<PAGE>   1



                                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, 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 and Virginia 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 those Portfolios,
dated January 30, 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 January 30,
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>
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Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           3
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          40
Investment Advisory, Administration,
 Distribution and Servicing Arrangements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          45
Portfolio Transactions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          58
Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          62
Valuation of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          66
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          67
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          85
Additional Information Concerning Shares  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          93
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          94
Appendix A  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          A-1
Appendix B  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          B-1
</TABLE>





                                      -1-
<PAGE>   2
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.





                                      -2-
<PAGE>   3

                              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 and Virginia 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





                                      -3-
<PAGE>   4
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





                                      -4-
<PAGE>   5
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>   6
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."





                                      -6-
<PAGE>   7
         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, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.

         LEASE OBLIGATIONS.   The Municipal Money Market, Pennsylvania
Municipal Money Market, Ohio Municipal Money Market, North Carolina Municipal
Money Market, Virginia Municipal Money Market, Managed Income, Tax-Free Income,
Pennsylvania Tax-Free Income, Ohio Tax-Free Income, Short-Term Bond,
Intermediate-Term Bond and





                                      -7-
<PAGE>   8
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 and Virginia
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





                                      -8-
<PAGE>   9
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 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 the 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





                                      -9-
<PAGE>   10
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





                                      -10-
<PAGE>   11
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





                                      -11-
<PAGE>   12
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





                                      -12-
<PAGE>   13
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





                                      -13-
<PAGE>   14
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





                                      -14-
<PAGE>   15
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





                                      -15-
<PAGE>   16
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





                                      -16-
<PAGE>   17
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





                                      -17-
<PAGE>   18
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
(6.5% versus 6.8% in 1993).  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





                                      -18-
<PAGE>   19
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 to respond to lower receipts and higher expenditures in
certain categories than earlier estimated.  Those steps included selected
reductions in appropriations spending and the transfer of $64 million from the
BSF to the GRF.  Reported June 30, 1991 ending fund balances were $135.3
million (GRF) and $300 million (BSF).

         To allow time to resolve certain budget differences for the latest
complete biennium, 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.  Pursuant to the general appropriations act for the entire biennium,
passed on July 11, 1991, $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 came in certain areas,
particularly human services including Medicaid.  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.  As authorized by the General Assembly,
the $100.4





                                      -19-
<PAGE>   20
million BSF balance and additional amounts from certain other funds were
transferred late in the FY to the GRF, and adjustments made in the timing of
certain tax payments.  Other administrative revenue and spending actions
resolved the remaining imbalance.

         A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993.  It was addressed by appropriate legislative and
administrative actions.  The Governor ordered, effective July 1, 1992, $300
million in selected GRF spending reductions.  Subsequent executive and
legislative action in December 1992 -- a combination of tax revisions and
additional spending reductions -- resulted in a balance of GRF resources and
expenditures for the 1992-93 biennium.  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.  (Based on June 30, 1994
balances, an additional $260 million has been deposited in the BSF, which has a
current balance of $281 million.)

         No spending reductions were applied to appropriations needed for debt
service on or lease rentals relating to any State obligations.

         The GRF appropriations act for the current 1994-95 biennium was passed
and signed by the Governor on July 1, 1993.  It included all necessary GRF
appropriations for State debt service and lease rental payments then projected
for the biennium.

         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 January 25, 1995, $794.4 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 ($38.9 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 or
awaiting delivery); and (c) up to $200





                                      -20-
<PAGE>   21
million in general obligation bonds for parks, recreation and natural resources
purposes which may be outstanding at any one time (no more than $50 million to
be issued in any one year).

         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 or awaiting delivery at January 25,
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, a part from a "guarantee fund" approach funded
essentially from program revenues.)

         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 46% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 107
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.  The trial court
recently concluded that aspects of the system (including basic operating
assistance) are





                                      -21-
<PAGE>   22
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.  Borrowings under this
program totalled $68.6 million for 44 districts (including $46.6 million for
one district) in FY 1992, $94.5 million for 27 districts (including $75 million
for one)in FY 1993, and $15.6 million for 28 districts in FY 1994.

         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





                                      -22-
<PAGE>   23
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





                                      -23-
<PAGE>   24
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)





                                      -24-
<PAGE>   25
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





                                      -25-
<PAGE>   26
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, soft drink tax and intangible personal property 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





                                      -26-
<PAGE>   27
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 1993 sessions of the General Assembly reduced departmental
operating requirements by $357.6 million for fiscal year 1995 and authorized
continuation funding of $8,603.4 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 during
the 1993 and 1994 sessions of the General Assembly.  In addition to the
transfers to the Savings Reserve from the fiscal year-end credit balance, the
General Assembly in 1993





                                      -27-
<PAGE>   28
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.

         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 May 1994, North Carolina
ranked tenth among the states in non-agricultural employment and eighth in
manufacturing employment.  The Commission estimated North Carolina's seasonally
adjusted unemployment rate in December 1994 to be 3.3% of the labor force, as
compared with an unemployment rate of 5.4% 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





                                      -28-
<PAGE>   29
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.  On December 12, 1994, the United States Supreme Court announced that
it would not hear the case.  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.  No date for oral argument has been set.  The North Carolina
Attorney General's Office believes that sound legal arguments support the
State's position.

         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.  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 1992.  The case is now pending in
Superior Court.  Defendants' motion to dismiss as a matter of law has been
denied. The North Carolina Attorney General's Office believes that sound legal
arguments support the State's position.

         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





                                      -29-
<PAGE>   30
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 has announced it intends to
petition the United States Supreme Court for review of that decision.  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 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 offering
of the remaining $280 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.





                                      -30-
<PAGE>   31
         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 of number of
jobs, followed by wholesale and retail trade, government employment and
manufacturing.  Because of Virginia's proximity in 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 grater
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 for review by the Governor, the Advisory Board of
Economists and the Advisory Council on Revenue





                                      -31-
<PAGE>   32
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.

         Once an appropriation act becomes law, revenue collections and
expenditures are constantly monitored by the Governor, assisted by the
Secretary of Finance and 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 total revenues anticipated 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, in part, 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% 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 2% 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% 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% of total tax revenues was
derived from five major taxes imposed by the Commonwealth on individual and
fiduciary income, sales and





                                      -32-
<PAGE>   33
use, corporate income, public services corporations and premiums of insurance
companies.

