940 Act"), and may be entered into only
for temporary or emergency purposes. While reverse repurchase transactions are
outstanding, a Portfolio will maintain in a segregated account cash, U.S.
Government securities or other liquid, high-grade debt securities in an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
VARIABLE AND FLOATING RATE INSTRUMENTS. With respect to purchasable
variable and floating rate instruments, the adviser or sub-adviser will
consider the earning power, cash flows and liquidity ratios of the issuers and
guarantors of such instruments and, if the instruments are subject to a demand
feature, will monitor their financial status to meet payment on demand. Such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. The absence of an active secondary market
with respect to particular variable and floating rate instruments could make it
difficult for a Portfolio to dispose of a variable or floating rate note if the
issuer defaulted on its payment obligation or during periods that the Portfolio
is not entitled to exercise its demand rights, and the Portfolio could, for
these or other reasons, suffer a loss with respect to such instruments. In
determining average-weighted portfolio maturity, an instrument will usually be
deemed to have a maturity equal to the longer of the period remaining until the
next interest rate adjustment or the time the Portfolio involved can recover
payment of principal
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<PAGE> 37
as specified in the instrument. Variable rate U.S. Government obligations held
by the Portfolios, however, will be deemed to have maturities equal to the
period remaining until the next interest rate adjustment.
MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. Each Non-Money Market Portfolio may purchase bank
obligations, such as certificates of deposit, bankers' acceptances and time
deposits, including instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches for
purposes of each Portfolio's investment policies. Investments in short-term
bank obligations may include obligations of foreign banks and domestic branches
of foreign banks, and also foreign branches of domestic banks.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government
that issue mortgage-related securities and among the securities that they
issue. Mortgage-related securities guaranteed by the Government National
Mortgage Association ("GNMA") include GNMA Mortgage Pass-Through Certificates
(also known as "Ginnie Maes") which are guaranteed as to the timely payment of
principal and interest by GNMA and such guarantee is backed by the full faith
and credit of the United States. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA guaranteed Mortgage Pass-Through Certificates (also known as "Fannie
Maes") which are solely the obligations of the FNMA, are not backed by or
entitled to the full faith and credit of the United States and are supported by
the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United
States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. FHLMC guarantees either ultimate collection or timely
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<PAGE> 38
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Managed Income, Intermediate Government, Short-Term Bond,
Intermediate-Term Bond, Government Income and International Fixed Income
Portfolios may invest in multiple class pass-through securities, including
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs and REMICs are debt obligations of a legal entity that are
collateralized by, and multiple class pass-through securities represent direct
ownership interests in, a pool of residential mortgage loans or mortgage
pass-through securities (the "Mortgage Assets"), the payments on which are used
to make payments on the CMOs or multiple pass-through securities. Investors
may purchase beneficial interests in REMICs, which are known as "regular"
interests or "residual" interests. The Portfolios do not intend to purchase
residual interests.
Each class of CMOs or REMIC Certificates, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must
be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates
may cause some or all of the classes of CMOs or REMIC Certificates to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs or REMIC Certificates on a
monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in
the order of their respective final distribution dates. Thus no payment of
principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs or REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are
-5-
<PAGE> 39
structured to apply principal payments and prepayments of the Mortgage Assets
to two or more classes concurrently on a proportionate or disproportionate
basis. These simultaneous payments are taken into account in calculating the
final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay
or sequential pay structures. These securities include accrual certificates
(also known as "Z-Bonds"), which only accrue interest at a specified rate until
all other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and
planned amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments
of the Mortgage Assets are then required to be applied to one or more other
classes of the Certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created that absorb
most of the volatility in the underlying Mortgage Assets. These tranches tend
to have market prices and yields that are much more volatile than the PAC
classes.
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of
interest, and also guarantees the ultimate payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("Pcs"). Pcs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by FHLMC and placed
in a PC pool. With respect to principal payments on Pcs, FHLMC generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. FHLMC also guarantees timely payment of principal
on certain Pcs, referred to as "Gold Pcs."
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ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected may reduce yield to maturity, while a prepayment rate that
is slower than expected may have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at a discount,
faster than expected prepayments may increase, while slower than expected
prepayments may decrease, yield to maturity.
In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations which the Portfolios may hold include U.S. Treasury bills, Treasury
instruments and Treasury bonds and the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, the Farmers Home Administration, the Export-Import Bank of the
United States, the Small Business Administration, the Federal National
Mortgage Association, the Government National Mortgage Association, the General
Services Administration, the Student Loan Marketing Association, the Central
Bank for Cooperatives, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Maritime Administration, the International Bank
for Reconstruction and Development (the "World Bank"), the Asian-American
Development Bank and the Inter-American Development Bank.
LEASE OBLIGATIONS. The Municipal Money Market, Pennsylvania
Municipal Money Market, Ohio Municipal Money Market, North Carolina Municipal
Money Market, Virginia Municipal Money Market, New Jersey Municipal Money
Market, Managed Income, Tax-Free Income, Pennsylvania Tax-Free Income, Ohio
Tax-Free Income, Short-Term Bond, Intermediate-Term Bond and
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International Fixed Income Portfolios may hold participation certificates in a
lease, an installment purchase contract, or a conditional sales contract
("lease obligations").
The Adviser will monitor the credit standing of each municipal
borrower and each entity providing credit support and/or a put option. In
determining whether a lease obligation is liquid, the Adviser will consider,
among other factors, the following: (i) whether the lease can be cancelled;
(ii) the degree of assurance that assets represented by the lease could be
sold; (iii) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (iv) the likelihood
that the municipality would discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations
of the municipality (e.g., the potential for an "event of nonappropriation");
(v) legal recourse in the event of failure to appropriate; (vi) whether the
security is backed by a credit enhancement such as insurance; and (vii) any
limitations which are imposed on the lease obligor's ability to utilize
substitute property or services other than those covered by the lease
obligation.
The Municipal Money Market, Pennsylvania Municipal Money Market, Ohio
Municipal Money Market, North Carolina Municipal Money Market, Virginia
Municipal Money Market and New Jersey Municipal Money Market Portfolios will
only invest in lease obligations with puts that (i) may be exercised at par on
not more than seven days notice, and (ii) are issued by institutions deemed by
the adviser to present minimal credit risks. Such obligations will be
considered liquid. However, a number of puts are not exercisable at the time
the put would otherwise be exercised if the municipal borrower is not
contractually obligated to make payments (e.g., an event of nonappropriation
with a "nonappropriation" lease obligation). Under such circumstances, the
lease obligation while previously considered liquid would become illiquid, and
a Portfolio might lose its entire investment in such obligation.
Municipal leases, like other municipal debt obligations, are subject
to the risk of non-payment. The ability of issuers of municipal leases to make
timely lease payments may be adversely impacted in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Such non-payment would result in
a reduction of income to the Fund, and could result in a reduction in the value
of the municipal lease experiencing non-payment and a potential decrease in the
net asset value of the Fund. Issuers of municipal securities might seek
protection under the bankruptcy laws. In the event of bankruptcy of such an
issuer, the Fund could experience delays and limitations with respect to the
collection of principal and
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interest on such municipal leases and the Fund may not, in all circumstances,
be able to collect all principal and interest to which it is entitled. To
enforce its rights in the event of a default in lease payments, the Fund may
take possession of and manage the assets securing the issuer's obligations on
such securities, which may increase the Fund's operating expenses and adversely
affect the net asset value of the Fund. When the lease contains a
non-appropriation clause, however, the failure to pay would not be a default
and the Fund would not have the right to take possession of the assets. Any
income derived from the Fund's ownership or operation of such assets may not be
tax-exempt. In addition, the Fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended, may
limit the extent to which the Fund may exercise its rights by taking possession
of such assets, because as a regulated investment company the Fund is subject
to certain limitations on its investments and on the nature of its income.
COMMERCIAL PAPER. The Money Market Portfolios may purchase commercial
paper rated in one of the two highest rating categories of a nationally
recognized statistical rating organization ("NRSRO"). The Non-Money Market
Portfolios may purchase commercial paper rated (at the time of purchase) "A-1"
by S&P or "Prime-1" by Moody's or, when deemed advisable by a Portfolio's
adviser or sub-adviser, "high quality" issues rated "A-2" or "Prime-2" by S&P
or Moody's, respectively. These ratings symbols are described in Appendix A.
Commercial paper purchasable by each Portfolio includes "Section 4(2) paper," a
term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition
under the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. Certain transactions in Section 4(2) paper may qualify
for the registration exemption provided in Rule 144A under the Securities Act
of 1933.
REPURCHASE AGREEMENTS. Each Portfolio other than the Municipal
Portfolios may invest in repurchase agreements. The repurchase price under the
repurchase agreements described in the Prospectuses generally equals the price
paid by a Portfolio involved plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on securities
underlying the repurchase agreement). The financial institutions with whom a
Portfolio may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. A
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Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the securities subject
to the agreement at not less than the repurchase price (including accrued
interest). In addition, the Portfolio's adviser or sub-adviser will
mark-to-market daily the value of the securities, and will, if necessary,
require the seller to maintain additional securities to ensure that the value
is not less than the repurchase price. Securities subject to repurchase
agreements will be held by the Fund's custodian (or sub-custodian) in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolios
under the 1940 Act.
INVESTMENT GRADE DEBT OBLIGATIONS. Each of the Money Market
Portfolios may invest in securities in the two highest rating categories of
NRSROs. The Non-Money Market Portfolios invest in "investment grade
securities", which are securities rated in the four highest rating categories
of an NRSRO. It should be noted that debt obligations rated in the lowest of
the top four ratings (i.e., "Baa" by Moody's or "BBB" by S&P) are considered to
have some speculative characteristics and are more sensitive to economic change
than higher rated securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When a Portfolio
agrees to purchase securities on a when-issued or forward commitment basis, the
custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Portfolio may be required subsequently to place additional assets in
the separate account in order to ensure that the value of the account remains
equal to the amount of the Portfolio commitments. It may be expected that the
market value of the Portfolios' net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because a Portfolio's liquidity and ability to manage
its portfolio might be affected when it sets aside cash or portfolio securities
to cover such purchase commitments, each Portfolio expects that its commitments
to purchase when-issued securities and forward commitments will not exceed 25%
of the value of its total assets absent unusual market conditions.
A Portfolio will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, a Portfolio may dispose of or renegotiate a
commitment after it has been entered into, and may sell securities it has
committed to
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purchase before those securities are delivered to the Portfolio on the
settlement date. In these cases the Portfolio may realize a taxable capital
gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, is taken into account when determining the market value
of a Portfolio starting on the day the Portfolio agrees to purchase the
securities. The Portfolio does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. As stated in their
Prospectus, the Value Equity, Growth Equity, Small Cap Growth Equity, Core
Equity, Index Equity, Small Cap Value Equity, International Equity,
International Emerging Markets and Balanced Portfolios may participate in
rights offerings and may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. Subscription rights normally have a short life span to
expiration. The purchase of rights or warrants involves the risk that the
Portfolios could lose the purchase value of a right or warrant if the right to
subscribe to additional shares is not exercised prior to the rights' and
warrants' expiration. Also, the purchase of rights and/or warrants involves
the risk that the effective price paid for the right and/or warrant added to
the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. A Portfolio will not invest more than 5% of
its net assets, taken at market value, in warrants, or more than 2% of its net
assets, taken at market value, in warrants not listed on the New York or
American Stock Exchanges. Warrants acquired by a Portfolio in units or
attached to other securities are not subject to this restriction.
FOREIGN CURRENCY TRANSACTIONS. Forward foreign currency exchange
contracts involve an obligation to purchase or sell a specified currency at a
future date at a price set at the time of the contract. Forward currency
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Portfolio to establish a rate of exchange for a future point
in time. A Portfolio may enter into forward foreign
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currency exchange contracts when deemed advisable by its adviser or sub-adviser
under two circumstances. First, when entering into a contract for the purchase
or sale of a security, the Portfolio may enter into a forward foreign currency
exchange contract for the amount of the purchase or sale price to protect
against variations, between the date the security is purchased or sold and the
date on which payment is made or received, in the value of the foreign currency
relative to the U.S. dollar or other foreign currency.
Second, when the Portfolio's adviser or sub-adviser anticipates that a
particular foreign currency may decline substantially relative to the U.S.
dollar or other leading currencies, in order to reduce risk, the Portfolio may
enter into a forward contract to sell, for a fixed amount, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency. No Portfolio intends to enter
into forward contracts under this second circumstance on a regular or
continuing basis and will not do so if, as a result, it will have more than 15%
of the value of its total assets committed to such contracts. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is
entered into and the date it matures. In addition, while forward contracts may
offer protection from losses resulting from declines in the value of a
particular foreign currency, they also limit potential gains which might result
from increases in the value of such currency. A Portfolio will also incur
costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars.
A separate account of a Portfolio consisting of cash or liquid
securities equal to the amount of the Portfolio's assets that could be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Fund's custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or securities will be
placed in the account daily so that the value of the account will equal the
amount of such commitments by the Portfolio.
OPTIONS. Options trading is a highly specialized activity which
entails greater than ordinary investment risks. Options on particular
securities may be more volatile than the underlying securities, and therefore,
on a percentage basis, an investment in the underlying securities themselves.
A Portfolio will write
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call options only if they are "covered." In the case of a call option on a
security, the option is "covered" if a Portfolio owns the security underlying
the call or has an absolute and immediate right to acquire that security
without additional cash consideration (or, if additional cash consideration is
required, cash or cash equivalents in such amount as are held in a segregated
account by its custodian) upon conversion or exchange of other securities held
by it. For a call option on an index, the option is covered if a Portfolio
maintains with its custodian cash or cash equivalents equal to the contract
value. A call option is also covered if a Portfolio holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.
When a Portfolio purchases a put option, the premium paid by it is
recorded as an asset of the Portfolio. When a Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded
option is the last sale price or, in the absence of a sale, the mean between
the last bid and asked prices. If an option purchased by a Portfolio expires
unexercised the Portfolio realizes a loss equal to the premium paid. If the
Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by the Portfolio on
the closing transaction is more than the premium paid to purchase the option,
or a loss if it is less. If an option written by a Portfolio expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option
written by a Portfolio is exercised, the proceeds of the sale will be increased
by the net premium originally received and the Portfolio will realize a gain or
loss.
There are several risks associated with transactions in options on
securities and indexes. For example, there are significant differences between
the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a
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national securities exchange ("Exchange") may be absent for reasons which
include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options or
underlying securities; unusual or unforeseen circumstances may interrupt normal
operations on an Exchange; the facilities of an Exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or one or more Exchanges could, for economic or other reasons, decide
or be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Non-Money Market
Portfolio may invest in futures contracts and options thereon (interest rate
futures contracts or index futures contracts, as applicable). Positions in
futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Portfolio would continue to be required
to make daily cash payments to maintain its required margin. In such
situations, if a Portfolio has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, a Portfolio may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on a Portfolio's ability to effectively hedge.
Successful use of futures by a Portfolio is also subject to the
adviser's ability to correctly predict movements in the direction of the
market. For example, if a Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition,
in some situations, if a Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect
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the rising market. A Portfolio may have to sell securities at a time when it
may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
Utilization of futures transactions by a Portfolio involves the risk
of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
STAND-BY COMMITMENTS. Under a stand-by commitment for a Municipal
Obligation, a dealer agrees to purchase at the
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Portfolio's option a specified Municipal Obligation at a specified price.
Stand-by commitments for Municipal Obligations may be exercisable by a
Portfolio at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved. It is expected that such stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Portfolio may pay for such a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Obligations which are acquired subject to the commitment for Municipal
Obligations (thus reducing the yield to maturity otherwise available for the
same securities). The total amount paid in either manner for outstanding
stand-by commitments for Municipal Obligations held by a Portfolio will not
exceed 1/2 of 1% of the value of such Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
Stand-by commitments will only be entered into with dealers, banks and
broker-dealers which, in the adviser's or sub- adviser's opinion, present
minimal credit risks. A Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and not to exercise its rights thereunder for
trading purposes. Stand-by commitments will be valued at zero in determining
net asset value. Accordingly, where a Portfolio pays directly or indirectly
for a stand-by commitment, its cost will be reflected as an unrealized loss for
the period during which the commitment is held by such Portfolio and will be
reflected in realized gain or loss when the commitment is exercised or expires.
TAX-EXEMPT DERIVATIVES. The Municipal Portfolios and the Tax-Free
Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios
(collectively, the "Money and Non-Money Market Municipal Portfolios") may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. A number of different structures have been used. For example,
interests in long-term fixed-rate municipal obligations, held by a bank as
trustee or custodian, are coupled with tender option, demand and other features
when the tax-exempt derivatives are created. Together, these features entitle
the holder of the interest to tender (or put), the underlying municipal
obligation to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, municipal obligations are represented by
custodial receipts evidencing rights to receive specific future interest
payments, principal payments, or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying municipal securities at its
face value to the sponsor (usually a bank or broker dealer or other financial
institution), which is paid
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periodic fees equal to the difference between the bond's fixed coupon rate and
the rate that would cause the bond, coupled with the tender option, to trade at
par on the date of a rate adjustment. The Money and Non-Money Market Municipal
Portfolios may hold tax- exempt derivatives, such as participation interests
and custodial receipts, for municipal obligations which give the holder the
right to receive payment of principal subject to the conditions described
above. The Internal Revenue Service has not ruled on whether the interest
received on tax-exempt derivatives in the form of participation interests or
custodial receipts is tax-exempt, and accordingly, purchases of any such
interests or receipts are based on the opinion of counsel to the sponsors of
such derivative securities. Neither the Fund nor its investment adviser will
review the proceedings related to the creation of any tax-exempt derivatives or
the basis for such opinions.
SECURITIES LENDING. A Portfolio would continue to accrue interest on
loaned securities and would also earn income on investment collateral for such
loans. Any cash collateral received by a Portfolio in connection with such
loans would be invested in short-term U.S. Government obligations.
YIELDS AND RATINGS. The yields on certain obligations are dependent
on a variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer,
the size of the offering, the maturity of the obligation and the ratings of the
issue. The ratings of Moody's and S&P represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however,
are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. Subsequent to its purchase by a Portfolio, a rated security may
cease to be rated. The adviser or sub-adviser will consider such an event in
determining whether the Portfolio should continue to hold the security.
SECURITIES OF SMALL CAP ISSUERS. Securities of small cap issues
purchased by the Small Cap Value Equity and Small Cap Growth Equity Portfolios
may be exchange-listed or purchased "over-the-counter."
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN OHIO MUNICIPAL
OBLIGATIONS. As described above, the Ohio Tax-Free Money Market and Ohio
Tax-Free Income Portfolios (the "Ohio Portfolios") will each invest most of its
net assets in securities issued by or on behalf of (or in certificates of
participation in lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the State or its
political subdivisions (Ohio Obligations). The Ohio Portfolios are therefore
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susceptible to general or particular political, economic or regulatory factors
that may affect issuers of Ohio Obligations. The following information
constitutes only a brief summary of some of the many complex factors that may
have an effect. The information does not apply to "conduit" obligations on
which the public issuer itself has no financial responsibility. This
information is derived from official statements of certain Ohio issuers
published in connection with their issuance of securities and from other
publicly available information, and is believed to be accurate. No independent
verification has been made of any of the following information.
Generally, the creditworthiness of Ohio Obligations of local issuers
is unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment
in particular Ohio Obligations or in those obligations of particular Ohio
issuers. It is possible that the investment may be in particular Ohio
Obligations, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary,
and is not intended as a discussion of any specific factors that may affect any
particular obligation or issuer.
Ohio is the seventh most populous state; the 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1993 is 11,091,000.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods
manufacturing largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. As a result, general economic
activity, as in many other industrially-developed states, tends to be more
cyclical than in some other states and in the nation as a whole. Agriculture
is an important segment of the economy, with over half the State's area devoted
to farming and approximately 15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990
average monthly State rate was 5.7%, compared to the 5.5% national figure.
However, for the last four years the State rates were below the national rates
(5.5% versus 6.1% in 1994). The unemployment rate and its effects vary among
geographic areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely
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affect the market value of Ohio Obligations held in the Ohio Portfolios or the
ability of particular obligors to make timely payments of debt service on (or
lease payments relating to) those Obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most
State operations are financed through the General Revenue Fund (GRF), for which
the personal income and sales-use taxes are the major sources. Growth and
depletion of GRF ending fund balances show a consistent pattern related to
national economic conditions, with the ending FY balance reduced during less
favorable and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
Key biennium-ending fund balances at June 30, 1989 were $475.1 million
in the GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and
budgetary management fund). In the next two fiscal years necessary corrective
steps were taken including selected reductions in appropriations spending and
the transfer of $64 million from the BSF to the GRF to respond to certain
lower receipts and higher expenditures than earlier estimated. June 30, 1991
ending fund balances were $135.3 million (GRF) and $300 million (BSF).
The next biennium, 1992-93, presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain budget
differences, an interim appropriations act was enacted effective July 1,
1991; it included GRF debt service and lease rental appropriations for the
entire 1992-93 biennium, while continuing most other appropriations for a
month. The general appropriations act for the entire biennium was passed on
July 11, 1991. Pursuant to it, $200 million was transferred from the BSF to
the GRF in FY 1992.
Based on updated results and forecasts in the course of FY 1992, both
in light of a continuing uncertain nationwide economic situation, there was
projected, and then timely addressed, an FY 1992 imbalance in GRF resources and
expenditures. GRF receipts significantly below original forecasts resulted
primarily from lower collections of certain taxes, particularly sales-use and
personal income taxes. Higher expenditure levels were in certain areas,
particularly human services including Medicaid. In response, the Governor
ordered most State agencies to reduce GRF spending in the last six months of
FY 1992 by a total of approximately $184 million; the $100.4
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million BSF balance and additional amounts from certain other funds were
transferred late in the FY to the GRF; and adjustments were made in the timing
of certain tax payments.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative
action (a combination of tax revisions and additional spending reductions). The
June 30, 1993 ending GRF fund balance was approximately $111 million, of which,
as a first step to BSF replenishment, $21 million was deposited in the BSF.
No spending reductions were applied to appropriations needed for debt
service on or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial picture
for the State. Based on June 30, 1994 balances, an additional $260 million
was deposited in the BSF. The biennium ended June 30, 1995 with a GRF ending
fund balance of $928 million, of which $535.2 million has been transferred into
the BSF (which has a current balance of over $828 million).
The GRF appropriations act for the 1994-95 biennium was on June 28,
1995 passed and promptly signed (after selective vetoes) by the Governor. All
necessary GRF appropriations for State debt service and lease rental payments
then projected for the biennium were included in that act. In accordance with
the appropriations act, the significant June 30, 1995 GRF fund balance, after
leaving in the GRF an unreserved and undesignated balance of $70 million has
been transferred to a variety of funds, including $535.2 million to the BSF.
$322.8 million was transferred to other funds, including school assistance
funds and, in anticipation of possible federal program changes, a human
services stabilization fund.
The State's incurrence or assumption of debt without a vote of the
people is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 13 constitutional amendments, the last adopted in 1993, Ohio voters
have authorized the incurrence of State debt and the pledge of taxes or excises
to its payment. At June 9, 1995, $820.1 million (excluding certain highway
bonds payable primarily from highway use charges) of this debt was outstanding
or awaiting delivery. The only such State debt then still authorized to be
incurred are portions of the highway bonds, and the following: (a) up to $100
million of obligations for coal research and development may be outstanding at
any one time ($34.7 million outstanding); (b) $360 million of obligations
authorized for local infrastructure improvements, no more than $120 million of
which may be issued in any calendar year ($728.2 million outstanding); and
(c) up to $200
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million in general obligation bonds for parks, recreation and natural resources
purposes which may be outstanding at any one time ($50 million outstanding,
with no more than $50 million to be issued in any one year).
The General Assembly has placed on the November 1995 ballot a
proposed constitutional amendment that would extend the local infrastructure
bond program (authorizing an additional $1.2 billion of State full faith and
credit obligations to be issued over 10 years for the purpose) and authorize
additional highway bonds. The latter would supersede the current $500 million
highway obligation authorization, and would authorize not more than $1.2
billion to be outstanding at any time and not more than $220 million to be
issued in a fiscal year.
Common resolutions are pending in both houses of the General Assembly
that would submit a constitutional amendment relating to certain other aspects
of State debt. The proposal would authorize, among other things, the issuance
of general obligation debt for a variety of purposes with debt service on all
State general obligation debt and GRF-supported obligations not to exceed 5% of
the preceding Fiscal Year's GRF expenditures.
The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include
obligations issued by the Ohio Public Facilities Commission and the Ohio
Building Authority, and certain obligations issued by the State Treasurer, over
$4.5 billion of which were outstanding at June 9, 1995.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing.
The General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has
never been implemented, apart from a "guarantee fund" approach funded
essentially from program revenues.)
The House has adopted a resolution that would submit to the electors a
constitutional amendment prohibiting the General Assembly from imposing a new
tax or increasing an existing tax unless approved by a three-fifths vote of
each house or by a majority vote of the electors. It cannot be predicted
whether required Senate concurrence will be received.
State and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate in the range of 44% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 120
districts from voter-authorized income taxes, for significant portions of their
budgets. Litigation, similar to that in other states, is pending questioning
the constitutionality of Ohio's system of school funding. In one case, the
trial court concluded that aspects of the system (including basic operating
assistance) are
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unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. A small number
of the State's 612 local school districts have in any year required special
assistance to avoid year-end deficits. A current program provides for school
district cash need borrowing directly from commercial lenders, with diversion
of State subsidy distributions to repayment if needed. Recent borrowings under
this program, $94.5 million for 27 districts (including $75 million for one)in
FY 1993, and $41.1 million for 28 districts in FY 1994, and $20.1 million for
eight districts in FY 1995.
Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations. With other subdivisions, they
also receive local government support and property tax relief moneys
distributed by the State. For those few municipalities that on occasion have
faced significant financial problems, there are statutory procedures for a
joint State/local commission to monitor the municipality's fiscal affairs and
for development of a financial plan to eliminate deficits and cure any
defaults. Since inception in 1979, these procedures have been applied to 23
cities and villages; for 18 of them the fiscal situation was resolved and the
procedures terminated.
At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions
and other local taxing districts. The Constitution has since 1934 limited to
1% of true value in money the amount of the aggregate levy (including a levy
for unvoted general obligations) of property taxes by all overlapping
subdivisions, without a vote of the electors or a municipal charter provision,
and statutes limit the amount of that aggregate levy to 10 mills per $1 of
assessed valuation (commonly referred to as the "ten-mill limitation"). Voted
general obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN PENNSYLVANIA MUNICIPAL
OBLIGATIONS. The concentration of investments in Pennsylvania Municipal
Obligations by the Pennsylvania Municipal Money Market and Pennsylvania
Tax-Free Income Portfolios raises special investment considerations. In
particular, changes in the economic condition and governmental policies of the
Commonwealth of Pennsylvania and its municipalities could adversely affect the
value of those Portfolios and their portfolio securities. This section briefly
describes current economic trends in Pennsylvania.
Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad
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industries have led to diversification of the Commonwealth's economy. Recent
sources of economic growth in Pennsylvania are in the service sector, including
trade, medical and health services, education and financial institutions.
Agriculture continues to be an important component of the Commonwealth's
economic structure, with nearly one-third of the Commonwealth's total land area
devoted to cropland, pasture and farm woodlands.
The population of Pennsylvania experienced a slight increase in the
period 1980 through 1990 and has a high proportion of persons 65 or older. The
Commonwealth is highly urbanized, with almost 85% of the 1980 census population
residing in metropolitan statistical areas. The two largest metropolitan
statistical areas, those containing the Cities of Philadelphia and Pittsburgh,
together comprise approximately 50% of the Commonwealth's total population.
The Commonwealth utilizes the fund method of accounting and over 120
funds have been established for purposes of recording receipts and
disbursements of the Commonwealth, of which the General Fund is the largest.
Most of the Commonwealth's operating and administrative expenses are payable
from the General Fund. The major tax sources for the General Fund are the
sales tax, the personal income tax and the corporate net income tax. Major
expenditures of the Commonwealth include funding for education, public health
and welfare, transportation, and economic development.
The constitution of the Commonwealth provides that operating budget
appropriations of the Commonwealth may not exceed the estimated revenues and
available surplus in the fiscal year for which funds are appropriated. Annual
budgets are enacted for the General Fund (the principal operating fund of the
Commonwealth) and for certain special revenue funds which together represent
the majority of expenditures of the Commonwealth. Although a negative balance
was experienced applying generally accepted accounting principles ("GAAP") in
the General Fund for fiscal 1990 and 1991, tax increases and spending decreases
helped return the General Fund balance to a surplus at June 30, 1992 of $87.5
million and at June 30, 1993 of $698.9 million. The deficit in the
Commonwealth's unreserved/undesignated funds of prior years also was reversed
to a surplus of $64.4 million as of June 30, 1993.
Current constitutional provisions permit the Commonwealth to issue the
following types of debt: (i) electorate approved debt, (ii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average
tax revenues of the preceding five fiscal years, (iii) tax anticipation notes
payable in the fiscal year of issuance and (iv) debt to suppress insurrection
or rehabilitate areas affected by disaster. Certain state-created
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agencies issue debt supported by assets of, or revenues derived from, the
various projects financed and the debt of such agencies is not an obligation of
the Commonwealth, although some of the agencies are indirectly dependent on
Commonwealth appropriations.
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suits relating to the following matters: (a) the ACLU
has filed suit in Federal court demanding additional funding for child welfare
services; the Commonwealth settled a similar suit in the Commonwealth Court of
Pennsylvania and is seeking the dismissal of the federal suit, inter alia,
because of that settlement. The district court has denied class certification
to the ACLU, and the parties have stipulated to a judgment against the
plaintiffs to allow plaintiffs to appeal the denial of class certification (no
available estimates of potential liability); (b) in 1987, the Supreme Court of
Pennsylvania held the statutory scheme for county funding of the judicial
system to be in conflict with the constitution of the Commonwealth, but stayed
judgment pending enactment by the legislature of funding consistent with the
opinion, and the legislature has yet to consider legislation implementing the
judgment. In 1992, a new action in mandamus was filed seeking to compel the
Commonwealth to comply with the original decision; (c) several banks have filed
suit against the Commonwealth contesting the constitutionality of a law enacted
in 1989 imposing a bank shares tax; in July 1994, the Commonwealth Court en
banc upheld the constitutionality of the 1989 bank shares tax law, but struck
down a companion law to provide credits against the bank shares tax for new
banks; cross-appeals from that decision to the Pennsylvania Supreme Court have
been filed; (d) litigation has been filed in both state and Federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the Federal case has been stayed pending
resolution of the state case and the state case is in the pre-trial stage (no
available estimate of potential liability); (e) the ACLU has brought a class
action on behalf of inmates challenging the conditions of confinement in
thirteen of the Commonwealth correctional institutions; a proposed settlement
agreement has been submitted to the court and members of the class for their
review (no available estimate of potential cost of complying with the
injunction sought, but capital and personnel costs might cost millions of
dollars); (f) a consortium of public interest law firms has filed a class
action suit alleging that the Commonwealth has not complied with a Federal
mandate to provide screening, diagnostic and treatment services for all
Medicaid- eligible children under 21; the district court denied class
certification and the parties have submitted a tentative settlement agreement
to the court for approval; and (g)
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litigation has been filed in federal court by the Pennsylvania Medical Society
seeking payment of the full co-pay and deductible in excess of the maximum fees
set under the Commonwealth's medical assistance program for outpatient services
provided to medical assistance patients who also were eligible for Medicare;
the Commonwealth received a favorable decision in the federal district court,
but the Pennsylvania Medical Society won a reversal in the federal circuit
court (potential liability estimated at $50 million per year).
