<PAGE> 1
THE PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO
SERVICE CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Service Shares" or "Shares") representing
interests in the Pennsylvania Municipal Money Market Portfolio (the "Portfolio")
with the following objective: to seek as high a level of current income exempt
from Federal and, to the extent possible, from Pennsylvania income tax as is
consistent with maintaining liquidity and stability of principal. It pursues
this objective by investing primarily in short-term municipal obligations issued
by the Commonwealth of Pennsylvania and its political subdivisions, agencies,
instrumentalities and authorities and tax-exempt derivative securities relating
thereto ("Pennsylvania Municipal Obligations").
Service Shares are sold by the Fund's distributor to institutional
investors ("Institutions") acting on behalf of their customers ("Customers").
These Customers, which may include individuals, trusts, partnerships and
corporations, must maintain accounts (such as custody, trust or escrow accounts)
with the Institutions. Service Shares are sold and redeemed at net asset value
without any purchase or redemption charge imposed by the Fund, although the
Institutions may receive compensation from the Fund for providing various
shareholder services and may charge their customer accounts for services
provided in connection with the purchase or redemption of Shares.
Shares of the Portfolio are intended for residents of Pennsylvania.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS January 30, 1995
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EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
PENNSYLVANIA
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .13%
Other operating expenses.......................................................... .45
---
Administration fees(1)....................................................... .09
Shareholder servicing fees................................................... .15
Other expenses(1)(2)......................................................... .21
---
Total fund operating expenses..................................................... .58%
---
---
</TABLE>
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(1) Advisory fees are net of a .32% fee waiver and administration fees are net
of a .06% waiver for the Portfolio. PIMC and the Administrators are under no
obligation to waive or continue waiving such fees, but have informed the
Fund that they expect to waive or continue waiving such fees as necessary to
maintain the Portfolio's total operating expenses during the current fiscal
year at the level set forth in the table. The expenses noted above under
"Other expenses" are estimated based on the level of such expenses for the
Fund's most recent fiscal year.
(2) Institutions may charge their clients additional fees for account services.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Pennsylvania Municipal Money Market
Portfolio.................................. $6 $19 $ 32 $73
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The information in the table is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
Portfolio for the fiscal year ended September 30, 1994, as restated to reflect
fees relating to the Service Plan and fees for other shareholder support
activities borne by Service Shares and revised fee waivers. Total operating
expenses would have been .96% for Service Shares of the Pennsylvania Municipal
Money Market Portfolio without such fee waivers and with fees relating to the
Service Plan and fees for other shareholder support activities. See Footnote 1
to the Expense Table, "Financial Highlights--Background," "Management" and
"Description of Shares" for a further description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
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BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Management--Shareholder Servicing" for a description of the
Service Plan and shareholder support activities. Series A Investor Shares bear
the expense of the Fund's Distribution and Service Plan at an annual rate not to
exceed .55% of the average daily net asset value of the Portfolio's outstanding
Series A Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. The financial data included in the table below has been
derived from financial statements incorporated by reference in the Statement of
Additional Information and has been audited by Coopers & Lybrand, L.L.P., the
Fund's independent accountants. This financial data should be read in
conjunction with such financial statements. Further information about the
performance of the Portfolio is available in the annual report to shareholders.
Both the Statement of Additional Information and the annual report to
shareholders may be obtained from the Fund free of charge by calling the number
on the front cover of this Prospectus.
3
<PAGE> 4
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
----------------------- ----------------------- ---------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 6/1/93(1) YEAR 6/11/93(1) 12/28/93(1)
ENDED THROUGH ENDED THROUGH THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ---------
Income from investment operations
Net investment income.................. 0.0247 0.0078 0.0221 0.0074 0.0153
Net realized gain (loss) on
investments.......................... -- -- -- -- --
-------- -------- -------- -------- ---------
Total from investment operations..... 0.0247 0.0078 0.0221 0.0074 0.0153
-------- -------- -------- -------- ---------
Less distributions
Distributions from net investment
income............................... (0.0247) (0.0078) (0.0221) (0.0074) (0.0153)
Distributions from net realized capital
gains................................ -- -- -- -- --
-------- -------- -------- -------- ---------
Total distributions.................. (0.0247) (0.0078) (0.0221) (0.0074) (0.0153)
-------- -------- -------- -------- ---------
Net asset value at end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return............................. 2.49% 0.78% 2.24% 0.74% 1.58%
Ratios/Supplemental data
Net assets at end of period (in
thousands)........................... $158,102 $ 2,242 $ 60,560 $ 8,919 $ 139
Ratios of expenses to average net
assets
After advisory/administration fee
waivers............................ 0.16% 0.09%(2) 0.42% 0.32%(2) 0.65%(2)
Before advisory/administration fee
waivers............................ 0.73% 0.97%(2) 0.99% 1.20%(2) 1.22%(2)
Ratios of net investment income to
average
net assets
After advisory/administration fee
waivers............................ 2.64% 2.15%(2) 2.31% 2.42%(2) 2.11%(2)
Before advisory/administration fee
waivers............................ 2.07% 1.27%(2) 1.75% 1.54%(2) 1.54%(2)
</TABLE>
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(1) Commencement of operations.
(2) Annualized.
4
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INVESTMENT POLICIES
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PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Pennsylvania Municipal Obligations.
The Portfolio may also invest in short-term obligations issued by or on behalf
of states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Other Investment Policies" for a description of Municipal
Obligations. Portfolio obligations held by the Portfolio will have maturities of
13 months or less as determined in accordance with the rules of the SEC.
The concentration of investments in Pennsylvania Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of the Commonwealth of Pennsylvania and its
political subdivisions, agencies, instrumentalities and authorities could
adversely affect the value of the Portfolio and its portfolio securities.
Although the General Fund of the Commonwealth (the principal operating fund of
the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax increases
and spending decreases helped return the General Fund balance to a surplus at
June 30, 1992 of $87.5 million and at June 30, 1993 of $698.9 million. The
deficit in the Commonwealth's unreserved/undesignated funds of prior years also
was reversed to a surplus of $64.4 million as of June 30, 1993. Rising
unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates place
increased pressures on the tax resources of the Commonwealth and its
municipalities. See the Statement of Additional Information for further
discussion of investment considerations associated with Pennsylvania Municipal
Obligations and see "Other Investment Policies" for a description of other
investment policies.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in Pennsylvania
Municipal Obligations. During temporary defensive periods, the Portfolio may
invest without limitation in obligations which are not Municipal Obligations and
may hold without limitation uninvested cash reserves. Such securities may
include, without limitation, bonds, notes, variable rate demand notes and
commercial paper, provided such securities are rated within the relevant
categories applicable to Municipal Obligations set forth below, or if unrated,
are of comparable quality as determined by the adviser or sub-adviser, and may
also include, without limitation, other debt obligations, such as bank
obligations. The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase at the Portfolio's option specified Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligation to which such
commitment relates. The Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. The Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. The amount of information regarding
the financial condition of issuers of Municipal Obligations may not be as
extensive as that which is made available by public corporations, and the
secondary market for Municipal
5
<PAGE> 6
Obligations may be less liquid than that for taxable obligations. Accordingly,
the ability of the Portfolio to buy and sell tax-exempt securities may, at any
particular time and with respect to any particular securities, be limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in an
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
6
<PAGE> 7
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
7
<PAGE> 8
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or sub-
adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in an Appendix to the Statement of
Additional Information.