         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% 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 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 contract
general obligation debt to meet certain types of emergencies, subject to
limitations on amount and duration; to





                                      -33-
<PAGE>   34
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.

         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% 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,





                                      -34-
<PAGE>   35
Section 9 are set forth below (in $ thousands).



<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                                                          $921,305
                                                                                                       ===============
                          (maximum amount that could be authorized                                
                          by the General Assembly)                                                
                                                                                                  
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.

         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





                                      -35-
<PAGE>   36
(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 1993 B (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 approximately 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 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





                                      -36-
<PAGE>   37
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.

         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 1985-1988.  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 occurs 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.





                                      -37-
<PAGE>   38
         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 the taxpayers
opting out of the settlement exceeds $20 million, the entire settlement shall
be 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
the foregoing actions 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.


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





                                      -38-
<PAGE>   39
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





                                      -39-
<PAGE>   40
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          POSITION WITH FUND       DURING PAST FIVE YEARS
- ----------------          ------------------       ----------------------
<S>                               <C>              <C>
Philip E. Coldwell                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,
                                                   Municipal Fund for Temporary
                                                   Investment and Portfolios for
                                                   Diversified Investment.

Robert R. Fortune                 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                 Trustee          President, Fairmount
</TABLE>





                                      -40-
<PAGE>   41
<TABLE>
<S>                            <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,
                                                   Portfolios for Diversified
                                                   Investment, Municipal Fund
                                                   for California Investors,
                                                   Inc. and Municipal Fund for
                                                   New York Investors, Inc.

G. Willing Pepper(1)           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>   42
<TABLE>
<S>                               <C>              <C>
Anthony M. Santomero              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,
                                                   Portfolios for Diversified
                                                   Investment and Municipal Fund
                                                   for California Investors, Inc.

David R. Wilmerding, Jr.          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>





                                      -42-
<PAGE>   43
<TABLE>
<S>                               <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                   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                   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





                                      -43-
<PAGE>   44
("PNC Bank"), 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>   45
         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, PNC Bank Ohio, PCM 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,





                                      -45-
<PAGE>   46
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.  PNC Bank Ohio renders sub-advisory services
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.  PCM renders sub-advisory services
to the Value Equity, Small Cap Value Equity, International Equity,
International Fixed Income and International Emerging Markets Portfolios and
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, Small Cap Growth Equity, Core Equity, Growth Equity,
Index Equity, Balanced, Managed Income, Intermediate Government, Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term Bond
and Government Income Portfolios pursuant to Sub-Advisory Agreements.  From
April 20, 1992 to September 10, 1993, PCM served as sub-adviser to the
Intermediate Government Portfolio.  These Advisory and Sub-Advisory Agreements
are collectively referred to as the "Advisory Contracts."

         Under the Advisory Contracts, PIMC, PCM, PNC Bank and PNC Bank Ohio
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, PNC Bank or PNC Bank Ohio 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, PNC Bank or PNC Bank Ohio, as the case may be.  PIMC, PCM, PNC Bank or PNC
Bank Ohio may also terminate their advisory





                                      -46-
<PAGE>   47
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





                                      -47-
<PAGE>   48
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,





                                      -48-
<PAGE>   49
$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-





                                      -49-
<PAGE>   50
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





                                      -50-
<PAGE>   51
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





                                      -51-
<PAGE>   52
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,





                                      -52-
<PAGE>   53
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 to the Fund
under the Transfer Agency Agreement, PFPC receives a per account fee, with
minimum monthly fees of $1,250 for each Portfolio.  PFPC is also entitled to
out-of-pocket expenses.





                                      -53-
<PAGE>   54
         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.  A message from the
Distributor has been attached to this Statement of Additional Information as
Appendix B.

         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.





                                      -54-
<PAGE>   55
         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.





                                      -55-
<PAGE>   56
         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





                                      -56-
<PAGE>   57
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





                                      -57-
<PAGE>   58
"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 adviser or sub-adviser determines in good faith
that such commission is reasonable in terms either of the transaction or the
overall responsibility of 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





                                      -58-
<PAGE>   59
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 commission.  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





                                      -59-
<PAGE>   60
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, 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 is believed to be beneficial to a Portfolio.  A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such securities of which PIMC, PNC Bank Ohio, PNC
Bank, PCM, the Administrators,





                                      -60-
<PAGE>   61
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, PNC Bank Ohio, PNC Bank, PCM, 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.





                                      -61-
<PAGE>   62
                      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  . . . . . . . . . . . . .      $16,814,283      $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>   63

<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 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





                                      -63-
<PAGE>   64
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 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 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





                                      -64-
<PAGE>   65
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>   66
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>   67
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 each 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.  For the seven-day period ended September 30, 1994,
the annualized yield for Service Shares of each of the Money Market Portfolios
was as follows:  Money Market Portfolio, 4.43%; Municipal Money Market
Portfolio, 2.90%; Government Money Market Portfolio, 4.40%; Ohio Municipal
Money Market Portfolio, 2.85%; and Pennsylvania Municipal Money Market
Portfolio, 2.92%.(1)   For the seven-day period ended September 30, 1994, the
annualized yield for Series






- ----------------------------------

(1)        No Service Shares of the North Carolina Municipal Money Market
           Portfolio were outstanding at September 30, 1994.