Local government units in the Commonwealth of Pennsylvania (which
include, among other things, counties, cities, boroughs, towns, townships,
school districts and other municipally created units such as industrial
development authorities and municipality authorities, including water and sewer
authorities) are permitted to issue debt for capital projects: (i) in any
amount so long as the debt has been approved by the voters of the local
government unit; or (ii) without electoral approval if the aggregate
outstanding principal amount of debt of the local government unit is not in
excess of 100% of its borrowing base (in the case of a school district of the
first class), 300% of its borrowing base (in the case of a county) or 250% of
its borrowing base (in the case of all other local government units); or (iii)
without electoral approval and without regard to the limit described in (ii) in
any amount in the case of certain subsidized debt and qualifying
self-liquidating debt. Lease rental debt may also be issued, in which case the
total debt limits described in section (ii) (taking into account all existing
lease rental debt in addition to all other debt) are increased. The borrowing
base for a local government unit is the average of total revenues for the three
fiscal years preceding the borrowing. The risk of investing in debt issued by
any particular local government unit depends, in the case of general obligation
bonds secured by tax revenues, on the credit-worthiness of that issuer or, in
the case of revenue bonds, on the revenue producing ability of the project
being financed, and not directly on the credit-worthiness of the Commonwealth
of Pennsylvania as a whole.
The City of Philadelphia (the "City") has been experiencing severe
financial difficulties which has impaired its access to public credit markets
and a long-term solution to the City's financial crisis is still being sought.
The City experienced a series of General Fund deficits for fiscal years 1988
through 1992. The City has no legal authority to issue deficit reduction bonds
on its own behalf, but state legislation has been enacted to create an
Intergovernmental Cooperation Authority (the "Authority") to provide fiscal
oversight for Pennsylvania cities (primarily Philadelphia) suffering recurring
financial difficulties. The Authority is broadly empowered to assist cities in
avoiding defaults and eliminating deficits by encouraging the adoption of sound
budgetary practices and issuing
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bonds. In order for the Authority to issue bonds on behalf of the City, the
City and the Authority entered into an intergovernmental cooperative agreement
providing the Authority with certain oversight powers with respect to the
fiscal affairs of the City, and the Authority originally approved a five-year
financial plan prepared by the City on April 6, 1992. The Authority approved
the latest update of the five year financial plan on May 2, 1994. The City has
reported a surplus of approximately $15 million for the fiscal year ending June
30, 1994. In June 1992, the Authority issued $474,555,000 in bonds to
liquidate the City's deficit balance in its general fund. The Authority issued
$643,430,000 of bonds in July 1993 and $178,675,000 of bonds in August 1993 to
refund certain general obligation bonds of the City and to fund additional
capital projects.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA
MUNICIPAL OBLIGATIONS. The concentration of investments in North Carolina
Municipal Obligations by the North Carolina Municipal Money Market Portfolio
raises special investment considerations. In particular, changes in the
economic condition and governmental policies of North Carolina and its
political subdivisions, agencies, instrumentalities, and authorities could
adversely affect the value of the Portfolio and its portfolio securities. This
section briefly describes current economic trends in North Carolina.
The State of North Carolina has two major operating funds: the
General Fund and the Highway Fund. In addition, the 1989 General Assembly
created the Highway Trust Fund to provide funding for a major highway
construction program. North Carolina derives most of its revenue from taxes,
including individual income tax, corporation income tax, sales and use taxes,
corporation franchise tax, alcoholic beverage tax, insurance tax, inheritance
tax, tobacco products tax, and soft drink tax. North Carolina receives other
non-tax revenues which are also deposited in the General Fund. The most
important are Federal funds collected by North Carolina agencies, university
fees and tuition, interest earned by the North Carolina Treasurer on
investments of General Fund moneys and revenues from the judicial branch. The
proceeds from the motor fuel tax, highway use tax and motor vehicle license
tax are deposited in the Highway Fund and the Highway Trust Fund.
During the 1989-92 budget years, growth of North Carolina tax revenues
slowed considerably, requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in timing and
certain collections and payments, and other short-term budget adjustments
necessary to comply with North Carolina's constitutional mandate for a balanced
budget. Many areas of North Carolina government were
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affected. Reductions in capital spending, local government aid, and the use of
the budget stabilization reserve, combined with other budget adjustments,
brought the budget into balance. Tax increases in the fiscal 1992 budget
included a $.01 increase in the North Carolina sales tax and increases in the
personal and corporate income tax rates, as well as increases in the tax on
cigarettes and alcohol, among other items.
Fiscal year 1992 ended with a positive fund balance of approximately
$164.8 million. By law, $41.2 million of such positive fund balance was
required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve," leaving an unrestricted General Fund balance at June 30,
1992 of $123.6 million. Fiscal year 1993 ended with a positive General Fund
balance of approximately $537.3 million. Of this amount, $134.3 million was
reserved in the Savings Reserve and $57 million was reserved in a Reserve for
Repair and Renovation of State Facilities, leaving an unrestricted General Fund
balance at June 30, 1993 of $346 million. Fiscal year 1994 ended with a
positive General Fund balance of approximately $444.7 million. An additional
$178 million was available from a reserved fund balance. Of this aggregate
amount, $155.7 million was reserved in the Savings Reserve (bringing the total
reserve to $210.6 million after prior withdrawals) and $60 million was reserved
in the Reserve for Repair and Renovation of State Facilities (bringing the
total reserve to $60 million after prior withdrawals), leaving an unrestricted
General Fund balance at June 30, 1994 of $407 million.
The foregoing results are presented on a budgetary basis. Accounting
principles applied to develop data on a budgetary basis differ significantly
from those principles used to present financial statements in conformity with
generally accepted accounting principles (GAAP). Based on a modified accrual
basis (GAAP), the General Fund balance at June 30, 1993 and 1994 was $681.5
million and $1,240.9 million, respectively.
The General Assembly reduced departmental operating requirements by
$357.6 million for fiscal year 1995 and authorized continuation funding of
$8,489.3 million. The savings reductions were based on recommendations from
the Governor, a Governmental Performance Audit Committee, and selective savings
identified by the General Assembly. After review of the continuation budget,
the General Assembly authorized funding for planned expansion to existing
programs and funded new initiatives for children, economic development,
education, human services, and environmental programs. Expansion funds of
$1,650.4 million for fiscal year 1995 were approved. In addition to the
transfers to the Savings Reserve from the fiscal year-end credit balance, the
General Assembly in 1993
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appropriated $66.7 million for the Savings Reserve. The General Assembly
authorized $189.4 million for capital improvements spending and $60 million for
the Reserve for Repair and Renovation of State Facilities for fiscal year 1995.
The North Carolina budget is based upon a number of existing and
assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject
to change which may be material and affect the budget. The Congress of the
United States is considering a number of matters affecting the federal
governments relationship with State governments that, if enacted into law,
could affect fiscal and economic policies of the States, including North
Carolina.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina
Employment Security Commission (the "Commission"), in November 1994, North
Carolina ranked ninth among the states in non-agricultural employment and
eighth in manufacturing employment. The Commission estimated North Carolina's
seasonally adjusted unemployment rate in March 1995 to be 3.9% of the labor
force, as compared with an unemployment rate of 5.5% nationwide. As part of
its 1993-95 budget, the General Assembly provided major funding for economic
initiatives in an effort to create additional jobs.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet
its financial obligations:
1. Swanson Case -- State Tax Refunds - Federal Retirees. In
Davis v. Michigan (1989), the United States Supreme Court ruled that a Michigan
income tax statute which taxed federal retirement benefits while exempting
those paid by state and local governments violated the constitutional doctrine
of intergovernmental tax immunity. At the time of the Davis decision, North
Carolina law contained similar exemptions in favor of state and local retirees.
Those exemptions were repealed prospectively, beginning with the 1989 tax year.
All public pension and retirement benefits are now entitled to a $4,000 annual
exclusion.
Following Davis, federal retirees filed a class action suit in federal
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The complaints alleged that the amount in controversy
exceeded $140 million. The North Carolina Department of Revenue estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In
1991, the North Carolina Supreme Court
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ruled in favor of the State in the state court action, concluding that Davis
could only be applied prospectively and that the taxes collected from the
federal retirees were thus not improperly collected. In 1993, the United
States Supreme Court vacated that decision and remanded the case back to the
North Carolina Supreme Court. The North Carolina Supreme Court then ruled in
favor of the State on the grounds that the federal retirees had failed to
comply with state procedures for challenging unconstitutional taxes. Plaintiffs
petitioned the United States Supreme Court for review of that decision, and the
United States Supreme Court denied that petition. The United States District
Court has ruled in favor of the defendants in the companion federal case, and a
petition for reconsideration was denied. Plaintiffs have appealed to the
United States Court of Appeals. Oral arguments were heard in the Court of
Appeals in February, 1995, and its decision concurs with the lower courts
ruling.
An additional lawsuit was recently filed in State Court by federal
pensioners to recover State income taxes paid on federal retirement benefits.
This case grew out of a claim by federal pensioners in the original federal
court case in Swanson. In the new lawsuit, the plaintiffs allege that when the
State granted an increase in retirement benefits to State retirees in the same
legislation that equalized tax treatment between state and federal retirees,
the increased benefits to state retirees constituted an indirect violation of
Davis. The lawsuit seeks a refund of taxes paid by federal retirees on federal
retirement benefits received in the years 1989 through 1993 and refunds or
monetary relief sufficient to equalize the alleged on-going discriminatory
treatment for those years. An extension of time to answer the complaint has
been filed by the North Carolina Attorney General, which believes that sound
legal authority and arguments support the denial of this claim.
2. Bailey case -- State Tax Refunds - State Retirees. State and
local governmental retirees filed a class action suit in 1990 as a result of
the repeal of the income tax exemptions for state and local government
retirement benefits. The original suit was dismissed after the North Carolina
Supreme Court ruled in 1991 that the plaintiffs had failed to comply with state
law requirements for challenging unconstitutional taxes and the United States
Supreme Court denied review. In 1992, many of the same plaintiffs filed a new
lawsuit alleging essentially the same claims, including breach of contract,
unconstitutional impairment of contract rights by the State in taxing benefits
that were allegedly promised to be tax-exempt and violation of several state
constitutional provisions. On May 31, 1995 the Superior Court issued an order
ruling in favor of the plaintiffs. Under the terms of the order, the Superior
Court found that the act of the General Assembly that repealed the tax
exemption on State and local government retirement benefits which were vested
before August 1989 are exempt from taxation. The North Carolina Attorney
General intends to pursue an appeal from this order.
The North Carolina Attorney General's office estimates that the amount
in controversy is approximately $40-$45 million annually for the tax years 1989
through 1991. In addition, it is anticipated that the decision reached in this
case will govern the resolution of tax refund claims made by retired state and
local government employees for taxes paid on retirement benefit income for tax
years after 1991. Furthermore, if the order of the Superior Court is upheld,
its provisions would apply prospectively to prevent future taxation of State
and local government retirement benefits that were vested before August 1989.
3. Fulton Case. The State's intangible personal property tax
levied on certain shares of stock has been challenged by the plaintiff on
grounds that it violates the United States Constitution Commerce Clause by
discriminating against stock issued by corporations that do all or part of
their business outside the State. The plaintiff in the action is a North
Carolina corporation that does all or part of its business outside the State.
The plaintiff seeks to invalidate the tax in its entirety and to recover tax
paid on the value of its shares in other corporations. The North Carolina
Court of Appeals invalidated the taxable percentage deduction and excised it
from the statute beginning with the 1994 tax year. The effect of this ruling
is to increase collections by rendering all stock taxable
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on 100% of its value. The State and the plaintiff sought further appellate
review. On December 9, 1994, the North Carolina Supreme Court ruled in favor
of the State, reversing the decision of the Court of Appeals and upholding the
tax on intangible personal property. The plaintiff's petition for review by
the United States Supreme Court was granted. Oral argument is expected in
Fall, 1995 and a decision expected by mid-1996. Net collections from the tax
for the fiscal year ended June 30, 1994 amounted to $127.6 million. The North
Carolina Attorney General's Office believes that sound legal arguments support
the State's position. In April 1995, the North Carolina General Assembly
repealed the State's intangible personal property tax, effective for taxable
years beginning on or after January 1, 1995.
In October 1993, the State issued a total of $194.7 million general
obligation bonds (consisting of $87.5 million Prison and Youth Services
Facilities Bonds, $61 million Public Improvement Refunding Bonds, $30.2 million
Highway Refunding Bonds, and $16 million Clean Water Refunding Bonds). An
additional $67.5 million general obligation bonds (Prison and Youth Services
Facilities Bonds) were issued in November, 1993. On November 2, 1993, a total
of $740 million general obligation bonds (consisting of $310 million University
Improvement Bonds, $250 million Community College Bonds, $145 million Clean
Water Bonds, and $35 million State Parks Bonds) were approved by the voters of
the State. Pursuant to this authorization, the State issued $400 million
general obligation bonds (Capital Improvement Bonds) in January, 1994. The
proceeds of these Capital Improvement Bonds may be used for any purpose for
which the proceeds of the University Improvement Bonds, Community College
Bonds, and State Parks Bonds may be used (none of such proceeds may be used for
Clean Water purposes). An additional $60 million general obligation bonds
(Clean Water Bonds) were issued in September and October, 1994. The remaining
$85 million general obligation bonds (Clean Water Bonds) were issued in June and
July 1995. The offering of the remaining $195 million of these authorized
bonds is anticipated to occur over the next two years.
Currently, Moody's Investors Service, Inc., Standard & Poor's
Corporation, and Fitch Investors Service, Inc. rate North Carolina general
obligation bonds Aaa, AAA, and AAA, respectively. See Appendix A.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN VIRGINIA MUNICIPAL
OBLIGATIONS. The Virginia Municipal Money Market Portfolio will invest
primarily in Virginia Municipal Obligations. For this reason, the Portfolio is
affected by political, economic, regulatory or other developments that
constrain the taxing, revenue-collecting and spending authority of Virginia
issuers or otherwise affect the ability of Virginia issuers to pay interest,
principal, or any premium. The following information constitutes only a brief
summary of certain of these developments and does not purport to be a complete
description of them.
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The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the
taxing, revenue-collecting and spending authority of Virginia issuers or
otherwise affect the ability of Virginia issuers to pay interest, principal, or
any premium. The following information constitutes only a brief summary of
certain of these developments and does not purport to be a complete description
of them.
The rate of economic growth in the Commonwealth of Virginia has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8 percent rate of growth in per capita personal income was slightly ahead of
the national rate of growth of 4.7 percent. During 1990 and 1992, Virginia's
per capita personal income grew at a slightly lower rate than the U.S. average.
Per capita income in Virginia has been consistently above national levels over
the past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment and
manufacturing. Because of Virginia's proximity to Washington, D.C. and the
concentration of military installations in the Commonwealth (the largest such
concentration in the United States), the Federal government has a greater
economic impact on Virginia relative to its size than on any of the other
states except Alaska and Hawaii. It is unclear what effect the current efforts
by the Federal government to restructure the defense budget will have on the
long-term economic conditions of the Commonwealth.
According to statistics published by the U.S. Department of Labor, the
Commonwealth typically has one of the lowest unemployment rates in the nation.
This is generally attributed to the balance among the various sectors
represented in the economy. During 1993, an average of 5 percent of Virginians
were unemployed as compared with the national average of 6.8 percent. At the
same time, the population of the state has continued to grow over the last
decade at a rate that is substantially higher than the national average. The
rate of increase in such population growth has declined since reaching a high
of 2.1 percent annually in 1987 and, in 1993, was approximately 1.8 percent.
Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Budget and Deficit Matters
Virginia's state government operates on a two-year budget. The
Constitution vests the ultimate responsibility and authority for levying taxes
and appropriating revenue in the General Assembly, but the Governor has broad
authority to manage the budgetary process. The budgetary process begins in May
of even-numbered years, approximately 14 months before the start of a biennium
when the Governor gives initial guidance to state agencies regarding base
budgets, maximum employment levels and policy initiatives. By the following
December, final revenue estimates are submitted by the Department of Taxation
and reviewed by the Governor, the Advisory Board of Economists and the Advisory
Council on Revenue Estimates. Final adjustments to revenues and services are
then made, and a bill detailing the Governor's budget is prepared. The
Governor is required by statute to present the budget bill and a narrative
summary of the bill to the General Assembly by December 20 in the year
immediately prior to each even-year session. In the odd-year sessions of the
General Assembly, amendments are considered to the Appropriation Act of the
previous year.
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Once an appropriation act becomes law, revenue collections and
expenditures are constantly monitored by the Governor, assisted by the
Secretary of Finance and the Department of Planning and Budget, to ensure that
a balanced budget is maintained. If projected revenue collections fall below
amounts appropriated at any time, the Governor must reduce expenditures and
withhold allotments of appropriations (other than for debt service and other
specified purposes) to restore balance. Up to 15 percent of a general fund
appropriation to an agency may be withheld, if required.
The Constitution further requires the Governor to ensure that expenses
do not exceed anticipated total revenues plus fund balances during the
two-and-a-half-year period following the end of the General Assembly session in
which appropriations are made. An amendment to the Constitution, effective
January 1, 1993, established a Revenue Stabilization Fund. This fund is used
to offset a portion of anticipated shortfalls in revenues in years when
appropriations based on initial forecasts exceed expected revenues in any
subsequent forecast. The Revenue Stabilization Fund consists of an amount not
to exceed 10 percent of the Commonwealth's average annual tax revenues derived
from taxes on income and retail sales as certified by the Auditor of Public
Accounts for the three immediately preceding fiscal years. If in any year
total revenues are forecasted to decline by more than two percent of the
certified tax revenues collected in the most recently ended fiscal year, the
General Assembly may appropriate an amount for transfer from the Revenue
Stabilization Fund to the General Fund in an amount not to exceed one-half of
the forecasted shortfall. Earnings in excess of the 10 percent cap are
transferred to the General Fund as received.
In fiscal year 1994, revenues increased six percent from the previous
year, while total expenditures increased by 4.5 percent. Revenues exceeded
expenditures by $731.2 million, an increase of 20 percent over fiscal year
1993.
Tax Matters
General fund revenues are principally composed of direct taxes. In
fiscal year 1994, approximately 94.9 percent of total tax revenues was derived
from five major taxes imposed by the Commonwealth on individual and fiduciary
income, sales and use, corporate income, public services corporations and
premiums of insurance companies.
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<PAGE> 66
Nongeneral revenues consist of all revenues not formally accounted for
in the general fund. Included in this category are special taxes and user
charges earmarked for specific purposes, the majority of institutional revenues
and revenues from the sale of property and commodities, plus receipts from the
Federal government.
Approximately 50 percent of the nongeneral revenues consist of grants
and donations from the Federal government, motor vehicle taxes and
institutional revenues. Institutional revenues consist primarily of fees and
charges collected by institutions of higher education, medical and mental
hospitals and correctional institutions. Motor vehicle-related taxes include
the motor vehicle fuel tax, a motor vehicle sales and use tax, oil excise tax,
fees generated from driver's licenses, title registration, and motor vehicle
registrations and other miscellaneous revenues.
Debt Management
In September 1991, the Debt Capacity Advisory Committee was created by
the Governor through an executive order. The committee is charged with
annually estimating the amount of tax-supported debt that may prudently be
authorized consistent with the financial goals, capital needs and policies of
the Commonwealth. The committee reviews the outstanding debt of all agencies,
institutions, boards and authorities of the Commonwealth for which the
Commonwealth has either a direct or indirect pledge of tax revenues or moral
obligation. The committee released its first report in January 1992 and its
second in January 1994.
The Department of Planning and Budget has prepared a Six-Year Capital
Outlay Plan for the Commonwealth. The Plan lists proposed capital projects,
and it recommends how the proposed projects should be financed. More
specifically, the Plan distinguishes between immediate demands and longer-term
needs, assesses the state's ability to meet its highest priority needs and
outlines approaches for addressing priorities in terms of costs, benefits and
financing mechanisms.
The Constitution of Virginia prohibits the creation of debt by or on
behalf of the Commonwealth that is backed by the Commonwealth's full faith and
credit, except as provided in Section 9 of Article X. Section 9 of Article X
contains several different provisions for the issuance of general obligation
and other debt:
Section 9(a)(2) provides that the General Assembly may incur general
obligation debt to meet certain types of emergencies, subject to limitations on
amount and duration; to meet casual deficits in the revenue or in anticipation
of the collection of revenues of the Commonwealth; and to redeem a previous
debt obligation of the Commonwealth. Total indebtedness issued pursuant to
this Section may not exceed 30 percent of an amount equal to 1.15 times the
annual tax revenues derived from taxes on income and retail sales, as certified
by the Auditor of Public Accounts for the preceding fiscal year.
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Section 9(b) provides that the General Assembly may authorize the
creation of general obligation debt for capital projects. Such debt is
required to be authorized by an affirmative vote of a majority of each house of
the General Assembly and approved in a statewide election. The outstanding
amount of such debt is limited to an amount equal to 1.15 times the average
annual tax revenues derived from taxes on income and retail sales, as certified
by the Auditor of Public Accounts for the three preceding fiscal years less the
total amount of bonds outstanding. The amount of 9(b) debt that may be
authorized in any single fiscal year is limited to 25 percent of the limit on
all 9(b) debt less the amount of 9(b) debt authorized in the current and prior
three fiscal years.
Section 9(c) provides that the General Assembly may authorize the
creation of general obligation debt for revenue-producing capital projects
(so-called "double-barrel" debt). Such debt is required to be authorized by an
affirmative vote of two-thirds of each house of the General Assembly and
approved by the Governor. The Governor must certify before the enactment of
the authorizing legislation and again before the issuance of the debt that the
net revenues pledged are expected to be sufficient to pay principal of and
interest on the debt. The outstanding amount of 9(c) debt is limited to an
amount equal to 1.15 times the average annual tax revenues derived from taxes
on income and retail sales, as certified by the Auditor of Public Accounts for
the three preceding fiscal years. While the debt limits under Sections 9(b)
and 9(c) are each calculated as the same percentage of the same average tax
revenues, these debt limits are separately computed and apply separately to
each type of debt.
Based on individual, fiduciary and corporate income taxes and the
state sales and use tax, as certified as of July 1, 1994, the debt limits and
remaining debt margins under Article X, Section 9 are set forth below (in $
thousands).
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<PAGE> 68
<TABLE>
<S> <C>
Section 9(a)(2) General Obligation Debt Limit(5):
- -------------------------------------------------
Debt Limit (30% of 1.15 times annual tax revenues for fiscal year 1994) $1,954,008
Less Bonds Outstanding: (none) -
--------------
Debt Margin $1,954,008
==============
Section 9(b) General Obligation Debt Limit:
- -------------------------------------------
Debt Limit (1.15 times average tax revenues for three fiscal years as calculated above) $6,136,996
Less Bonds Outstanding:
Public Facilities Bonds 213,570
Transportation Facilities Refunding Bonds 71,825
--------------
Debt Margin $5,851,601
Additional Section 9(b) Debt Borrowing Restriction:
Four-year authorization restriction (25% of 9(b) Debt Limit) $1,534,249
Less 9(b) Debt authorized in past three years 612,944
--------------
Total Additional Borrowing Restriction (maximum amount
that could be authorized by the General Assembly) $921,305
==============
Section 9(c) General Obligation Debt Limit and Debt Margin
- ----------------------------------------------------------
Debt Limit (1.15 times average tax revenues for three fiscal years as calculated above) $6,136,996
Less Bonds Outstanding:
Parking Facilities 10,645
Transportation Facilities 80,115
Higher Education Institutions 406,427
-------------
Debt Margin $5,639,809
=============
</TABLE>
Article X further provides in Section 9(d) that the restrictions of
Section 9 are not applicable to any obligation incurred by the Commonwealth or
any of its institutions, agencies or authorities if the full faith and credit
of the Commonwealth is not pledged or committed to the payment of such
obligation. There are currently outstanding various types of such 9(d) revenue
bonds. Certain of these bonds, however, are paid in part or in whole from
revenues received as appropriations by the General Assembly from general tax
revenues, while others are paid solely from revenues of the applicable project.
The debt repayments of the Virginia Public Building Authority, the
Virginia Port Authority, the Virginia College Building Authority Equipment
Leasing Program and The Innovative Technology Authority are supported in large
part by General Fund appropriations. Together, payments to these authorities
totaled $87.3 million in fiscal year 1994.
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The Commonwealth Transportation Board ("CTB") in 1993 issued its
$111,680,000 Transportation Contract Revenue Refunding Bonds to refund in full
an earlier series of the same bonds issued to finance costs related to its
Route 28 project. In 1989, CTB issued its $200,000,000 Transportation Revenue
Bonds, Series 1989 (U.S. Route 58 Corridor Development Program). These bonds
were refunded in part in 1993 by the issuance of CTB's $91,455,000
Transportation Revenue Refunding Bonds, Series 1993A (U.S. Route 58 Corridor
Development Program). Additional costs of that program were financed through
the issuance of CTB's $98,715,000 Transportation Revenue Bonds, Series 1993B
(U.S. Route 58 Corridor Development Program). In August 1993, CTB also issued
its $134,060,000 Transportation Revenue Bonds, Series 1993C (Northern Virginia
Transportation District Program). These bonds are secured by and payable from
funds appropriated by the General Assembly from the Transportation Trust Fund
for such purpose. The Transportation Trust Fund was established by the General
Assembly in 1986 as a special non-reverting fund administered and allocated by
the Transportation Board to provide increased funding for construction, capital
and other needs of state highways, airports, mass transportation and ports.
The Virginia Port Authority has also issued bonds in the approximate amount of
$106 million which are secured by a portion of the Transportation Trust Fund.
The fund balance of the Transportation Trust Fund administered by the
Transportation Board at June 30, 1994, was $278.9 million.
The Commonwealth is also involved in numerous leases that are subject
to appropriation of funding by the General Assembly. For all capital leases,
the principal balance was $21.1 million as of June 30, 1993.
The Commonwealth finances the acquisition of certain personal property
and equipment through installment purchase agreements. The length of the
agreements and the interest rates charged vary. In most cases, the agreements
are collateralized by the personal property and equipment acquired.
Installment purchase agreements contain nonappropriation clauses indicating
that continuation of the installment purchase is subject to funding by the
General Assembly. The balance of installment purchase obligations was $48.3
million as of June 30, 1993.
Bonds issued by the Virginia Housing Development Authority, the
Virginia Resources Authority and the Virginia Public School Authority are
designed to be self-supporting from their individual loan programs. A portion
of the Virginia Housing Development Authority and Virginia Public School
Authority bonds and all of the Virginia Resources Authority bonds are secured
in part by a moral obligation pledge of the Commonwealth. Should the need
arise, the Commonwealth may consider funding deficiencies in the respective
debt service reserves for such moral obligation debt. To date, none of these
authorities has advised the Commonwealth that any such deficiencies exist.
Local Government
Local government in the Commonwealth is comprised of 95 counties, 41
incorporated cities, and 190 incorporated towns. The Commonwealth is unique
among the several states in that cities and counties are independent, and their
land areas do not overlap. Cities and counties are the units of general
government that have traditionally provided all services not provided by the
Commonwealth; they levy and collect their own taxes. On the other hand, towns
constitute a part of the counties in which they are located; they levy and
collect taxes for town purposes, but their residents are also subject to county
taxes. The largest expenditure by local governments in the Commonwealth are
for education, but local governments also provide other services such as water
and sewer, police and fire protection and recreational facilities.
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According to figures prepared by the Auditor of Public Accounts of
Virginia, the total outstanding general obligation and revenue debt of counties
in the Commonwealth was approximately $4.1 billion as of June 30, 1993, most of
which was borrowed for school construction. The amount of debt of Virginia's
cities outstanding as of June 30, 1993, was approximately $3.6 billion, while
towns had approximately $233 million outstanding as of June 30, 1993.
Pending Litigation
On March 28, 1989, in Davis v. Michigan the United States Supreme
Court declared unconstitutional a Michigan statute exempting from state income
tax the retirement benefits paid to former workers by the state and local
governments but not comparable benefits paid by the Federal government. At
that time, Virginia exempted state and local but not Federal government
benefits.
Harper v. Department of Transportation is a suit by Federal retirees
seeking refund of four years of state income taxes paid during the period from
1985 to 1988. On May 27, 1994, the Virginia Supreme Court agreed to hear
Harper on appeal from the Alexandria Circuit Court. In a July 1994 special
session, the Virginia General Assembly passed emergency legislation to provide
payments to Federal retirees in settlement of the principal amount, excluding
interest, of the retirees' claims for overpaid taxes. On July 26, 1994, in
order to permit the settlement process to go forward, the Virginia Supreme
Court granted a stay in the proceedings in Harper for six months or until
further order of the Court, whichever occurred first.
The settlement payments are to be made over a five-year period,
commencing on March 31, 1995. The total amount of the proposed settlement is
$340 million plus earnings on the investment of such amount that may be
appropriated. These amounts will be paid to participating retirees in
installments of $60 million on March 31, 1995, and $70 million on each
succeeding March 31 through 1999, subject to appropriation by the General
Assembly.
Retirees who choose to accept and remain eligible to recover such
taxes must have responded to the Department of Taxation by November 1, 1994.
By February 1, 1995, retirees must have signed and returned to the Tax
Commissioner a settlement agreement releasing the Commonwealth from any further
liability for claims arising out of such taxes and dismissing any related
litigation to which the taxpayer is a party. The legislation also provides
that in the event the total principal amount of the claims of taxpayers opting
out of the settlement exceeds $20 million, the entire settlement is null and
void unless reauthorized by the General Assembly on or before March 1, 1995.
The estimated amount of such claims, including interest calculated as of
December 31, 1993, is approximately $707.5 million.
After the decision in Davis v. Michigan, the General Assembly amended
applicable Virginia law to make all pensions taxable. On July 8, 1993, in
Stepka v. Commonwealth several former state employees and one current state
employee filed suit against the Commonwealth and the Department of Taxation in
the Circuit Court of the City of Richmond claiming that legislature's response
to Davis breached an implied contract not to tax state employees' pensions and
seeking refunds for all such taxes paid. The Commonwealth and the Department
have filed responsive pleadings. The case involves multiple plaintiffs with
claims aggregating approximately $19.2 million as of June 1994. The outcome of
this action cannot be predicted.
Current Rating
Most recently, Moody's has rated the long-term general obligation
bonds of the Commonwealth Aaa, and Standard & Poor's has rated such bonds AAA.
There can be no assurance that the economic conditions on which these ratings
are based will continue or that particular bond issues may not be adversely
affected by changes in economic or political conditions.
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SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NEW JERSEY MUNICIPAL
OBLIGATIONS. The State of New Jersey and its political subdivisions, agencies
and public authorities are authorized to issue two general classes of
indebtedness: general obligation bonds and revenue bonds. Both classes of
bonds may be included in the New Jersey Municipal Money Market Portfolio. The
repayment of principal and interest on general obligation bonds is secured by
the full faith and credit of the issuer, backed by the issuer's taxing
authority, without recourse to any special project or source of revenue.
Special obligation or revenue bonds may be repaid only from revenues received
in connection with the project for which the bonds are issued, special excise
taxes, or other special revenue sources and generally are issued by entities
without taxing power. Neither the State of New Jersey nor any of its
subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
General obligation bonds of the State are repaid from revenues
obtained through the State's general taxing authority. An inability to
increase taxes may adversely affect the State's ability to authorize or repay
debt.