FUNDAMENTAL INVESTMENT RESTRICTIONS
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The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5%
of its total assets are outstanding. Securities held in escrow or
separate accounts in connection with the Portfolio's investment
practices are not deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b)
instruments issued by domestic banks (which may include U.S. branches
of foreign banks); (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the
parents; and (iii) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will be each considered a separate industry.
For purposes of this limitation, a security is considered to be issued
by the entity (or entities) whose assets and revenues back the security.
8
<PAGE> 9
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
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DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Shares are offered without a sales load on a continuous basis to
Institutions acting on behalf of their Customers. Service Shares will normally
be held of record by Institutions or in the names of nominees of Institutions.
All Share purchases are effected through a Customer's account at an Institution
through procedures established in connection with the requirements of the
account. Confirmations of Share purchases and redemptions will be sent to the
Institutions. Beneficial ownership of Shares will be recorded by the
Institutions and reflected in the account statements provided by such
Institutions to their Customers. Investors wishing to purchase Shares should
contact their Institutions.
Service Shares are sold at the net asset value per share next determined
after an order is received by PFPC Inc. ("PFPC"), the Fund's transfer agent.
Shares may be purchased by Institutions on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase orders
may be transmitted by telephoning PFPC at (800)441-7450 no later than 12:00 noon
(Eastern Time) on any Business Day. Orders received before noon will be executed
at noon. If payment for such orders is not received by 4:00 p.m., the order will
be cancelled and notice thereof will be given to the Institution placing the
order. Orders received after 12:00 noon will not be accepted. The Fund may in
its discretion reject any order for Shares.
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<PAGE> 10
Payment for Service Shares may be made only in Federal funds or other funds
immediately available to the Fund's custodian. The minimum initial investment by
an Institution is $5,000; however, Institutions may set a higher minimum for
their Customers. There is no minimum subsequent investment requirement.
Conflict of interest restrictions may apply to an Institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Shares. Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in Service Shares. See also "Management--Shareholder Servicing."
REDEMPTION OF SHARES
A Customer may redeem all or part of his Service Shares in accordance with
the instructions and limitations pertaining to his account at an Institution.
These procedures will vary according to the type of account and the Institution
involved, and Customers should consult their account managers in this regard. It
is the responsibility of Institutions to transmit redemption orders to PFPC and
credit their Customers' accounts with the redemption proceeds on a timely basis.
In the case of shareholders holding share certificates, the certificates must
accompany the redemption request.
Institutions may transmit redemption orders to PFPC by telephone at (800)
441-7450. Shares are redeemed at the net asset value per share next determined
after PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND
THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE.
IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR
BANK). While the Fund intends to use its best efforts to maintain the
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a Share's
net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming shareholder on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund, although Institutions may charge Customer accounts for redemption
services. Information relating to such redemption services and charges, if any,
should be obtained by Customers from their Institution.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If any Institution is unable to
contact PFPC by telephone, the Institution may also deliver the redemption
request to PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
A shareholder of record may be required to redeem Shares in the Portfolio
if the balance in such shareholder's account in the Portfolio drops below $5,000
as the result of a redemption request and the shareholder does not increase the
balance to at least $5,000 upon thirty days' written notice. If a Customer has
agreed with an Institution to maintain a minimum balance in his account with the
Institution, and the balance in the account falls below that
10
<PAGE> 11
minimum, the Customer may be obligated to redeem all or part of his Shares in
the Portfolio to the extent necessary to maintain the minimum balance required.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
It is the responsibility of the Institutions to provide their Customers
with account statements with respect to Share transactions made for accounts
maintained at the Institutions.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Service Share of the Portfolio for the purpose
of pricing purchase and redemption orders is determined twice each day, once as
of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on each
Business Day. The Portfolio's net asset value per share is calculated by adding
the value of all securities, cash and other assets of the Portfolio, subtracting
the liabilities and dividing the result by the number of Shares outstanding. The
net asset value per Share of the Portfolio is determined independently of the
other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under "Valuation of Shares." There can
be no assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank serves as
the sub-adviser for the Portfolio. PNC Bank, whose principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of
PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
11
<PAGE> 12
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. The Fund paid PIMC advisory fees at the
annual rate of .40% of the average daily net assets of the Portfolio for the
year ended September 30, 1994, and PIMC waived advisory fees at the annual rate
of .05% of the average daily net assets of the Portfolio for that year. During
the same period, PIMC reimbursed expenses at the annual rate of .04% of the
average daily net assets of the Portfolio. See "Management--Expenses" for a
discussion of PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the year ended
September 30, 1994, PNC Bank waived all sub-advisory fees with respect to the
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware, 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at the annual rate of .01% of the average daily net assets
of the Portfolio for the year ended September 30, 1994, and the Administrators
waived combined administration fees at the annual rate of .14% of the average
daily net assets of the Portfolio for that year. During the same period, the
Administrators reimbursed expenses at the annual rate of .01% of the average
daily net assets of the Portfolio. See "Management--Expenses" for a discussion
of the Administrators' voluntary fee waiver.
12
<PAGE> 13
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
------------------------------------
SHAREHOLDER SERVICING
The Fund intends to enter into service agreements with Institutions
(including PNC Bank and its affiliates) pursuant to which Institutions will
render certain support services to Customers who are the beneficial owners of
Service Shares. 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 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 this Prospectus in light of the terms and fees
governing their accounts with Institutions. These fees are not paid to
Institutions with respect to other classes of shares of the Portfolio ("Series A
Investor Shares" and "Institutional Shares"). See "Description of Shares."
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio
(such as fees relating to the Fund's Service Plan for Service Shares) will be
borne solely by such Shares.
13
<PAGE> 14
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC, PFPC and Institutions that are banks or bank
affiliates are subject to such banking laws and regulations. In addition, state
securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Service Shares, the Fund might
be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Service
Shares. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
Customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Service Shares is
reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. The Portfolio's net investment income available for
distribution to the holders of Service Shares will be reduced by the amount of
other expenses allocated to the Portfolio's Service Shares, including fees
payable under the Fund's Service Plan. See "Purchase and Redemption of Shares"
and "Management--Shareholder Servicing".