                                      -67-
<PAGE>   68
A Investor Shares of each of the Money Market Portfolios was as follows: Money
Market Portfolio, 4.23%; Municipal Money Market Portfolio, 2.69%; Government
Money Market Portfolio, 4.20%; Ohio Municipal Money Market Portfolio, 2.65%;
and Pennsylvania Municipal Money Market Portfolio, 2.72%.  For the seven-day
period ended September 30, 1994, the annualized yield for Institutional Shares
of each of the Money Market Portfolios was as follows:  Money Market Portfolio,
4.73%; Municipal Money Market Portfolio, 3.20%; Government Money Market
Portfolio, 4.70%; Ohio Municipal Money Market Portfolio, 3.15%; Pennsylvania
Municipal Money Market Portfolio, 3.22%; North Carolina Municipal Money Market
Portfolio, 3.26%; and Virginia Municipal Money Market Portfolio, 3.35%.  For
the seven-day period ended September 30, 1994, the annualized effective yield
for Service Shares of each of the Money Market Portfolios was as follows: Money
Market Portfolio, 4.52%; Municipal Money Market Portfolio, 2.94%; Government
Money Market Portfolio, 4.49%; Ohio Municipal Money Market Portfolio, 2.89%;
and Pennsylvania Municipal Money Market Portfolio, 2.96%.(1)  For the seven-day
period ended September 30, 1994, the annualized effective yield for Series A
Investor Shares of each of the Money Market Portfolios was as follows: Money
Market Portfolio, 4.31%; Municipal Money Market Portfolio, 2.73%; Government
Money Market Portfolio, 4.28%; Ohio Municipal Money Market Portfolio, 2.68%;
and Pennsylvania Municipal Money Market Portfolio, 2.76%.  For the seven-day
period ended September 30, 1994, the annualized effective yield for
Institutional Shares of each of the Money Market Portfolios was as follows:
Money Market Portfolio, 4.84%; Municipal Money Market Portfolio, 3.25%;
Government Money Market Portfolio, 4.81%; Ohio Municipal Money Market
Portfolio, 3.20%; Pennsylvania Municipal Money Market Portfolio, 3.27%; North
Carolina Municipal Money Market Portfolio, 3.31%; and Virginia Municipal Money
Market Portfolio, 3.41%.  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 and Virginia 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.  For the seven-day period ended September 30, 1994, the annualized
tax-equivalent yield for Service Shares of each of the Money Market Portfolios
was as follows:  Municipal Money Market Portfolio, 4.08%; Ohio Municipal Money
Market Portfolio, 4.01%; and Pennsylvania Municipal Money Market






- ----------------------------------

(1)        No Service Shares of the North Carolina Municipal Money Market
           Portfolio were outstanding at September 30, 1994.

                                      -68-
<PAGE>   69
Portfolio, 4.11%.(1)   For the seven-day period ended September 30, 1994, the
annualized tax-equivalent yield for Series A Investor Shares of each of the
Money Market Portfolios was as follows:  Municipal Money Market Portfolio,
3.79%; Ohio Municipal Money Market Portfolio, 3.72%; and Pennsylvania Municipal
Money Market Portfolio, 3.83%.  For the seven-day period ended September 30,
1994, the annualized tax-equivalent yield for Institutional Shares of each of
the Money Market Portfolios was as follows: Municipal Money Market Portfolio,
4.51%; Ohio Municipal Money Market Portfolio, 4.44%; Pennsylvania Municipal
Money Market Portfolio, 4.54%; North Carolina Municipal Money Market Portfolio,
4.60%; and Virginia Municipal Money Market Portfolio, 4.74%.  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 Service Shares of
the Virginia Municipal Money Market Portfolio, no Series A Investor Shares of
the North Carolina Municipal Money Market and Virginia Municipal Money Market
Portfolios and no Series B Investor Shares of the Money Market Portfolio had
been issued prior to September 30, 1994.  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
Service 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






- ----------------------------------

(1)        No Service Shares of the North Carolina Municipal Money Market
           Portfolio were outstanding at September 30, 1994.

                                      -69-
<PAGE>   70
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:

(i) the average annual total return for Service Shares of the Non-Money Market
Portfolios for the year ended September 30, 1994 was as follows:  Managed
Income Portfolio, -5.49%; Tax-Free Income Portfolio, -4.02%; Intermediate
Government Portfolio, -3.31%; Ohio Tax-Free Income Portfolio, -4.00%;
Pennsylvania Tax-Free Income Portfolio, -3.20%; Short-Term Bond Portfolio,
- -0.26%; Intermediate-Term Bond Portfolio, -3.80%; Value Equity Portfolio,
3.51%; Growth Equity Portfolio, -11.20%; Small Cap Growth Equity Portfolio,
- -3.12%; Core Equity Portfolio, 1.55%; Index Equity Portfolio, 2.78%; Small Cap
Value Equity Portfolio, 5.96%; International Equity Portfolio, 10.36%; and
Balanced Portfolio, -0.36%.

(ii) the average annual total return for Series A Investor Shares of the
Non-Money Market Portfolios for the year ended





                                      -70-
<PAGE>   71
September 30, 1994 was as follows:  Managed Income Portfolio, -10.03%; Tax-Free
Income Portfolio, -8.48%; Intermediate Government Portfolio, -7.71%; Ohio
Tax-Free Income Portfolio, -8.27%; Pennsylvania Tax-Free Income Portfolio,
- -7.39%; Value Equity Portfolio, - 1.32%; Growth Equity Portfolio, -15.79%;
Small Cap Growth Equity Portfolio, -7.66%; Index Equity Portfolio, -1.96%;
Small Cap Value Equity Portfolio, 1.13%; International Equity Portfolio, 5.26%;
and Balanced Portfolio, -5.01%.

(iii) the average annual total return for Institutional Shares of the Non-Money
Market Portfolios for the year ended September 30, 1994 was as follows:
Managed Income Portfolio, -5.27%; Tax-Free Income Portfolio, -3.77%;
Intermediate Government Portfolio, -3.08%; Ohio Tax-Free Income Portfolio, 
- -3.75%; Pennsylvania Tax-Free Income Portfolio, -2.96%; Short-Term Bond 
Portfolio, -0.02%; Intermediate-Term Bond Portfolio, -3.52%; Value Equity
Portfolio, 3.76%; Growth Equity Portfolio, -11.14%; Small Cap Growth Equity
Portfolio, -2.89%; Core Equity Portfolio, 1.79%; Index Equity Portfolio, 3.07%;
Small Cap Value Equity Portfolio, 6.28%; International Equity Portfolio,
10.71%; and Balanced Portfolio, -0.11%.

(iv) the average annual total return for Service Shares of the Non-Money Market
Portfolios for the period from commencement of operations (July 28, 1993 for
the Growth Equity Portfolio; July 29, 1993 for each of the Managed Income,
Tax-Free Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Value Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios; September 1, 1993 for the
Short-Term Bond Portfolio; September 15, 1993 for each of the Small Cap Growth
Equity and Core Equity Portfolios; September 23, 1993 for the Intermediate-Term
Bond Portfolio; and June 17, 1994 for the International Emerging Markets
Portfolio) to September 30, 1994 was as follows:  Managed Income Portfolio,
- -1.91%; Tax-Free Income Portfolio, 0.16%; Intermediate Government Portfolio,
- -0.92%; Ohio Tax-Free Income Portfolio, -0.40%; Pennsylvania Tax-Free Income
Portfolio, 0.06%; Short-Term Bond Portfolio, -0.05%; Intermediate-Term Bond
Portfolio, -3.53%; Value Equity Portfolio, 7.04%; Growth Equity Portfolio,
2.15%; Small Cap Growth Equity Portfolio, 1.76%; Core Equity Portfolio, 1.19%;
Index Equity Portfolio, 5.11%; Small Cap Value Equity Portfolio, 10.84%;
International Equity Portfolio, 14.31%; International Emerging Markets
Portfolio, 5.50%; and Balanced Portfolio, 2.79%.