Public authorities, private non-profit corporations, agencies and
similar entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities
are not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity
bonds in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing
Authority's ability to repay debt on special obligation bonds and no assurance
can be given that sufficient revenues will be obtained to make such payments,
although in some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health
care facilities, transportation facilities, office buildings and related
facilities, housing facilities, pollution control facilities, water and sewage
facilities and power and electric facilities. Each of these facilities may
incur different difficulties in meeting its debt repayment obligations.
Hospital facilities, for example, are subject to changes in Medicare and
Medicaid reimbursement regulations, attempts by Federal and state legislatures
to limit the costs of health care and management's ability to complete
construction projects on a timely basis as well as to maintain projected rates
of occupancy and utilization. At any given time, there are several proposals
pending on a Federal and state level concerning health care which may further
affect a hospital's debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of Federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private
activity bonds issued by the New Jersey Economic Development Authority, a major
issuer of special obligation bonds, have defaulted on their debt service
obligations. Because these special obligation bonds were repayable only from
revenue received from the specific projects which they funded, the New Jersey
Economic Development Authority was unable to repay the debt service to
bondholders for such facilities. Each issue of special obligation bonds,
however, depends on its own revenue for repayment, and thus these defaults
should not affect the ability of the New Jersey Economic Development Authority
to repay obligations on other bonds that it issues in the future.
The State has, in the past, experienced a period of substantial
economic growth with unemployment levels below the national average. Recently,
however, the state has experienced an economic slowdown, and its unemployment
rate has risen to the extent the State has lost its relative advantage over the
nation. To the extent that any adverse conditions exist in the future which
affect the obligor's ability to repay debt, the value of the Portfolio may be
immediately and substantially affected.
The following are cases presently pending or threatened in which the
State has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (i) several labor unions have challenged 1992
legislation mandating a revaluation of several public employee pension funds
which resulted in a refund of $773 million in public employer contributions to
the State and annual savings to the State of approximately $226 million for
fiscal 1993 and thereafter; (ii) in June 1990, the State Supreme Court held the
State's public school funding mechanism unconstitutional; legislation which was
enacted to establish a new funding system has also been challenged; (iii)
several cases filed in the State courts challenged the basis on which
recoveries of certain costs for residents in State psychiatric hospitals and
other facilities are shared between the State Department of Human Services and
the State's county governments, and certain counties are seeking the recovery
from the Department of costs they have incurred for the maintenance of such
residents; (iv) a lawsuit filed in the United States District Court in 1990
alleges that the State Department of Human Services has established
unreasonably low Medicaid payment rates for long-term care facilities; (v) a
number of taxpayers are seeking refunds of taxes paid to the Spill Compensation
Fund, on the grounds, inter alia, that the State law is preempted by the
Federal Superfund legislation; (vi) the 1990 Fair Automobile Insurance Reform
Act has been challenged in several State court suits, including provisions in
the Act dealing with the premium tax surtax which was intended to raise $300
million in 1993; (vii) a suit was filed in 1991 seeking to impose directly on
the State the responsibility for funding the State's judicial system, which has
been primarily funded by the counties; (viii) several union welfare benefit
plans are challenging the State's hospital rate-setting system in a suit filed
in United States District Court; the Court held in 1992 that certain provisions
of the State system are preempted by Federal law; and (ix) the method by which
various State agencies reduced their personnel has been challenged and the case
is pending before the State Supreme Court.
Although the Portfolio generally intends to invest its assets
primarily in New Jersey Municipal Obligations rated within the two highest
rating categories of an NRSRO, there can be no assurance that such ratings will
remain in effect until such obligations mature or are redeemed or will not be
revised downward or withdrawn. Such revisions or withdrawals may have an
adverse affect on the market price of such securities.
ADDITIONAL INVESTMENT LIMITATIONS.
In addition to the investment limitations disclosed in the
Prospectuses, each Portfolio is subject to the investment limitations
enumerated in this subsection which may be changed with respect to a particular
Portfolio only by a vote of the holders of a majority of such Portfolio's
outstanding shares (as defined below under "Miscellaneous").
No Portfolio may:
1. Purchase or sell real estate, except that each
Portfolio may purchase securities of issuers which deal in real
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<PAGE> 72
estate and may purchase securities which are secured by interests in real
estate.
2. Acquire any other investment company or investment
company security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise permitted by the
1940 Act.
3. Act as an underwriter of securities within the
meaning of the Securities Act of 1933 except to the extent that the purchase of
obligations directly from the issuer thereof, or the disposition of securities,
in accordance with the Portfolio's investment objective, policies and
limitations may be deemed to be underwriting.
4. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except for transactions in options on
securities, securities indices, futures contracts and options on futures
contracts.
5. Purchase securities of companies for the purpose of
exercising control.
6. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to a Portfolio's transactions in futures contracts
and related options or a Portfolio's sale of securities short against the box,
and (b) a Portfolio may obtain short-term credit as may be necessary for the
clearance or purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in
oil, gas or mineral exploration or development programs, except that each
Portfolio may, to the extent appropriate to its investment policies, purchase
securities (publicly traded securities in the case of each Money Market
Portfolio) of companies engaging in whole or in part in such activities and may
enter into futures contracts and related options.
8. Make loans, except that each Portfolio may purchase
and hold debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies and may lend portfolio securities.
Although the foregoing investment limitations would permit the Money
Market Portfolios to invest in options, futures contracts and options on
futures contracts, and to sell securities short against the box, those
Portfolios do not currently intend to trade in such instruments or engage in
such transactions during the next twelve months. Prior to making any such
investments, a Money Market Portfolio would notify its
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shareholders and add appropriate descriptions concerning the instruments and
transactions to its Prospectus.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Fund, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Philip E. Coldwell 72 Trustee Economic Consultant;
Coldwell Financial Consultants Chairman, Coldwell
3330 Southwestern Blvd. Financial Consultants;
Dallas, TX 75225 Director, Maxus Energy
Corporation (energy
products) from 1989 to 1993;
Director or Trustee of
Temporary Investment Fund, Inc.,
Trust for Federal Securities, and
Municipal Fund for Temporary
Investment.
Robert R. Fortune 78 Trustee Financial consultant;
2920 Ritter Lane Chairman, President and
Allentown, PA 18104 Chief Executive Officer,
Associated Electric & Gas
Insurance Services Limited
from 1984 to 1993; Member of
the Financial Executives
Institute and American
Institute of Certified
Public Accountants; Director,
Trustee or Managing General
Partner of a number of
investment companies advised
by PIMC; Director, Prudential
Utility Fund, Inc., Prudential
Structured Maturity Fund, Inc.
and Prudential IncomeVertible
Fund, Inc.
Rodney D. Johnson 53 Trustee President, Fairmount
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Fairmont Capital Advisers, Capital Advisors, Inc.
Inc. (financial advisers)
1435 Walnut St. since 1987; Treasurer,
Philadelphia, PA 19102 North Philadelphia Health
System (formerly Girard
Medical Center) from 1988
to 1992; Member, Board of
Education, School District
of Philadelphia, 1983 to
1988; Treasurer, Cascade
Aphasia Center, 1984 to
1988; Director or Trustee of
Temporary Investment Fund,
Inc., Trust for Federal
Securities, Municipal Fund
for Temporary Investment,
Municipal Fund for California
Investors, Inc. and
Municipal Fund for
New York Investors, Inc.
G. Willing Pepper(1) 86 Chairman of Retired; Chairman of the
128 Springton the Board Board, Specialty
Lake Road and President Composites Corporation
Media, PA 19063 until May 1984;
Chairman of the Board, The
Institute for Cancer
Research until 1979;
Director, Philadelphia
National Bank until 1978;
President, Scott Paper
Company from 1971 to
1973; Director, Marmon
Group, Inc. until April
1986; Director, Trustee
or Managing General
Partner of a number
of investment companies
advised by PIMC.
</TABLE>
- --------------------
(1) This trustee may be deemed an "interested person" of the Fund as
defined in the 1940 Act.
-41-
<PAGE> 75
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Anthony M. Santomero 48 Trustee Deputy Dean from
310 Keithwood Road 1990 to 1994, Richard
Wynnewood, PA 19096 K. Mellon Professor
of Finance since April 1984,
and Dean's Advisory
Council Member since
July 1984, The Wharton
School, University of
Pennsylvania; Associate
Editor, Journal of Banking
and Finance since June 1978;
Associate Editor, Journal of
Economics and Business since
October 1979; Associate Editor,
Journal of Money, Credit and
Banking since January 1980;
Research Associate, New York
University Center for Japan-U.S.
Business and Economic Studies
since July 1989; Editorial
Advisory Board, Open Economics
Review since November 1990;
Director, The Zweig Fund and
The Zweig Total Return Fund;
Director or Trustee of Temporary
Investment Fund, Inc., Trust
for Federal Securities, Municipal
Fund for Temporary Investment
and Municipal Fund for California
Investors, Inc.
David R. Wilmerding, Jr. 60 Vice-Chairman President, Gates,
One Aldwyn Center of the Board Wilmerding, Carper &
Villanova, PA 19085 Rawlings, Inc.
(investment advisers)
since February 1989;
Director, Beaver Management
Corporation; Until September
1988, President, Treasurer
and Trustee, The Mutual
</TABLE>
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<PAGE> 76
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Assurance Company; Until
September 1988, Chairman,
President Treasurer and
Director, The Green Tree
Insurance Company (a
wholly-owned subsidiary
of The Mutual Assurance
Company); Until September
1988, Director, Keystone
State Life Insurance Company;
Director, Trustee or Managing
General Partner of a number
of investment companies advised
by PIMC.
Edward J. Roach 70 Treasurer Certified Public
400 Bellevue Parkway and Vice- Accountant; Partner of
Suite 100 President the accounting firm of
Wilmington, DE 19809 Main Hurdman until 1981; Vice
Chairman of the Board, Fox
Chase Cancer Center; Trustee
Emeritus, Pennsylvania School
for the Deaf; Trustee Emeritus,
Immaculata College; President,
Vice President and/or Treasurer
of a number of investment
companies advised by PIMC.
Morgan R. Jones 55 Secretary Partner in the law
Philadelphia National firm of Drinker Biddle &
Bank Building Reath, Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107-3496
</TABLE>
The Fund pays trustees who are not affiliated with PNC Institutional
Management Corporation ("PIMC") or Provident Distributors, Inc. ("PDI" or
"Distributor") $5,500 annually and $500 per meeting of the Board or any
committee thereof that is not held in conjunction with a Board meeting (subject
to a cap of $6,000 per year for such meeting fees), and pays the Chairman an
additional $5,000 annually. Trustees who are not affiliated with PIMC or the
Distributor are reimbursed for any expenses incurred in attending meetings of
the Board of Trustees or any committee thereof. No officer, director or
employee of PIMC, Provident Capital Management, Inc. ("PCM"), PNC Bank,
National Association
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<PAGE> 77
("PNC Bank"), Black Rock Financial Management, Inc. ("Black Rock"), PNC
Equity Advisors Company ("PEAC"), PFPC Inc. ("PFPC"), Provident Distributors,
Inc. (formerly, MFD Group, Inc.) ("PDI" and, collectively with PFPC, the
"Administrators") or the Distributor currently receives any compensation from
the Fund. Drinker Biddle & Reath, of which Mr. Jones is a partner, receives
legal fees as counsel to the Fund. As of the date of this Statement of
Additional Information, the trustees and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of each Portfolio.
The table below sets forth the compensation actually received from the
Fund Complex, of which the Fund is a part, by the trustees for the fiscal year
ended September 30, 1994:
<TABLE>
<CAPTION>
===========================================================================================================================
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM REGISTRANT AND
NAME OF PERSON, COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX (1)
POSITION REGISTRANT FUND EXPENSES RETIREMENT PAID TO TRUSTEES
--------------- ----------------- ------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip E. Coldwell, Trustee $7,625 n/a n/a (4)(2) $44,025.00
- ---------------------------------------------------------------------------------------------------------------------------
Robert R. Fortune, Trustee $7,625 n/a n/a (6)(2) $56,725.00
- ---------------------------------------------------------------------------------------------------------------------------
Rodney D. Johnson, Trustee $7,625 n/a n/a (6)(2) $54,775.00
- ---------------------------------------------------------------------------------------------------------------------------
G. Willing Pepper, Chairman $11,625 n/a n/a (7)(2) $98,275.00
of the Board and President
- ---------------------------------------------------------------------------------------------------------------------------
Anthony M. Santomero, Trustee $7,625 n/a n/a (5)(2) $44,025.00
- ---------------------------------------------------------------------------------------------------------------------------
Henry M. Watts, Jr.,(1) Trustee $2,675 n/a n/a (8)(2) $61,875.00
- ---------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Jr., $7,625 n/a n/a (6)(2) $61,025.00
Trustee
===========================================================================================================================
</TABLE>
- -------------------------------
(1) A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any of the other investment companies.
(2) Total number of investment companies trustee serves on within the
Fund Complex.
(3) Mr. Watts resigned as trustee on May 5, 1994.
-44-
<PAGE> 78
SHAREHOLDER AND TRUSTEE LIABILITY. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, the
Fund's Declaration of Trust provides that shareholders shall not be subject to
any personal liability in connection with the assets of the Fund for the acts
or obligations of the Fund, and that every note, bond, contract, order or other
undertaking made by the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder
and not because of his acts or omissions or some other reason. The Declaration
of Trust also provides that the Fund shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Fund,
and shall satisfy any judgment thereon.
The Declaration of Trust further provides that all persons having any
claim against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee. With the exception stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may be involved
or with which he may be threatened by reason of his being or having been a
trustee, and that the Fund will indemnify officers, representatives and
employees of the Fund to the same extent that trustees are entitled to
indemnification.
INVESTMENT ADVISORY, ADMINISTRATION,
DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PIMC, BlackRock, PCM, PEAC and PNC Bank and the fees
received by each of them for such services are described in the Prospectuses.
As stated in the Prospectuses, PIMC may from time to time voluntarily waive its
advisory fees with respect to a Portfolio and may voluntarily reimburse
Portfolios for expenses. In addition, if the total expenses borne by any
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations,
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<PAGE> 79
PIMC and the Administrators will bear the amount of such excess to the extent
required by such regulations in proportion to the fees otherwise payable to
them for such year. Such amount, if any, will be estimated and accrued daily
and paid on a monthly basis. As of the date of this Statement of Additional
Information, to the knowledge of the Fund, there were no state expense
limitations more restrictive than the following: 2 1/2% of the first $30
million of average annual net assets, 2% of the next $70 million of average
annual net assets, and 1 1/2% of average annual net assets in excess of $100
million.
PIMC renders advisory services to each of the Portfolios pursuant to an
Investment Advisory Agreement. PCM renders sub-advisory services to the Value
Equity, Small Cap Value Equity, International Equity, International Fixed
Income and International Emerging Markets Portfolios pursuant to Sub-Advisory
Agreements. PNC Bank renders sub-advisory services to the Money Market,
Government Money Market, Municipal Money Market, Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Virginia Municipal Money Market, New Jersey Municipal Money Market, Balanced
and Tax-Free Income Portfolios pursuant to Sub-Advisory Agreements. BlackRock
renders sub-advisory services to the Managed Income, Intermediate Government,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term Bond,
Intermediate-Term Bond and Government Income Portfolios pursuant to
Sub-Advisory Agreements. PEAC renders sub-advisory services to the Growth
Equity, Small Cap Growth Equity, Core Equity and Index Equity Portfolios
pursuant to Sub-Advisory Agreements. These Advisory and Sub-Advisory
Agreements are collectively referred to as the "Advisory Contracts." From
December 1, 1992 (commencement of operations) to March 29, 1995, PNC Bank,
Ohio, National Association ("PNC Bank Ohio") served as sub-adviser to the Ohio
Tax-Free Income Portfolio. From November 1, 1989 (commencement of operations)
to May 8, 1992, PNC Bank Ohio served as sub-adviser to the Municipal Money
Market Portfolio. From November 1, 1989 (commencement of operations) to
September 10, 1993, PNC Bank Ohio served as sub-adviser to the Managed Income
and Growth Equity Portfolios. From April 20, 1992 (commencement of
operations) to July 22, 1992, Advanced Investment Management, Inc. served as
sub-adviser to the Index Equity Portfolio. From April 20, 1992 to September
10, 1993, PCM served as sub-adviser to the Intermediate Government Portfolio.
From July 23, 1992 to March 29, 1995, PNC Bank served as sub-adviser to the
Index Equity Portfolio. From September 11, 1993 to March 29, 1995, PNC Bank
served as sub-adviser to the Managed Income, Intermediate Government and Growth
Equity Portfolios. From December 1, 1992 (commencement of operations) to March
29, 1995, PNC Bank served as sub-adviser to the Ohio Tax-Free Income and
Pennsylvania Tax-Free Income Portfolios. From September 1, 1993 (commencement
of operations) to March 29, 1995, PNC Bank served as sub-adviser to the
Short-Term Bond Portfolio. From September 13, 1993 (commencement of
operations) to March 29, 1995, PNC Bank served as sub-adviser to the Core
Equity Portfolio. From September 14, 1993 (commencement of operations) to
March 29, 1995, PNC Bank served as sub-adviser to the Small Cap Growth Equity
Portfolio. From September 17, 1993 (commencement of operations) to March 29,
1995, PNC Bank served as sub-adviser to the Intermediate-Term Bond Portfolio.
Under the Advisory Contracts, PIMC, PCM, PEAC, PNC Bank and BlackRock
are not liable for any error of judgment or mistake of law or for any loss
suffered by the Fund or a Portfolio in connection with the performance of the
Advisory Contracts, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of PIMC, PCM, PEAC, PNC Bank or BlackRock in
the performance of their respective duties or from reckless disregard of their
respective duties and obligations thereunder. Each of the Advisory Contracts
is terminable as to a Portfolio by vote of the Board of Trustees or by the
holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to PIMC,
PCM, PEAC, PNC Bank or BlackRock, as the case may be. PIMC, PCM, PEAC, PNC
Bank or BlackRock may also terminate their advisory
-46-
<PAGE> 80
relationship with respect to a Portfolio, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
its assignment.
For the year ended September 30, 1994, the Fund paid advisory fees to
PIMC, after waivers, of $951,230, $171,405, $281,771, $6,724, $42,612, $0,
$1,398,343, $0, $368,546, $0, $49,646, $36,893, $131,294, $2,306,672, $467,637,
$55,825, $303,169, $28,392, $890,883, $1,408,053 and $470,579 with respect to
the Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International Equity
and Balanced Portfolios. For that year, PIMC waived advisory fees of
$3,359,847, $599,920, $986,201, $217,938, $336,382, $249,914, $599,290,
$47,655, $552,819, $35,709, $227,003, $137,696, $206,071, $865,002, $175,364,
$160,320, $113,689, $376,934, $197,974, $477,733 and $202,166 for such
respective Portfolios, and reimbursed the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Tax-Free Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios for certain operational expenses totalling $20,660, $19,022,
$26,804, $35,898, $35,496, and $9,645, respectively. For the period from
commencement of operations (July 25, 1994 for the Virginia Municipal Money
Market Portfolio and June 17, 1994 for the International Emerging Market
Portfolio) through September 30, 1994, the Fund paid advisory fees to PIMC,
after waivers, of $0 and $7,672 with respect to the Virginia Municipal Money
Market and International Emerging Markets Portfolios, respectively. For the
same periods, PIMC waived advisory fees of $8,925 and $16,051 for such
respective Portfolios, and reimbursed the Virginia Municipal Money Market
Portfolio for certain operational expenses totalling $4,816.
For the year ended September 30, 1993, the Fund paid advisory fees to
PIMC, after waivers, of $2,899,093, $509,475, $601,820, $1,522,695, $0,
$594,202, $1,996,726, $400,652, $212,413, $564,065, $598,040 and $124,556 for
the Money Market, Municipal Money Market, Government Money Market, Managed
Income, Tax-Free Income, Intermediate Government, Value Equity, Growth Equity,
Index Equity, Small Cap Value Equity, International Equity and Balanced
Portfolios, respectively. For that year, PIMC waived advisory fees of
$815,911, $131,249, $195,459, $87,513, $43,457, $77,301, $108,242, $31,912,
$161,606, $34,794, $47,134 and $45,203 for such respective Portfolios, and
reimbursed the Tax-Free Income Portfolio for certain operational expenses
totalling $7,314. For the period from commencement of operations (December 1,
1992 for each of the Ohio Tax-Free Income
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<PAGE> 81
and Pennsylvania Tax-Free Income Portfolios; May 3, 1993 for the North Carolina
Municipal Money Market Portfolio; June 1, 1993 for each of the Ohio Municipal
Money Market and Pennsylvania Municipal Money Market Portfolios; September 1,
1993 for the Short-Term Bond Portfolio; September 13, 1993 for the Core Equity
Portfolio; September 14, 1993 for the Small Cap Growth Equity Portfolio; and
September 17, 1993 for the Intermediate-Term Bond Portfolio) to September 30,
1993, the Fund paid advisory fees to PIMC, after waivers, of $0, $0, $0, $0,
$0, $0, $5,432, $0 and $14,325 for the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term Bond,
Intermediate-Term Bond, Small Cap Growth Equity and Core Equity Portfolios,
respectively. For the same periods, PIMC waived advisory fees of $28,953,
$18,117, $47,085, $8,781, $87,528, $2,078, $5,432, $2,773 and $5,372 for such
respective Portfolios, and reimbursed the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income and Short-Term Bond
Portfolios for certain operational expenses totalling $8,630, $11,411, $11,729,
$20,906, $19,064 and $1,349, respectively.
For the year ended September 30, 1992, the Fund paid advisory fees to
PIMC, after waivers, of $2,526,929, $495,175, $706,211, $303,330, $8,166,
$815,088 and $0 for the Money Market, Municipal Money Market, Government Money
Market, Growth Equity, Balanced, Managed Income and Tax-Free Income Portfolios,
respectively. For that year, PIMC waived advisory fees of $315,866, $61,909,
$88,276, $6,541, $26,089 and $22,281 for the Money Market, Municipal Money
Market, Government Money Market, Growth Equity, Balanced and Tax-Free Income
Portfolios, respectively, and reimbursed the Tax-Free Income Portfolio for
certain operational expenses totalling $19,415. For the period from
commencement of operations (April 13, 1992 for the Small Cap Value Equity
Portfolio, April 20, 1992 for the Value Equity, Index Equity and Intermediate
Government Portfolios and April 27, 1992 for the International Equity
Portfolio) to September 30, 1992, the Fund paid advisory fees to PIMC, after
waivers, of $786,513, $88,130, $177,897, $187,950 and $208,451, for the Value
Equity, Index Equity, Small Cap Value Equity, International Equity and
Intermediate Government Portfolios, respectively. For the same periods, PIMC
waived advisory fees of $67,979, $4,597, $3,247 and $178 for the Index Equity,
Small Cap Value Equity, International Equity and Intermediate Government
Portfolios, respectively.
For the year ended September 30, 1994, PIMC paid sub-advisory fees to
the specified Portfolios' sub-adviser, after waivers, of $0, $0, $0, $0, $0,
$0, $1,198,580, $0, $276,410, $0, $33,198, $36,893, $97,470, $2,018,338,
$409,182, $55,825,
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<PAGE> 82
$265,273, $28,392, $791,896, $1,257,191, and $409,420 with respect to the Money
Market, Municipal Money Market, Government Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term Bond,
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Index
Equity, Small Cap Value Equity, International Equity and Balanced Portfolios.
For that year, such sub-advisers waived sub-advisory fees of $479,008, $85,703,
$140,886, $24,962, $42,110, $27,768, $199,763, $33,359, $368,546, $24,996,
$160,456, $85,319, $138,685, $288,334, $58,455, $101,371, $37,896, $275,602,
$0, $251,438, and $79,849 for such respective Portfolios. For the period from
commencement of operations (July 25, 1994 for the Virginia Municipal Money
Market Portfolio and June 17, 1994 for the International Emerging Markets
Portfolio) through September 30, 1994, PIMC paid sub-advisory fees to the
specified Portfolios' sub-adviser, after waivers, of $0 and $6,723 with respect
to the Virginia Municipal Money Market and International Emerging Markets
Portfolios, respectively. For the same periods, such sub- advisers waived
sub-advisory fees of $992 and $14,153 for such respective Portfolios.
For the year ended September 30, 1993, PIMC paid sub-advisory fees to
the specified Portfolios' sub-adviser, after waivers, of $0, $0, $0,
$1,065,887, $0, $415,941, $1,452,164, $291,383, $159,310, $410,229, $478,432
and $90,586 for the Money Market, Municipal Money Market, Government Money
Market, Managed Income, Tax-Free Income, Intermediate Government, Value Equity,
Growth Equity, Index Equity, Small Cap Value Equity, International Equity and
Balanced Portfolios, respectively. For that year, such sub- advisers waived
sub-advisory fees of $412,778, $71,192, $88,587, $61,259, $30,420, $54,111,
$78,721, $25,967, $121,205, $25,305, $37,707 and $32,875 for such respective
Portfolios. For the period from commencement of operations to September 30,
1993, the Fund paid sub-advisory fees to the specified Portfolios' sub-adviser,
after waivers, of $0, $0, $0, $0, $0, $0, $3,802, $0 and $10,418 for the Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond, Small Cap Growth Equity and Core
Equity Portfolios, respectively. For the same periods, such sub-advisers
waived sub-advisory fees of $3,217, $2,013, $5,232, $6,147, $61,270, $1,456,
$3,802, $2,017 and $3,906 for such respective Portfolios. For the period from
October 1, 1992 to September 10, 1993, PIMC paid sub- advisory fees of
$1,017,364 and $274,275 to PNC Bank Ohio for the Managed Income and Growth
Equity Portfolios, respectively. For the period from October 1, 1992 to
September 10, 1993, PIMC paid sub-
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<PAGE> 83
advisory fees of $397,885 to PCM with respect to the Intermediate Government
Portfolio.
For the year ended September 30, 1992, PIMC paid sub-advisory fees to
the specified Portfolios' sub-adviser, after waivers, of $0, $0, $220,604,
$5,939, $0 and $570,562, for the Money Market, Government Money Market, Growth
Equity, Balanced, Tax-Free Income and Managed Income Portfolios, respectively.
For that year, such sub-advisers waived sub-advisory fees of $315,866, $88,276,
$4,757, $18,974 and $15,597 for the Money Market, Government Money Market,
Growth Equity, Balanced and Tax-Free Income Portfolios, respectively. For the
period from commencement of operations to September 30, 1992, PIMC paid
sub-advisory fees to the specified Portfolios' sub-adviser, after waivers, of
$572,004, $129,380, $150,360 and $145,916 for the Value Equity, Small Cap Value
Equity, International Equity and Intermediate Government Portfolios,
respectively. For the same periods, the specified Portfolios' sub-adviser
waived sub-advisory fees of $3,343, $2,598 and $125, for the Small Cap Value
Equity, International Equity and Intermediate Government Portfolios,
respectively. For the period from October 1, 1991 to May 8, 1992 for the
Tax-Free Money Market Portfolio and the period April 20, 1992 to July 22, 1992
for the Index Equity Portfolio, PIMC paid sub-advisory fees to the particular
Portfolio's sub-adviser, after waivers, of $192,992 and $35,282, respectively,
and such sub-advisers waived sub-advisory fees of $0 and $30,027, respectively.
Such sub-advisory fees have no effect on the advisory fees payable by each
Portfolio to PIMC.
ADMINISTRATION AGREEMENTS. The Administrators serve as the Fund's
co-administrators pursuant to an Administration Agreement (the "Administration
Agreement"). The Administrators have agreed to maintain office facilities for
the Fund, furnish the Fund with statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by
the Fund.
The Administration Agreement provides that the Administrators will not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund or a Portfolio in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from
reckless disregard of their respective duties and obligations thereunder.
For the year ended September 30, 1994, the Fund paid the
Administrators combined administration fees, after waivers, of $803,349,
$42,931, $132,901, $2,241, $11,758, $0, $521,204, $0, $186,742, $0, $19,858,
$14,758, $52,518, $1,075,209, $128,262, $20,166, $52,164, $27,115, $354,486,
$502,876 and $125,112 with
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<PAGE> 84
respect to the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International Equity
and Balanced Portfolios. For that year, the Administrators waived combined
administration fees of $541,066, $214,178, $289,756, $72,646, $114,573,
$83,304, $277,849, $19,062, $181,804, $14,284, $90,020, $55,078, $82,428,
$61,908, $105,557, $58,432, $99,421, $378,211, $41,462, and $119,522 with
respect to the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax- Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity and Balanced
Portfolios, respectively, and reimbursed the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Tax-Free Income, Ohio Tax-Free Income, and Pennsylvania Tax-Free Income
Portfolios for certain operational expenses totalling $6,887, $6,340, $8,934,
$14,359, $14,199 and $3,858, respectively. For the period from commencement of
operations (July 25, 1994 for the Virginia Municipal Money Market Portfolio and
June 17, 1994 for the International Emerging Markets Portfolio) through
September 30, 1994, the Fund paid Administrators combined administration fees,
after waivers, of $0 and $1,259 with respect to the Virginia Municipal Money
Market and International Emerging Market Portfolios, respectively. For the
same periods, the Administrators waived combined administration fees of $2,975
and $2,537 for such respective Portfolios, and reimbursed the Virginia
Municipal Money Market Portfolio for certain operational expenses totalling
$1,605.
For the period from February 1, 1993 to September 30, 1993, the Fund
paid the Administrators combined administration fees, after waivers, of
$674,120, $117,768, $157,519, $397,750, $0, $167,611, $0, $0, $528,584,
$101,208, $195,736, $156,048, $123,924 and $44,667 for the Money Market,
Municipal Money Market, Government Money Market, Managed Income, Tax-Free
Income, Intermediate Government, Pennsylvania Tax-Free Income, Ohio Tax-Free
Income, Value Equity, Growth Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios, respectively. For that period,
the Administrators waived combined administration fees of $101,509, $21,036,
$30,288, $87,513, $11,914, $24,673, $85,754, $8,757, $9,382, $12,879, $59,581,
$5,441, $6,477 and $8,046 for such respective Portfolios, and reimbursed the
Pennsylvania Tax-Free Income and
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<PAGE> 85
Ohio Tax-Free Income Portfolios for certain operational expenses totalling
$5,766 and $6,515, respectively. For the period from commencement of
operations to September 30, 1993, the Fund paid the Administrators combined
administration fees, after waivers, of $0, $0, $0, $0, $1,262, $173 and $4,722
for the Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Short-Term Bond, Intermediate-Term Bond, Small
Cap Growth Equity and Core Equity Portfolios, respectively. For the same
period, the Administrators waived combined administration fees of $9,651,
$6,039, $15,695, $831, $3,084, $835 and $2,441 for such respective Portfolios.
For the period from October 1, 1992 to January 31, 1993, the Fund paid
PFPC and the former co-administrator combined administration fees, before
waivers, of $397,594, $74,771, $77,953, $212,227, $0, $76,317, $227,477,
$43,210, $118,702, $56,278, $41,645 and $4,938 Money Market, Municipal Money
Market, Government Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Value Equity, Growth Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios, respectively. For that period,
PFPC and the former co-administrator waived combined administration fees of $0,
$0, $0, $0, $5,469, $0, $0, $0, $0, $0, $0 and $4,080 for such respective
Portfolios, and reimbursed the Tax-Free Income Portfolio for certain
operational expenses totalling $0. For the period from commencement of
operations to January 31, 1993, the Fund paid PFPC and the former
co-administrator combined administration fees, before waivers, of $0 and $0 for
the Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios,
respectively. For the same period, PFPC and the former co-administrator waived
combined administration fees of $124 and $1,774 for such respective Portfolios,
and reimbursed such Portfolios for certain operational expenses totalling
$1,848 and $1,859, respectively.