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The
14
<PAGE> 15
period for which dividends are payable and the time for payment of such
dividends are subject to change by the Fund's Board of Trustees. The Portfolio
does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Service Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate taxpayers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived from all other Municipal Obligations must be taken into
account by corporate taxpayers in determining certain adjustments for
alternative minimum and environmental tax purposes. In addition, investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from such private activity bonds.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a
15
<PAGE> 16
specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder
attributable to interest realized by the Pennsylvania Municipal Money Market
Portfolio from Pennsylvania Municipal Obligations or attributable to insurance
proceeds on account of such interest, is not taxable to individuals, estates or
trusts under the Personal Income Tax imposed by Article III of the Tax Reform
Code of 1971 (in the case of insurance proceeds, to the extent they are exempt
for Federal Income Tax purposes); to corporations under the Corporate Net Income
tax imposed by Article IV of the Tax Reform Code of 1971 (in the case of
insurance proceeds, to the extent they are exempt for Federal Income Tax
purposes); nor to individuals under the Philadelphia School District New Income
Tax ("School District Tax") imposed on Philadelphia resident individuals under
authority of the Act of August 9, 1963, P.L. 640.
Income received by a shareholder attributable to gain on the sale or other
disposition by the Pennsylvania Municipal Money Market Portfolio of Pennsylvania
Municipal Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Municipal
Money Market Portfolio for more than six months, the School District Tax.
No opinion is expressed regarding the extent, if any, to which shares, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Portfolio are not subject to any of the personal
property taxes currently in effect in Pennsylvania to the extent that the
Portfolio is comprised of Pennsylvania Municipal Obligations. The taxes referred
to include the County Personal Property Tax imposed on residents of Pennsylvania
by the Act of June 17, 1913, P.L. 507, as amended.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Service Shares," "Series A Investor
Shares" and "Institutional Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes the Pennsylvania Municipal
Money Market Portfolio, which is classified as a non-diversified company under
the 1940 Act. The Board of
16
<PAGE> 17
Trustees has also authorized the issuance of additional classes of shares
representing interests in other portfolios of the Fund. For information
regarding these other portfolios, contact the Distributor by phone at (800)
998-7633 or at the address listed in "Purchase and Redemption of
Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under Massachusetts law, the
Fund's state of organization, and the Fund's Declaration of Trust and Code of
Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Holders of Service Shares bear the fees described under
"Management--Shareholder Servicing" that are paid to Institutions under the
Fund's Service Plan. Similarly, holders of the Portfolio's Series A Investor
Shares will bear the payments described in the prospectus for such shares that
are paid under the Fund's Distribution and Service Plan (the "Distribution
Plan"). Under the Distribution Plan, the Distributor is entitled to payments by
each Portfolio for: (i) direct out-of-pocket promotional expenses incurred in
connection with advertising and marketing Series A Investor Shares; and (ii)
payments to broker/dealers that are not affiliated with the Distributor
("Service Organizations") for distribution assistance such as advertising and
marketing of Series A Investor Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders of Series A Investor Shares for whom the Service
Organizations are the dealer of record or holder of record for shareholders with
whom the Service Organizations have a servicing relationship. The Distribution
Plan provides for payments to the Distributor at an annual rate not to exceed
.55% of the average daily net asset value of the Portfolio's outstanding Series
A Investor Shares. Institutional Shares bear no shareholder servicing or
distribution fees. As a result of these different fees, the net yields on the
Fund's Institutional Shares will generally be higher than those on the Fund's
Service Shares and the net yields on the Fund's Service Shares will generally be
higher than those on the Fund's Series A Investor Shares if payments by the
Portfolio under both the Service Plan and the Distribution Plan are made at the
maximum rates. Standardized yield quotations will be computed separately for
each class of Shares. Series A Investor Shares are exchangeable at the option of
the holder for Series A Investor Shares in another money market portfolio and
for Series A or Series B Investor Shares in the Fund's non-money market
investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND'S SERVICE SHARES AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE SERVICE SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Service Shares. Both yield figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the
income generated by an investment in the Portfolio's Service Shares over a
seven-day period (which period will be
17
<PAGE> 18
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. "Effective yield" is calculated similarly but, when annualized, the
income earned by an investment in the Portfolio's Service Shares is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Portfolio's
"tax-equivalent yield" may also be quoted from time to time for its Service
Shares, which shows the level of taxable yield needed to produce an after-tax
equivalent to the Portfolio's tax-free yield for Service Shares. This is done by
increasing the Portfolio's yield for Service Shares (calculated as above) by the
amount necessary to reflect the payment of Federal, state and local income tax
at a stated tax rate.
Performance data for Service Shares of the Portfolio may be compared to
that of other mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Service Shares of
the Portfolio may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service. Performance information may also include evaluations of the Portfolio
published by nationally recognized ranking services and information as reported
by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Service Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on Service
Shares will fluctuate and are not necessarily representative of future results.
Any fees charged by Institutions directly to their Customers in connection with
investments in Service Shares are not reflected in the yields of the Service
Shares, and such fees, if charged, will reduce the actual return received by
such Customers on their investments.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7762 (in Delaware call collect (302)
791-1111).
* * *
18
<PAGE> 19
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 20
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 9
Net Asset Value................ 11
Management..................... 11
Dividends and Distributions.... 14
Taxes.......................... 15
Description of Shares.......... 16
Performance Information........ 17
Reports and Inquiries.......... 18
</TABLE>
PIF-P-026S
THE
PENNSYLVANIA
MUNICIPAL
MONEY MARKET
PORTFOLIO
Service Class
[LOGO]
Prospectus
January 30, 1995
<PAGE> 21
THE PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO
INSTITUTIONAL CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Institutional Shares" or "Shares")
representing interests in the Pennsylvania Municipal Money Market Portfolio (the
"Portfolio") with the following objective: to seek as high a level of current
income exempt from Federal and, to the extent possible, from Pennsylvania income
tax as is consistent with maintaining liquidity and stability of principal. It
pursues this objective by investing primarily in short-term municipal
obligations issued by the Commonwealth of Pennsylvania and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("Pennsylvania Municipal Obligations").
Institutional Shares of the Portfolio are sold by the Fund's distributor to
institutional investors ("Institutions"). Institutional Shares are sold and
redeemed at net asset value without any purchase or redemption charge imposed by
the Fund.