(v) the average annual total return for Series A Investor Shares of the
Non-Money Market Portfolios for the period from commencement of operations (May
14, 1990 for each of the Tax-Free Income and Balanced Portfolios; February 5,
1992 for the Managed Income Portfolio; March 14, 1992 for the Growth Equity
Portfolio; May 2, 1992 for the Value Equity Portfolio; May 11, 1992 for the
Intermediate Government Portfolio; June 2, 1992 for each of the





                                      -71-
<PAGE>   72
Index Equity, Small Cap Value Equity and International Equity Portfolios;
December 1, 1992 for each of the Ohio Tax-Free Income and Pennsylvania Tax-Free
Income Portfolios; September 15, 1993 for the Small Cap Growth Equity
Portfolio; October 13, 1993 for the Core Equity Portfolio; November 17, 1993
for the Short-Term Bond Portfolio; May 20, 1994 for the Intermediate-Term Bond
Portfolio; and June 17, 1994 for the International Emerging Markets Portfolio)
to September 30, 1994 was as follows:  Managed Income Portfolio, 3.26%;
Tax-Free Income Portfolio, 6.14%; Intermediate Government Portfolio, 1.92%;
Ohio Tax-Free Income Portfolio, 0.06%; Pennsylvania Tax-Free Income Portfolio,
1.86%; Short-Term Bond Portfolio, -4.92%; Intermediate-Term Bond Portfolio,
- -4.15%; Value Equity Portfolio, 7.73%; Growth Equity Portfolio, 0.98%; Small
Cap Growth Equity Portfolio, -2.84%; Core Equity Portfolio, -3.03%; Index
Equity Portfolio, 4.65%; Small Cap Value Equity Portfolio, 13.01%;
International Equity Portfolio, 10.16%; International Emerging Markets
Portfolio, 0.67%; and Balanced Portfolio, 7.90%.


(vi) the average annual total return for Institutional Shares of the Non-Money
Market Portfolios for the period from commencement of operations (November 1,
1989 for each of the Managed Income and Growth Equity Portfolios; April 13,
1992 for the Small Cap Value Equity Portfolio; April 20, 1992 for each of the
Intermediate Government, Value Equity and Index Equity Portfolios; April 27,
1992 for the International Equity Portfolio; May 1, 1992 for the Balanced
Portfolio; December 1, 1992 for each of the Ohio Tax-Free Income and
Pennsylvania Tax-Free Income 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;  September 17, 1993 for the
Intermediate-Term Bond Portfolio; and June 17, 1994 for the International
Emerging Markets Portfolio) to September 30, 1994 was as follows:  Managed
Income Portfolio, 7.31%; Tax-Free Income Portfolio, 3.86%; Intermediate
Government Portfolio, 4.35%; Ohio Tax-Free Income Portfolio, 2.66%;
Pennsylvania Tax-Free Income Portfolio, 4.27%; Short-Term Bond Portfolio,
0.22%; Intermediate-Term Bond Portfolio, -3.30%; Value Equity Portfolio, 9.54%;
Growth Equity Portfolio, 6.54%; Small Cap Growth Equity Portfolio, 1.60%; Core
Equity Portfolio, 1.42%; Index Equity Portfolio, 6.39%; Small Cap Value Equity
Portfolio, 14.81%; International Equity Portfolio, 15.03%; International
Emerging Markets Portfolio, 5.6%; and Balanced Portfolio, 7.40%.

         No Series B Investor Shares of any Portfolio and no shares of any
class of the Government Income and International Fixed Income Portfolio had
been issued prior to September 30, 1994.

         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





                                      -72-
<PAGE>   73
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.





                                      -73-
<PAGE>   74
                          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>   75
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.

         For the 30-day period ended September 30, 1994, the annualized yield
on Service Shares of the Portfolios referenced below was as follows: Managed
Income Portfolio, 6.66%; Tax-Free Income Portfolio, 5.18%; Intermediate
Government Portfolio, 6.69%; Ohio Tax-Free Income Portfolio, 5.88%;
Pennsylvania Tax-Free Income Portfolio, 5.55%; Short-Term Bond Portfolio,
5.60%; and Intermediate- Term Bond Portfolio, 6.29%.  For the 30-day period
ended on September 30, 1994, the annualized yield on Series A Investor Shares
of the Portfolios referenced below was as follows:  Managed Income Portfolio,
6.17%; Tax-Free Income Portfolio, 4.76%; Intermediate Government Portfolio,
6.38%; Ohio Tax-Free Income Portfolio, 5.83%; Pennsylvania Tax-Free Income
Portfolio, 5.13%; Short-Term Bond Portfolio, 5.34%; and Intermediate-Term Bond
Portfolio, 6.08%.  For the 30-day period ended on September 30, 1994, the
annualized yield on Institutional Shares of the Portfolios referenced below was
as follows:  Managed Income Portfolio, 6.91%; Tax-Free Income Portfolio, 5.44%;
Intermediate Government Portfolio, 6.95%; Ohio Tax-Free Income Portfolio,
6.11%; Pennsylvania Tax-Free Income Portfolio, 5.78%; Short-Term Bond
Portfolio, 5.75%; and Intermediate-Term Bond Portfolio, 6.55%.