For the year ended September 30, 1992, the Fund paid PFPC and the
former co-administrator combined administration fees, after waivers, of
$923,307, $185,695, $264,829, $112,680, $3,511, $326,035 and $0 for the Money
Market, Municipal Money Market, Government Money Market, Growth Equity,
Balanced, Managed Income and Tax-Free Income Portfolios, respectively. For
that year, PFPC and the former co-administrator waived combined administration
fees of $8,946 and $8,912 for the Balanced and Tax-Free Income Portfolios,
respectively. For the services provided and expenses assumed by PFPC and the
former co-administrator, the Fund paid them combined administration fees of
$286,005, $156,109, $66,361, $50,986 and $83,451 for the Value Equity, Index
Equity, Small Cap Value Equity, International Equity and Intermediate
Government Portfolios, respectively, for the periods from the dates the
respective Portfolios commenced operations to September 30, 1992. See
"Investment Advisory,
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<PAGE> 86
Administration, Distribution and Servicing Agreements - Advisory and
Sub-Advisory Agreements" regarding the Administrators' agreement to reimburse
the Fund in the event the expenses of a Portfolio exceed applicable state
expense limitations.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of
the Fund's assets pursuant to a custodian agreement (the "Custodian
Agreement"). Under the Custodian Agreement, PNC Bank or a sub-custodian (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
holds and transfers portfolio securities on account of each Portfolio, (iii)
accepts receipts and makes disbursements of money on behalf of each Portfolio,
(iv) collects and receives all income and other payments and distributions on
account of each Portfolio's securities and (v) makes periodic reports to the
Board of Trustees concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that, with respect to
sub-custodians other than sub-custodians for foreign securities, PNC Bank
remains responsible for the performance of all its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian. The Chase Manhattan Bank, N.A., State Street Bank and Trust
Company and Barclays Bank PLC serve as the Fund's sub-custodians.
For its services to the Fund under the Custodian Agreement, PNC Bank
receives a fee which is calculated based upon each investment portfolio's
average gross assets, with a minimum monthly fee of $1,000 per investment
portfolio. PNC Bank is also entitled to out-of-pocket expenses and certain
transaction charges.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems Service,
Investor, and Institutional classes of shares in each Portfolio, (ii) addresses
and mails all communications by each Portfolio to record owners of its shares,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts and (iv) makes periodic reports to the
Board of Trustees concerning the operations of each Portfolio. PFPC may, on 30
days' notice to the Fund, assign its duties as transfer and dividend disbursing
agent to any other affiliate of PNC Bank Corp. For its services with respect
to the Fund's Institutional and Service Shares under the Transfer Agency
Agreement, PFPC receives fees at the annual rate of .03% of the average net
asset value of outstanding Institutional and Service Shares in each Portfolio,
plus per account fees and disbursements. For its services under the Transfer
Agency Agreement with respect to Investor Shares, PFPC receives per account
fees, with minimum annual fees of $24,000 for each Portfolio, plus
disbursements.
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<PAGE> 87
DISTRIBUTOR AND DISTRIBUTION PLANS. The Fund has entered into a
distribution agreement with the Distributor under which the Distributor, as
agent, offers shares of each Portfolio on a continuous basis. The Distributor
has agreed to use appropriate efforts to effect sales of the shares, but it is
not obligated to sell any particular amount of shares.
The Distributor is entitled to payments by each class of Series A
Investor Shares and Series B Investor Shares for certain distribution and other
expenses in addition to the sales charges described in the Prospectuses (if
applicable). The Fund's Distribution and Service Plan for Series A Investor
Shares and the Fund's Series B Distribution Plan (collectively, "the Plans")
provide, among other things, that: (i) the Distributor shall submit quarterly
reports to the Board of Trustees regarding the amounts expended under each Plan
and the purposes for which such expenditures were made; (ii) each Plan will
continue in effect for so long as its continuance is approved at least annually
by the Board of Trustees; (iii) any material amendment thereto must be approved
by the Board of Trustees, including the trustees who are not "interested
persons" of the Fund (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plans or any agreement
entered into in connection with the Plans ("12b-1 Trustees"), acting in person
at a meeting called for said purpose; (iv) any amendment to increase materially
the costs which any class of shares may bear for distribution pursuant to the
Plans shall be effective only upon approval by a vote of a majority of the
outstanding shares of such class; and (v) while the Plans remain in effect, the
selection and nomination of the Fund's trustees who are not "interested
persons" of the Fund shall be committed to the discretion of such
non-interested trustees.
The Distribution and Service and Series B Distribution Plans are
terminable as to any class of Series A and Series B Investor Shares,
respectively, without penalty at any time by a vote of a majority of the 12b-1
Trustees, or by vote of the holders of a majority of the shares of such
respective classes. Similarly, any agreement entered into pursuant to either
Plan with a Service Organization is terminable as to a class without penalty,
at any time, by the Fund or by the Service Organization upon written notice to
the other. Each such agreement will terminate automatically in the event of
its assignment.
The front-end sales charge and amounts payable to the Distributor
under the Distribution and Service Plan are used by the Distributor to pay
commissions and other fees payable to Service Organizations and other
broker/dealers who sell Series A Shares.
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<PAGE> 88
Service Organizations and other broker/dealers receive commissions
from the Distributor for selling Series B Shares, which are paid at the time of
the sale. These commissions approximate the commissions payable with respect
to sales of Series A Shares. The fees payable under the Series B Distribution
Plan (at an annual rate of .75% of the average daily net asset value of each
Portfolio's outstanding Series B Shares) are intended to cover the expense to
the Distributor of paying such up-front commissions, and the contingent
deferred sales charge is calculated to charge the investor with any shortfall
that would occur if Series B Shares are redeemed prior to the expiration of the
six year period, after which Series B Shares automatically convert to Series A
Shares. To provide funds for the payment of up-front sales commissions, the
Distributor has entered into an agreement with PNC Investment Corp. ("PNCIC"),
an affiliate of the Fund's adviser, which provides funds for the payment of
commissions and other fees payable to Service Organizations and broker/dealers
who sell Series B Shares. Under the terms of that agreement, the Distributor
has sold and assigned to PNCIC the fees which may be payable from time to time
to the Distributor under the Series B Distribution Plan and the contingent
deferred sales charges payable to the Distributor with respect to Series B
Shares.
For the fiscal year ended September 30, 1994, the Series A Investor
Shares of the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, Managed
Income, Tax-Free Income, Intermediate Government, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap
Growth Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Equity and Balanced Portfolios bore expenses relating to the Distribution and
Service Plan in the amount of $10,092, $165, $427, $252, $193, $43,985,
$33,891, $20,618, $53,423, $316, $34, $31,135, $16,155, $3,297, $921, $8,190,
$54,045, $39,012 and $222,954, respectively. For the period from commencement
of operations to September 30, 1994, the Series A Investor Shares of the
International Emerging Markets Portfolio bore expenses relating to the
Distribution and Service Plan in the amount of $2,703. All such amounts paid
under the Distribution and Service Plan were paid as compensation to dealers
for distribution assistance. For the period from commencement of operations to
September 30, 1994, Series A Investor Shares of the Ohio Tax-Free Income
Portfolio bore no expenses relating to the Distribution and Service Plan. As
of September 30, 1994, the public offering of Series A Investor Shares of the
North Carolina Municipal Money Market and Virginia Municipal Money Market
Portfolios had not commenced. No Series B Investor Shares of any Portfolio
were issued during the fiscal year ended September 30, 1994.
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<PAGE> 89
No compensation is payable by the Fund to the Distributor for its
distribution services for Service or Institutional Shares.
Service Organizations may charge their clients additional fees for
account services.
SERVICE PLAN. As stated in the Prospectus for the Fund's Service
Shares, the Fund intends to enter into service agreements with institutions
pursuant to which institutions will render certain support services to their
customers who are the beneficial owners of Service Shares ("Customers"). Such
services will be provided to Customers who are the beneficial owners of Service
Shares and are intended to supplement the services provided by the Fund's
Administrators and transfer agent to the Fund's shareholders of record. In
consideration for payment of up to .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their Customers,
institutions may provide one or more of the following services to such
Customers: processing purchase and redemption requests from Customers and
placing orders with the Fund's transfer agent or the Distributor; processing
dividend payments from the Fund on behalf of Customers; providing
sub-accounting with respect to Service Shares beneficially owned by Customers
or the information necessary for sub-accounting; and other similar services.
In consideration for payment of a service fee of up to a separate .15% (on an
annualized basis) of the average daily net asset value of Service Shares owned
beneficially by their Customers, institutions may provide one or more of these
additional services to such Customers: responding to Customer inquiries
relating to the services performed by the institution and to Customer inquiries
concerning their investments in Service Shares; providing information
periodically to Customers showing their positions in Service Shares; and other
similar shareholder liaison services. Customers who are beneficial owners of
Service Shares should read the Prospectus in light of the terms and fees
governing their accounts with institutions. These servicing fees are not paid
to institutions with respect to other classes of shares of the Portfolios
("Series A Investor Shares," "Series B Investor Shares" and "Institutional
Shares").
For the fiscal year ended September 30, 1994, the Service Shares of
the Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate- Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International Equity
and Balanced Portfolios bore expenses relating to the Fund's Service Plan and
other service fees
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<PAGE> 90
aggregating $1,382,350, $368,547, $677,020, $97,034, $56,294, $87, $106,193,
$3,523, $99,744, $5,089, $24,652, $13,458, $69,088, $177,459, $58,828, $28,347,
$66,516, $52,752, $84,160, $110,459 and $123,661, respectively. For the period
from commencement of operations to September 30, 1994, the Service Shares of
the International Emerging Markets Portfolio bore expenses relating to the
Fund's Service Plan and other servicing fees aggregating $1,620. As of
September 30, 1994, the public offering of Service Shares of the Virginia
Municipal Money Market Portfolio had not commenced.
SERIES B SERVICE PLAN. As stated in the Prospectus for the Fund's
Series B Investor Shares, the Fund intends to enter into service agreements
with Service Organizations pursuant to which Service Organizations and
sometimes the Distributor will render certain support services to their
customers who are the beneficial owners of Series B Investor Shares. Such
services will be provided to customers who are the beneficial owners of Series
B Investor Shares and are intended to supplement the services provided by the
Fund's Administrators and transfer agent. In consideration for payment
aggregating up to .25% (on an annualized basis) of the average daily net asset
value of Series B Investor Shares owned beneficially by their customers,
Service Organizations and the Distributor may provide one or more of the
following services to such customers: establishing and maintaining accounts
and records relating to customers that invest in Series B Shares; processing
dividend and distribution payments from the Fund on behalf of customers;
arranging for bank wires; providing sub-accounting with respect to Series B
Shares beneficially owned by customers or the information necessary for
sub-accounting; forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to customers; assisting in processing
purchase, exchange and redemption requests from customers and in placing such
orders with the Fund's service contractors; assisting customers in changing
dividend options, account designations and addresses; providing customers with
a service that invests the assets of their accounts in Series B Shares pursuant
to specific or pre-authorized instructions; providing information periodically
to customers showing their positions in Series B Shares and integrating such
statements with those of other transactions and balances in customers' other
accounts with the Service Organization; responding to customer inquiries
relating to the services performed by the Service Organization or the
Distributor; responding to customer inquiries concerning their investments in
Series B Shares; and providing other similar shareholder liaison services.
Fees relating to the Series B Service Plan are not paid to Service
Organizations or the Distributor with respect to other classes of shares of the
Portfolios ("Service Shares," "Series A Investor Shares" and
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<PAGE> 91
"Institutional Shares"). Customers who are beneficial owners of Series B
Investor Shares should read the Prospectus in light of the terms and fees
governing their accounts with Service Organizations. No Series B Investor
Shares of any Portfolio were issued during the fiscal year ended September 30,
1994.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the adviser and sub-advisers seek
to obtain the best price and execution for a Portfolio, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. While the adviser and sub-advisers generally
seek reasonably competitive commission rates, payment of the lowest commission
or spread is not necessarily consistent with obtaining the best price and
execution in particular transactions. Payments of commissions to brokers who
are affiliated persons of the Fund (or affiliated persons of such persons) will
be made in accordance with Rule 17e-1 under the 1940 Act.
No Portfolio has any obligation to deal with any broker or group of
brokers in the execution of portfolio transactions. The adviser and
sub-advisers may, consistent with the interests of a Portfolio, select brokers
on the basis of the research, statistical and pricing services they provide to
a Portfolio and the adviser's or sub-adviser's other clients. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by the adviser and sub-advisers under
their respective contracts. A commission paid to such brokers may be higher
than that which another qualified broker would have charged for effecting the
same transaction, provided that the adviser or sub-adviser determines in good
faith that such commission is reasonable in terms either of the transaction or
the overall responsibility of the adviser or sub-adviser to a Portfolio and its
other clients and that the total commissions paid by a Portfolio will be
reasonable in relation to the benefits to a Portfolio over the long-term.
Commission rates for brokerage transactions on foreign stock exchanges are
generally fixed. In addition, the adviser or sub-adviser may take into account
the sale of shares of the Fund in allocating purchase and sale orders for
portfolio securities to brokers (including brokers that are affiliated with
them or Distributor).
For the year or period ended September 30, 1994, the Value Equity,
Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small Cap
Value Equity, International Equity, International Emerging Markets and Balanced
Portfolios paid
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<PAGE> 92
brokerage commissions of $431,232, $530,428, $62,339, $156,700, $47,190,
$185,560, $1,031,631, $32,367, and $164,460, respectively.
For the year or period ended September 30, 1993, the Value Equity,
Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small Cap
Value Equity, International Equity and Balanced Portfolios paid brokerage
commissions of $136,565, $366,421, $1,186, $4,770, $18,386, $105,423, $308,297
and $68,556, respectively, of which $4,390, $264 and $636 for the Growth
Equity, Small Cap Growth Equity and Small Cap Value Equity Portfolios,
respectively, was paid to Shearson Lehman Hutton Inc. ("Shearson"), an
affiliate of the Fund's former distributor. Approximately 1%, 22% and 1% of
the aggregate brokerage commissions of the Growth Equity, Small Cap Growth
Equity and Small Cap Value Equity Portfolios, respectively, were paid to
Shearson, representing approximately 1%, 22% and 1% of the aggregate dollar
amounts of transactions by those respective Portfolios involving the payment of
commissions.
For the year ended September 30, 1992, the Growth Equity and Balanced
Portfolios paid brokerage commissions of $300,421 and $11,821, respectively, of
which $19,840 for the Growth Equity Portfolio was paid to Shearson Lehman
Hutton Inc. ("Shearson"), an affiliate of the Fund's former distributor.
Approximately 7% of the Growth Equity Portfolio's aggregate brokerage
commissions for the year ended September 30, 1992 were paid to Shearson,
representing approximately 7% of the aggregate dollar amount of transactions by
that Portfolio involving the payment of commissions. For the period from
commencement of operations to September 30, 1992, the Value Equity, Index
Equity, Small Cap Value Equity and International Equity Portfolios paid
brokerage commissions of $68,214, $43,725, $23,728 and $84,226, respectively.
Over-the-counter issues, including corporate debt and U.S. Government
securities, are normally traded on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers. The
Portfolios will primarily engage in transactions with these dealers or deal
directly with the issuer unless a better price or execution could be obtained
by using a broker. Prices paid to a dealer with respect to both foreign and
domestic securities will generally include a "spread," which is the difference
between the prices at which the dealer is willing to purchase and sell the
specific security at the time, and includes the dealer's normal profit.
Purchases of money market instruments by a Portfolio are made from
dealers, underwriters and issuers. The Portfolios do not currently expect to
incur any brokerage commission expense on such transactions because money
market instruments are generally
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<PAGE> 93
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Each Money Market Portfolio intends to
purchase only securities with remaining maturities of 13 months or less as
determined in accordance with the rules of the SEC. As a result, the portfolio
turnover rates of a Money Market Portfolio will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by a Money Market Portfolio, the turnover rates should not
adversely affect the Portfolio's net asset values or net income.
Securities purchased in underwritten offerings include a fixed amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. It is the policy of the
Portfolios to give primary consideration to obtaining the most favorable price
and efficient execution of transactions involving money market instruments. In
seeking to implement this policy of the Portfolios, the adviser and sub-advisers
will effect transactions involving money market instruments with those dealers
they believe provide the most favorable prices and are capable of providing
efficient executions.
The adviser or sub-advisers may seek to obtain an undertaking from
issuers of commercial paper or dealers selling commercial paper to consider the
repurchase of such securities from a Portfolio prior to maturity at their
original cost plus interest (sometimes adjusted to reflect the actual maturity
of the securities), if it believes that a Portfolio's anticipated need for
liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that a Portfolio would incur a capital loss in
liquidating commercial paper, especially if interest rates have risen since
acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment
accounts managed by the adviser or sub-advisers are made independently of each
other in the light of differing conditions. However, the same investment
decision may be made for two or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated as to amount in a manner deemed equitable to each
such account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Portfolio is
concerned, in other cases it could be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such securities of which PIMC, BlackRock, PNC
Bank, PCM, PEAC, the Administrators,
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<PAGE> 94
Distributor or any affiliated person (as defined in the 1940 Act) thereof is a
member except pursuant to procedures adopted by the Board of Trustees in
accordance with Rule 10f-3 under the 1940 Act. In no instance will portfolio
securities be purchased from or sold to PIMC, BlackRock, PNC Bank, PCM, PEAC,
the Administrators, Distributor or any affiliated person of the foregoing
entities except as permitted by SEC exemptive order or by applicable law.
The portfolio turnover rate of a Portfolio is calculated by dividing
the lesser of a Portfolio's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Portfolio during the year.
The Fund is required to identify any securities of its regular brokers
or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held
by the Fund as of the end of its most recent fiscal year. As of September 30,
1994, the following Portfolios held the following securities: (a) Money Market
Portfolio: variable rate obligations of Goldman Sachs Group L.P., Lehman
Brothers Holdings, Inc. and Morgan Stanley Group in the principal amounts of
$47,000,000, $50,000,000 and $29,998,328, respectively; medium-term note of
Morgan Stanley Group in the principal amount of $15,000,000; and repurchase
agreements with Kidder, Peabody & Co., Morgan Stanley & Co. and PaineWebber
Group in the principal amounts of $100,000,000, $65,000,000 and $10,000,000,
respectively; (b) Government Money Market Portfolio: repurchase agreements with
Kidder, Peabody & Co. and Morgan Stanley & Co. in the principal amounts of
$9,058,000 and $70,000,000, respectively; (c) Managed Income Portfolio:
corporate bonds and variable rate obligations of Morgan Stanley Group in the
principal amounts of $4,925,000 and $10,000,000, respectively; medium-term note
of Salomon Brothers, Inc. in the principal amount of $3,730,680; (d) Short-Term
Bond Portfolio: corporate bonds of Lehman Brothers, Inc. and Merrill Lynch Co.,
Inc. in the principal amounts of $992,500 and $956,250, respectively;
medium-term note of Salomon Brothers, Inc. in the principal amount of $932,670;
Intermediate-Term Bond Portfolio: corporate bonds of Lehman Brothers Holdings,
Inc. in the principal amount of $975,000; and Index Equity Portfolio: common
stock of Merrill Lynch & Co., Inc. and Salomon, Inc. in the principal amounts
of $380,875 and $280,450, respectively.
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<PAGE> 95
PURCHASE AND REDEMPTION INFORMATION
COMPUTATION OF PUBLIC OFFERING PRICES FOR SERIES A INVESTOR SHARES OF
THE NON-MONEY MARKET PORTFOLIOS. An illustration of the computation of the
public offering price per Series A Investor Share of each Non-Money Market
Portfolio, based on the value of the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap
Growth Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Equity, International Emerging Markets and Balanced Portfolios' net assets as
of September 30, 1994 and the value of the Government Income and International
Fixed Income Portfolios' initial capitalization prior to the commencement of
operations, follows:
TABLE
<TABLE>
<CAPTION>
Value Growth Small Cap Index
Equity Equity Growth Equity Core Equity Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $10,412,074 $5,049,054 $1,620,407 $601,053 $2,631,836
Outstanding
Shares . . . . . . . . . . . . . . . 895,820 496,922 160,040 60,595 240,770
============ =========== =========== ========== ==========
Net Asset Value
Per Share . . . . . . . . . . . . . $11.62 $10.16 $10.12 $9.92 $10.93
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .55 $ .48 $ .48 $ .47 $ .52
------ ------ --------- --------- ------
Offering to Public . . . . . . . . . $12.17 $10.64 $10.60 $10.39 $11.45
======== ======= ========= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Small
Cap Value International Managed Tax-Free
Equity Equity Balanced Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $16,883,673 $14,432,684 $62,306,981 $10,921,371 $6,972,180
Outstanding
Shares . . . . . . . . . . . . . . . 1,243,462 1,077,374 5,200,179 1,115,757 694,590
============ =========== ============ ============ ===========
Net Asset Value
Per Share . . . . . . . . . . . . . $13.58 $13.40 $11.98 $9.79 $10.04
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .64 $ .63 $ .56 $ .46 $ .47
-------- -------- -------- -------- -------
Offering to Public . . . . . . . . . $14.22 $14.03 $12.54 $10.25 $10.51
======== ======== ======== ======== =======
</TABLE>
-62-
<PAGE> 96
<TABLE>
<CAPTION>
Pennsylvania
Intermediate Ohio Tax- Tax-Free Short-Term Intermediate-
Government Free Income Income Bond Term Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $8,508,396 $3,824,845 $46,562,641 $277,387 $87,119
Outstanding
Shares . . . . . . . . . . . . . . . 882,983 398,330 4,742,341 28,876 9,630
============ ============ ============= ========== ========
Net Asset Value
Per Share . . . . . . . . . . . . . $9.64 $9.60 $9.82 $9.58 $9.05
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .45 $ .45 $ .46 $ .45 $ .43
-------- -------- -------- -------- --------
Offering to Public . . . . . . . . . $10.09 $10.05 $10.28 $10.03 $9.48
========== ========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
International
Government International Emerging
Income Fixed Income Markets
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $100 $100 $2,857,212
Outstanding
Shares . . . . . . . . . . . . . . . 10 10 271,033
======= ======== ==========
Net Asset Value
Per Share . . . . . . . . . . . . . $10.00 $10.00 $10.54
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .47 $ .47 $ .50
--------- -------- --------
Offering to Public . . . . . . . . . $10.47 $10.47 $11.04
========= ======== ========
</TABLE>
Total front-end sales charges paid by shareholders of Series A
Investor Shares of the Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Equity, International Emerging Markets and Balanced Portfolios for the year or
period ended September 30, 1994 were $150,150, $37,504, $50,694, $64,596,
$678,464, $10,268, $2,124, $195,675, $81,496, $44,054, $17,550, $38,454,
$230,590, $303,547, $130,755 and $1,213,056, respectively. The Distributor
retained no front-end sales loads during the year ended September 30, 1994.
The public offering of Series A Investor Shares of the Government Income and
International Fixed Income Portfolios had not commenced as of September 30,
1994.
Total front-end sales charges paid by shareholders of Series A
Investor Shares of the Value Equity, Growth Equity, Small Cap
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<PAGE> 97
Value Equity, International Equity, Balanced, Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income and
Index Equity Portfolios for the year or period ended September 30, 1993 were
$155,096, $60,863, $250,615, $86,294, $1,304,538, $202,926, $128,003, $127,347,
$68,959, $1,083,103 and $37,281, respectively. The Distributor retained no
front-end sales loads during the year ended September 30, 1993. The public
offering of Series A Investor Shares of the Short-Term Bond, Intermediate-Term
Bond, Core Equity, Government Income, International Fixed Income and
International Emerging Markets Portfolios had not commenced as of September 30,
1993.
Total front-end sales charges paid by shareholders of Series A
Investor Shares of the Value Equity, Growth Equity, Small Cap Value Equity,
International Equity, Balanced, Managed Income, Tax-Free Income and
Intermediate Government Portfolios for the year or period ended September 30,
1992 were $36, $5,072, $802, $452, $162,649, $48,926, $145,624 and $21,284,
respectively. The Distributor retained no front-end sales loads during the
year ended September 30, 1992. The Ohio Tax-Free Income and Pennsylvania
Tax-Free Income Portfolios had not commenced operations as of September 30,
1992.
Series B Investor Shares of the Non-Money Market Portfolios are sold
at the net asset value per share next determined after a purchase order is
received. Series B Investor Shares of the Non-Money Market Portfolios are
subject to a contingent deferred sales charge which is payable on redemption of
such Series B Investor Shares.
Service and Institutional Shares of each Portfolio are sold at the net
asset value per share next determined after a purchase order is received.
EXCHANGE PRIVILEGE. By use of the exchange privilege, the investor
authorizes the Fund's transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the investor and
believed by the Fund's transfer agent to be genuine. The records of the Fund's
transfer agent pertaining to such instructions are binding. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
affected shareholders. The exchange privilege is only available in states
where the exchange may legally be made.
A front-end sales charge or a contingent deferred sales charge will be
imposed (unless an exemption from either sales charge applies) when Investor
Shares of a Money Market Portfolio are redeemed and the proceeds are used to
purchase Series A Investor Shares and Series B Investor Shares, respectively,
of a Non-Money Market Portfolio.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Series A Shares of the Non- Money Market Portfolios at
net asset value, without a sales
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<PAGE> 98
charge, with the proceeds from the redemption of shares of any other investment
company which were sold with a sales charge or commission in accordance with
the terms set forth in the Prospectuses. This does not include shares of an
affiliated mutual fund which were or would be subject to a contingent deferred
sales charge upon redemption. For purposes of this restriction, the term
"affiliated mutual fund" means:
i) any Portfolio of the Fund; and
ii) any other investment company, if such company and the Fund
hold themselves out to investors as related companies for
purposes of investment and investor services, and if:
a) that company and the Fund have a common investment
adviser or distributor; or
b) the investment adviser or distributor of such company
or the Fund is an "affiliated person" (as defined in
Section 2(a)(3) of the 1940 Act) of the investment
adviser or distributor of the Fund or the company,
respectively.
MISCELLANEOUS. The Fund reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
repurchase of a Portfolio's shares by making payment in whole or in part in
securities chosen by the Fund and valued in the same way as they would be
valued for purposes of computing a Portfolio's net asset value. If payment is
made in securities, a shareholder may incur transaction costs in converting
these securities into cash. The Fund has elected, however, to be governed by
Rule 18f-1 under the 1940 Act so that a Portfolio is obligated to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on 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.
(A Portfolio may also suspend or postpone the recordation of the transfer of
its shares upon the occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectuses, the Fund
may redeem shares involuntarily to reimburse a Portfolio
-65-
<PAGE> 99
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder as provided
in the Prospectus from time to time.
VALUATION OF PORTFOLIO SECURITIES
In determining the approximate market value of portfolio investments,
the Fund may employ outside organizations, which may use, without limitation, a
matrix or formula method that takes into consideration market indexes,
matrices, yield curves and other specific adjustments. This may result in the
securities being valued at a price different from the price that would have
been determined had the matrix or formula method not been used. All cash,
receivables and current payables are carried on the Fund's books at their face
value. Other assets, if any, are valued at fair value as determined in good
faith under the supervision of the Board of Trustees.
MONEY MARKET PORTFOLIOS. The value of the portfolio securities of
each Money Market Portfolio is calculated using the amortized cost method of
valuation. Under this method the market value of an instrument is approximated
by amortizing the difference between the acquisition cost and value at maturity
of the instrument on a straight-line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account. The market
value of debt securities usually reflects yields generally available on
securities of similar quality. When such yields decline, market values can be
expected to increase, and when yields increase, market values can be expected
to decline.
As indicated, the amortized cost method of valuation may result in the
value of a security being higher or lower than its market price, the price a
Money Market Portfolio would receive if the security were sold prior to
maturity. The Fund's Board of Trustees has established procedures for the
purpose of maintaining a constant net asset value of $1.00 per share for each
Money Market Portfolio, which include a review of the extent of any deviation
of net asset value per share, based on available market quotations, from the
$1.00 amortized cost per share. Should that deviation exceed 1/2 of 1% for a
Money Market Portfolio, the Fund's Board of Trustees will promptly consider
whether any action should be initiated to eliminate or reduce material dilution
or other unfair results to shareholders. Such action may include redeeming
shares in kind, selling portfolio securities prior to maturity, reducing or
withholding dividends, shortening the average portfolio maturity, reducing the
number of outstanding shares without monetary consideration, and utilizing
-66-
<PAGE> 100
a net asset value per share as determined by using available market quotations.
Each Money Market Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, and
will limit portfolio investments, including repurchase agreements, to those
instruments that the adviser or sub-adviser (depending on the Money Market
Portfolio) determines present minimal credit risks pursuant to guidelines
adopted by the Fund's Board of Trustees. There can be no assurance that a
constant net asset value will be maintained for any Money Market Portfolio.
NON-MONEY MARKET PORTFOLIOS. The valuation of securities held by the
Non-Money Market Portfolios is discussed in their respective Prospectuses.
PERFORMANCE INFORMATION
MONEY MARKET PORTFOLIO YIELD. Each Money Market Portfolio's current
and effective yields for Service, Series A Investor and Institutional Shares
and the Money Market Portfolio's current and effective yields for Series B
Investor Shares are computed separately using standardized methods required by
the SEC. The annualized yield for a class of Service, Series A Investor,
Series B Investor or Institutional Shares is computed by: (a) determining the
net change in the value of a hypothetical account having a balance of one share
at the beginning of a seven-calendar day period; (b) dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return; and (c) annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account reflects
the value of additional shares purchased with dividends declared and all
dividends declared on both the original share and such additional shares, but
does not include realized gains and losses or unrealized appreciation and
depreciation. Compound effective yields are computed by adding 1 to the base
period return (calculated as described above) raising the sum to a power equal
to 365/7 and subtracting 1.
-67-
<PAGE> 101
In addition, a standardized "tax-equivalent yield" may be quoted for Service,
Series A Investor and Institutional Shares in the Municipal Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Virginia Municipal Money Market and New Jersey
Municipal Money Market Portfolios, which is computed separately for each class
by: (a) dividing the portion of the Portfolio's yield for shares (as calculated
above) that is exempt from Federal or state income tax by one minus a stated
Federal or state income tax rate; and (b) adding the figure resulting from (a)
above to that portion, if any, of the yield that is not exempt from Federal and
state income tax.
The annualized yield information for each Money Market Portfolio for
the seven-day period ended March 31, 1995 was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
Effective (assumes a Federal income
Portfolio Yield Yield tax rate of 28%)
--------- ----- ----- ----------------
<S> <C> <C> <C>
Money Market
Service Shares 5.71% 5.87% N/A
Series A Investor Shares 5.51 5.66 N/A
Institutional Shares 6.01 6.19 N/A
Series B Investor Shares N/A N/A N/A
Municipal Money Market
Service Shares 3.66 3.73 5.08%
Series A Investor Shares 3.47 3.53 4.82
Institutional Shares 3.96 4.04 5.50
Government Money Market
Service Shares 5.59 5.75 N/A
Series A Investor Shares 5.39 5.53 N/A
Institutional Shares 5.89 6.06 N/A
Ohio Municipal Money Market
Service Shares 3.59 3.65 5.00
Series A Investor Shares 3.41 3.47 4.74
Institutional Shares 3.89 3.96 5.40
Pennsylvania Municipal Money Market
Service Shares
Series A Investor Shares 3.56 3.62 4.94
Institutional Shares 3.36 3.42 4.67
3.86 3.94 5.36
North Carolina Municipal Money Market
Service Shares
Series A Investor Shares 3.55 3.62 4.93
Institutional Shares 3.32 3.37 4.61
3.85 3.93 5.35
Virginia Municipal Money Market
Service Shares
Series A Investor Shares 3.54 3.60 4.92
Institutional Shares N/A N/A N/A
3.84 3.91 5.33
</TABLE>
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<PAGE> 102
The fees which may be imposed by institutions on their Customers are
not reflected in the calculations of yields for the Money Market Portfolios.