Shares of the Portfolio are intended for residents of Pennsylvania.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 22
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
PENNSYLVANIA
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .13%
Other operating expenses.......................................................... .15
----
Administration fees(1)....................................................... .09
Other expenses(1)(2)......................................................... .06
---
Total fund operating expenses..................................................... .28%
====
</TABLE>
- ------------------
(1) Advisory fees are net of a .32% fee waiver and administration fees are net
of a .06% fee waiver for the Portfolio. PIMC and the Administrators are
under no obligation to waive or continue waiving such fees, but have
informed the Fund that they expect to waive or continue waiving such fees as
necessary to maintain the Portfolio's total operating expenses during the
current fiscal year at the level set forth in the table. The expenses noted
above under "Other expenses" are estimated based on the level of such
expenses for the Fund's most recent fiscal year.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Pennsylvania Municipal Money Market Portfolio..... $3 $ 9 $ 16 $36
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The information in the table is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
Portfolio for the fiscal year ended September 30, 1994, as restated to reflect
revised fee waivers. Total operating expenses would have been .66% for
Institutional Shares of the Pennsylvania Municipal Money Market Portfolio
without such fee waivers. See Footnote 1 to the Expense Table, "Financial
Highlights--Background," "Management" and "Description of Shares" for a further
description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 23
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Description of Shares" for a description of the Service Plan
and shareholder support activities. Series A Investor Shares bear the expense of
the Fund's Distribution and Service Plan at an annual rate not to exceed .55% of
the average daily net asset value of the Portfolio's outstanding Series A
Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. The financial data included in the table below has been
derived from financial statements incorporated by reference in the Statement of
Additional Information and has been audited by Coopers & Lybrand, L.L.P., the
Fund's independent accountants. This financial data should be read in
conjunction with such financial statements. Further information about the
performance of the Portfolio is available in the annual report to shareholders.
Both the Statement of Additional Information and the annual report to
shareholders may be obtained from the Fund free of charge by calling the number
on the front cover of this Prospectus.
3
<PAGE> 24
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
----------------------- ----------------------- ---------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 6/1/931 YEAR 6/11/931 12/28/931
ENDED THROUGH ENDED THROUGH THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ---------
Income from investment operations
Net investment income.................. 0.0247 0.0078 0.0221 0.0074 0.0153
Net realized gain (loss) on
investments.......................... -- -- -- -- --
-------- -------- -------- -------- ---------
Total from investment operations..... 0.0247 0.0078 0.0221 0.0074 0.0153
-------- -------- -------- -------- ---------
Less distributions
Distributions from net investment
income............................... (0.0247) (0.0078) (0.0221) (0.0074) (0.0153)
Distributions from net realized capital
gains................................ -- -- -- -- --
-------- -------- -------- -------- ---------
Total distributions.................. (0.0247) (0.0078) (0.0221) (0.0074) (0.0153)
-------- -------- -------- -------- ---------
Net asset value at end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ========= ========= =========
Total return............................. 2.49% 0.78% 2.24% 0.74% 1.58%
Ratios/Supplemental data
Net assets at end of period (in
thousands)........................... $158,102 $ 2,242 $ 60,560 $ 8,919 $ 139
Ratios of expenses to average net
assets
After advisory/administration fee
waivers............................ 0.16% 0.09%(2) 0.42% 0.32%(2) 0.65%(2)
Before advisory/administration fee
waivers............................ 0.73% 0.97%(2) 0.99% 1.20%(2) 1.22%(2)
Ratios of net investment income to
average
net assets
After advisory/administration fee
waivers............................ 2.64% 2.15%(2) 2.31% 2.42%(2) 2.11%(2)
Before advisory/administration fee
waivers............................ 2.07% 1.27%(2) 1.75% 1.54%(2) 1.54%(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 25
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Pennsylvania Municipal Obligations.
The Portfolio may also invest in short-term obligations issued by or on behalf
of states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Other Investment Policies" for a description of Municipal
Obligations. Portfolio obligations held by the Portfolio will have maturities of
13 months or less as determined in accordance with the rules of the SEC.
The concentration of investments in Pennsylvania Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of the Commonwealth of Pennsylvania and its
political subdivisions, agencies, instrumentalities and authorities could
adversely affect the value of the Portfolio and its portfolio securities.
Although the General Fund of the Commonwealth (the principal operating fund of
the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax increases
and spending decreases helped return the General Fund balance to a surplus at
June 30, 1992 of $87.5 million and at June 30, 1993 of $698.9 million. The
deficit in the Commonwealth's unreserved/undesignated funds of prior years also
was reversed to a surplus of $64.4 million as of June 30, 1993. Rising
unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth and court ordered increases in healthcare reimbursement rates place
increased pressures on the tax resources of the Commonwealth and its
municipalities. See the Statement of Additional Information for further
discussion of investment considerations associated with Pennsylvania Municipal
Obligations and see "Other Investment Policies" for a description of other
investment policies.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in Pennsylvania
Municipal Obligations. During temporary defensive periods, the Portfolio may
invest without limitation in obligations which are not Municipal Obligations and
may hold without limitation uninvested cash reserves. Such securities may
include, without limitation, bonds, notes, variable rate demand notes and
commercial paper, provided such securities are rated within the relevant
categories applicable to Municipal Obligations set forth below, or if unrated,
are of comparable quality as determined by the adviser or sub-adviser, and may
also include, without limitation, other debt obligations, such as bank
obligations. The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase at the Portfolio's option specified Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligation to which such
commitment relates. The Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. The Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. The amount of information regarding
the financial condition of issuers of Municipal Obligations may not be as
extensive as that which is made available by public corporations, and the
secondary market for Municipal
5
<PAGE> 26
Obligations may be less liquid than that for taxable obligations. Accordingly,
the ability of the Portfolio to buy and sell tax-exempt securities may, at any
particular time and with respect to any particular securities, be limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in an
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
6
<PAGE> 27
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
7
<PAGE> 28
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or
sub-adviser, acting under guidelines approved and monitored by the Board, that
an adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in an Appendix to the Statement of
Additional Information.
FUNDAMENTAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5%
of its total assets are outstanding. Securities held in escrow or
separate accounts in connection with the Portfolio's investment
practices are not deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b)
instruments issued by domestic banks (which may include U.S. branches
of foreign banks); (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the
parents; and (iii) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will be each considered a separate industry.
For purposes of this limitation, a security is considered to be issued
by the entity (or entities) whose assets and revenues back the security.