         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.  For the 30-day
period ended on September 30, 1994, the annualized tax-equivalent yield on
Service Shares of the Portfolios referenced below was as follows (assuming a
Federal income tax rate of 28%):  Tax-Free Income Portfolio, 7.19%; Ohio Tax-
Free Income Portfolio, 8.17%; and Pennsylvania Tax-Free





                                      -75-
<PAGE>   76
Income Portfolio, 7.71%.  For the 30-day period ended on September 30, 1994,
the annualized tax-equivalent yield on Series A Investor Shares of the
Portfolios referenced below was as follows (assuming a Federal income tax rate
of 28%):  Tax-Free Income Portfolio, 6.61%; Ohio Tax-Free Income Portfolio,
8.10%; and Pennsylvania Tax-Free Income Portfolio, 7.13%.  For the 30-day
period ended on September 30, 1994, the annualized tax-equivalent yield on
Institutional Shares of the Portfolios referenced below was as follows
(assuming a Federal income tax rate of 28%):  Tax-Free Income Portfolio, 7.56%;
Ohio Tax-Free Income Portfolio, 8.49%; and Pennsylvania Tax-Free Income
Portfolio, 8.03%.

         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>   77





         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 and 5
show Pennsylvania, Ohio, North Carolina and Virginia 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, and the Virginia 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>   78


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>   79
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>   80
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>   81
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>   82
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.





                                      -82-
<PAGE>   83
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>   84
         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 Portfolio's adviser and/or sub-adviser
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.





                                      -84-
<PAGE>   85
                                     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





                                      -85-
<PAGE>   86
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





                                      -86-
<PAGE>   87
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 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 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





                                      -87-
<PAGE>   88
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.





                                      -88-
<PAGE>   89
         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





                                      -89-
<PAGE>   90
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,





                                      -90-
<PAGE>   91
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





                                      -91-
<PAGE>   92
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





                                      -92-
<PAGE>   93
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





                                      -93-
<PAGE>   94
after the assets belonging to such class have been distributed to its
shareholders.


                                 MISCELLANEOUS

         COUNSEL.  The law firm of Drinker Biddle & Reath, PNB Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107- 3496, serves as the Fund's
counsel.

         INDEPENDENT ACCOUNTANTS.  Coopers & Lybrand, 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 owned of record or beneficially on January 4, 1995 5% or more
of the outstanding shares of a Portfolio which had commenced operations as of
that date was as follows: Money Market, PNC Bank, 200 Stevens Drive, Lester, PA
19113 - 84.5%, BHC Securities Inc., 2005 Market Street, One Commerce Square,
Philadelphia, PA 19103 - 5.3%, PNC Bank, OH, 201 East Fifth Street, Cincinnati,
OH 45202 - 7.1%; Government Money Market, PNC Bank, 200 Stevens Drive, Lester,
PA 19113 - 68.7%, PNC Securities Corp, Fifth Avenue & Wood Street, Pittsburgh,
PA 15265 - 6.7%, PNC Bank Pittsburgh, 960 Ft. Duquesne Blvd., Pittsburgh, PA
15222 - 5.1%, PNC Bank, NW, P.O. Box 8480, Erie, PA 16553 - 5.9%; Municipal
Money Market, PNC Bank, Saxon & Co., 200 Stevens Drive, Lester, PA 19113 -
61.8%, PNC Bank, OH, 201 E. Fifth Street, Cincinnati, OH 45202 - 17.7%, PNC
Bank Pittsburgh, 960 Ft. Duquesne Blvd., Pittsburgh, PA 15222 - 6.4%; Growth
Equity, PNC Bank, 200 Stevens Drive, Lester, PA 19113 - 96.1%; Balanced, PNC
Bank, 200 Stevens Drive, Lester, PA 19113 - 57.2%, BHC Securities, 100 N. 20th
Street, Philadelphia, PA 19103 - 27.4%; Managed Income, PNC Bank, 200 Stevens
Drive, Lester, PA 19113 - 91.3%; International Equity, PNC Bank, 200 Stevens
Drive, Lester, PA 19113 - 91.1%; Tax-Free Income, PNC Bank, 200 Stevens Drive,
Lester, PA 19113 - 27.8%, BHC Securities, 100 N. 20th Street, Philadelphia, PA
19103 - 17.7%; Ohio Municipal Money Market, PNC Bank, 200 Stevens Drive,
Lester, PA 19113 - 56.0%, BHC Securities, 2005 Market Street, One Commerce
Square, Philadelphia, PA 19103 - 22.3%, Consolidated Stores Corp, 300 Phillips
Road, Columbus, OH 43228 - 9.7%, Wayne County National Bank, P.O. Box 550,
Wooster, OH 44691 - 6.9%; Pennsylvania Municipal Money Market, PNC Bank, 200
Stevens Drive, Lester, PA 19113 - 87.5%, BHC Securities, 2005 Market Street,
One Commerce Square, Philadelphia, PA 19103 - 5.3%; Intermediate Government,
PNC Bank, 200 Stevens Drive, Lester, PA 19113 - 92.1%; OH Tax-Free Income, PNC
Bank, 200 Stevens Drive, Lester, PA 19113 - 57.6%, BHC Securities, 100 N. 20th
Street, Philadelphia, PA 19103 - 30.3%; Pennsylvania Tax-Free Income, PNC Bank,
200 Stevens Drive, Lester, PA 19113 - 21.1%, BHC Securities, 100 N. 20th
Street, Philadelphia, PA 19103 - 51.1%; Value Equity, PNC Bank,





                                      -94-
<PAGE>   95
200 Stevens Drive, Lester, PA 19113 - 90.5%; Index Equity, PNC Bank, 200
Stevens Drive, Lester, PA 19113 - 96.7%; Small Cap Value Equity, PNC Bank, 200
Stevens Drive, Lester, PA 19113 - 85.3%, BHC Securities, 100 N. 20th Street,
Philadelphia, PA 19103 - 5.4%; North Carolina Municipal Money Market, Southern
National Bank, P.O. Box 1489, Lumberton, NC 28358 - 5.2%, Centura Bank, P.O.
Box 1220, Rocky Mount, NC 27802 - 8.3%, United Carolina Bank, P.O. Drawer 632,
Whiteville, NC 28472 - 21%, First Charter National Bank, P.O. Box 228, Concord,
NC 28025 - 9.7%, First Citizens Bank, Cotton Building, 4505 Creedmoor Road,
Raleigh, NC 27612 - 12.4%, North Carolina Trust Company, 301 N. Elm Street,
P.O. Box 1108, Greensboro, NC 27402, Calo Corporation c/o Smith Barney, 100
Tryon Street, Suite 3300, Charlotte, NC 28202; Short-Term Bond, PNC Bank, 200
Stevens Drive, Lester, PA 19113 - 89.7%, Medical Practice Account, 1020 Walnut
Street, Philadelphia, PA 19107 - 9.0%; Intermediate-Term Bond, PNC Bank, 200
Stevens Drive, Lester, PA 19113 - 99.7%; Small Cap Growth Equity, PNC Bank, 200
Stevens Drive, Lester, PA 19113 - 92.9%; Core Equity, PNC Bank, 200 Stevens
Drive, Lester, PA 19113 - 97.9%; Virginia Municipal Money Market, Oldom & Co.,
First Virginia Bank Inc., 6400 Arlington Blvd., Falls Church, VA 22042 - 96.3%;
and International Emerging Markets, PNC Bank, 200 Stevens Drive, Lester, PA
19113 - 77.7%, PNC Securities, 100 N.  20th Street, Philadelphia, PA 19103 -
20.1%.