No Series A Investor Shares of the Virginia Municipal Money Market Portfolio,
no Series B Investor Shares of the Money Market Portfolio, and no shares of any
class of the New Jersey Municipal Money Market Portfolio had been issued prior
to March 31, 1995. Yields on Institutional Shares will generally be higher
than yields on Service Shares; yields on Service Shares will generally be
higher than yields on Series A Investor Shares; and yields on Series A
Investor Shares will generally be higher than yields on Series B Investor
Shares.
From time to time, in advertisements or in reports to shareholders,
the yields of a Portfolio's Service, Series A Investor, Series B Investor or
Institutional Shares may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indexes. For
example, the yield of a Portfolio's Service, Series A Investor, Series B
Investor or Institutional Shares may be compared to the Donoghue's Money Fund
Average, which is an average compiled by IBC/Donoghue'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.
TOTAL RETURN. For purposes of quoting and comparing the performance
of shares of the Non-Money Market Portfolios to the performance of other mutual
funds and to stock or other relevant indexes in advertisements or in
communications to shareholders, performance may be stated in terms of total
return. The total return for each class of a Non-Money Market Portfolio will
be calculated independently of the other classes within that
-69-
<PAGE> 103
Portfolio. Under the rules of the SEC, funds advertising performance must
include total return quotes calculated according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
In calculating the ending redeemable value for Series A Investor
Shares of the Fund's Non-Money Market Portfolios, the maximum front-end sales
charge is deducted from the initial $1,000 payment and all dividends and
distributions by the particular Portfolio are assumed to have been reinvested
at net asset value as described in the particular Prospectus on the
reinvestment dates during the period. In calculating the ending redeemable
value for Series B Investor Shares of the Non-Money Market Portfolios, the
maximum contingent deferred sales charge is deducted at the end of the period
and all dividends and distributions by the particular Portfolio are assumed to
have been reinvested at net asset value as described in the particular
Prospectus on the reinvestment dates during the period. Total return, or "T"
in the formula above, is computed by finding the average annual compounded
rates of return over the specified periods that would equate the initial amount
invested to the ending redeemable value.
Based on the foregoing calculation, the average annual total returns
for each Non-Money Market Portfolio for periods ended March 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Average Annual Total Return
-----------------------------------------------------
For the For the 5
Year ended years ended Since commencement
Portfolio 3/31/95 3/31/95 of operations
--------- ------- ------- ------------------
<S> <C> <C> <C>
Managed Income
Service Shares(1) 3.42% N/A 1.67%
Series A Investor Shares(2) (1.40) N/A 4.36
Institutional Shares(3) 3.66 8.29% 7.64
Series B Investor Shares(4) N/A N/A N/A
Tax-Free Income
Service Shares(1) 8.09 N/A 3.89
Series A Investor Shares(5) 3.00 N/A 6.82
Institutional Shares(6) 8.35 N/A 5.98
Series B Investor Shares(7) N/A N/A N/A
Intermediate Government
Service Shares(1) 3.21 N/A 1.77
Series A Investor Shares(8) (1.45) N/A 3.01
Institutional Shares(9) 3.45 N/A 5.06
Series B Investor Shares(10) N/A N/A N/A
Ohio Tax-Free Income
Service Shares(1) 6.80 N/A 2.89
Series A Investor Shares(11) 2.12 N/A 2.40
Institutional Shares(11) 7.06 N/A 4.46
Series B Investor Shares(12) N/A N/A 0.05
Pennsylvania Tax-Free Income
Service Shares(1) 6.70 N/A 2.97
Series A Investor Shares(11) 1.78 N/A 3.43
Institutional Shares(11) 6.96 N/A 5.59
Series B Investor Shares(13) N/A N/A (0.39)
Short-Term Bond
Service Shares(14) 2.38 N/A 1.48
Series A Investor Shares(15) (2.22) N/A (1.93)
Institutional Shares(14) 2.64 N/A 1.73
Series B Investor Shares(16) N/A N/A N/A
Intermediate-Term Bond
Service Shares(17) 3.56 N/A 0.10
Series A Investor Shares(18) N/A N/A (0.48)
Institutional Shares(19) 3.83 N/A 0.30
Series B Investor Shares(20) N/A N/A N/A
Government Income
Service Shares N/A N/A N/A
Series A Investor Shares(21) N/A N/A 0.26%
Institutional Shares N/A N/A N/A
Series B Investor Shares(22) N/A N/A (0.21)
</TABLE>
-70-
<PAGE> 104
<TABLE>
<CAPTION>
Average Annual Total Return
------------------------------------------------------
For the For the 5
Year ended years ended Since commencement
Portfolio 3/31/95 3/31/95 of operations
--------- ------- ------- -------------
<S> <C> <C> <C>
Value Equity
Service Shares(1) 13.84% N/A 9.97
Series A Investor Shares(23) 8.55 N/A 9.27
Institutional Shares(24) 14.12 N/A 10.85
Series B Investor Shares(25) N/A N/A N/A
Growth Equity
Service Shares(26) 6.28 N/A 3.02
Series A Investor Shares(27) 1.23 N/A 3.49
Institutional Shares(3) 6.47 7.05% 7.45
Series B Investor Shares(28) N/A N/A N/A
Small Cap Growth Equity
Service Shares(29) 18.08 N/A 10.60
Series A Investor Shares(29) 12.62 N/A 7.14
Institutional Shares(30) 18.39 N/A 10.51
Series B Investor Shares(31) N/A N/A N/A
Core Equity
Service Shares(29) 11.87 N/A 5.57
Series A Investor Shares(32) 6.75 N/A 2.77
Institutional Shares(33) 12.14 N/A 5.80
Series B Investor Shares(34) N/A N/A N/A
Index Equity
Service Shares(1) 14.94 N/A 9.33
Series A Investor Shares(35) 9.51 N/A 7.10
Institutional Shares(9) 15.21 N/A 9.02
Series B Investor Shares(36) N/A N/A N/A
Small Cap Value Equity
Service Shares(1) 4.51 N/A 8.37
Series A Investor Shares(35) (0.27) N/A 11.10
Institutional Shares(37) 4.77 N/A 12.70
Series B Investor Shares(38) N/A N/A (6.04)
International Equity
Service Shares(1) (1.76) N/A 6.64
Series A Investor Shares(35) (6.39) N/A 6.31
Institutional Shares(39) (1.60) N/A 10.44
Series B Investor Shares(40) N/A N/A (17.83)
International Emerging Markets
Service Shares(41) N/A N/A (19.40)%
Series A Investor Shares(41) N/A N/A (23.21)
Institutional Shares(41) N/A N/A (19.30)
Series B Investor Shares(42) N/A N/A N/A
</TABLE>
-71-
<PAGE> 105
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
For the For the 5
Year ended years ended Since commencement
Portfolio 3/31/95 3/31/95 of operations
--------- ------- ------- -------------
<S> <C> <C> <C>
Balanced
Service Shares(1) 6.38% N/A 5.63
Series A Investor Shares(43) 1.53 N/A 8.36
Institutional Shares(44) 6.62 N/A 8.60
Series B Investor Shares(45) N/A N/A 2.67
</TABLE>
- -------------------------------
(1) Commenced operations on July 29, 1993
(2) Commenced operations on February 5, 1992
(3) Commenced operations on November 1, 1989
(4) Class had not commenced operations at March 31, 1995
(5) Commenced operations on May 14, 1990
(6) Commenced operations on January 21, 1993
(7) Class had not commenced operations at March 31, 1995
(8) Commenced operations on May 11, 1992
(9) Commenced operations on April 20, 1992
(10) Class had not commenced operations at March 31, 1995
(11) Commenced operations on December 1, 1992
(12) Commenced operations on October 13, 1994
(13) Commenced operations on October 3, 1994
(14) Commenced operations on September 1, 1993
(15) Commenced operations on November 17, 1993
(16) Class had not commenced operations at March 31, 1995
(17) Commenced operations on September 23, 1993
(18) Commenced operations on May 20, 1994
(19) Commenced operations on September 17, 1993
(20) Class had not commenced operations at March 31, 1995
(21) Commenced operations on October 4, 1994
(22) Commenced operations on October 3, 1994
(23) Commenced operations on May 2, 1992
(24) Commenced operations on May 20, 1992
(25) Class had not commenced operations at March 31, 1995
(26) Commenced operations on July 28, 1993
(27) Commenced operations on March 14, 1992
(28) Class had not commenced operations at March 31, 1995
(29) Commenced operations on September 15, 1993
(30) Commenced operations on September 14, 1993
(31) Class had not commenced operations at March 31, 1995
(32) Commenced operations on October 13, 1993
(33) Commenced operations on September 13, 1993
(34) Class had not commenced operations at March 31, 1995
(35) Commenced operations on June 2, 1992
(36) Class had not commenced operations at March 31, 1995
(37) Commenced operations on April 13, 1992
(38) Commenced operations on October 3, 1994
(39) Commenced operations on April 27, 1992
(40) Commenced operations on October 3, 1994
(41) Commenced operations on June 17, 1994
(42) Class had not commenced operations at March 31, 1995
(43) Commenced operations on May 14, 1990
(44) Commenced operations on May 1, 1992
(45) Commenced operations on October 3, 1994
-72-
<PAGE> 106
No shares of any class of the International Fixed Income Portfolio
had been issued prior to March 31, 1995.
Each class of the Non-Money Market Portfolios may also from time to
time include in advertisements and communications to shareholders a total
return figure that is not calculated according to the formula set forth above
in order to compare more accurately the performance of each class of a
Non-Money Market Portfolio's shares with other performance measures. For
example, in comparing the total return of a Non-Money Market Portfolio's shares
with data published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or Weisenberger Investment Company Service, or with the
performance of the Standard & Poor's 500 Stock Index, EAFE, the Dow Jones
Industrial Average or the Shearson Lehman Hutton Government Corporate Bond
Index, as appropriate, a Non-Money Market Portfolio may calculate the aggregate
total return for its shares of a certain class for the period of time specified
in the advertisement or communication by assuming the investment of $10,000 in
such Non-Money Market Portfolio's shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. A Non-Money Market Portfolio does not, for these purposes, deduct from
the initial value invested or the ending value any amount representing
front-end or deferred sales charges, respectively, charged to purchasers of
Series A and Series B Investor Shares, respectively. The Series A and Series B
Investor classes of the Portfolio will, however, disclose the maximum
applicable sales charge and will also disclose that the performance data does
not reflect sales charges and that inclusion of sales charges would reduce the
performance quoted.
NON-MONEY MARKET PORTFOLIO YIELD. The Balanced, Managed Income,
Tax-Free Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Short-Term Bond, Intermediate-Term Bond, Government Income and
International Fixed Income Portfolios may advertise their yields on their
Service, Series A Investor, Series B Investor and Institutional Shares. Under
the rules of the SEC, each such Portfolio advertising the respective yields for
its Service, Series A Investor, Series B Investor and Institutional Shares must
calculate yield using the following formula:
a-b 6
YIELD = 2[(----- +1) - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
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<PAGE> 107
d = the maximum offering price per share on the
last day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Portfolio is recognized by accruing 1/360th of the stated dividend rate of
the security each day that the security is in the Portfolio. Except as noted
below, interest earned on any debt obligations held by the Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest) and dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Portfolio. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.
With respect to debt obligations purchased at a discount or premium,
the formula generally calls for amortization of the discount or premium.
However, interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the
case of tax- exempt obligations that are issued with original issue discount
but which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have discounts based on current
market value that are less than the then-remaining portion of the original
issue discount (market premium), the yield to maturity is based on the market
value.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period;
and (b) a Portfolio may elect either (i) to amortize the discount and premium
on the remaining security, based on the cost of the security, to the
weighted-average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted-average maturity date
is not
-74-
<PAGE> 108
available, or (ii) not to amortize discount or premium on the remaining
security. The amortization schedule will be adjusted monthly to reflect
changes in the market values of debt obligations.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter. In the case of Series A Investor Shares
of a Non-Money Market Portfolio, a Portfolio's maximum offering price per share
for purposes of the formula includes the maximum front- end sales charge
imposed by the Portfolio -- currently 4.50% of the per share offering price.
Each of the Tax-Free Income, Ohio Tax-Free Income and Pennsylvania
Tax-Free Income Portfolios may advertise the tax-equivalent yield for its
shares of a specified class. Under the rules of the SEC, such a Portfolio
advertising its tax-equivalent yield must calculate such tax-equivalent yield
by dividing that portion of the yield of the Portfolio which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the Portfolio which is not tax-exempt.
The annualized yield information for the 30-day period ended March 31,
1995 for the Portfolios referenced below was as follows:
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<PAGE> 109
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a Federal income
Portfolio Yield tax rate of 28%)
--------- ----- ----------------
<S> <C> <C>
Managed Income
Service Shares 6.56% N/A
Series A Investor Shares 6.08 N/A
Institutional Shares 6.81 N/A
Series B Investor Shares N/A N/A
Tax-Free Income
Service Shares 4.94% 6.86%
Series A Investor Shares 4.51 6.26
Institutional Shares 5.17 7.18
Series B Investor Shares N/A
Intermediate Government
Service Shares 6.70 N/A
Series A Investor Shares 6.44 N/A
Institutional Shares 6.93 N/A
Series B Investor Shares N/A N/A
Ohio Tax-Free income
Service Shares 5.78 8.03
Series A Investor Shares 5.52 7.67
Institutional Shares 6.00 8.33
Series B Investor Shares 5.10 7.08
Pennsylvania Tax-Free Income
Service Shares 5.32 7.39
Series A Investor Shares 4.90 6.81
Institutional Shares 5.55 7.71
Series B Investor Shares 4.65 6.46
Short-Term Bond
Service Shares 6.20 N/A
Series A Investor Shares 5.89 N/A
Institutional Shares 6.42 N/A
Series B Investor Shares N/A N/A
Intermediate-Term Bond
Service Shares 6.27 N/A
Series A Investor Shares 6.06 N/A
Institutional Shares 6.53 N/A
Series B Investor Shares N/A N/A
Government Income
Service Shares N/A N/A
Series A Investor Shares 7.18 N/A
Institutional Shares N/A N/A
Series B Investor Shares 6.92 N/A
</TABLE>
OTHER INFORMATION REGARDING INVESTMENT RETURNS. In addition to
providing performance information that demonstrates the total return or yield
of shares of a particular class of a Portfolio over a specified period of time,
the Fund may provide certain other information demonstrating hypothetical
investment returns. Such information may include, but is not limited to,
illustrating the compounding effects of a dividend in a dividend reinvestment
plan or the impact of tax-free investing. As illustrated below, the Fund may
demonstrate, using certain specified hypothetical data, the compounding effect
of dividend reinvestment on investments in a Non-Money Market Portfolio.
-76-
<PAGE> 110
The Money and Non-Money Market Municipal Portfolios may illustrate in
advertising or sales literature the benefits of tax- free investing. For
example, Table 1 shows taxpayers how to translate Federal tax savings from
investments the income on which is not subject to Federal income tax into an
equivalent yield from a taxable investment. Similarly, Tables 2, 3, 4, 5 and 6
show Pennsylvania, Ohio, North Carolina, Virginia and New Jersey shareholders
the approximate yield that a taxable investment must earn at various income
brackets to produce after-tax yields equivalent to those of the Pennsylvania
Municipal Money Market and Pennsylvania Tax-Free Income Portfolios, the Ohio
Municipal Money Market and Ohio Tax-Free Income Portfolios, the North Carolina
Municipal Money Market Portfolio, the Virginia Municipal Money Market
Portfolio, and the New Jersey Municipal Money Market Portfolio, respectively.
The yields below are for illustration purposes only and are not intended to
represent current or future yields for the Money and Non-Money Market
Municipal Portfolios, which may be higher or lower than the yields shown.
-77-
<PAGE> 111
TABLE 1
<TABLE>
<CAPTION>
Federal TAX-EXEMPT YIELD
1995 Taxable Marginal
Income Bracket Tax Rate* 3.0 % 3.5 % 4.0 % 4.5 % 5.0 % 5.5 % 6.0 %
- ------------------------------------------------------------------------------------------------------------------------------
Single Return Joint Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $23,350 $ 0 - $39,000 15.0% 3.529% 4.118% 4.706% 5.294% 5.882% 6.471% 7.059%
$23,351 - $56,550 $39,001 - $94,250 28.0% 4.167% 4.861% 5.556% 6.250% 6.944% 7.639% 8.333%
$56,551 -$117,950 $94,251 -$143,600 31.0% 4.348% 5.072% 5.797% 6.522% 7.246% 7.971% 8.696%
$117,951-$256,500 $143,601-$256,500 36.0% 4.688% 5.469% 6.250% 7.031% 7.812% 8.594% 9.375%
Over $256,500 Over $256,500 39.6% 4.967% 5.795% 6.623% 7.450% 8.278% 9.106% 9.934%
</TABLE>
*Rates do not include the phase out of personal exemptions or itemized
deductions. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should consider that the benefit of
certain itemized deductions and the benefit of personal exemptions are limited
in the case of higher income individuals. For 1995, taxpayers with adjusted
gross income in excess of a threshold amount of approximately $114,700 are
subject to an overall limitation on certain itemized deductions, requiring a
reduction in such deductions equal to the lesser of (i) 3% of adjusted gross
income in excess of the threshold of approximately $114,700 or (ii) 80% of the
amount of such itemized deductions otherwise allowable. The benefit of each
personal exemption is phased out at the rate of two percentage points for each
$2,500 (or fraction thereof) of adjusted gross income in the phase-out zone.
For single taxpayers the range of adjusted gross income comprising the
phase-out zone for 1995 is estimated to be from $114,700 to $237,201 and for
married taxpayers filing a joint return from $172,050 to $294,551. The Federal
tax brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1995.
-78-
<PAGE> 112
TABLE 2
<TABLE>
<CAPTION>
Approx.
Combined
Federal
and PA TAX-EXEMPT YIELD
1995 Federal Marginal
Taxable Income Bracket Tax Rate* 3.0 % 3.5 % 4.0 % 4.5 % 5.0 % 5.5 % 6.0 %
- ----------------------------------------------------------------------------------------------------------------------------
Single Return Joint Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 23,350 $ 0 - $39,000 17.380% 3.631% 4.236% 4.841% 5.447% 6.052% 6.657% 7.262%
$23,351 - $ 56,550 $ 39,001 - $94,250 30.016% 4.287% 5.001% 5.716% 6.430% 7.144% 7.859% 8.573%
$56,551 - $117,950 $ 94,251 -$143,600 32.932% 4.473% 5.219% 5.964% 6.710% 7.455% 8.201% 8.946%
$117,951- $256,500 $143,601 -$256,500 37.792% 4.823% 5.626% 6.430% 7.234% 8.038% 8.841% 9.645%
Over $256,500 Over $256,500 41.291% 5.110% 5.962% 6.813% 7.665% 8.517% 9.368% 10.220%
</TABLE>
*The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state income taxes). If the standard deduction is taken for
Federal income tax purposes, the taxable equivalent yield required to equal a
specified tax-exempt yield is at least as great as that shown in the table. It
is assumed that the investor is not subject to the alternative minimum tax.
Where applicable, investors should consider that the benefit of certain
itemized deductions and the benefit of personal exemptions are limited in the
case of higher income individuals. For 1995, taxpayers with adjusted gross
income in excess of a threshold amount of approximately $114,700 are subject to
an overall limitation on certain itemized deductions, requiring a reduction in
such deductions equal to the lesser of (i) 3% of adjusted gross income in
excess of the threshold of approximately $114,700 or (ii) 80% of the amount of
such itemized deductions otherwise allowable. The benefit of each personal
exemption is phased out at the rate of two percentage points for each $2,500
(or fraction thereof) of adjusted gross income in the phase-out zone. For
single taxpayers the range of adjusted gross income comprising the phase-out
zone for 1995 is estimated to be from $114,700 to $237,201 and for married
taxpayers filing a joint return from $172,050 to $294,551. The Federal tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1995.
-79-
<PAGE> 113
TABLE 3
<TABLE>
<CAPTION>
Weighted Approximate
Federal Ave.Ohio Combined Federal Tax-Exempt Yield
1995 Marginal Marginal and Ohio
Income Bracket* Tax Rate Tax Rate* Marginal Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- -------------- -------- -------- ----------------- ---- ----- ----- ------ ------ ----- ------
Single Return Taxable Yield - Single Return
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 23,350 15.0% 2.549% 17.166% 3.622% 4.225% 4.829% 5.433% 6.036% 6.640% 7.243%
23,351 - 56,550 28.0% 4.828% 31.476% 4.378% 5.108% 5.837% 6.567% 7.297% 8.026% 8.756%
56,551 - 100,000 31.0% 5.543% 34.824% 4.603% 5.370% 6.137% 6.904% 7.672% 8.439% 9.206%
100,001 - 117,950 31.0% 6.900% 35.761% 4.670% 5.448% 6.227% 7.005% 7.783% 8.562% 9.340%
117,951 - 200,000 36.0% 6.900% 40.416% 5.035% 5.874% 6.713% 7.552% 8.392% 9.231% 10.070%
200,001 - 256,500 36.0% 7.500% 40.800% 5.068% 5.912% 6.757% 7.601% 8.446% 9.291% 10.135%
Over 256,500 39.6% 7.500% 44.130% 5.370% 6.265% 7.159% 8.054% 8.949% 9.844% 10.739%
</TABLE>
<TABLE>
<CAPTION>
Joint Return Taxable Yield - Joint Return
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 39,000 15.0% 2.711% 17.304% 3.628% 4.232% 4.837% 5.442% 6.046% 6.651% 7.255%
39,001 - 94,250 28.0% 4.881% 31.514% 4.380% 5.111% 5.841% 6.571% 7.301% 8.031% 8.761%
94,251 - 100,000 31.0% 5.646% 34.896% 4.608% 5.376% 6.144% 6.912% 7.680% 8.448% 9.216%
100,001 - 143,600 31.0% 6.555% 35.523% 4.653% 5.428% 6.204% 6.979% 7.755% 8.530% 9.306%
143,601 - 200,000 36.0% 6.555% 40.195% 5.016% 5.852% 6.688% 7.524% 8.361% 9.197% 10.033%
200,001 - 219,900 36.0% 7.125% 40.560% 5.047% 5.888% 6.729% 7.571% 8.412% 9.253% 10.094%
219,901 - 256,500 36.0% 7.500% 40.800% 5.068% 5.912% 6.757% 7.601% 8.446% 9.291% 10.135%
Over 256,500 39.6% 7.500% 44.130% 5.370% 6.265% 7.159% 8.054% 8.949% 9.844% 10.739%
</TABLE>
*The income brackets applicable to the state of Ohio do not correspond to the
Federal taxable income brackets. In addition, Ohio taxable income will likely
be different than Federal taxable income because it is computed by reference to
Federal adjusted gross income with specifically-defined Ohio modifications and
exemptions, and does not consider many of the deductions allowed from Federal
adjusted gross income in computing Federal taxable income. In arriving at the
combined marginal tax rate, a weighted average of Ohio's marginal tax rate was
used within each Federal taxable income bracket up to $100,000, at which point
Ohio's actual 6.9% marginal rate was applied up to taxable income of $200,000,
at which point Ohio's top actual marginal rate of 7.5% was applied. The Ohio
joint filing credit has been taken into account in determining the marginal tax
rate for the taxable yield on joint returns up to the maximum credit amount
allowed. However, no other state tax credits, exemptions, or local taxes have
been
-80-
<PAGE> 114
taken into account in arriving at the combined marginal tax rate. The income
amount shown is income subject to Federal income tax reduced by adjustments to
income, exemptions, and itemized deductions (including the deduction for state
and local income taxes). If the standard deduction is taken for Federal income
tax purposes, the taxable equivalent yield required to equal a specified tax-
exempt yield is at least as great as that shown in the table. It is assumed
that the investor is not subject to the alternative minimum tax. Where
applicable, investors should consider that the benefit of certain itemized
deductions and the benefit of personal exemptions are limited in the case of
higher income individuals. For 1994, taxpayers with adjusted gross income in
excess of a $111,800 threshold amount are subject to an overall limitation on
certain itemized deductions, requiring a reduction in such deductions equal to
the lesser of (i) 3% of adjusted gross income in excess of the $111,800
threshold or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out at the rate of
two percentage points for each $2,500 (or fraction thereof) of adjusted gross
income in the phase-out zone. For single taxpayers the range of adjusted gross
income comprising the phase-out zone for 1994 is from $111,800 to $234,301 and
for married taxpayers filing a joint return the range is from $167,700 to
$290,201. The Federal tax brackets, the threshold amounts at which itemized
deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for each year
after 1994.
-81-
<PAGE> 115
TABLE 4
<TABLE>
<CAPTION>
1995 Taxable North
Income Bracket Federal Carolina Combined Federal Tax-Exempt Yield
Marginal Marginal and North Carolina
Single Return Joint Return Tax Rate Tax Rate Marginal Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------- ------------ -------- -------- ------------------ ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 12,750 0 - 21,250 15.0% 6.00% 20.100% 3.755% 4.380% 5.006% 5.632% 6.258% 6.884% 7.509%
12,751 - 23,350 21,251 - 39,000 15.0% 7.00% 20.950% 3.795% 4.428% 5.060% 5.693% 6.325% 6.958% 7.590%
23,351 - 56,550 39,001 - 94,250 28.0% 7.00% 33.040% 4.480% 5.227% 5.974% 6.720% 7.467% 8.214% 8.961%
56,551 - 60,000 94,251 -100,000 31.0% 7.00% 35.830% 4.675% 5.454% 6.233% 7.013% 7.792% 8.571% 9.350%
60,001 - 117,950 100,001 -143,600 31.0% 7.75% 36.348% 4.713% 5.499% 6.284% 7.070% 7.855% 8.641% 9.426%
117,951 - 256,500 143,601- 256,500 36.0% 7.75% 40.960% 5.081% 5.928% 6.775% 7.622% 8.469% 9.316% 10.163%
Over 256,500 Over 256,500 39.6% 7.75% 44.281% 5.384% 6.282% 7.179% 8.076% 8.974% 9.871% 10.768%
</TABLE>
*The taxable income brackets applicable to North Carolina do not correspond to
the Federal taxable income brackets. The taxable income brackets presented in
this table represent the breakpoints for both the Federal and North Carolina
marginal tax rate changes. When applying these brackets, Federal taxable
income may be different than North Carolina taxable income. No state tax
credits, exemptions, or local taxes have been taken into account in arriving at
the combined marginal tax rate. The income amount shown is income subject to
Federal income tax reduced by adjustments to income, exemptions, and itemized
deductions (including the deduction for state and local income taxes). If the
standard deduction is taken for Federal income tax purposes, the taxable
equivalent yield required to equal a specified tax-exempt yield is at least as
great as that shown in the table. It is assumed that the investor is not
subject to the alternative minimum tax. Where applicable, investors should
consider that the benefit of certain itemized deductions and the benefit of
personal exemptions are limited in the case of higher-income individuals. For
1995, taxpayers with adjusted gross income in excess of $114,700 are subject to
an overall limitation on certain itemized deductions, requiring a reduction in
such deductions equal to the lesser of (i) 3% of adjusted gross income in
excess of $114,700 or (ii) 80% of the amount of such itemized deductions
otherwise allowable. The benefit of each personal exemption is phased out at
the rate of two percentage points for each $2,500 (or fraction thereof) of
adjusted gross income in the phase-out zone. For single taxpayers the range of
adjusted gross income comprising the phase-out zone for 1995 is from $114,700
to $237,201, and for married taxpayers filing a joint return the range is from
$172,050 to $294,551. The Federal tax brackets, the threshold amounts at which
itemized deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for each year
after 1995.
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<PAGE> 116
TABLE 5
<TABLE>
<CAPTION>
1995 Taxable
Income Bracket Federal Virginia Combined Federal Tax-Exempt Yield
Marginal Marginal and Virginia
Single Return Joint Return Tax Rate Tax Rate Marginal Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------- ------------ -------- -------- ------------------ ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 22,750 0 - 38,000 15.0% 5.75% 19.888% 3.745% 4.369% 4.993% 5.617% 6.241% 6.865% 7.489%
22,751 - 55,100 38,001 - 91,850 28.0% 5.75% 32.140% 4.421% 5.158% 5.894% 6.631% 7.368% 8.105% 8.842%
55,101 - 115,000 91,851 - 140,000 31.0% 5.75% 34.968% 4.613% 5.382% 6.151% 6.920% 7.688% 8.457% 9.226%
115,001 - 250,000 140,001 - 250,000 36.0% 5.75% 39.680% 4.973% 5.802% 6.631% 7.460% 8.289% 9.118% 9.947%
OVER 250,000 OVER 250,000 39.6% 5.75% 43.073% 5.270% 6.148% 7.027% 7.905% 8.783% 9.661% 10.540%
</TABLE>
*The taxable income brackets applicable to Virginia do not correspond to the
Federal taxable income brackets. Because Virginia imposes a maximum tax rate
of 5.75% on taxable income over $17,000, the taxable income brackets presented
in this table represent the breakpoints only for the Federal marginal tax rate
changes. When applying these brackets, Federal taxable income may be different
than Virginia taxable income. No state tax credits, exemptions, or local taxes
have been taken into account in arriving at the combined marginal tax rate.
The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state and local income taxes). If the standard deduction is
taken for Federal income tax purposes, the taxable equivalent yield required to
equal a specified tax-exempt yield is at least as great as that shown in the
table. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should consider that the benefit of
certain itemized deductions and the benefit of personal exemptions are limited
in the case of higher income individuals. For 1995, taxpayers with adjusted
gross income in excess of $111,800 are subject to an overall limitation on
certain itemized deductions, requiring a reduction in such deductions equal to
the lesser of (i) 3% of adjusted gross income excess of $118,800 or (ii) 80% of
the amount of such itemized deductions otherwise allowable. The benefit of
each personal exemption is phased out at the rate of two percentage points for
each $2,500 (or fraction thereof) of adjusted gross income in the phase-out
zone. For single taxpayers the range of adjusted gross income comprising the
phase-out zone for 1995 is from $111,800 to $234,301 and for married taxpayers
filing a joint return from $167,700 to $290,201. The Federal tax brackets, the
threshold amounts at which itemized deductions are subject to reduction, and
the range over which personal exemptions are phased out will be further
adjusted for inflation for each year after 1995.