8
<PAGE> 29
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Institutional Shares are offered to Institutions at the net asset value per
share next determined after an order is received by PFPC Inc. ("PFPC"), the
Fund's transfer agent. Shares may be purchased on any Business Day. A "Business
Day" is any weekday that the New York Stock Exchange (the "NYSE") and the
Federal Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase
orders may be transmitted by telephoning PFPC at (800) 441-7450 not later than
12:00 noon (Eastern Time) on any Business Day. Orders received before noon
will be executed at noon. If payment for such orders is not received by
4:00 p.m., the order will be cancelled and notice thereof will be given to the
Institution placing the order. Orders received after 12:00 noon will not be
accepted. The Fund may in its discretion reject any order for Shares.
Payment for Institutional Shares may be made only in Federal funds or other
funds immediately available to the Fund's custodian. The minimum initial
investment by an Institution is $5,000. There is no minimum subsequent
investment requirement.
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)441-7450.
Shares are redeemed at the net asset value per share next determined after
PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND THE
DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE
9
<PAGE> 30
REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE
INSTRUCTIONS ARE GENUINE, THE FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED
REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS
TO ACCOUNT REGISTRATION (SUCH AS THE NAME IN WHICH AN ACCOUNT IS REGISTERED, THE
ACCOUNT NUMBER, RECENT TRANSACTIONS IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S
SOCIAL SECURITY NUMBER, ADDRESS AND/OR BANK). While the Fund intends to use its
best efforts to maintain the Portfolio's net asset value per share at $1.00, the
proceeds paid upon redemption may be more or less than the amount invested
depending upon a Share's net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Institution is unable to contact
PFPC by telephone, the Institution may also deliver the redemption request to
PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
An Institution may be required to redeem Shares in the Portfolio if the
balance in such shareholder's account in the Portfolio drops below $5,000 as the
result of a redemption request and the Institution does not increase the balance
to at least $5,000 upon thirty days' written notice.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Institutional Share of the Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. The Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of the Portfolio is determined
independently of the other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under "Valuation of Shares." There can
be no assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
10
<PAGE> 31
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank serves as
the sub-adviser for the Portfolio. PNC Bank, whose principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of
PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. The Fund paid PIMC advisory fees at the
annual rate of .40% of the average daily net assets of the Portfolio for the
year ended September 30, 1994, and PIMC waived advisory fees at the annual rate
of .05% of the average daily net assets of the Portfolio for that year. During
the same period, PIMC reimbursed expenses at the annual rate of .04% of the
average daily net assets of the Portfolio. See "Management--Expenses" for a
discussion of PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the year ended
September 30, 1994, PNC Bank waived all sub-advisory fees with respect to the
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an
11
<PAGE> 32
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers and the remaining outstanding stock is
owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at the annual rate of .01% of the average daily net assets
of the Portfolio for the year ended September 30, 1994, and the Administrators
waived combined administration fees at the annual rate of .14% of the average
daily net assets of the Portfolio for that year. During the same period, the
Administrators reimbursed expenses at the annual rate of .01% of the average
daily net assets of the Portfolio. See "Management--Expenses" for a discussion
of the Administrators' voluntary fee waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio will
be borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
12
<PAGE> 33
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC and PFPC are subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Institutional Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
shareholder.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Institutional Shares
is reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. See "Purchase and Redemption of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolio does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Institutional Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
13
<PAGE> 34
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum tax liability and for
corporate taxpayers in determining environmental taxes. First, tax-exempt
interest and "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and noncorporate taxpayers in determining alternative
minimum tax liability and for corporate taxpayers in determining environmental
tax liability. The Portfolio may invest without limitation in such private
activity bonds. Second, tax-exempt interest and "exempt interest dividends"
derived from all other Municipal Obligations must be taken into account by
corporate taxpayers in determining certain adjustments for alternative minimum
and environmental tax purposes. In addition, investors should be aware of the
possibility of state and local alternative minimum or minimum income tax
liability on interest from such private activity bonds. Shareholders who are
recipients of Social Security Act or Railroad Retirement Act benefits should
further note that tax-exempt interest and "exempt interest dividends" derived
from all types of Municipal Obligations will be taken into account in
determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder.
14
<PAGE> 35
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder
attributable to interest realized by the Pennsylvania Municipal Money Market
Portfolio from Pennsylvania Municipal Obligations or attributable to insurance
proceeds on account of such interest, is not taxable to individuals, estates or
trusts under the Personal Income Tax imposed by Article III of the Tax Reform
Code of 1971 (in the case of insurance proceeds, to the extent they are exempt
for Federal Income Tax purposes); to corporations under the Corporate Net Income
Tax imposed by Article IV of the Tax Reform Code of 1971 (in the case of
insurance proceeds, to the extent they are exempt for Federal Income Tax
purposes); nor to individuals under the Philadelphia School District New Income
Tax ("School District Tax") imposed on Philadelphia resident individuals under
authority of the Act of August 9, 1963, P.L. 640.
Income received by a shareholder attributable to gain on the sale or other
disposition by the Pennsylvania Municipal Money Market Portfolio of Pennsylvania
Municipal Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Municipal
Money Market Portfolio for more than six months, the School District Tax.
No opinion is expressed regarding the extent, if any, to which shares, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Portfolio are not subject to any of the personal
property taxes currently in effect in Pennsylvania to the extent that the
Portfolio is comprised of Pennsylvania Municipal Obligations. The taxes referred
to include the County Personal Property Tax imposed on residents of Pennsylvania
by the Act of June 17, 1913, P.L. 507, as amended.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Institutional Shares," "Service Shares"
and "Series A Investor Shares") representing interests in the Fund's investment
portfolios. This Prospectus describes the Pennsylvania Municipal Money Market
Portfolio, which is classified as a non-diversified company under the 1940 Act.
In addition, the Board of Trustees has authorized the issuance of additional
classes of shares representing interests in other investment portfolios of the
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Purchase and Redemption
of Shares--Distributor."
15
<PAGE> 36
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Institutional Shares bear no servicing or distribution fees. Holders of the
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that will be paid under the Fund's Service Plan. Payments under
the Service Plan will cover expenses relating to the support services provided
to beneficial owners of Service Shares by certain institutions. Such services
are intended to supplement the services provided by the Fund's Administrators
and transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .15% (on an annualized basis) of the average daily net asset
value of Service Shares owned beneficially by their customers, institutions may
provide one or more of the following services to such customers: processing
purchase and redemption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with respect to Service
Shares beneficially owned by customers or the information necessary for
sub-accounting; and other similar services. In consideration for payment of a
service fee of up to a separate .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their customers,
institutions may provide one or more of these additional services to such
customers: responding to customer inquiries relating to the services performed
by the institution and to customer inquiries concerning their investments in
Service Shares; providing information periodically to customers showing their
positions in Service Shares; and other similar shareholder liaison services.