         On January 4, 1995, PNC Bank held of record approximately 80% 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, PNC Bank Ohio, PCM and PNC
Bank are subject to such banking laws and regulations.

         PIMC, PNC Bank Ohio, PCM 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





                                      -95-
<PAGE>   96
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 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") accompanies this Statement of
Additional Information.  The financial statements and notes thereto in the 1994
Annual Report are incorporated in this Statement of Additional Information by
reference.  The financial statements included in the 1994 Annual Report have
been examined by the Fund's independent accountants, Coopers & Lybrand, L.L.P.,
whose reports 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
Fund's 1994 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.





                                      -96-
<PAGE>   97
                                   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-





                                      A-1
<PAGE>   98
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 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 "Duff 1," "Duff 2" and "Duff 3."
Duff & Phelps employs three designations, "Duff 1+," "Duff 1" and "Duff 1-,"
within the highest rating category.  The following summarizes the rating
categories used by Duff & Phelps for commercial paper:

                 "Duff 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.

                 "Duff 1" - Debt possesses very high certainty of timely
payment.  Liquidity factors are excellent and supported by good fundamental
protection factors.  Risk factors are minor.

                 "Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors.  Risk factors are very small.

                 "Duff 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.

                 "Duff 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.





                                      A-2
<PAGE>   99
                 "Duff 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.

                 "Duff 5" - Issuer has failed to meet scheduled principal
and/or interest payments.


                 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-





                                      A-3
<PAGE>   100
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 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 are supported by the highest capacity for
timely repayment.  Where issues possess a particularly strong credit feature, a
rating of A1+ is assigned.

                 "A2" - Obligations are supported by a good capacity for timely
repayment.

                 "A3" - Obligations are supported by a satisfactory capacity
for timely repayment.

                 "B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.

                 "C" - Obligations for which there is a high risk of default or
which are currently in default.





                                      A-4
<PAGE>   101
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.

                 "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.





                                      A-5
<PAGE>   102
                 "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.

                 "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.





                                      A-6
<PAGE>   103
                 "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
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.





                                      A-7
<PAGE>   104
                 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.

                 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-8
<PAGE>   105
                 "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
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,





                                      A-9
<PAGE>   106
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 very high.

                 "AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.

                 "A" - This designation indicates that the ability to repay
principal and interest is strong.  Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.

                 "BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest.  Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.

                 "BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long- term





                                      A-10
<PAGE>   107
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
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.





                                      A-11
<PAGE>   108
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.





                                      A-12
<PAGE>   109
                                   APPENDIX B


THE FOLLOWING INFORMATION HAS BEEN PROVIDED TO THE FUND BY THE
DISTRIBUTOR.

Why the PNC Family of Funds?

The PNC Funds are guided by money managers whose philosophy and
discipline come with the 148-year tradition in money management of PNC
Bank Corp. and its affiliates.  PNC Bank Corp. is one of the largest
banking institutions in the country, has a strong capital position,
and oversees assets of more than $170 billion as America's sixth
largest bank money manager.

Because of this size, depth and breadth of experience, the PNC Family
of Funds can offer portfolios guided by a variety of investment
philosophies -- from indexing to value to growth -- to help investors
with their goals.

For years, money managers in the PNC Bank Corp. Family have been the
investment advisor/manager for dozens of the world's major
institutions.

- -       In 1993, more than 1,200 corporate investors turned to members
        of the PNC Bank Corp. Family for the expertise they needed to
        earn investment income in international markets.

- -       During 1993, some of the world's largest investors turned to
        members of the PNC Bank Corp.  Family to help them earn
        tax-exempt income on over $4 billion of assets.

- -       In 1993, some of America's leading companies turned to members
        of the PNC Bank Corp. Family to help them manage over $4
        billion in employee retirement plans.

NOW THIS EXPERTISE IS AVAILABLE TO INDIVIDUAL INVESTORS.

Each PNC Fund portfolio focuses on specific client needs -- income,
growth, risk tolerance, tax bracket.  Every portfolio is managed with
a sophisticated blend of discipline, experience and expertise.

In managing PNC Fund portfolios, the money managers utilize a
philosophy of "optimizing rather than maximizing."  PNC Fund money
managers understand the risks of securities investments and believe
their philosophy helps to avoid taking unnecessary risks with
customers' money.  Instead, PNC Fund money managers aim for
consistency and above-average results year in and year out.





                                      B-1
<PAGE>   110
                          MESSAGE FROM THE DISTRIBUTOR



Individuals have many financial goals.  Some are more immediate, like higher
current income, tax savings or buying a new home.  And others are long-term
goals, such as saving for retirement or funding a college education.  To meet
these goals, individuals must invest their money.  And when investing, an
individual's goals and needs must be balanced with his or her desire and
ability to accept risk to the money invested.  All of which is why PNC Funds
offers a wide choice of portfolios that focus on a variety of specific
investing needs.


WHY INVEST

While the past is no guarantee of future results, stocks, and in particular
small-capitalization stocks, have provided a better opportunity for real growth
over time than other types of investments.



                    THE REAL VALUE OF $1 INVESTED IN 1925

                                    [FIGURE 1]

[chart depicting the value of $1.00 invested in 1925 in small cap stocks,
Treasury bonds and Treasury bills, respectively, through 12/31/93, as compared
with S & P 500 index]

- --------------------
         An investment in a small cap equity portfolio is subject to risks
associated with small cap stocks.

         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The S&P 500 Index is composed of 500 commons stocks chosen on the
basis of market value and industry diversification.  While most issuers are
among the largest in terms of aggregate market value, some other stocks
are included for purposes of diversification.  There can be no guarantee that
the portfolio's performance will match that of any index.