-83-
<PAGE> 117
<TABLE>
<CAPTION>
TABLE 6
Approximate
Federal NJ Combined Federal Tax-Exempt Yield
1995 Taxable Marginal Marginal and NJ
Income Bracket* Tax Rate Tax Rate Marginal Tax Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- --------------- -------- -------- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Single Return Taxable Yield - Single Return
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 20,000 15.0% 1.700% 16.445% 3.590% 4.189% 4.787% 5.386% 5.984% 6.582% 7.181% 7.779% 8.378%
20,001 - 23,350 15.0% 2.125% 16.806% 3.606% 4.207% 4.808% 5.409% 6.010% 6.611% 7.212% 7.813% 8.414%
23,251 - 35,000 28.0% 2.125% 29.530% 4.257% 4.967% 5.676% 6.386% 7.095% 7.805% 8.514% 9.224% 9.933%
35,001 - 40,000 28.0% 4.250% 31.060% 4.352% 5.077% 5.802% 6.527% 7.253% 7.978% 8.703% 9.428% 10.154%
40,001 - 56,550 28.0% 6.013% 32.329% 4.433% 5.172% 5.911% 6.650% 7.389% 8.128% 8.866% 9.605% 10.344%
56,551 - 75,000 31.0% 6.013% 35.149% 4.626% 5.397% 6.168% 6.939% 7.710% 8.481% 9.252% 10.023% 10.794%
75,001 - 117,950 31.0% 6.580% 35.540% 4.654% 5.430% 6.205% 6.981% 7.757% 8.532% 9.308% 10.084 10.859%
117,951 - 256,500 36.0% 6.580% 40.211% 5.018% 5.854% 6.690% 7.526% 8.363% 9.199% 10.035% 10.872% 11.708%
OVER 256,500 39.6% 6.580% 43.574% 5.317% 6.203% 7.089% 7.975% 8.861% 9.747% 10.633% 11.520% 12.406%
</TABLE>
<TABLE>
<CAPTION>
Joint Return Taxable Yield - Joint Return
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 20,000 15.0% 1.700% 16.445% 3.590% 4.189% 4.787% 5.386% 5.984% 6.582% 7.181% 7.779% 8.378%
20,001 - 39,000 15.0% 2.125% 16.806% 3.606% 4.207% 4.808% 5.409% 6.010% 6.611% 7.212% 7.813% 8.414%
39,001 - 50,000 28.0% 2.125% 29.530% 4.257% 4.967% 5.676% 6.386% 7.095% 7.805% 8.514% 9.224% 9.933%
50,001 - 70,000 28.0% 2.975% 30.142% 4.294% 5.010% 5.726% 6.442% 7.157% 7.873% 8.589% 9.305% 10.020%
70,001 - 80,000 28.0% 4.250% 31.060% 4.352% 5.077% 5.802% 6.527% 7.253% 7.978% 8.703% 9.428% 10.154%
80,001 - 94,250 28.0% 6.013% 32.329% 4.433% 5.172% 5.911% 6.650% 7.389% 8.128% 8.866% 9.605% 10.344%
94,251 - 143,600 31.0% 6.013% 35.149% 4.626% 5.397% 6.168% 6.939% 7.710% 8.481% 9.252% 10.023% 10.794%
143,601 - 150,000 36.0% 6.013% 39.848% 4.987% 5.819% 6.650% 7.481% 8.312% 9.144% 9.975% 10.806 11.637%
150,001 - 256,500 36.0% 6.580% 40.211% 5.018% 5.854% 6.690% 7.526% 8.363% 9.199% 10.035% 10.872% 11.708%
OVER 256,500 39.6% 6.580% 43.574% 5.317% 6.203% 7.089% 7.975% 8.861% 9.747% 10.633% 11.520% 12.406%
</TABLE>
* The taxable income brackets applicable to New Jersey do not correspond
to the Federal taxable income brackets. The taxable income brackets
presented in this table represent the breakpoints for both the Federal
and New Jersey marginal tax rate changes. When applying these
brackets, Federal taxable income will be different than New Jersey
taxable income because New Jersey does not start with Federal taxable
income in computing its own state income tax base. No state tax
credits, exemptions, or local taxes have been taken into account in
arriving at the combined marginal tax rate. The income amount shown
is income subject to Federal income tax reduced by adjustments to
income, exemptions, and itemized deductions (including the deduction
for state and local income taxes). If the standard deduction is taken
for Federal income tax purposes, the taxable equivalent yield required
to equal a specified tax-exempt yield is at least as great as that
shown in the table. It is assumed that the investor is not subject to
the alternative minimum tax. Where applicable, investors should
consider that the benefit of certain itemized deductions and the
benefit of personal exemptions are limited in the case of
higher-income individuals. For 1995, taxpayers with adjusted gross
income in excess of $114,700 are subject to an overall limitation on
certain itemized deductions, requiring a reduction in such deductions
equal to the lesser of (i) 3% of adjusted gross income in excess of
$114,700 or (ii) 80% of the amount of such itemized deductions
otherwise allowable. The benefit of each personal exemption is phased
out at the rate of two percentage points for each $2,500 (or fraction
thereof) of adjusted gross income in the phase-out zone. For single
taxpayers the range of adjusted gross income comprising the phase-out
zone for 1995 is from $114,700 to $237,201, and for married taxpayers
filing a joint return the range is from $172,050 to $294,551. The
Federal tax brackets, the threshold amounts at which itemized
deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for
each year after 1995.
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MISCELLANEOUS. Yields on shares of a Portfolio may fluctuate daily
and do not provide a basis for determining future yields. Because such yields
will fluctuate, they cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. In comparing the yield of one 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,
and whether there are any special account charges which may reduce the
effective yield. The fees which may be imposed by Authorized Dealers, Service
Organizations and other institutions on their customers are not reflected in
the calculations of total returns or yields for the Portfolios.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Portfolio
investment are reinvested by being paid in additional Portfolio shares, any
future income or capital appreciation of a Portfolio would increase the value,
not only of the original investment in the Portfolio, but also of the
additional Portfolio shares received through reinvestment. The Fund may also
include discussions or illustrations of the potential investment goals of a
prospective investor, investment management techniques, policies or investment
suitability of a Portfolio, economic conditions, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Portfolio), as well as the views of the Portfolios' adviser and/or sub-advisers
as to current market, economy, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Portfolio. The Fund may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of a Portfolio. In
addition, advertisement or shareholder communications may include a discussion
of certain attributes or benefits to be derived by an investment in a
Portfolio. Such advertisements or communicators may include symbols, headlines
or other material which highlight or summarize the information discussed in
more detail therein.
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TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Prospectuses. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectuses is not intended
as a substitute for careful tax planning. Investors are urged to consult their
tax advisers with specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Portfolio
generally is exempt from Federal income tax on its net investment income and
realized capital gains that it distributes to shareholders, provided that it
distributes an amount equal to at least the sum of (a) 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gain over net long-term capital loss, if any, for the year) and (b) 90%
of its net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, each
Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies
(including, but not limited to, gains from forward foreign currency exchange
contacts), or from other income derived with respect to its business of
investment in such stock, securities, or currencies (the "Income Requirement")
and derive less than 30% of its gross income from the sale or other disposition
of stock, securities and certain other investments (including securities and
forward foreign currency exchange contracts, but only to the extent that such
contracts are not directly related to the Portfolio's principal business of
investing in stock or securities) held for less than three months (the
"Short-Short Gain Test"). Future Treasury regulations may provide that foreign
currency gains that are not "directly related" to a Portfolio's principal
business of investing in stock or securities will not satisfy the Income
Requirement. Interest (including original issue discount and "accrued market
discount") received by a Portfolio at maturity or upon disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or
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other disposition of such security held for less than three months for purposes
of the Short-Short Gain Test. However, any other income that is attributable
to realized market appreciation will be treated as gross income from the sale
or other disposition of securities for this purpose.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer),
and no more than 25% of the value of each Portfolio's total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two
or more issuers which such Portfolio controls and which are engaged in the same
or similar trades or businesses.
Each of the Money and Non-Money Market Municipal Portfolios is
designed to provide investors with tax-exempt interest income. Shares of the
Money and Non-Money Market Municipal Portfolios would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Portfolio's dividends being
tax-exempt but also such dividends would be taxable when distributed to the
beneficiary. In addition, the Money and Non-Money Market Municipal Portfolios
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by private activity bonds or "related person" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business and (a) whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues
derived by all users of such facilities, (b) who occupies more than 5% of the
entire usable area of such facilities, or (c) for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Money and Non-Money Market Municipal Portfolios to
pay exempt interest dividends for any taxable year, at the close of each
quarter of the taxable year at least 50% of the value of each such Portfolio
must consist of exempt interest obligations. Exempt interest dividends
distributed to
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shareholders are not included in the shareholder's gross income for regular
Federal income tax purposes. However, all shareholders required to file a
Federal income tax return are required to report the receipt of exempt interest
dividends and other exempt interest on their returns. Moreover, while such
dividends and interest are exempt from regular Federal income tax, they may be
subject to alternative minimum tax (currently imposed at the rates of 26% and
28% in the case of non-corporate taxpayers and at the rate of 20% in the case
of corporate taxpayers) in two circumstances. First, exempt interest dividends
derived from certain "private activity" bonds issued after August 7, 1986,
generally will constitute an item of tax preference for both corporate and
non-corporate taxpayers. Second, exempt interest dividends derived from all
bonds, regardless of the date of issue, must be taken into account by corporate
taxpayers in determining certain adjustments for alternative minimum tax
purposes. In addition, exempt interest dividends paid to corporate taxpayers
may in these two circumstances be subject to tax under the environmental tax
under Section 59A of the Code, which is imposed at the rate of 0.12% on the
excess of the modified alternative minimum taxable income of a corporate
taxpayer over $2 million for taxable years beginning before January 1996.
Receipt of exempt interest dividends may result in collateral Federal income
tax consequences to certain other taxpayers, including financial institutions,
property and casualty insurance companies, individual recipients of Social
Security or Railroad Retirement benefits, and foreign corporations engaged in
trade or business in the United States. Prospective investors should consult
their own tax advisors as to such consequences.
If a Money or Non-Money Market Municipal Portfolio distributes exempt
interest dividends during the shareholder's taxable year, no deduction
generally will be allowed for any interest expense on indebtedness incurred to
purchase or carry shares of such Portfolio.
The Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios are
not subject to the Ohio personal income tax, school district income taxes in
Ohio, the Ohio corporation franchise tax, or the Ohio dealers intangibles tax,
provided that, with respect to the Ohio corporation franchise tax and the Ohio
dealers intangibles tax, the Fund timely files the annual report required by
Section 5733.09 of the Ohio Revised Code. Distributions with respect to the
Ohio Municipal Money Market and Ohio Tax-Free Income Portfolios properly
attributable to proceeds of insurance paid to those Portfolios that represent
maturing or matured interest on defaulted Obligations held by those Portfolios
and that are excluded from gross income for federal income tax purposes will
not be subject to Ohio personal income tax or municipal or school district
income taxes in Ohio if, and to the same extent as, such interest would not
have been subject
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to such taxes if paid in the normal course by the issuer of such defaulted
Obligations.
An investment in a Portfolio (including the North Carolina Municipal
Money Market Portfolio) by a corporation subject to the North Carolina
franchise tax will be included in the capital stock, surplus and undivided
profits base in computing the North Carolina franchise tax. Investors in a
Portfolio including, in particular, corporate investors which may be subject to
the North Carolina franchise tax, should consult their tax advisors with
respect to the effects on such tax of an investment in a Portfolio and with
respect to their North Carolina tax situation in general.
Distributions of investment company taxable income will be taxable
(other than interest on tax-exempt Municipal Obligations held by the Money
Market and Non-Money Market Municipal Portfolios and the possible allowance of
the dividends received deduction described below) to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
reinvested in shares. Shareholders receiving any distribution from a Portfolio
in the form of additional shares will be treated as receiving a taxable
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. The Money Market and
Non-Money Market Municipal Portfolios may each purchase securities that do not
bear Tax-Exempt Interest. Any income on such securities recognized by such a
Portfolio will be distributed and will be taxable to its shareholders.
Each Portfolio intends to distribute to shareholders any of its excess
of net long-term capital gain over net short-term capital loss ("net capital
gain") for each taxable year. Such gain is distributed as a capital gain
dividend and is taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares, whether such gain
was recognized by the Portfolio prior to the date on which a shareholder
acquired shares of the Portfolio and whether the distribution was paid in cash
or reinvested in shares.
In the case of corporate shareholders, distributions (other than
capital gain dividends) of a Non-Money Market Portfolio for any taxable year
generally qualify for the dividends received deduction to the extent of the
gross amount of "qualifying dividends" received by such Portfolio for the year.
Generally, a dividend will be treated as a "qualifying dividend" if it has been
received from a domestic corporation. Distributions of net investment income
from debt securities and of net realized short-term capital gains will be
taxable to shareholders as ordinary income and will not be treated as
"qualifying dividends" for purposes of the dividends received deduction.
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Ordinary income of individuals will be taxable at a maximum nominal
rate of 39.6%, but because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains will be taxable at a maximum rate of 28%. Capital
gains and ordinary income of corporate taxpayers are both taxed at a maximum
nominal rate of 35%, but at marginal rates of 39% for taxable income between
$100,000 and $335,000 and 38% for taxable income between $15,000,000 and
18,333,333. Investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain dividends have been
paid with respect to such shares.
Generally, futures contracts held by a Portfolio at the close of the
Portfolio's taxable year will be treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sale will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time a Portfolio holds the futures contract
("the 40-60 rule"). The amount of any capital gain or loss actually realized
by a Portfolio in a subsequent sale or other disposition of those futures
contracts will be adjusted to reflect any capital gain or loss taken into
account by the Portfolio in a prior year as a result of the constructive sale
of the contracts. With respect to futures contracts to sell, which will be
regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Portfolio, losses as
to such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for
the long-term holding period) be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts, deductions for
interest and carrying charges will not be allowed. Notwithstanding the rules
described above, with respect to futures contracts to sell which are properly
identified as such, a Portfolio may make an election which will exempt (in
whole or in part) those identified futures contracts from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Portfolio would be allowed
(in lieu of
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the foregoing) to elect either (1) to offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed
straddle to which such treatment applies, or (2) to establish a mixed straddle
account for which gains and losses would be recognized and offset on a periodic
basis during the taxable year. Under either election, the 40-60 rule will
apply to the net gain or loss attributable to the futures contracts, but in the
case of a mixed straddle account election, not more than 50% of any net gain
may be treated as long-term and no more than 40% of any net loss may be treated
as short-term. Options on futures contracts generally receive Federal tax
treatment similar to that described above.
Under the Federal income tax provisions applicable to regulated
investment companies, less than 30% of a company's gross income for a taxable
year must be derived from gains realized on the sale or other disposition of
securities held for less than three months. The Internal Revenue Service has
issued a private letter ruling with respect to certain other investment
companies to the following effect: gains realized from a futures contract to
purchase or to sell will be treated as being derived from a security held for
three months or more regardless of the actual period for which the contract is
held if the gain arises as a result of a constructive sale of the contract at
the end of the taxable year as described above, and will be treated as being
derived from a security held for less than three months only if the contract is
terminated (or transferred) during the taxable year (other than by reason of
mark-to-market) and less than three months elapses between the date the
contract is acquired and the termination date. Although private letter rulings
are not binding on the Internal Revenue Service with respect to the Portfolios,
the Fund believes that the Internal Revenue Service would take a comparable
position with respect to the Portfolios. In determining whether the 30% test
is met for a taxable year, increases and decreases in the value of a
Portfolio's futures contracts and securities that qualify as part of a
"designated hedge," as defined in the Code, may be netted.
Special rules govern the Federal income tax treatment of the portfolio
transactions of the International Equity, International Emerging Markets and
International Fixed Income Portfolios and certain transactions of the other
Portfolios that are denominated in terms of a currency other than the U.S.
dollar or determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by the special rules
include the following: (i) the acquisition of, or becoming the obligor under,
a bond or other debt instrument (including, to the extent provided in Treasury
regulations, certain preferred stock); (ii) the accruing of certain trade
receivables and payables; (iii) the entering into or acquisition of any forward
contract or similar financial instruments; and (iv) the entering into or
acquisition of any futures contract,
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option or similar financial instrument, if such instrument is not
marked-to-market. The disposition of a currency other than the U.S. dollar by
a U.S. taxpayer also is treated as a transaction subject to the special
currency rules. With respect to such transactions, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts that are capital assets in the hands
of the taxpayer and which are not part of a straddle ("Capital Asset
Election"). In accordance with Treasury regulations, certain transactions with
respect to which the taxpayer has not made the Capital Asset Election and that
are part of a "Section 988 hedging transaction" (as defined in the Code and the
Treasury regulations) are integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" (as identified by such Treasury regulations) are not subject to
the mark-to-market or loss deferral rules under the Code. Some of the non-U.S.
dollar-denominated investments that the Portfolios may make (such as non- U.S.
dollar-denominated debt securities and obligations and preferred stock) and
some of the foreign currency contracts the International Equity, International
Emerging Markets and International Fixed Income Portfolios may enter into will
be subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Portfolio which is not subject to the special currency rules (such as foreign
equity investments other than certain preferred stocks) will be treated as
capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction.
In addition, certain forward foreign currency contracts held by a
Portfolio at the close of the Fund's taxable year will be subject to
"mark-to-market" treatment. If the Fund makes the Capital Asset Election with
respect to such contracts, the contract will be subject to the 40-60 rule
described above. Otherwise, such gain or loss will be ordinary in nature. To
receive such Federal income tax treatment, a foreign currency contract must
meet the following conditions: (1) the contract must require delivery of a
foreign currency of a type in which regulated futures contracts are traded or
upon which the settlement value of the contract depends; (2) the contract must
be entered into at arm's length at a price determined by reference to the price
in the interbank market; and (3) the contract must be traded in the interbank
market. The Treasury Department has broad authority to issue regulations under
these provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information the Treasury has not issued any such
regulations. Forward foreign currency contracts entered into by the
International Equity, International Emerging Markets and International Fixed
Income Portfolios also may result
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in the creation of one or more straddles for Federal income tax purposes, in
which case certain loss deferral, short sales, and wash sales rules and
requirements to capitalize interest and carrying charges may apply.
If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
all distributions (including amounts derived from interest on Municipal
Obligations) will be taxable as ordinary dividends to the extent of such
Portfolio's current and accumulated earnings and profits. Such distributions
will be eligible for the dividends received deduction in the case of corporate
shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Portfolio intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of the each calendar year to avoid liability for this
excise tax.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend
income properly, or (iii) who has failed to certify to the Fund that he is not
subject to backup withholding or that he is an "exempt recipient."
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolios each year.
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
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located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
Shareholders should consult their tax advisors about state and local tax
consequences, which may differ from the Federal income tax consequences
described above.
ADDITIONAL INFORMATION CONCERNING SHARES
Shares of the Fund have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and
only such conversion and exchange rights as the Board may grant in its
discretion. When issued for payment as described in the Prospectus, shares
will be fully paid and non-assessable by the Fund.
There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law. At that time,
the trustees then in office will call a shareholders' meeting to elect
trustees. Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. The Fund's Declaration of Trust
provides that meetings of the shareholders of the Fund shall be called by the
trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote.
The Funds' Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law), to:
(i) sell and convey the assets belonging to a class of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such class to be redeemed at a price which is equal to their net
asset value and which may be paid in cash or by distribution of the securities
or other consideration received from the sale and conveyance; (ii) sell and
convert the assets belonging to one or more classes of shares into money and,
in connection therewith, to cause all outstanding shares of such class to be
redeemed at their net asset value; or (iii) combine the assets belonging to a
class of shares with the assets belonging to one or more other classes of
shares if the Board of Trustees reasonably determines that such combination
will not have a material adverse effect on the shareholders of any class
participating in such combination and, in connection therewith, to cause all
outstanding shares of any such class to be redeemed or converted into shares of
another class of shares at their net asset value. However, the exercise of
such authority may be subject to certain restrictions under the 1940 Act. The
Board of Trustees may authorize the termination of any class of shares
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after the assets belonging to such class have been distributed to its
shareholders.
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107- 3496, serves as the Fund's counsel.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, L.L.P.,2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
FIVE PERCENT OWNERS. The name, address and percentage ownership of
each person that on September 29, 1995 owned of record or beneficially
5% or more of the outstanding shares of a Portfolio which had commenced
operations as of that date was as follows: Money Market Portfolio: BHC
Securities, 2005 Market St., Phila., PA 19103, 6.0%; PNC Bank, 200 Stevens Dr.,
Suite 260, Lester, PA 19113, 85.1%; PNC Bank Ohio, 201 E. Fifth St.,
Cincinnati, OH 45202, ___%; Government Money Market Portfolio: PNC Bank, 200
Stevens Dr., Suite 260, Lester, PA 19113, 76.5%; PNC Securities Corp., Fifth
Avenue and Wood Streets, Pittsburgh, PA 15285, __%; PNC Bank Pittsburgh, 960
Ft. Duquesne Blvd., Pittsburgh, PA 15222, 5.0%; PNC Bank, NW. P.O. Box 8480,
Erie, PA 16553, __%; Municipal Money Market Portfolio: PNC Bank Pittsburgh, 960
Ft. Duquesne Blvd., Pittsburgh, PA 15222, 12.1%; PNC Bank Ohio, 201 E. Fifth
St., Cincinnati, OH 45202, 8.1%; PNC Bank, Saxon and Co., 200 Stevens Dr.,
Suite 260, Lester, PA 19113, 73.1%; Ohio Municipal Money Market Portfolio: BHC
Securities, 2005 Market St., Phila., PA 19103, 26.4%; PNC Bank, 200 Stevens
Dr., Suite 260, Lester, PA 19113, 58.9%; Wayne County National Bank, P.O. Box
550, Wooster, OH 44691, ___%; Consolidated Stores Corp., 300 Phillips Road,
Columbus, OH 43228, __%; North Carolina Municipal Money Market Portfolio:
Branch Banking & Trust Company, P.O. Box 1847, Wilson, N.C. 27893, 5.6%;
Centura Bank, P.O. Box 1220, Rocky Mount, NC 27802, 13.1%; United Carolina Bank
Whiteville, P.O. Drawer 632, Whiteville, NC 28472, 22.3%; First Charter
National Bank, P.O. Box 228, Concord, NC 28926, 13.1%; McWood & Co., First
Citizens Bank, P.O. Box 29522, Raleigh, NC 27626, 13.0%; North Carolina Trust
Co., 301 North Elm St., Greensboro, NC 27402, 17.0%; Cato Corporation c/o Smith
Barney, 100 Tryon Street, Suite 3300, Charlotte, N.C. 28202 __%; Pennsylvania
Municipal Money Market Portfolio: BHC Securities, 2005 Market St., Phila., PA
19103, 5.6%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 85.3%;
Virginia Municipal Money Market Portfolio: Oldom & Co., First Virginia Bank
Inc., 6400 Arlington Blvd., Falls Church, VA 22042, 77.4%; Warritrust &
Company, F&M Bank, P.O. Box 93, Warrenton, VA 22186, 5.8%; Piedmont Company,
Piedmont Trust Bank, P.O. Box 4751, Martinsville, VA 24115, 9.9%; Managed
Income Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 92.3;
Tax-Free Income Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103,
____%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 41.5%; Ohio
Tax-Free Income Portfolio: BHC Securities, 2005 Market St., Phila., PA 19103,
____%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 60.6%;
Pennsylvania Tax-Free Income: BHC Securities, 100 N. 20th St., Phila., PA
19103, ____%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 24.9%;
Intermediate Government Portfolio: PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 91.2%; Short-Term Bond Portfolio: Medical Practice Account,
1020 Walnut St., Phila., PA 19107, 14.3%; PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 83.7%; Intermediate-Term Bond Portfolio: PNC Bank, 200
Stevens Dr., Suite 260, Lester, PA 19113, 92.9%; Government Income Portfolio:
BHC Securities, 100 N. 20th St., Phila., PA 19103, ____%; International
Emerging Markets Portfolio: PNC Securities, 100 N. 20th St., Phila., PA 19103,
___%; First Charter National Bank, P.O. Box 228, Concord, NC 28026, 5.6%; PNC
Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 88.7%; Growth Equity
Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 96.4%; Index
Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
91.5%; Small Cap Value Equity Portfolio: BHC Securities, 100 N. 20th St.,
Phila., PA 19103, ___%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113,
81.6%; International Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 91.6%; Balanced Portfolio: BHC Securities, 100 N. 20th St.,
Phila., PA 19103, ____%; PNC Bank, 200 Stevens Dr., Suite 260, Lester, PA
19113, 60.5%; Value Equity Portfolio: PNC Bank, 200 Stevens Dr., Suite 260,
Lester, PA 19113, 91.1%; Small Cap Growth Equity Portfolio: PNC Bank, 200
Stevens Dr., Suite 260, Lester, PA 19113, 90.1%; and Core Equity Portfolio: PNC
Bank, 200 Stevens Dr., Suite 260, Lester, PA 19113, 98.1%.
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<PAGE> 129
On September 29, 1995, PNC Bank held of record approximately 79% of
the Fund's outstanding shares, and may be deemed a controlling person of the
Fund under the 1940 Act. PNC Bank is a national bank organized under the laws
of the United States. All of the capital stock of PNC Bank is owned by PNC
Bancorp, Inc. All of the capital stock of PNC Bancorp, Inc. is owned by PNC
Bank Corp., a publicly-held bank holding company.
BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956
or any bank or non-bank affiliate thereof from sponsoring, organizing,
controlling or distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and prohibit banks
generally from underwriting securities, but such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, administrator, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. PIMC, BlackRock, PCM, PEAC and
PNC Bank are subject to such banking laws and regulations.
PIMC, BlackRock, PCM, PEAC and PNC Bank believe they may perform the
services for the Fund contemplated by their respective agreements with the Fund
without violation of applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether bank and
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<PAGE> 130
non-bank subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well
as further judicial or administrative decisions or interpretations of present
and future statutes and regulations, could prevent these companies from
continuing to perform such services for the Fund. If such were to occur, it is
expected that the Board of Trustees would recommend that the Fund enter into
new agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would be subject to shareholder approval.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
class, series or Portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a fundamental investment policy, the
lesser of (1) 67% of the shares of the particular class, series or Portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Portfolio are present in person or
by proxy, or (2) more than 50% of the outstanding shares of such class, series
or Portfolio.
THE FUND'S NAME. PNC Bank Corp. is the owner of the registered
service mark "PNC." The Fund has entered into a licensing agreement with
respect to its non-exclusive use of "PNC," under which it has agreed not to
claim any interest to the name "PNC" except under the agreement. The license
will terminate if it is breached by the Fund or if neither PIMC nor any of PNC
Bank Corp.'s affiliates continues as the investment adviser or manager of the
Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended
September 30, 1994 (the "1994 Annual Report") and its Semi-Annual Report to
Shareholders dated March 31, 1995 (the "1995 Semi-Annual Report") are
incorporated by reference in this Statement of Additional Information. The
financial statements and notes thereto in the 1994 Annual Report and the 1995
Semi-Annual Report are incorporated in this Statement of Additional Information
by reference. The financial statements included in the 1994 Annual Report have
been audited by the Fund's independent accountants, Coopers & Lybrand, L.L.P.,
whose reports thereon are incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such report given
upon their authority as experts in accounting and auditing. Additional copies
of the 1994 Annual Report and the 1995 Semi-Annual Report may be obtained at
no charge by telephoning the Distributor at the telephone number appearing on
the front page of this Statement of Additional Information.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
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characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
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Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by
a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher
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ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by a strong capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial
conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
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"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The
"BB" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
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"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
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characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating
category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
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To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
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companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable
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to adverse developments (both internal and external) than obligations with
higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
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liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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THE PNC(R) FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A are audited Financial
Highlights for the Registrant's Money Market,
Municipal Money Market, Government Money
Market, Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Virginia
Municipal Money Market, Value Equity, Growth
Equity, Index Equity, Small Cap Value Equity,
Small Cap Growth Equity, Core Equity,
International Equity, International Emerging
Markets, Balanced, Managed Income, Tax-Free
Income, Intermediate Government, Ohio
Tax-Free Income, Pennsylvania Tax-Free
Income, Short-Term Bond and Intermediate-Term
Bond Portfolios for the fiscal years ended
September 30, 1994, September 30, 1993,
September 30, 1992, September 30, 1991 and
September 30, 1990.
(2) Included in Part A are the unaudited
semi-annual Financial Highlights for the
Registrant's Money Market, Municipal Money
Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania
Municipal Money Market, North Carolina
Municipal Money Market and Virginia Municipal
Money Market Portfolios for the six month
period ended March 31, 1995.
(3) Incorporated herein by reference into Part B
are the financial statements, notes thereto
and auditor's report thereon included in the
Registrant's September 30, 1994 Annual
Reports to Shareholders and in the
Registrant's March 31, 1995 Semi-Annual
Reports to Shareholders, all of which reports
have been previously filed with the
Commission.
All required financial statements are included or
incorporated by reference in Parts A and B hereof.
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All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust of the
Registrant dated December 22, 1988
is incorporated herein by reference
to Exhibit (1) of Registrant's
Registration Statement on Form N-1A
filed on December 23, 1988.
(b) Amendment No. 1 to Declaration of
Trust is incorporated herein by
reference to Exhibit (1)(b) of
Pre-Effective Amendment No. 2 to
Registrant's Registration Statement
on Form N-1A filed on May 11, 1989.
(c) Amendment No. 2 to the Declaration
of Trust dated December 23, 1993 is
incorporated herein by reference to
Exhibit (1)(c) of Post-Effective
Amendment No. 12 to Registrant's
Registration Statement on Form N-1A
filed on July 8, 1994.
(2) Registrant's Code of Regulations is
incorporated herein by reference to
Exhibit (2) of Form N-1A, filed on
December 23, 1988.
(3) None.
(4) (a) Specimen Copies of Share
Certificates for Shares of
beneficial interest in Class A-1,
Class A-2, Class A-3, Class B-1,
Class B-2, Class B-3, Class C-1,
Class C-2, Class C-3, Class D-1,
Class D-2, Class D-3, Class E-1,
Class E-2, Class E-3, Class F-1,
Class F-2, Class F-3, Class G-1,
Class G-2, Class G-3, Class H-1,
Class H-2, Class H-3, Class I-1,
Class I-2, Class I-3, Class J-1,
Class J-2, Class J-3, Class K-1,
Class K-2, Class K-3, Class L-1,
Class L-2, Class L-3, Class M-1,
Class M-2, Class M-3, Class N-1,
Class N-2, Class N-3, Class O-1,
Class O-2, Class O-3, Class P-1,
Class P-2, Class P-3 of the
Registrant are incorporated herein
by reference to Exhibit 4 of
Post-Effective
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Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
filed on May 8, 1992.
(b) Form of Share Certificates for
Shares of beneficial interest in
Class Q-1, Class Q-2, Class Q-3,
Class R-1, Class R-2, Class R-3,
Class S-1, Class S-2, Class S-3,
Class T-1, Class T-2, Class T-3,
Class U-1, Class U-2, Class U-3 of
the Registrant are incorporated
herein by reference to Exhibit 4(b)
of Post-Effective Amendment No. 8 to
Registrant's Registration Statement
on Form N-1A filed on January 22,
1993.
(c) Form of Share Certificates for
Shares of beneficial interest in
Class V-1, Class V-2, Class V-3,
Class W-1, Class W-2, Class W-3,
Class X-1, Class X-2, Class X-3,
Class Y-1, Class Y-2 and Class Y-3
of the Registrant is incorporated
herein by reference to Exhibit
(4)(c) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement on Form N-1A filed on
November 10, 1993.
(d) Form of Share Certificates for
Shares of beneficial interest in
Class Z-1, Class Z-2 and Class Z-3
of the Registrant is incorporated
herein by reference to Exhibit
(4)(d) of Post-Effective Amendment
No. 15 to Registrant's Registration
Statement on Form N-1A filed on May
11, 1995.
(5) (a) Investment Advisory Agreement
between Registrant and PNC
Institutional Management Corporation
with respect to the Money Market,
Government Money Market, Municipal
Money Market, Managed Income, Growth
Equity, International Equity and
Balanced Portfolios is incorporated
herein by reference to Exhibit 5(a)
of Post-Effective Amendment No. 1 to
Registrant's Registration Statement
on Form N-1A filed on December 29,
1989.
(b) Letter Agreement between Registrant
and PNC Institutional Management
Corporation relating to advisory
services for the
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Tax-Free Income Portfolio is
incorporated herein by reference to
Exhibit 5(b) of Post-Effective
Amendment No. 2 to Registrant's
Registration Statement on Form N-1A
filed on April 30, 1990.
(c) Sub-Advisory Agreement between PNC
Institutional Management Corporation
and PNC Bank, National Association
with respect to the Money Market
Portfolio and Government Money
Market Portfolio is incorporated
herein by reference to Exhibit 5(c)
of Post-Effective Amendment No. 1 to
Registrant's Registration Statement
on Form N-1A filed on December 29,
1989.