Similarly, holders of the Portfolio's Series A Investor Shares bear the payments
described in the prospectus for such shares that are paid under the Fund's
Distribution and Service Plan (the "Distribution Plan"). Under the Distribution
Plan, the Distributor is entitled to payments by the Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing Series A Investor Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Series A Investor Shares.
Service Organizations may also provide support services such as establishing and
maintaining accounts and records relating to shareholders of Series A Investor
Shares for whom the Service Organizations are the dealer of record or holder of
record for shareholders with whom the Service Organizations have a servicing
relationship. The Distribution Plan provides for payments to the Distributor at
an annual rate not to exceed .55% of the average daily net asset value of the
Portfolio's outstanding Series A Investor Shares. As a result of these different
fees, the net yields on the Fund's Institutional Shares will generally be higher
than those on the Fund's Service Shares and the net yields on the Fund's Service
Shares will generally be higher than those on the Fund's Series A Investor
Shares if payments by the Portfolios under both the Service Plan and the
Distribution Plan are made at the maximum rates. Standardized yield quotations
will be computed separately for each class of Shares. Series A Investor Shares
are exchangeable at the option of the holder for Series A Investor Shares in
another money market portfolio and for Series A or Series B Investor Shares in
the Fund's non-money market investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
16
<PAGE> 37
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INSTITUTIONAL SHARES AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE INSTITUTIONAL SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Institutional Shares. Both yield figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers to
the income generated by an investment in the Portfolio's Institutional Shares
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio's Institutional Shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The Portfolio's "tax equivalent yield" may
also be quoted from time to time for its Institutional Shares, which shows the
level of taxable yield needed to produce an after-tax equivalent to the
Portfolio's tax-free yield for Institutional Shares. This is done by increasing
the Portfolio's yield for Institutional Shares (calculated as above) by the
amount necessary to reflect the payment of Federal, state and local income tax
at a stated tax rate.
Performance data of Institutional Shares of the Portfolio may be compared
to those of mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Institutional
Shares of the Portfolio may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Performance information may also include evaluations of the
Portfolio published by nationally recognized ranking services and information as
reported by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Institutional Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Institutional Shares will fluctuate and are not necessarily representative of
future results.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7764 (in Delaware call collect (302)
791-1104).
* * *
17
<PAGE> 38
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 39
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 9
Net Asset Value................ 10
Management..................... 11
Dividends and Distributions.... 13
Taxes.......................... 14
Description of Shares.......... 15
Performance Information........ 17
Reports and Inquiries.......... 17
</TABLE>
PIF-P-026I
THE
PENNSYLVANIA
MUNICIPAL
MONEY MARKET
PORTFOLIO
INSTITUTIONAL CLASS
[LOGO]
Prospectus
January 30, 1995
<PAGE> 41
THE OHIO MUNICIPAL
MONEY MARKET PORTFOLIO
SERVICE CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Service Shares" or "Shares") representing
interests in the Ohio Municipal Money Market Portfolio (the "Portfolio") with
the following objective: to seek as high a level of current income exempt from
Federal and, to the extent possible, from Ohio income tax as is consistent with
maintaining liquidity and stability of principal. It pursues this objective by
investing primarily in short-term municipal obligations issued by the State of
Ohio and its political subdivisions, agencies, instrumentalities and authorities
and tax-exempt derivative securities relating thereto ("Ohio Municipal
Obligations").
Service Shares are sold by the Fund's distributor to institutional
investors ("Institutions") acting on behalf of their customers ("Customers").
These Customers, which may include individuals, trusts, partnerships and
corporations, must maintain accounts (such as custody, trust or escrow accounts)
with the Institutions. Service Shares are sold and redeemed at net asset value
without any purchase or redemption charge imposed by the Fund, although the
Institutions may receive compensation from the Fund for providing various
shareholder services and may charge their customer accounts for services
provided in connection with the purchase or redemption of Shares.
Shares of the Portfolio are intended for residents of Ohio.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 42
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
OHIO
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .13%
Other operating expenses.......................................................... .45
---
Administration fees(1)....................................................... .08
Shareholder servicing fees................................................... .15
Other expenses(1)(2)......................................................... .22
---
Total fund operating expenses..................................................... .58%
===
</TABLE>
- ------------------
(1) Advisory fees are net of a .32% fee waiver and administration fees are net
of a .07% fee waiver for the Portfolio. PIMC and the Administrators are
under no obligation to waive or continue waiving such fees, but have
informed the Fund that they expect to waive or continue waiving such fees as
necessary to maintain the Portfolio's total operating expenses during the
current fiscal year at the level set forth in the table. The expenses noted
above under "Other expenses" are estimated based on the level of such
expenses for the Fund's most recent fiscal year.
(2) Institutions may charge their clients additional fees for account services.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Ohio Municipal Money Market Portfolio........ $6 $19 $32 $73
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The information in the table is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
Portfolio for the fiscal year ended September 30, 1994, as restated to reflect
fees relating to the Service Plan and fees for other shareholder support
activities borne by Service Shares and revised fee waivers. Total operating
expenses would have been .97% for Service Shares of the Ohio Municipal Money
Market Portfolio without such fee waivers and with fees relating to the Service
Plan and fees for other shareholder support activities. See Footnote 1 to the
Expense Table, "Financial Highlight--Background," "Management" and "Description
of Shares" for a further description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 43
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Management--Shareholder Servicing" for a description of the
Service Plan and shareholder support activities. Series A Investor Shares bear
the expense of the Fund's Distribution and Service Plan at an annual rate not to
exceed .55% of the average daily net asset value of the Portfolio's outstanding
Series A Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. The financial data included in the table below has been
derived from financial statements incorporated by reference in the Statement of
Additional Information and has been audited by Coopers & Lybrand, L.L.P., the
Fund's independent accountants. This financial data should be read in
conjunction with such financial statements. Further information about the
performance of the Portfolio is available in the annual report to shareholders.
Both the Statement of Additional Information and the annual report to
shareholders may be obtained from the Fund free of charge by calling the number
on the front cover of this Prospectus.