<PAGE>   111
The downside to stocks is their inherent risk of price volatility, especially
when compared to fixed-income investments such as bonds and money market
instruments.  In general, the potential for higher returns is always
accompanied by the potential for wider price fluctuations.  For example, while
the stocks of small U. S. companies have provided high returns, the volatility
of these stocks has also been very high.



                     RANGE OF ANNUAL RETURNS (1926 - 93)

                                    [FIGURE 2]

[graph depicting range of annual returns from 1926-1993 with respect to
investments in small cap stocks, long-term Treasury bonds and Treasury bills,
respectively, as compared with the S & P 500 Index]



- --------------------
         An investment in a small cap equity portfolio is subject to risks
associated with small cap stocks.

         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The S&P 500 Index is composed of 500 commons stocks chosen on the basis
of market value and industry diversification.  While most issuers are among the
largest in terms of aggregate market value, some other stocks are included for
purposes of diversification.  There can be no guarantee that the portfolio's
performance will match that of any index.

<PAGE>   112

There are a number of ways to manage risk in an attempt to dampen this
volatility.  One comes simply from time. When returns are measured in five and
ten-year increments, the volatility of various investments has been less.

                       RANGE OF 5-YEAR RETURNS (1930-93)

                                    [FIGURE 3]

[graph depicting range of 5-year returns from 1930 through 1993 with respect to
investments in small cap stocks, long-term Treasury bonds and Treasury bills,
respectively, as compared with the S & P 500 Index]

                       RANGE OF 10-YEAR RETURNS (1930-93)

                                    [FIGURE 4]

[graph depicting range of 10-year returns from 1930 through 1993 with respect
to investments in small cap stocks, long-term Treasury bonds and Treasury
bills, respectively, as compared with the S & P 500 Index]



- --------------------
         An investment in a small cap equity portfolio is subject to risks
associated with small cap stocks.

         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The S&P 500 Index is composed of 500 common stocks chosen on the basis
of market value and industry diversification.  While most issuers are among the
largest in terms of aggregate market value, some other stocks are included for
purposes of diversification.  There can be no guarantee that the portfolio's
performance will match that of any index.  

<PAGE>   113


Another way to address volatility is through asset diversification.  For
example, by diversifying assets in stocks and fixed income securities --
such as bonds and money market instruments, a balanced portfolio can help
reduce the risk of volatility that comes with investing in stocks alone.  A
balanced portfolio offers the potential for both regular income payments and
growth over time.  So more risk-adverse investors don't have to choose between
income and growth to help them achieve their goals.

                    STOCK AND BOND DIVERSIFICATION (1925-93)

                                    [FIGURE 5]

[graph depicting the volatility of 5-year returns (on a continuum) from 1925
through 1993 for investment portfolios with a broad range of diversifications
as between stocks and bonds]



- ---------------------
         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with volatility
and preference for certain tax features.  


<PAGE>   114



While an investor's focus on yield and income often excludes opportunities to
grow principal through stocks, it may also cause him or her to overlook
the effects of inflation.  As the first chart below shows, $10,000 in June 1984
would buy just $7,002 worth of goods and services in June 1994.  The challenge
to investors seeking income to meet their expenses of today and tomorrow is
finding investments that provide sufficient income as their expenses rise with
inflation.

                    INFLATION ERODES THE VALUE OF YOUR MONEY
            CHANGES IN THE COST OF LIVING - JUNE, 1984 TO JUNE, 1994

                                   [FIGURE 6]

[graph illustrating changes in the cost of living from 6/84 through 6/94 based
on the Consumer Price Index]


- ---------------------
         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with volatility
and preference for certain tax features.
<PAGE>   115

                                    [FIGURE 7]

[graph depicting the spread between the 10-year U.S. Treasury bond and the
Consumer Price Index from July 1989 through September 1994 (average spread: 348
bases points)] 



- ---------------------
         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with volatility
and preference for certain tax features.  

<PAGE>   116

Investors should recognize that fixed-income securities are also subject to
risk, including volatility.  In general, the longer the term of the security,
the greater the range of returns and the higher the volatility.

                                    [FIGURE 8]

[graph illustrating the comparative returns associated with Long-Term
Government Bonds, Intermediate-Term Government Bonds and The 30-day Treasury
bill, respectively, from December 1979 through December 1993, as compared with
the U.S. inflation rate] 



- ---------------------
         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with volatility
and preference for certain tax features.
<PAGE>   117
          RANGE OF ANNUAL RETURNS FOR DIFFERENT BOND CLASSES (1926-93)

                                    [FIGURE 9]

[graph depicting the range of annual returns from 1926 through 1993 of
long-term corporate bonds, long-term government bonds, intermediate-term
government bonds and Treasury bills, respectively]



- ---------------------
         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with volatility
and preference for certain tax features.  

<PAGE>   118

For investors seeking to maximize long-term capital appreciation, and who are
comfortable with the risks associated with investing in non-U. S.
securities markets, the stocks of companies in industrialized countries or
companies in "emerging markets" or both, may be an alternative.  These stocks
also provide an added element of diversification.

                      INTERNATIONAL EQUITY INVESTMENTS IN 1993
            $159.2 BILLION INVESTED ACROSS BORDERS WORLDWIDE IN 1993


                                   [FIGURE 10]

[pie chart illustrating the amounts invested across borders worldwide in 1993
(USA - 19%, Japan - 13%, Europe - 35% and Emerging Markets - 33%)]

- --------------------
         An investment in an international equity portfolio is subject to risks
including currency and political changes.
<PAGE>   119
                GROWTH AND DISTRIBUTION OF WORLD EQUITY MARKETS

                                    [FIGURE 11]

[2 pie charts illustrating total capitalization of world equity markets in 1970
and 1993, respectively]

                INTERNATIONAL EQUITY DIVERSIFICATION (1970 - 94)

                                    [FIGURE 12]

[graph depicting the volatility and total returns (on a continuum) from 1970
through 1994 for investment portfolios with a broad range of diversifications as
between U.S. stocks and non - U.S. stocks] 


- --------------------
         An investment in an international equity portfolio is subject to risks
including currency and political changes.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with
volatility and preference for certain tax features.  