(d) Sub-Advisory Agreement between PNC
Institutional Management Corporation
and PNC Bank, National Association
with respect to the Balanced and
Tax-Free Income Portfolios is
incorporated herein by reference to
Exhibit 5(d) of Post-Effective
Amendment No. 2 to Registrant's
Registration Statement on Form N-1A
filed on April 30, 1990.
(e) Sub-Advisory Agreement dated April
20, 1992 between PNC Institutional
Management Corporation and Provident
Capital Management, Inc. with
respect to the International Equity
Portfolio is incorporated herein by
reference to Exhibit (5)(f) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
on Form N-1A filed on November 10,
1993.
(f) Investment Advisory Agreement dated
February 3, 1992 between Registrant
and PNC Institutional Management
Corporation relating to the
Intermediate Government, Value
Equity, Index Equity, Small Cap
Value Equity, Pennsylvania Tax-Free
Income, Ohio Tax-Free Income,
Pennsylvania Municipal Money Market
and Ohio Municipal Money Market
Portfolios is incorporated herein by
reference to Exhibit (5)(g) of
Post-Effective Amendment No. 10 to
Registrant's
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<PAGE> 146
Registration Statement on Form N-1A
filed on November 10, 1993.
(g) Investment Advisory Agreement dated
December 17, 1993 between the
Registrant and PNC Institutional
Management Corporation relating to
the Virginia Municipal Money Market,
Government Income, International
Fixed Income and International
Emerging Markets Portfolios is
incorporated herein by reference to
Exhibit (5)(h) of Post-Effective
Amendment No. 12 to Registrant's
Registration Statement on Form N-1A
filed on July 8, 1994.
(h) Sub-Advisory Agreement dated
February 3, 1992 between PNC
Institutional Management Corporation
and PNC Bank, National Association
with respect to the Ohio Municipal
Money Market Portfolio is
incorporated herein by reference to
Exhibit (5)(h) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement on Form N-1A
filed on November 10, 1993.
(i) Sub-Advisory Agreement dated
February 3, 1992 between PNC
Institutional Management Corporation
and PNC Bank, National Association
with respect to the Pennsylvania
Municipal Money Market Portfolio is
incorporated herein by reference to
Exhibit (5)(i) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement on Form N-1A
filed on November 10, 1993.
(j) Sub-Advisory Agreement dated
February 3, 1992 between PNC
Institutional Management Corporation
and Provident Capital Management,
Inc. with respect to the Value
Equity Portfolio is incorporated
herein by reference to Exhibit
(5)(m) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement on Form N-1A filed on
November 10, 1993.
(k) Sub-Advisory Agreement dated
February 3, 1992 between PNC
Institutional Management Corporation
and Provident
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<PAGE> 147
Capital Management, Inc. with respect
to the Small Cap Value Equity
Portfolio is incorporated herein by
reference to Exhibit (5)(n) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
on Form N-1A filed on November 10,
1993.
(l) Investment Advisory Agreement dated
March 1, 1993 between Registrant and
PNC Institutional Management
Corporation relating to the
Short-Term Bond, Intermediate-Term
Bond, Core Equity, Small Cap Growth
Equity and North Carolina Municipal
Money Market Portfolios is
incorporated herein by reference to
Exhibit (5)(p) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement on Form N-1A
filed on November 10, 1993.
(m) Sub-Advisory Agreement dated March
1, 1993 between PNC Institutional
Management Corporation and PNC Bank,
National Association relating to the
North Carolina Municipal Money
Market Portfolio is incorporated
herein by reference to Exhibit
(5)(r) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement on Form N-1A filed on
November 10, 1993.
(n) Sub-Advisory Agreement dated
September 10, 1993 between PNC
Institutional Management Corporation
and PNC Bank, National Association
relating to the Municipal Money
Market Portfolio is incorporated
herein by reference to Exhibit
(5)(s) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement on Form N-1A filed on
November 10, 1993.
(o) Sub-Advisory Agreement dated
December 17, 1993 between PNC
Institutional Management Corporation
and PNC Bank, National Association
with respect to the Virginia
Municipal Money Market Portfolio is
incorporated herein by reference to
Exhibit (5)(x) of Post-Effective
Amendment No. 12 to
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<PAGE> 148
Registrant's Registration Statement
on Form N-1A filed on July 8, 1994.
(p) Sub-Advisory Agreement dated
December 17, 1993 between PNC
Institutional Management Corporation
and Provident Capital Management,
Inc. with respect to the
International Fixed Income Portfolio
is incorporated herein by reference
to Exhibit (5)(z) of Post-Effective
Amendment No. 12 to Registrant's
Registration Statement on Form N-1A
filed on July 8, 1994.
(q) Sub-Advisory Agreement dated
December 17, 1993 between PNC
Institutional Management Corporation
and Provident Capital Management,
Inc. with respect to the
International Emerging Markets
Portfolio is incorporated herein by
reference to Exhibit (5)(aa) of
Post-Effective Amendment No. 12 to
Registrant's Registration Statement
on Form N-1A filed on July 8, 1994.
(r) Form of Investment Advisory
Agreement between the Registrant and
PNC Institutional Management
Corporation relating to the New
Jersey Municipal Money Market
Portfolio is incorporated herein by
reference to Exhibit (5)(r) of
Post-Effective Amendment No. 15 to
Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(s) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and PNC Bank, National
Association with respect to the New
Jersey Municipal Money Market
Portfolio is incorporated herein by
reference to Exhibit (5)(s) of
Post-Effective Amendment No. 15 to
Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(t) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and PNC Equity Advisors
Company with respect to the Core
Equity Portfolio is incorporated
herein by reference to Exhibit
(5)(t) of Post-Effective Amendment
No. 15 to Registrant's
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<PAGE> 149
Registration Statement on Form N-1A
filed on May 11, 1995.
(u) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and PNC Equity Advisors
Company with respect to the Growth
Equity Portfolio is incorporated
herein by reference to Exhibit
(5)(u) of Post-Effective Amendment
No. 15 to Registrant's Registration
Statement on Form N-1A filed on May
11, 1995.
(v) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and PNC Equity Advisors
Company with respect to the Small
Cap Growth Equity Portfolio is
incorporated herein by reference to
Exhibit (5)(v) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(w) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and PNC Equity Advisors
Company with respect to the Index
Equity Portfolio is incorporated
herein by reference to Exhibit
(5)(w) of Post-Effective Amendment
No. 15 to Registrant's Registration
Statement on Form N-1A filed on May
11, 1995.
(x) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Managed Income Portfolio is
incorporated herein by reference to
Exhibit (5)(x) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(y) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Intermediate Government Portfolio is
incorporated herein by reference to
Exhibit (5)(y) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
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<PAGE> 150
(z) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Ohio Tax-Free Income Portfolio is
incorporated herein by reference to
Exhibit (5)(z) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(aa) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Pennsylvania Tax-Free Income
Portfolio is incorporated herein by
reference to Exhibit (5)(aa) of
Post-Effective Amendment No. 15 to
Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(bb) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Short-Term Bond Portfolio is
incorporated herein by reference to
Exhibit (5)(bb) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(cc) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Intermediate-Term Bond Portfolio is
incorporated herein by reference to
Exhibit (5)(cc) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(dd) Form of Sub-Advisory Agreement
between PNC Institutional Management
Corporation and BlackRock Financial
Management, Inc. with respect to the
Government Income Portfolio is
incorporated herein by reference to
Exhibit (5)(dd) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(6) (a) Distribution Agreement between
Registrant and Provident Distributors,
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<PAGE> 151
Inc. dated January 31, 1994 is
incorporated herein by reference to
Exhibit (6)(a) of Post-Effective
Amendment No. 12 to Registrant's
Registration Statement on Form N-1A
filed on July 8, 1994.
(b) Appendix A to the Distribution
Agreement dated January 31, 1994
between Registrant and Provident
Distributors, Inc. is incorporated
herein by reference to Exhibit
(6)(b) of Post-Effective Amendment
No. 15 to Registrant's Registration
Statement on Form N-1A filed on May
11, 1995.
(c) Amendment No. 2 to the Distribution
Agreement between Registrant and
Provident Distributors, Inc. dated
October 18, 1994 is incorporated
herein by reference to Exhibit 6(c)
of Post-Effective Amendment No. 14
to Registrant's Registration
Statement on Form N-1A filed on
January 18, 1995.
(7) Fund Office Retirement
Profit-Sharing Plan and Related
Adoption Agreement is incorporated
herein by reference to Exhibit (7)
of Post-Effective Amendment No. 15
to Registrant's Registration
Statement on Form N-1A filed on May
11, 1995.
(8) (a) Custodian Agreement dated October 4,
1989 between Registrant and PNC
Bank, National Association is
incorporated herein by reference to
Exhibit 8(a) of Post-Effective
Amendment No. 1 to Registrant's
Registration Statement on Form N-1A
filed on December 29, 1989.
(b) Amendment No. 1 to Custodian
Agreement between Registrant and PNC
Bank, National Association is
incorporated herein by reference to
Exhibit 8(b) of Post-Effective
Amendment No. 4 to Registrant's
Registration Statement on Form N-1A
filed on December 13, 1991.
(c) Amendment No. 2 dated March 1, 1993
to Custodian Agreement between
Registrant and PNC Bank, National
Association with
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<PAGE> 152
respect to the Short-Term Bond,
Intermediate-Term Bond, Core Equity,
Small Cap Growth Equity and North
Carolina Municipal Money Market
Portfolios is incorporated herein by
reference to Exhibit (8)(c) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
on Form N-1A filed on November 10,
1993.
(d) Appendix B to Custodian Agreement
dated October 4, 1989 between
Registrant and PNC Bank, National
Association is incorporated herein
by reference to Exhibit (8)(d) of
Post-Effective Amendment No. 15 to
Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(e) Sub-Custodian Agreement dated April
27, 1992 among the Registrant, PNC
Bank, National Association and The
Chase Manhattan Bank is incorporated
herein by reference to Exhibit
(8)(e) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement on Form N-1A filed on
November 10, 1993.
(f) Global Sub-Custody Agreement between
Barclays Bank PLC and PNC Bank,
National Association dated October
28, 1992 is incorporated herein by
reference to Exhibit (8)(e) of
Post-Effective Amendment No. 14 to
Registrant's Registration Statement
on Form N-1A filed on January 18,
1995.
(g) Custodian Agreement between State
Street Bank and Trust Company and
PNC Bank, National Association dated
June 13, 1983 is incorporated herein
by reference to Exhibit (8)(f) of
Post-Effective Amendment No. 14 to
Registrant's Registration Statement
on Form N-1A filed on January 18,
1995.
(h) Amendment No. 1 to Custodian
Agreement between State Street Bank
and Trust Company and PNC Bank dated
November 21, 1989 is incorporated
herein by reference to Exhibit
(8)(g) of Post-Effective Amendment
No. 14 to Registrant's
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<PAGE> 153
Registration Statement on Form N-1A
filed on January 18, 1995.
(i) Letter Agreement between Registrant
and PNC Bank, National Association
relating to custodian services with
respect to the Tax-Free Income
Portfolio is incorporated herein by
reference to Exhibit 8(d) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement
on Form N-1A filed on December 1,
1992.
(j) Letter Agreement between Registrant
and PNC Bank, National Association
relating to custodian services with
respect to the Ohio Municipal Money
Market, Pennsylvania Municipal Money
Market, Intermediate Government,
Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Value Equity, Index
Equity and Small Cap Value Equity
Portfolios is incorporated herein by
reference to Exhibit (8)(e) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement
on Form N-1A filed on December 1,
1992.
(k) Letter Agreement dated March 1, 1993
between Registrant and PNC Bank,
National Association relating to
custodian services with respect to
the North Carolina Municipal Money
Market, Short-Term Bond,
Intermediate-Term Bond, Small Cap
Growth Equity and Core Equity
Portfolios is incorporated herein by
reference to Exhibit (8)(h) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
on Form N-1A filed on November 10,
1993.
(9) (a) Administration Agreement dated
January 18, 1993 among Registrant,
PFPC Inc. and Provident
Distributors, Inc. is incorporated
herein by reference to Exhibit 9(a)
of Post-Effective Amendment No. 8 to
Registrant's Registration Statement
on Form N-1A filed on January 22,
1993.
(b) Amendment No. 1 to the
Administration Agreement dated
January 18, 1993 among Registrant,
PFPC Inc. and Provident
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<PAGE> 154
Distributors, Inc. dated September
23, 1994 is incorporated herein by
reference to Exhibit (9)(b) of
Post-Effective Amendment No. 14 to
Registrant's Registration Statement
on Form N-1A filed on January 18,
1995.
(c) Appendix A to the Administration
Agreement dated January 18, 1993
among Registrant, PFPC Inc. and
Provident Distributors, Inc. is
incorporated herein by reference to
Exhibit (9)(c) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(d) Amendment No. 2 to the
Administration Agreement dated
January 18, 1993 among Registrant,
PFPC Inc. and Provident
Distributors, Inc. is incorporated
herein by reference to Exhibit
(9)(d) of Post-Effective Amendment
No. 14 to Registrant's Registration
Statement on Form N-1A filed on
January 18, 1995.
(e) Transfer Agency Agreement dated
October 4, 1989 between Registrant
and PFPC Inc. is incorporated herein
by reference to Exhibit 9(e) of
Post-Effective Amendment No. 1 to
Registrant's Registration Statement
on Form N-1A filed on December 29,
1989.
(f) Amendment No. 1 to Transfer Agency
Agreement dated October 4, 1989
between Registrant and PFPC Inc.
relating to the Tax-Free Income
Portfolio is incorporated herein by
reference to Exhibit 9(h) of
Post-Effective Amendment No. 5 to
Registrant's Registration Statement
on Form N-1A filed on February 5,
1992.
(g) Amendment No. 2 to Transfer Agency
Agreement dated October 4, 1989
between Registrant and PFPC Inc.
relating to the Pennsylvania
Municipal Money Market, Ohio
Municipal Money Market, Intermediate
Government, Ohio Tax-Free Income,
Pennsylvania Tax-Free Income, Value
Equity, Index Equity and Small Cap
Value Equity Portfolios is
incorporated
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<PAGE> 155
herein by reference to Exhibit 9(h)
of Post-Effective Amendment No. 4 to
Registrant's Registration Statement
on Form N-1A filed on December 13,
1991.
(h) Amendment No. 3 to Transfer Agency
Agreement dated October 4, 1989
between Registrant and PFPC Inc.
relating to the Short-Term Bond,
Intermediate-Term Bond, Core Equity,
Small Cap Growth Equity and North
Carolina Municipal Money Market
Portfolios is incorporated herein by
reference to Exhibit (9)(e) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
on Form N-1A filed on November 10,
1993.
(i) Amendment No. 4 to Transfer Agency
Agreement dated October 4, 1989
between Registrant and PFPC Inc.
relating to Series B Investor Shares
of the Money Market, Managed Income,
Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income,
Pennsylvania Tax-Free Income, Value
Equity, Growth Equity, Index Equity,
Small Cap Value Equity,
Intermediate-Term Bond, Small Cap
Growth Equity, Core Equity,
International Fixed Income,
Government Income, International
Emerging Markets, International
Equity and Balanced Portfolios is
incorporated herein by reference to
Exhibit (9)(i) of Post-Effective
Amendment No. 14 to Registrant's
Registration Statement on Form N-1A
filed on January 18, 1995.
(j) Appendix C to Transfer Agency
Agreement dated October 4, 1989
between Registrant and PFPC Inc. is
incorporated herein by reference to
Exhibit (9)(j) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(k) Amended and Restated Service Plan
dated January 21, 1993 for Service
Shares and Form of Servicing
Agreement for Service Shares is
incorporated herein by reference to
Exhibit 9(f) of Post-Effective
Amendment No. 8 to Registrant's
Registration Statement on Form N-1A
filed on January 22, 1993.
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<PAGE> 156
(l) Series B Service Plan dated
September 23, 1994 is incorporated
herein by reference to Exhibit
(9)(l) of Post-Effective Amendment
No. 15 to Registrant's Registration
Statement on Form N-1A filed on May
11, 1995.
(m) Trademark License Agreement between
Registrant and PNC Bank Corp. is
incorporated herein by reference to
Exhibit 9(h) of Post-Effective
Amendment No. 1 to Registrant's
Registration Statement on Form N-1A
filed on December 29, 1989.
(10) Opinion and Consent of Counsel.(1)
(11) (a) Consent of Coopers & Lybrand.
(b) Consent of Drinker Biddle & Reath.
(12) None.
(13) (a) Purchase Agreement between
Registrant and Shearson Lehman
Hutton Inc. ("Shearson") relating to
Classes A-1, B-1, C-1, D-2, E-2, F-2
and G-2 is incorporated herein by
reference to Exhibit 13(a) of
Post-Effective Amendment No. 1 to
Registrant's Registration Statement
on Form N-1A filed on December 29,
1989.
(b) Purchase Agreement between
Registrant and Shearson relating to
shares of Class H-2 is incorporated
herein by reference to Exhibit 13(b)
of Post-Effective Amendment No. 2 to
Registrant's Registration Statement
on Form N-1A filed on April 30,
1990.
(c) Purchase Agreement between
Registrant and Shearson relating to
shares of Class I-1, Class I-2,
Class J-1, Class J-2, Class K-2,
Class L-2, Class M-2, Class N-2,
Class O-2 and Class P-2 is
incorporated herein by reference to
Exhibit 13(c) of Post-Effective
- ---------------------
1. Filed on October 7, 1994 under Rule 24f-2 as part of Registrant's Rule
24f-2 Notice.
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<PAGE> 157
Amendment No. 4 to Registrant's
Registration Statement on Form N-1A
filed on December 13, 1991.
(d) Purchase Agreement between
Registrant and Shearson relating to
shares of Class D-1, Class E-1,
Class F-1, Class G-1, Class H-1,
Class K-1, Class L-1, Class M-1,
Class N-1, Class O-1, Class P-1,
Class A-2, Class B-2, Class C-2,
Class I-2, Class J-2, Class A-3,
Class B-3, Class C-3, Class D-3,
Class E-3, Class F-3, Class G-3,
Class H-3, Class I-3, Class J-3,
Class K-3, Class L-3, Class M-3,
Class N-3, Class O-3 and Class P-3
is incorporated herein by reference
to Exhibit (13)(d) of Post-
Effective Amendment No. 7 to
Registrant's Registration Statement
on Form N-1A filed on December 1,
1992.
(e) Purchase Agreement between the
Registrant and Pennsylvania Merchant
Group Ltd relating to shares of
Class Q-1, Class Q-2, Class Q-3,
Class R-1, Class R-2, Class R-3,
Class S-1, Class S-2, Class S-3,
Class T-1, Class T-2, Class T-3,
Class U-1, Class U-2 and Class U-3
is incorporated herein by reference
to Exhibit (13)(e) of Post-Effective
No. 10 to Registrant's Registration
Statement on Form N-1A as filed on
November 10, 1993.
(f) Purchase Agreement dated September
30, 1994 between the Registrant and
Provident Distributors, Inc.
relating to shares of Class A-4,
Class D-4, Class E-4, Class F-4,
Class G-4, Class H-4, Class K-4,
Class L-4, Class M-4, Class N-4,
Class O-4, Class P-4, Class R-4,
Class S-4, Class T-4, Class U-4,
Class W-4, Class X-4, Class Y-4 is
incorporated herein by reference to
Exhibit (13)(f) of Post- Effective
Amendment No. 14 to Registrant's
Registration Statement on Form N-1A
filed on January 18, 1995.
(g) Purchase Agreement dated February 1,
1994 between the Registrant and
Provident Distributors, Inc.
relating to
C-16
<PAGE> 158
shares of Class V-1, Class V-2, Class
V-3, Class W-1, Class W-2, Class
W-3, Class X-1, Class X-2, Class
X-3, Class Y-1, Class Y-2 and Class
Y-3 is incorporated herein by
reference to Exhibit (13)(g) of
Post-Effective Amendment No. 15 to
Registrant's Registration Statement
on Form N-1A filed on May 11, 1995.
(h) Purchase Agreement dated August 1,
1995 between Registrant and
Provident Distributors, Inc.
relating to shares of Class Z-1,
Class Z-2 and Class Z-3 is
incorporated herein by reference to
Exhibit (13)(h) of Post-Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A
filed on May 11, 1995.
(14) None.
(15) (a) Amended and Restated Series A
Distribution and Service Plan dated
January 21, 1993 and Form of Series
A Distribution and Servicing
Agreement is incorporated herein by
reference to Exhibit 15(a) of
Post-Effective Amendment No. 8 to
Registrant's Registration Statement
on Form N-1A filed on January 22,
1993.
(b) Series B Distribution Plan dated
September 23, 1994 is incorporated
herein by reference to Exhibit
(15)(b) of Post-Effective Amendment
No. 14 to Registrant's Registration
Statement on Form N-1A filed on
January 18, 1995.
(16) Schedules for computation of
performance quotations are
incorporated herein by reference to
Exhibit (16) of Post-Effective
Amendment No. 5 to Registrant's
Registration Statement on Form N-1A
filed on February 5, 1992.
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<PAGE> 159
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
Provident Distributors, Inc. has provided the initial
capitalization for and holds all of the outstanding shares of beneficial
interest of the following classes as of September 29, 1995: D-4, F-4, H-4, K-4,
N-4, O-4, R-4, S-4, T-4, U-4, V-2, X-1, X-3 and Y-4.
With regard to the other portfolios, the following information
is as of September 29, 1995.
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A-1 29
Class B-1 48
Class C-1 11
Class D-1 6
Class E-1 1
Class F-1 5
Class G-1 6
Class H-1 2
Class I-1 2
Class J-1 7
Class K-1 1
Class L-1 1
Class M-1 1
Class N-1 7
Class O-1 1
Class P-1 6
Class Q-1 3
Class R-1 1
Class S-1 1
Class T-1 6
Class U-1 6
Class V-1 1
Class W-1 0
Class Y-1 6
Class A-2 357
Class B-2 44
Class C-2 8
Class D-2 352
Class E-2 2055
Class F-2 270
Class G-2 654
Class H-2 211
Class I-2 3
Class J-2 26
</TABLE>
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<PAGE> 160
<TABLE>
<S> <C>
Class K-2 125
Class L-2 42
Class M-2 525
Class N-2 517
Class O-2 203
Class P-2 735
Class Q-2 2
Class R-2 16
Class S-2 24
Class T-2 249
Class U-2 57
Class W-2 0
Class X-2 21
Class Y-2 90
Class A-3 4
Class B-3 2
Class C-3 3
Class D-3 10
Class E-3 6
Class F-3 21
Class G-3 23
Class H-3 2
Class I-3 5
Class J-3 20
Class K-3 8
Class L-3 2
Class M-3 1
Class N-3 31
Class O-3 6
Class P-3 26
Class Q-3 14
Class R-3 2
Class S-3 9
Class T-3 23
Class U-3 18
Class V-3 5
Class W-3 0
Class Y-3 6
Class A-4 1
Class E-4 359
Class G-4 263
Class L-4 7
Class M-4 139
Class P-4 246
Class W-4 0
Class X-4 522
</TABLE>
Item 27. Indemnification
Indemnification of Registrant's principal underwriter against
certain losses is provided for in Section 7 of the
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<PAGE> 161
Distribution Agreement filed herein as Exhibit (6)(a). Indemnification of PFPC
Inc. and Provident Distributors, Inc. in their capacity as co-administrators is
provided for in Section 7 of the Administration Agreement filed herein as
Exhibit 9(e). Indemnification of Registrant's Custodian and Transfer Agent is
provided for, respectively, in Section 22 of the Custodian Agreement filed
herein as Exhibit 8(a) and Section 17 of the Transfer Agency Agreement filed
herein as Exhibit 9(e). Registrant intends to obtain from a major insurance
carrier a trustees' and officers' liability policy covering certain types of
errors and omissions. In addition, Section 9.3 of the Registrant's Declaration
of Trust incorporated by reference herein as Exhibit 1(a) provides as follows:
Indemnification of Trustees, Officers, Representatives and
Employees. The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, in which he may be involved or with which he may be
threatened, while as a Trustee or thereafter, by reason of his being or
having been such a Trustee except with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of his
duties, provided that as to any matter disposed of by a compromise
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall
be provided unless the Trust shall have received a written opinion from
independent legal counsel approved by the Trustees to the effect that
if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of bad faith had been
adjudicated, it would in the opinion of such counsel have been
adjudicated in favor of such person. The rights accruing to any person
under these provisions shall not exclude any other right to which he
may be lawfully entitled, provided that no person may satisfy any right
of indemnity or reimbursement hereunder except out of the property of
the Trust. The Trustees may make advance payments in connection with
the indemnification under this Section 9.3, provided that the
indemnified person shall have given a written undertaking to reimburse
the Trust in the event it is subsequently determined that he is not
entitled to such indemnification.
The Trustee shall indemnify officers, representatives and
employees of the Trust to the same extent that Trustees are entitled to
indemnification pursuant to this Section 9.3.
C-20
<PAGE> 162
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Section 9.6 of the Registrant's Declaration of Trust, filed
herein as Exhibit 1(a), also provides for the indemnification of shareholders
of the Registrant. Section 9.6 states as follows:
Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by
reason of his being or having been a Shareholder and not because of his
acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the
assets belonging to the classes of Shares with the same alphabetical
designation as that of the Shares owned by such Shareholder to be held
harmless from and indemnified against all loss and expense arising from
such liability. The Trust shall, upon request by the Shareholder,
assume the defense of any claim made against any Shareholder for any
act or obligations of the Trust and satisfy any judgment thereon from
such assets.
Item 28. Business and Other Connections of Investment Advisers
PNC Institutional Management Corporation ("PIMC") performs
investment advisory services for Registrant and certain other investment
companies. PIMC and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Philadelphia area since
1847. In addition to its trust business, PIMC provides commercial banking
services.
C-21
<PAGE> 163
(a) To Registrant's knowledge, none of the directors or
officers of PIMC, except those set forth below, is, or has been at any time
during Registrant's past two fiscal years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers and certain executives of PIMC also hold various
positions with, and engage in business for, PNC Bank Corp, which indirectly
owns all the outstanding stock of PIMC, or other subsidiaries of PNC Bank Corp.
Set forth below are the names and principal businesses of the directors and
certain executives of PIMC who are engaged in any other business, profession,
vocation or employment of a substantial nature.
(b) To Registrant's knowledge, none of the directors or
officers of PNC Bank, National Association, except those set forth below, is,
or has been at any time during Registrant's past two fiscal years, engaged in
any other business, profession, vocation or employment of a substantial nature,
except that certain directors and officers and certain executives of PNC Bank,
National Association also hold various positions with, and engage in business
for, PNC Bank Corp., which indirectly owns all the outstanding stock of PNC
Bank, National Association, or other subsidiaries of PNC Bank Corp. Set forth
below are the names and principal businesses of the directors and certain
executives of PNC Bank, National Association who are engaged in any other
business, profession, vocation or employment of a substantial nature.
(c) Provident Capital Management, Inc. ("PCM") is an
indirect wholly-owned subsidiary of PNC Bank Corp. PCM currently offers
investment advisory services to institutional investors such as pension and
profit-sharing plans or trusts, insurance companies and banks. To Registrant's
knowledge, none of the directors or officers of PCM, except those set forth
below, is, or has been at any time during the Registrant's past two fiscal
years, engaged in any business, profession, vocation or employment of a
substantial nature. Set forth below are the names and principal businesses of
the directors and certain executives of PCM who are engaged in any other
business, profession, vocation or employment of a substantial nature.
(d) BlackRock Financial Management, Inc. ("BlackRock") is an
indirect wholly-owned subsidiary of PNC Bank Corp. BlackRock currently offers
investment advisory services to institutional investors such as pension and
profit-sharing plans or trusts, insurance companies and banks. To Registrant's
knowledge, none of the directors or officers of PCM, except those set forth
below, is, or has been at any time during the Registrant's past two fiscal
years, engaged in any business, profession, vocation or employment of a
substantial nature. Set forth below are the names and principal businesses of
the directors and certain executives of PCM who are engaged in any
C-22
<PAGE> 164
other business, profession, vocation or employment of a substantial nature.
(e) PNC Equity Advisors Company ("PEAC") is an indirect
wholly-owned subsidiary of PNC Bank Corp. PEAC currently offers investment
advisory services to institutional investors such as pension and profit-sharing
plans or trusts, insurance companies and banks. To Registrant's knowledge,
none of the directors or officers of PEAC, except those set forth below, is, or
has been at any time during the Registrant's past two fiscal years, engaged in
any business, profession, vocation or employment of a substantial nature. Set
forth below are the names and principal businesses of the directors and certain
executives of PEAC who are engaged in any other business, profession, vocation
or employment of a substantial nature.
C-23
<PAGE> 165
PNC INSTITUTIONAL MANAGEMENT CORPORATION
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------ -------------- --------
<S> <C> <C> <C>
Chairman and J. Richard Carnall Executive Vice President Banking
Director PNC Bank, National
Association (1)
Director Banking
PNC National Bank (2)
Chairman and Director Financial-
PFPC Inc. (3) Related
Services
Director Fiduciary
PNC Trust Company Activities
of New York (11)
Director Equipment
Hayden Bolts, Inc.*
Director Real
Parkway Real Estate Company* Estate
Director Investment
Provident Capital Management Advisory
Inc. (5)
Director Richard C. Caldwell Executive Vice President Banking
PNC Bank, National
Association (1)
Director, Chairman PNC Investment
Asset Management Group, Advisory
Inc. (30)
Director, PNC Equity Advisors Investment
Company * Advisory
Director PNC Bank, Banking
New England (26)
Director, PNC Bank, FSB (27) Fiduciary
Activities
Director, BlackRock Financial Investment
Management, Inc. (15) Advisory
Director Banking
PNC National Bank (2)
Director Fiduciary
PNC Trust Company Activities
of New York (11)
Director, Provident Investment
</TABLE>
C-24
<PAGE> 166
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------ -------------- --------
<S> <C> <C> <C>
Capital Management Inc. (5) Advisory
Executive Vice President Bank
PNC Bank Corp. (14) Holding
Company
Director Banking
PNC Bank, New Jersey,
National Association (16)
Director Financial-
PFPC Inc. (3) Related
Services
Director Richard L. Smoot President and Chief Banking
Executive Officer
PNC Bank, National
Association (1)
Senior Vice President Bank
PNC Bank Corp. (14) Holding
Company
Director Financial-
PFPC Inc. (3) Related
Services
Director Fiduciary
PNC Trust Company of NY (11) Activities
Director, Chairman and President Banking
PNC Bank, New Jersey, National
Association (16)
Director, Chairman, and CEO Banking
PNC National Bank (2)
Chairman & Director Leasing
PNC Credit Corp (13)
Secretary Michelle L. Petrilli Chief Counsel Banking
PNC Bank, DE (20)
Secretary Financial-
PFPC Inc. (3) Related
Services
</TABLE>
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<PAGE> 167
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------ -------------- --------
<S> <C> <C> <C>
President and Thomas H. Nevin None.