<PAGE>   120

While the past is no guarantee of future results, non-U. S. stocks have
provided a better opportunity for real growth in recent years than U. S.
stocks.  When investing in equities abroad, however, the potential for higher
returns is accompanied by the potential for higher volatility resulting
from risk factors such as government stability, economic policies and currency
exchange.  And while a number of factors seem to favor continued economic
growth in emerging markets - low labor costs, regional trade agreements, and
significant growth of capitalization and in the size of their securities
markets - investors should consider investing only a portion of their total
portfolio in an emerging market's equities.

                      THE GROWTH OF INTERNATIONAL STOCKS
        GROWTH OF $100 INVESTMENT:  DECEMBER 31, 1971 - JUNE 30, 1994

                                   [FIGURE 13]

[graph depicting the growth from 12/31/71 through 6/30/94 of a $100 investment
in international stocks, U.S. stocks, 20-year Treasury bonds, and 30-day
Treasury bills, respectively, as compared with the Consumer Price Index]

- --------------------
         Past performance is no guarantee of future results.  There can be no
guarantee that the portfolio's performance will match that of any index.

         The  S&P 500 Index is composed of 500 common stocks chosen on the
basis of market value and industry diversification.  While most issuers are
among the largest in terms of aggregate market value, some other stocks
are included for purposes of diversification.  There can be no guarantee that
the portfolio's performance will match that of any index.

         An investment in an international equity portfolio is subject to risks
including currency and political changes.

         The potential return on an investment is only one of many
considerations to be made when deciding how to invest.  Other considerations
include your investment objective, need for liquidity, comfort with
volatility and preference for certain tax features.
<PAGE>   121

THE PNC FUNDS PHILOSOPHY -- DISCIPLINE, NOT DARING

The PNC Funds portfolio advisors have a long-term view and a global
perspective.  They believe that successful investing comes from the practice of
patience, discipline and diversification.

Patience is necessary, because true growth and higher real returns take time
and can only be achieved over a number of years.  Discipline is critical,
especially in volatile markets, because portfolio managers cannot shift
investments on a whim.  The PNC Funds managers use their training and
experience, comprehensive and ongoing screening, and rigorous qualitative and
quantitative analysis in making their decisions - from deciding what and when
to buy to setting goals and determining when to sell.  And diversification is a
key tool for the portfolio advisors in both managing risk and enhancing
return.

The PNC Funds managers are guided by a philosophy of "discipline, not daring."
In seeking to achieve the investment objective of each portfolio, they use a
variety of investment styles - including indexing, core, balanced, value and
growth -- while adhering to a highly disciplined investment process.  For
instance:

         -       The managers believe that the key to the performance of PNC
                 Funds equity portfolios using a "value" approach is
                 identifying today which stocks have the potential for large
                 price increases tomorrow.  The managers use a step by step
                 process which --

                 -        first, reduces a universe of securities by screening
                          for those with a market capitalization that best
                          suits the objectives of the portfolio;

                 -        second, further refines the list of securities by
                          concentrating on the stocks that fall into the lowest
                          two price-to-earnings ratio (P/E) quintiles;

                 -        third, subjects the refined list to rigorous relative
                          value screening, and narrows the field again using
                          quantitative value characteristics such as
                          price-to-cash flow ratio, price-to-book value
                          ratio, dividend yield and favorable balance sheets;
                          and

                 -        fourth, employs rigorous quantitative and qualitative
                          analysis in an effort to verify financial stability
                          and strength, earnings quality and the ability        
                          of the company to sustain the earnings, and the
                          impact of events in the industry and the general
                          economy on the corporate profitability.  This step
                          often includes contact with company management, and
                          researching any indication of investor disfavor. 
                          This process is comprehensive and ongoing, and
                          provides assistance in seeking to manage the risk
                          level of the portfolio's investments.

                 Only after thorough screening and analysis are the portfolio
                 managers ready to select the individual stocks to include in
                 the portfolio.  Diversification between sectors and weightings
                 are considerations, as are countries in the case of
                 international portfolios, although the qualifications of an
                 individual stock is the primary concentration.  As a stock
                 progresses upwards in its P/E ratio, its future value to the
                 portfolio is reduced.  When it reaches a predetermined target
                 price or fundamental value characteristics deteriorate, a
                 stock is considered for sale from the portfolio.
<PAGE>   122
         -       The managers believe that the key to the performance of the
                 PNC Funds Balanced Portfolio is not necessarily minimizing
                 risk alone, but in seeking to obtain an optimal trade-off
                 between risk and reward.  In allocating the portfolio's assets
                 between fixed-income and equity securities, the managers seek
                 an appropriate balance between increased volatility and
                 increased return to obtain an optimal risk-adjusted return.

                 -        The fixed-income portion of the PNC Balanced
                          Portfolio is a diversified portfolio of
                          investment-grade securities, primarily composed of
                          bonds and money market instruments.  In managing the
                          current income, maturity and credit risk of these
                          securities, the managers seek to achieve the
                          portfolio's objectives through duration management,
                          sector allocation, yield curve positioning and issue
                          selection.  Important factors used by the managers in
                          determining the portfolio's posture include economic
                          forecasts, Federal Reserve policy, credit trends and
                          research, relative value and supply and demand
                          analysis, yield curve and volatility trends and
                          industry and corporate fundamentals.

                 -        The equity portion of the PNC Balanced Portfolio is a
                          diversified portfolio of large capitalization stocks.
                          The broad diversification in these large company
                          stocks results not only from the industries and
                          sectors selected, but from the blended investment
                          strategy used by the managers.  The portfolio includes
                          stocks that offer good relative value and growth
                          potential, stocks that are undervalued -- their price
                          is low in relation to current earnings (low P/E), and
                          stocks which are experiencing very rapid growth.

         -       The managers believe that the key to the performance of PNC
                 Funds fixed-income portfolios is to actively manage the
                 current income, maturity and credit risk of the portfolios'
                 securities as they seek to achieve a high level of monthly
                 income and moderate volatility.  In seeking the objectives of
                 the portfolios, the managers are guided by four fundamental
                 principles:

                 -        controlled duration -- or expected price sensitivity
                          relative to interest rate changes -- within a narrow
                          band relative to a benchmark index;

                 -        relative value sector rotation and security selection;

                 -        a rigorous quantitative approach to the valuation of
                          each security and of the portfolio as a whole; and

                 -        a strong credit quality bias.



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