Chief
Investment
Officer
Chief Financial Nicholas M. Marsini,Jr. Senior Vice President Banking
Officer PNC Bank, National
Association (1)
Director Financial
PFPC Inc. (3) Related
Services
Senior Vice President and Banking
Chief Financial Officer
PNC Bank, Delaware (20)
Director, Vice President and Banking
Treasurer
PNC National Bank (2)
Director Banking
PNC Bank, New Jersey
National Association (16)
Director Fiduciary
PNC Trust Company of Activities
New York (11)
Director and Treasurer Holding
PNC Bancorp, Inc. (9) Company
Director and Treasurer Investment
PNC Capital Corp. (17) Activities
Director and Treasurer Banking
PNC Holding Corp. (18)
Director and Treasurer Investment
PNC Venture Corp. (19) Activities
Executive Vice Charles B. Landreth Vice President
President PNC Bank, National Association (1) Banking
Senior Vice Vincent J. Ciavardini President and Chief Financial-
President Financial Officer Related
PFPC Inc. (3) Services
</TABLE>
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<PAGE> 168
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PIMC NAME CONNECTIONS BUSINESS
- ------------- ------------------ -------------- --------
<S> <C> <C> <C>
Senior Vice Scott Moss None.
President
Senior Vice John N. Parthemore None.
President
Senior Vice Dushyant Pandit None.
President
Senior Vice James R. Smith None.
President
Group Vice William F. Walsh None.
President
Vice President, Stephen M. Wynne Executive Vice President and Financial-
Chief Chief Accounting Officer Related
Accounting PFPC Inc. (3) Services
Officer and
Assistant
Secretary
Controller Pauline M. Heintz Vice President Financial-
PFPC Inc. (3) Related
Services
Vice President John R. Antczak None.
Vice President Jeffrey W. Carson None.
Vice President Katherine A. Chuppe None.
Vice President Mary J. Coldren None.
Vice President Michele C. Dillion None.
Vice President Patrick J. Ford None.
Vice President Richard Hoerner None.
Vice President Michael S. Hutchinson None.
Vice President Michael J. Milligan None.
Vice President Allyn Plambeck None.
Vice President W. Don Simmons None.
Vice President Charles Allen Stiteler None.
</TABLE>
- --------
*Information regarding this corporation can be obtained from the office of the
Secretary.
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<PAGE> 169
PNC BANK, NATIONAL ASSOCIATION
DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS TYPE OF
PNC BANK NAME CONNECTIONS BUSINESS
-------- ---- ----------- --------
<S> <C> <C> <C>
Director B.R. Brown President and C.E.O. of Coal
Consol, Inc.
Consol Plaza
Pittsburgh, PA 15241
Director Constance E. Clayton Chief, Division of Community Health Care Medical
Medical College of Pennsylvania
3300 Hinley Avenue, Office 4338
Philadelphia, PA 19129
Director Eberhard Faber, IV Chairman and C.E.O. Manufacturing
E.F.L., Inc.
450 Hedge Road
P.O. Box 49
Bearcreek, PA 18602
Director Dr. Stuart Heydt President and C.E.O. Medical
Geisinger Foundation
100 N. Academy Avenue
Danville, PA 17822
Director Edward P. Junker, III Vice Chairman Banking
PNC Bank, N.A.
Ninth and State Streets
Erie, PA 16553
Director Thomas A. McConomy President, C.E.O. and Manufacturing
Chairman, Calgon Carbon
Corporation
P.O. Box 717
Pittsburgh, PA 15230-0717
Director Robert C. Milsom Retired
PNC Bank, National Association
One PNC Plaza, Suite 2310
Pittsburgh, PA 15265
Director Thomas H. O'Brien Chairman Banking
PNC Bank, National Association
One PNC Plaza, 30th Floor
Pittsburgh, PA 15265
Director Dr. J. Dennis O'Connor Chancellor, University Education
of Pittsburgh
107 Cathedral of Learning
Pittsburgh, PA 15260
Director Rocco A. Ortenzio Chairman and C.E.O. Medical
Continental Medical
Systems, Inc.
P.O. Box 715
Mechanicsburg, PA 17055
</TABLE>
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<PAGE> 170
<TABLE>
<S> <C> <C> <C>
Director Jane G. Pepper President Horticulture
Pennsylvania Horticultural Society
325 Walnut Street
Philadelphia, PA 19106
Director Robert C. Robb, Jr. President, Lewis, Eckert, Financial and
Robb & Company Management
425 One Plymouth Meeting Consultants
Plymouth Meeting, PA 19462
Director James E. Rohr President and C.E.O. Bank Holding Company
PNC Bank, National Association
One PNC Plaza, 30th Floor
Pittsburgh, PA 15265
Director Daniel M. Rooney President, Pittsburgh Steelers Football
Football Club of the National Football
League
300 Stadium Circle
Pittsburgh, PA 15212
Director Seth E. Schofield Chairman, President and C.E.O. Airline
USAir Group, Inc. and
USAir, Inc.
2345 Crystal Drive
Arlington, VA 22227
Director Robert M. Valentini President and C.E.O. Communications
Bell Atlantic - Pennsylvania, Inc.
One Parkway, 18th Floor
Philadelphia, PA 19102
</TABLE>
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<PAGE> 171
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
John W. Atkinson Executive Vice President None
Richard C. Caldwell Executive Vice President Director, D.R. Corp. *
Investment Officer, J.L. Caldwell
Company *
Council Member, Pennsylvania
Horticultural Society (32)
Director, PFPC Inc. (3)
Executive Vice President, Investment
Management and Trust, PNC Bank Corp. (14)
J. Richard Carnall Executive Vice President Director, Franklin Institute (The) *
Director, Hayden Bolts,
Inc. *
Director, Parkway Real Estate Company *
Director, PNC Trust Company of New York
(11)
Director, Provident Capital Management,
Inc. (5)
Chairman and Director, PFPC
Inc. (3)
Chairman and Director,
PIMC (29)
Frederick C. Frank, III Executive Vice President Director, PNC National
Bank (2)
Director, PNC National Bank of New Jersey
(16)
William J. Friel Executive Vice President Director, Cedarbrook Country Club *
Advisory Board Member, Chicago Title &
Abstract *
Director, National Adoption Agency *
</TABLE>
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<PAGE> 172
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
G. Robert Hoffman Executive Vice President Director, J.W. Pepper & Sons, Inc. *
Director, Land Holding Corp. of PA *
Chairman, President and Director,
Provident Realty Management, Inc. (7)
Chairman, President and Director,
Provident Realty, Inc. (8)
</TABLE>
C-31
<PAGE> 173
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Joe R. Irwin Executive Vice President Member of the Executive Committee and
Director Blue Cross of Western Pennsylvania *
Director
Civic Light Opera
(Non-Profit Enterprise) *
Chairman of the Board
Dinamo
(Non-Profit Enterprise) *
Treasurer and Director
Girls' Hope
(Non-Profit Organization) *
Member of the Executive Committee and
Director Greater Pittsburgh Chamber of Commerce *
Member of the Governing Council
Pennsylvania Bankers Association *
Chairman
Pennsylvania Economy League, Inc. *
Chairman, Annual Sustaining Fund Campaign
Pittsburgh Opera *
Executive Vice President and Chief
Investment Officer
PNC Bank Corp. (14)
Chairman, Chief Executive Officer and
Director
PNC Funding Corp. *
Chairman and Director
PNC International Bank *
Chairman and Director
PNC International Bank (New York) *
Chairman and Director
PNC International Investment Corporation *
Director
PNC Mortgage Bank, N.A. *
</TABLE>
C-32
<PAGE> 174
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Joe R. Irwin (Cont'd.) Director
PNC Mortgage Corp. of
America *
Director
Ruffed Grouse Society, The
(Non-Profit Enterprise) *
Edward P. Junker, III Vice Chairman Vice Chairman, PNC Bank
and Director Corp. (14)
Director, PNC Mortgage Bank, N.A. *
Director, PNC Mortgage Corp. of America *
Louis J. Myers President and CEO, PNC None
Bank, Northeast, PA
</TABLE>
C-33
<PAGE> 175
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Thomas H. O'Brien Chairman and Director Director, Allegheny Club (Non-Profit
Corporation) *
Chairman and Director, Allegheny
Conference on Community Development (Non-
Profit Organization) *
Director, Alpine Indemnity Limited *
Director, Bell Atlantic Corporation (31)
Trustee, Carnegie (The) *
Director, Central Bancorporation, Inc.
(The) *
Director, Children's Hospital (Non-Profit
Corporation) *
Director, Governor Casey's Pennsylvania
Economic Development Partnership *
Director, Hilb, Rogal and Hamilton Co. *
Chairman - Board of Visitors, Katz
Graduate School of Business *
Director, Laurel Valley Golf Club *
Director, Pittsburgh Baseball, Inc. *
Co-Chairman of the Board of Directors,
Pittsburgh Opera (The) *
President, PNC Bancorp,
Inc. (9)
Chairman, CEO & Director, PNC Bank Corp.
(14)
Director, PNC Investment Corp. (6)
Chairman and Director, PNC Trust Company
of Florida, N.A. (27)
Director, United Way of S.W. PA (Non-
Profit Organization)
</TABLE>
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<PAGE> 176
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Trustee, University of Pittsburgh (31)
Charles C. Pearson, Jr. President and CEO, PNC Director and Chairman, Chamber of
Bank, Central, PA Business and Industry of Centre County *
Partner, Charrob
Investments *
Trustee, Juniata College *
Partner, LPNS c/o Cir
Realty *
Director, Second Mile *
Director, Uni-Marts, Inc. *
Partner, University Drive Associates *
John V. Petrycki President and CEO, PNC Director, Allied Arts Fund, Inc. (of
Bank, Southcentral, PA Harrisburg) *
Director, Capital Region Economic
Development Corporation *
Director, Channels *
Director, Keystone Sports Foundation *
Director, West Short YMCA *
</TABLE>
C-35
<PAGE> 177
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Edward V. Randall, Jr. President and CEO, PNC Board of Trustees, Carlow College *
Bank, Pittsburgh
Board Member, Cities in Schools *
Board of Trustees, Landmarks Financial
Corporation *
Board of Trustees, Landmarks Real Estate
Corporation *
Board Member, Pittsburgh Downtown
Partnership *
Board Member, Pittsburgh History &
Landmarks Foundation *
Director Emeritus, Pittsburgh Partnership
for Neighborhood Development *
Member, Advisory Committee Transportation
& Technology Museum *
Member, Board of Visitors University of
Pittsburgh School of Social Work (Non-
Profit Organization) *
</TABLE>
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<PAGE> 178
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
James E. Rohr President, CEO and Director, Allegheny Ludlum Corporation *
Director
Director, Alpine Indemnity Limited *
Committee Member, American Bankers
Association Commercial Lending Div. Exec.
Com. *
Director, American Cancer Society *
Director, Boy Scouts of America *
Business Advisory Council, Graduate
School of Industrial Adm. Carnegie Mellon
University *
Trustee, Penn's Southwest Association *
President and Director, Pittsburgh
National Bank Foundation *
Chairman and Director, PNB Holdings,
Inc. *
President and Director, PNC Bank Corp.
(14)
Director, PNC International Bank (New
York) *
Chairman, President, CEO and Director,
PNC Mortgage Bank, N.A. *
Director, PNC Mortgage Corp. of America *
Director, River City Brass Bank (Non-
Profit
Corporation) *
Chairman - Advisory Board, Salvation Army
(Non-Profit Organization) *
Director, Shady Side Health, Education
and Research
Center *
Director, St. Vincent College
</TABLE>
C-37
<PAGE> 179
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
A. William Schenck, III Vice Chairman Board of Directors, Allegheny General
Hospital (Non-Profit Organization) *
Director, Consumer Bankers Association *
Board of Directors, Forward Products,
Inc. *
Board of Directors, Health & Welfare
Planning Association (Non-Profit
Organization) *
Chairman, Leadership Pittsburgh Steering
Committee *
Director, Massachusetts Company, (The) *
Board of Directors, Metropolitan
Pittsburgh Public Broadcasting, Inc.
(Non-Profit Organization) *
Joint Ownership with wife Mikell Schenck,
Mikell Schenck Associates *
1989 PBA Convention Committee Member,
Pennsylvania Bankers Association Group 8
(Non-Profit Organization) *
Chairman and Director, Pinaco, Inc. *
Board of Trustees, Pittsburgh Ballet
Theater (Non-Profit Organization) *
Regional Advisory Council Member,
Pittsburgh Cancer Institute (Non-Profit
Organization) *
Board of Trustees, Pittsburgh Center for
the Arts (Non-Profit Organization) *
Vice President and Director, Pittsburgh
National Bank Foundation *
Chairman and Director, Pittsburgh
National Life Insurance Co.
</TABLE>
C-38
<PAGE> 180
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
A. William Schenck, III Vice Chairman (cont'd) Director, Pittsburgh Theological Seminary *
Committee Member, Pittsburgh Trust for
Cultural Resources (Non-Profit
Organization) *
Executive Vice President - PNC Retail
Banking, PNC Bank Corp. (14)
Director, PNC Mortgage Bank, N.A. *
Director, PNC Mortgage Corp. of America *
Board of Trustee, Three Rivers
Shakespeare Festival (Non-Profit
Organization) *
Board of Directors, Urban League of
Pittsburgh, Inc. (Non-Profit
Organization) *
Director, Visa U.S.A., Inc. *
Director, Wiser Oil Company *
Board of Trustee, YMCA of Pittsburgh
(Non-Profit Organization) *
</TABLE>
C-39
<PAGE> 181
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Richard L. Smoot President and CEO of PNC Trustee, Agnes Irwin School (32)
Bank, Philadelphia
Board of Council, Episcopal Community
Services (33)
Director, Greater Philadelphia Chamber of
Commerce (34)
Director, Greater Philadelphia First
Corporation (The) (35)
Director, Greater Philadelphia Urban
Affairs Coalition (The) (42)
Director, Pennsylvania
Ballet (36)
Director, Philadelphia Orchestra (The)
(37)
Chairman and Director, PNC Credit Corp.
(13)
Chairman, CEO and Director, PNC National
Bank (1)
Chairman, President and Director, PNC
National Bank of New Jersey (16)
Director, PNC Service
Corp. (4)
Director, PNC Trust Company of
New York (11)
Director, Police Athletic League of
Philadelphia (38)
Director, PFPC Inc. (3)
Director, PIMC (29)
Director, Settlement Music School (39)
Director, St. John's
College *
Director, United Negro College Fund,
Inc. (41)
Director, Widener Univ. (40)
</TABLE>
C-40
<PAGE> 182
<TABLE>
<CAPTION>
POSITION
WITH
NAME PNC BANK OTHER BUSINESS CONNECTIONS
---- -------- --------------------------
<S> <C> <C>
Herbert G. Summerfield, Jr. Executive Vice President Director, CBM-Old York Associates, Inc. *
Director, CBM-Walnut Hill, Inc. *
Director, Pennsylvania Mountain, Inc. *
Executive Vice President - PNC Real
Estate, PNC Bank Corp. (14)
Chairman and Director, PNC Realty Holding
Corp. *
Director, PNC Realty Holding Corp. of
Georgia *
Director, PNC Realty Holding Corp. of
Florida *
Director, PNC Realty Holding Corp. of
Kentucky *
Director, PNC Realty Holding Corp. of
Mississippi *
Director, PNC Realty Holding Corp. of New
Jersey *
Director, PNC Realty Holding Corp. of
Ohio *
Director, PNC Realty Holding Corp. of
Pennsylvania *
Director, PNC Realty Holding Corp. of
Texas *
Director, PNC Realty Mortgage Company *
Director, Regional Industrial Development
Corp. of Southwestern, PA *
Director, Special Asset Holdings of
Michigan, Inc. *
Malcolm C. Wilson Executive Vice President Board of Trustees, People's Light &
Theatre Company *
Senior Vice President and Director, PNC
National Bank of New Jersey (16)
</TABLE>
C-41
<PAGE> 183
PROVIDENT CAPITAL MANAGEMENT INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME TITLE OTHER BUSINESS CONNECTIONS
---- ----- --------------------------
<S> <C> <C>
Richard C. Caldwell Director See PIMC list
Ernest E. Ceilia Director Director, CIO, President, CEO, PNC
Equity Advisors Company (28)
Director, Equity Research, PNC
Asset Management Group,
Inc. (30)
Director, Equity Research, PNC
Bank, National Association (1)
Robert J. Christian Director Chairman, Director, PNC Equity
Advisors
Company (28)
Director, President, CIO, PNC Asset
Management Group, Inc. (30)
Chief Investment Officer, PNC Bank,
National Association (1)
Young D. Chin Director, President & CEO Director, PNC Asset Management
Group,
Inc. (30)
Director, PNC Equity Advisors
Company (28)
Senior Vice President, Investment
Strategy, PNC Bank, National
Association (1)
C-42
</TABLE>
<PAGE> 184
PROVIDENT CAPITAL MANAGEMENT INC.
DIRECTORS AND OFFICERS
<TABLE>
<S> <C> <C>
Timothy M. Alles Treasurer Director, PNC Trust Company of New
York (11)
Treasurer, PNC Service Corp. (4)
Vice President, PNC Bank Corp. (14)
Vice President and Controller, PNC
Bank, FSB (27)
Controller, Provident National
Financial Corp.*
Treasurer, Provident Realty Inc. (8)
Treasurer, PNC New Jersey Credit
Corp. (10)
Beth Wagner-Coyne Vice President None
Lynn K. Shipman Secretary None
Earl J. Gaskins Vice President None
Larry Bernstein Vice President None
J. H. Hill, Jr. Vice President None
Susan D. Menzies Vice President None
Edwin B. Powell Vice President None
Herve Van Caloen Vice President None
</TABLE>
C-43
<PAGE> 185
BLACKROCK FINANCIAL MANAGEMENT INC.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME TITLE OTHER BUSINESS CONN.
---- ----- --------------------
<S> <C> <C>
Scott M. Amero Managing Director VP of 10 BlackRock closed end funds
Keith T. Anderson Managing Director VP of 21 BlackRock closed end funds
Richard C. Caldwell Director See PIMC List
Wesley R. Edens Managing Director COO & Director of 4 BlackRock
closed end funds
Laurence D. Fink Chairman and Director Chairman & Director of 25 BlackRock
closed end funds; and Director of
PNC Asset Management Group, Inc.
Hugh R. Frater Managing Director None
Henry Gabbay Chief Operating Officer and Managing Treasurer of 25 BlackRock closed
Director end funds
Bennett W. Golub, Ph.D. Managing Director None
Charles S. Hallac Managing Director None
Michael C. Huebsch Managing Director VP of 21 BlackRock closed end funds
Robert S. Kapito Managing Director VP of 21 BlackRock closed end funds
P. Phillip Matthews Managing Director None
Barbara G. Novick Managing Director Secretary of 21 BlackRock closed
end funds
Karen H. Sabath Managing Director Assistant Secretary of 21 BlackRock
closed end funds
Ralph L. Schlosstein President & Director President & Director of 21
BlackRock closed end funds; and
President of 4 BlackRock closed end
funds
Joel M. Shaiman Managing Director None
J. Robert Small Principal & Controller Assistant Secretary of 4 BlackRock
closed end funds
Susan L. Wagner Managing Director Secretary of 4 BlackRock closed end
funds
</TABLE>
C-44
<PAGE> 186
PNC EQUITY ADVISORS COMPANY
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME TITLE OTHER BUSINESS CONN.
---- ----- --------------------
<S> <C> <C>
Timothy M. Alles CFO, Treasurer See Provident Capital Management
List
Richard C. Caldwell Director See PIMC List
Ernest E. Cecilia Director, CIO, President & CEO See Provident Capital Management
List
Young D. Chin Director See Provident Capital Management
List
Robert J. Christian Chairman and Director See Provident Capital Management
List
Lisa P. Howard Chief Compl. Officer None
Leah L. Tompkins Secretary, Chief Legal Counsel Senior Counsel, PNC Bank, National
Association (1)
Thomas H. O'Brien CEO, PNC Bank Corp. None
</TABLE>
C-45
<PAGE> 187
(1) PNC Bank, National Association, 120 S. 17th Street, Philadelphia, PA
19103; Broad & Chestnut Streets, Philadelphia, PA 19101; and 17th and
Chestnut Streets, Philadelphia, PA 19103.
(2) PNC National Bank, 103 Bellevue Parkway, Wilmington, DE 19809.
(3) PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
(4) PNC Service Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(5) Provident Capital Management, Inc., 30 S. 17th Street, Suite 1500,
Philadelphia, PA 19103.
(6) PNC Investment Corp., Broad and Chestnut Streets, Philadelphia, PA
19101.
(7) Provident Realty Management, Inc., Broad and Chestnut Streets,
Philadelphia, PA 19101.
(8) Provident Realty, Inc., Broad and Chestnut Streets, Philadelphia, PA
19101.
(9) PNC Bancorp, Inc., 3411 Silverside Road, Wilmington, DE 19810.
(10) PNC New Jersey Credit Corp, 1415 Route 70 East, Suite 604, Cherry
Hill, NJ 08034.
(11) PNC Trust Company of New York, 40 Broad Street, New York, NY 10084.
(12) Provcor Properties, Inc., Broad and Chestnut Streets, Philadelphia, PA
19101.
(13) PNC Credit Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(14) PNC Bank Corp., 5th Avenue and Wood Streets, Pittsburgh, PA 15265.
(15) BlackRock Financial Management Inc., 435 Park Avenue, New York, NY
10154.
(16) PNC Bank, New Jersey, National Association, Woodland Falls Corporate
Park, 210 Lake Drive East, Cherry Hill, NJ 08002.
(17) PNC Capital Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(18) PNC Holding Corp, 222 Delaware Avenue, P.O. Box 791, Wilmington, DE
19899.
(19) PNC Venture Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(20) Bank of Delaware, 200 Delaware Avenue, Wilmington, DE 19801.
(21) Bank of Delaware Corp., 300 Delaware Avenue, Wilmington, DE 19801.
(22) Del-Vest, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(23) Marand Corp., 222 Delaware Avenue, Wilmington, DE 19801.
(24) Millsboro Insurance Agency, 300 Delaware Avenue, Wilmington, DE
19801.
(25) Roney-Richards, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(26) PNC Bank, New England (f/k/a The Massachusetts Company), 125 High
Street, Boston, MA.
(27) PNC Bank, FSB, P.O. Box 4026, Vero Beach, FL.
(28) PNC Equity Advisors Company, 1835 Market Street, 15th Floor, Eleven
Penn Center, Philadelphia, PA 19103.
C-46
<PAGE> 188
(29) PNC Institutional Management Corporation 400 Bellevue Parkway,
Wilmington, DE 19809.
(30) PNC Asset Management Group, Inc. 1835 Market Street, 15th Floor,
Eleven Penn Center, Philadelphia, PA 19103.
(31) Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, PA 19102.
(32) Agnes Irwin School, Ithan Avenue and Conestoga Road, P. O. Box 407,
Rosemont, PA 19010.
(33) Episcopal Community Services, 225 South 3rd Street, Philadelphia, PA
19106.
(34) Greater Philadelphia Chamber of Commerce, 1234 Market Street,
Philadelphia, PA 19107.
(35) The Greater Philadelphia First Corporation, 1818 Market Street,
Philadelphia, PA 19103.
(36) Pennsylvania Ballet, 1101 South Broad Street, Philadelphia, PA 19147.
(37) The Philadelphia Orchestra, 1420 Locust Street, Philadelphia, PA
19102.
(38) Police Athletic League of Philadelphia, 3201 North 5th Street,
Philadelphia, PA 19140.
(39) Settlement Music School, 416 Queen Street, Philadelphia, PA 19147.
(40) Widener University, One University Plaza, Chester, PA 19013.
(41) United Negro College Fund Inc., 1650 Arch Street, Philadelphia, PA
19103.
(42) The Greater Philadelphia Urban Affairs Coalition, 1207 Chestnut
Street, Philadelphia, PA 19107.
* address unavailable
C-47
<PAGE> 189
Item 29. Principal Underwriter
(a) Provident Distributors, Inc. currently acts as
distributor for, in addition to the Registrant, Temporary Investment Fund,
Inc., Municipal Fund for Temporary Investment, Municipal Fund for California
Investors, Inc., and Municipal Fund for New York Investors, Inc.
(b) The information required by this Item 29 with respect
to each director, officer or partner of Provident Distributors, Inc. is
incorporated by reference to Schedule A of FORM BD filed by Provident
Distributors, Inc. with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934.
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) PNC Bank, National Association, Broad and
Chestnut Streets, Philadelphia, Pennsylvania
19102 (records relating to its functions as
custodian and as sub-investment adviser.
(2) Provident Capital Management, Inc., 30 South
17th Street, Philadelphia, Pennsylvania 19103
(records relating to its functions as
sub-investment adviser to the International
Equity Portfolio).
(3) Provident Distributors, Inc., 259
Radnor-Chester Road, Suite 135, Radnor,
Pennsylvania 19807 (records relating to its
functions as distributor and
co-administrator).
(4) PNC Institutional Management Corporation,
Bellevue Corporate Center, 103 Bellevue
Parkway, Wilmington, Delaware 19809 (records
relating to its functions as investment
adviser).
(5) BlackRock Financial Management, Inc., 345
Park Avenue, New York, New York 10154
(records relating to its functions as
sub-adviser).
(6) PNC Equity Advisors Company, 1835 Market
Street, 15th Floor, Philadelphia,
Pennsylvania 19103 (records relating to its
functions as sub-adviser).
C-48
<PAGE> 190
(7) PFPC Inc., Bellevue Corporate Center, 400
Bellevue Parkway, Wilmington, Delaware 19809
(records relating to its functions as
co-administrator, transfer agent and dividend
disbursing agent).
(8) The Chase Manhattan Bank, N.A., 1285 Avenue
of the Americas, New York, New York 10019
(records relating to its function as
sub-custodian).
(9) State Street Bank and Trust Company, P.O. Box
1631, Boston, Massachusetts (records relating
to its function as sub-custodian).
(10) Barclays Bank PLC, 75 Wall Street, New York,
New York 10265 (records relating to its
function as sub-custodian).
(11) Drinker Biddle & Reath, Philadelphia National
Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496
(registrant's declaration of trust, code of
regulations and minute books).
Item 31. Management Services
None.
Item 32. Undertakings
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest
annual report to shareholders upon request and without charge.
C-49
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness for this Post-Effective
Amendment No. 16 to its Registration Statement ("Amendment No. 16") pursuant to
Rule 485(b) under the 1933 Act, and has duly caused this Amendment No. 16 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia and the Commonwealth of Pennsylvania on the 5th day of October,
1995.
THE PNC FUND
Registrant
By /s/ G. Willing Pepper
--------------------------------
G. Willing Pepper, Chairman of
the Board and President
(Principal Executive Officer)
Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 16 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the
/s/ G. Willing Pepper Board and President October 5, 1995
- --------------------- (Principal Executive
(G. Willing Pepper) Officer)
*David R. Wilmerding, Jr. Vice-Chairman of October 5, 1995
- -------------------------- the Board
(David R. Wilmerding, Jr.)
Vice-President
/s/ Edward J. Roach and Treasurer
- -------------------- (Principal
(Edward J. Roach) Financial and
Accounting Officer) October 5, 1995
*Robert R. Fortune Trustee October 5, 1995
- ------------------------
(Robert R. Fortune)
*Philip E. Coldwell Trustee October 5, 1995
- ------------------------
(Philip E. Coldwell)
*Rodney D. Johnson Trustee October 5, 1995
- ------------------------
(Rodney D. Johnson)
*Anthony M. Santomero Trustee October 5, 1995
- ------------------------
(Anthony M. Santomero)
*By:/s/ Edward J. Roach
---------------------------------
Edward J. Roach, Attorney-in-Fact
</TABLE>
<PAGE> 192
The PNC(R) Fund
POWER OF ATTORNEY
Robert R. Fortune, whose signature appears below, hereby constitutes and
appoints G. Willing Pepper and Edward J. Roach, and either of them, his true
and lawful attorneys and agents, with power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, or either of them, may deem necessary or advisable
or which may be required to enable The PNC Fund (the "Company") to comply with
the Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement
pursuant to said Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Robert R. Fortune
---------------------
Date: January 21, 1993
<PAGE> 193
The PNC(R) Fund
POWER OF ATTORNEY
G. Willing Pepper, whose signature appears below, hereby constitutes and
appoints Edward J. Roach his true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable The PNC Fund (the
"Company") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended (collectively, the "Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Company's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name
and on behalf of the undersigned as a trustee and/or officer of the Company any
and all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/ G. Willing Pepper
---------------------
Date: January 21, 1993
<PAGE> 194
The PNC(R) Fund
POWER OF ATTORNEY
David R. Wilmerding, Jr., whose signature appears below, hereby
constitutes and appoints G. Willing Pepper and Edward J. Roach, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The PNC Fund (the
"Company") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended (collectively, the "Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Company's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name
and on behalf of the undersigned as a trustee and/or officer of the Company any
and all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ David R. Wilmerding, Jr.
----------------------------
Date: January 21, 1993
<PAGE> 195
The PNC(R) Fund
POWER OF ATTORNEY
Philip E. Coldwell, whose signature appears below, hereby constitutes and
appoints G. Willing Pepper and Edward J. Roach, and either of them, his true
and lawful attorneys and agents, with power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, or either of them, may deem necessary or advisable
or which may be required to enable The PNC Fund (the "Company") to comply with
the Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement
pursuant to said Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Philip E. Coldwell
----------------------
Date: September 15, 1993
<PAGE> 196
The PNC(R) Fund
POWER OF ATTORNEY
Rodney D. Johnson, whose signature appears below, hereby constitutes and
appoints G. Willing Pepper and Edward J. Roach, and either of them, his true
and lawful attorneys and agents, with power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, or either of them, may deem necessary or advisable
or which may be required to enable The PNC Fund (the "Company") to comply with
the Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended (collectively, the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Company's Registration Statement
pursuant to said Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company any and
all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Rodney D. Johnson
---------------------
Date: September 15, 1993
<PAGE> 197
The PNC(R) Fund
POWER OF ATTORNEY
Anthony M. Santomero, whose signature appears below, hereby constitutes
and appoints G. Willing Pepper and Edward J. Roach, and either of them, his
true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The PNC Fund (the
"Company") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended (collectively, the "Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Company's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name
and on behalf of the undersigned as a trustee and/or officer of the Company any
and all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Anthony Santomero
---------------------
Date: March 30, 1994
<PAGE> 198
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
(11) (a) Consent of Coopers & Lybrand, L.L.P.
(b) Consent of Drinker Biddle & Reath.
</TABLE>
<PAGE> 1
EXHIBIT (11)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 16 to the Registration Statement on Form N-1a (File No. 33-26305) under the
Securities Act of 1933 of the PNC Fund of each of our reports dated November
23, 1994 on our audits of the financial statements and financial highlights as
of September 30, 1994 and for the respective periods then ended.
We also consent to the reference to our Firm under the captions "Financial
Highlights" in the prospectus and "Miscellaneous--Independent Accountants" and
"Financial Statements" in the Statement of Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
October 5, 1995
<PAGE> 1
EXHIBIT (11)(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Counsel" in the Statement of Additional Information
that is included in Post-Effective Amendment No. 16 to the Registration
Statement (File No. 33-26305) on Form N-1A of The PNC(R) Fund under the
Securities Act of 1933 and the Investment Company Act of 1940, respectively.
This consent does not constitute a consent under Section 7 of the Securities
Act of 1933, and in consenting to the use of our name and the reference to our
Firm under such caption we have not certified any part of the Registration
Statement and do not otherwise come within the categories of persons whose
consent is required under Section 7 or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH
---------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
October 5, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000844779
<NAME> PNC FUND
<SERIES>
<NUMBER> 9
<NAME> PNC OHIO MUNICIPAL MONEY MARKET
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 60124230
<INVESTMENTS-AT-VALUE> 60124230
<RECEIVABLES> 288788
<ASSETS-OTHER> 1642
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60414660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 225861
<TOTAL-LIABILITIES> 225861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60191084
<SHARES-COMMON-STOCK> 60191084
<SHARES-COMMON-PRIOR> 54616811
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2285)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 60188799
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1097216
<OTHER-INCOME> 0
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