3
<PAGE> 44
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
----------------------- ----------------------- --------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 6/10/931 YEAR 6/1/931 10/5/931
ENDED THROUGH ENDED THROUGH THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income.................. 0.0252 0.0073 0.0225 0.0074 0.0199
Net realized gain (loss) on
investments.......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment operations..... 0.0252 0.0073 0.0225 0.0074 0.0199
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment
income............................... (0.0252) (0.0073) (0.0225) (0.0074) (0.0199)
Distributions from net realized capital
gains................................ -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions.................. (0.0252) (0.0073) (0.0225) (0.0074) (0.0199)
-------- -------- -------- -------- --------
Net asset value at end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return............................. 2.55% 0.73% 2.27% 0.75% 2.01%
Ratios/Supplemental data
Net assets at end of period (in
thousands)........................... $ 10,521 $ 12,026 $ 44,066 $ 15,239 $ 28
Ratios of expenses to average net
assets
After advisory/administration fee
waivers............................ 0.13% 0.10%(2) 0.40% 0.23%(2) 0.62%(2)
Before advisory/administration fee
waivers............................ 0.77% 0.83%(2) 1.04% 0.96%(2) 1.26%(2)
Ratios of net investment income to
average
net assets
After advisory/administration fee
waivers............................ 2.56% 2.45%(2) 2.29% 2.23%(2) 1.94%(2)
Before advisory/administration fee
waivers............................ 1.93% 1.72%(2) 1.65% 1.50%(2) 1.30%(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 45
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Ohio Municipal Obligations. The
Portfolio may also invest in short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Other Investment Policies" for a description of Municipal
Obligations. Portfolio obligations held by the Portfolio will have maturities of
13 months or less as determined in accordance with the rules of the SEC.
The concentration of investments in Ohio Municipal Obligations raises
special investment considerations. While diversifying more into the service and
other non-manufacturing areas, the economy of Ohio continues to rely in part on
durable goods manufacturing largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. As a result, general
economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture is an important segment of the Ohio economy, with over half the
State's area devoted to farming and approximately 15% of total employment in
agribusiness. In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the national figure of 5.5%. However,
for 1991, 1992 and 1993 the State rates (6.4%, 7.2% and 6.5%) were below the
national rates (6.7%, 7.4% and 6.8%). The unemployment rate and its effects vary
among particular geographic areas of the State. There can be no assurance that
future national, regional or state-wide economic difficulties and the resulting
impact on State or local government finances will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of the respective obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "Other Investment Policies" for a description
of other securities in which the Portfolio may invest.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in Ohio Municipal
Obligations. During temporary defensive periods, the Portfolio may invest
without limitation in obligations which are not Municipal Obligations and may
hold without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to Municipal Obligations set forth below, or if unrated, are of
comparable quality as determined by the adviser or sub-adviser, and may also
include, without limitation, other debt obligations, such as bank obligations.
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to purchase
at the Portfolio's option specified Municipal Obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions
5
<PAGE> 46
relating to such projects and bonds to a greater extent than it would be if its
assets were not so invested. The Portfolio may invest 25% or more of its net
assets in Municipal Obligations the interest on which is paid solely from
revenues of similar projects. The amount of information regarding the financial
condition of issuers of Municipal Obligations may not be as extensive as that
which is made available by public corporations, and the secondary market for
Municipal Obligations may be less liquid than that for taxable obligations.
Accordingly, the ability of the Portfolio to buy and sell tax-exempt securities
may, at any particular time and with respect to any particular securities, be
limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in the
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is
6
<PAGE> 47
appropriated on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a relatively new
type of financing that is not yet as marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are
7
<PAGE> 48
rendered by counsel to the respective sponsors of such securities. The Fund and
its investment adviser will rely on such opinions and will not review
independently the underlying proceedings relating to the issuance of Municipal
Obligations, the creation of any tax-exempt derivative securities, or the bases
for such opinions.
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. Portfolio will not knowingly invest more than 10% of
the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days, and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or
sub-adviser, acting under guidelines approved and monitored by the Board, that
an adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in the Appendix to the Statement of
Additional Information.
FUNDAMENTAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5% of
its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Portfolio's investment practices are not
deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b) instruments
issued by domestic banks (which may include U.S. branches of foreign
banks); (ii) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related
to financing the activities of the
8
<PAGE> 49
parents; and (iii) utilities will be divided according to their services,
for example, gas, gas transmission, electric and gas, electric and
telephone will be each considered a separate industry. For purposes of
this limitation, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security.
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Shares are offered without a sales load on a continuous basis to
Institutions acting on behalf of their Customers. Service Shares will normally
be held of record by Institutions or in the names of nominees of Institutions.
All Share purchases are effected through a Customer's account at an Institution
through procedures established in connection with the requirements of the
account. Confirmations of Share purchases and redemptions will be sent to the
Institutions. Beneficial ownership of Shares will be recorded by the
Institutions and reflected in the account statements provided by such
Institutions to their Customers. Investors wishing to purchase Shares should
contact their Institutions.
Service Shares are sold at the net asset value per share next determined
after an order is received by PFPC Inc. ("PFPC"), the Fund's transfer agent.
Shares may be purchased by Institutions on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase orders
may be transmitted by telephoning PFPC at (800)441-7450 no later than 12:00 noon
(Eastern Time) on any Business Day. Orders received before noon will be executed
at noon. If payment for such orders is not received by 4:00 p.m., the order will
be cancelled and notice thereof will be given to the
9
<PAGE> 50
Institution placing the order. Orders received after 12:00 noon will not be
accepted. The Fund may in its discretion reject any order for Shares.
Payment for Service Shares may be made only in Federal funds or other funds
immediately available to the Fund's custodian. The minimum initial investment by
an Institution is $5,000; however, Institutions may set a higher minimum for
their Customers. There is no minimum subsequent investment requirement.
Conflict of interest restrictions may apply to an Institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Shares. Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in Service Shares. See also "Management--Shareholder Servicing."
REDEMPTION OF SHARES
A Customer may redeem all or part of his Service Shares in accordance with
the instructions and limitations pertaining to his account at an Institution.
These procedures will vary according to the type of account and the Institution
involved, and Customers should consult their account managers in this regard. It
is the responsibility of Institutions to transmit redemption orders to PFPC and
credit their Customers' accounts with the redemption proceeds on a timely basis.
In the case of shareholders holding share certificates, the certificates must
accompany the redemption request.
Institutions may transmit redemption orders to PFPC by telephone at (800)
441-7450. Shares are redeemed at the net asset value per share next determined
after PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND
THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE.
IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR
BANK). While the Fund intends to use its best efforts to maintain the
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a Share's
net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming shareholder on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund, although Institutions may charge Customer accounts for redemption
services. Information relating to such redemption services and charges, if any,
should be obtained by Customers from their Institution.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If any Institution is unable to
contact PFPC by telephone, the Institution may also deliver the redemption
request to PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
10
<PAGE> 51
A shareholder of record may be required to redeem Shares in the Portfolio
if the balance in such shareholder's account in the Portfolio drops below $5,000
as the result of a redemption request and the shareholder does not increase the
balance to at least $5,000 upon thirty days' written notice. If a Customer has
agreed with an Institution to maintain a minimum balance in his account with the
Institution, and the balance in the account falls below that minimum, the
Customer may be obligated to redeem all or part of his Shares in the Portfolio
to the extent necessary to maintain the minimum balance required.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
It is the responsibility of the Institutions to provide their Customers
with account statements with respect to Share transactions made for accounts
maintained at the Institutions.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Service Share of the Portfolio for the purpose
of pricing purchase and redemption orders is determined twice each day, once as
of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on each
Business Day. The Portfolio's net asset value per share is calculated by adding
the value of all securities, cash and other assets of the Portfolio, subtracting
the liabilities and dividing the result by the number of Shares outstanding. The
net asset value per Share of the Portfolio is determined independently of the
other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under "Valuation of Shares." There can
be no assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway,
11
<PAGE> 52
Wilmington, Delaware 19809. PNC Bank serves as the sub-adviser for the
Portfolio. PNC Bank, whose principal business address is Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of PNC Bank Corp. PNC
Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. The Fund paid PIMC advisory fees at the
annual rate of .44% of the average daily net assets of the Portfolio, and PIMC
waived advisory fees at the annual rate of .01% of the average daily net assets
of the Portfolio for that year. During the same period, PIMC reimbursed expenses
at the annual rate of .02% of the average daily net assets of the Portfolio. See
"Management--Expenses" for a discussion of PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the year ended
September 30, 1994, PNC Bank waived all sub-advisory fees with respect to the
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware, 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at the annual rate of .01% of the average daily net assets
of the Portfolio for the year ended September 30, 1994, and the Administrators
waived combined administration fees at the annual rate of .14% of the average
daily net assets of the Portfolio for that year. During the same period, the
Administrators reimbursed expenses at the annual rate of .01% of the average
daily net assets of the Portfolio. See "Management--Expenses" for a discussion
of the Administrators' voluntary fee waiver.
12
<PAGE> 53
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
------------------------------------
SHAREHOLDER SERVICING
The Fund intends to enter into service agreements with Institutions
(including PNC Bank and its affiliates) pursuant to which Institutions will
render certain support services to Customers who are the beneficial owners of
Service Shares. 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 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 this Prospectus in light of the terms and fees
governing their accounts with Institutions. These fees are not paid to
Institutions with respect to other classes of shares of the Portfolio ("Series A
Investor Shares" and "Institutional Shares"). See "Description of Shares."
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio
(such as fees relating to the Fund's Service Plan for Service Shares) will be
borne solely by such Shares.
13
<PAGE> 54
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC, PFPC and Institutions that are banks or bank
affiliates are subject to such banking laws and regulations. In addition, state
securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Service Shares, the Fund might
be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Service
Shares. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
Customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Service Shares is
reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. The Portfolio's net investment income available for
distribution to the holders of Service Shares will be reduced by the amount of
other expenses allocated to the Portfolio's Service Shares, including fees
payable under the Fund's Service Plan. See "Purchase and Redemption of Shares"
and "Management--Shareholder Servicing."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The
14
<PAGE> 55
period for which dividends are payable and the time for payment of such
dividends are subject to change by the Fund's Board of Trustees. The Portfolio
does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Service Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate taxpayers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived from all other Municipal Obligations must be taken into
account by corporate taxpayers in determining certain adjustments for
alternative minimum and environmental tax purposes. In addition, investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from such private activity bonds.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a
15
<PAGE> 56
specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for both Federal income tax purposes to the
extent of any exempt interest dividends received by the shareholder. For the
Portfolio, the loss also will be disallowed for state tax purposes to the same
extent, even though, for state income tax purposes, some portion of such
dividends actually may have been subject to state income tax.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders also are urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio
personal income tax or municipal or school district income taxes in Ohio will
not be subject to such taxes on distributions from the Portfolio to the extent
that such distributions consist of interest on Ohio Municipal Obligations or
obligations issued by the U.S. Government, its agencies, instrumentalities or
territories (if the interest on such obligations is exempt from state income
taxation under the laws of the United States) ("U.S. Obligations"), provided
that the Portfolio continues to qualify as a regulated investment company for
federal income tax purposes and that at all times at least 50% of the value of
the total assets of the Portfolio consists of Ohio Municipal Obligations or
similar obligations of other states or their subdivisions. (It is assumed for
purposes of this discussion of Ohio tax considerations that these requirements
are satisfied.) Corporations that are subject to the Ohio corporation franchise
tax will not have to include distributions from the Portfolio in their net
income base for purposes of calculating their Ohio corporation franchise tax
liability to the extent that such distributions either constitute
exempt-interest dividends or consist of interest on Ohio Municipal Obligations
or U.S. Obligations. However, shares of the Portfolio will be included in a
corporation's net worth base for purposes of calculating the Ohio corporation
franchise tax. Distributions consisting of gain on the sale, exchange or other
disposition of Ohio Municipal Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax. For additional Ohio
tax considerations, see "Taxes" above.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Service Shares," "Series A Investor
Shares" and "Institutional Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes the Ohio Municipal Money Market
Portfolio, which is classified as a nondiversified company under the 1940 Act.
The Board of Trustees has also authorized the issuance of additional classes of
shares representing interests in other investment portfolios of the
16
<PAGE> 57
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Purchase and Redemption
of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under Massachusetts law, the
Fund's state of organization, and the Fund's Declaration of Trust and Code of
Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Holders of Service Shares bear the fees described under
"Management--Shareholder Servicing" that are paid to Institutions under the
Fund's Service Plan. Similarly, holders of the Portfolio's Series A Investor
Shares will bear the payments described in the prospectus for such shares that
are paid under the Fund's Distribution and Service Plan (the "Distribution
Plan"). Under the Distribution Plan, the Distributor is entitled to payments by
each Portfolio for: (i) direct out-of-pocket promotional expenses incurred in
connection with advertising and marketing Series A Investor Shares; and (ii)
payments to broker/dealers that are not affiliated with the Distributor
("Service Organizations") for distribution assistance such as advertising and
marketing of Series A Investor Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders of Series A Investor Shares for whom the Service
Organizations are the dealer of record or holder of record for shareholders with
whom the Service Organizations have a servicing relationship. The Distribution
Plan provides for payments to the Distributor at an annual rate not to exceed
.55% of the average daily net asset value of the Portfolio's outstanding Series
A Investor Shares. Institutional Shares bear no shareholder servicing or
distribution fees. As a result of these different fees, the net yields on the
Fund's Institutional Shares will generally be higher than those on the Fund's
Service Shares and the net yields on the Fund's Service Shares will generally be
higher than those on the Fund's Series A Investor Shares if payments by the
Portfolio under both the Service Plan and the Distribution Plan are made at the
maximum rates. Standardized yield quotations will be computed separately for
each class of Shares. Series A Investor Shares are exchangeable at the option of
the holder for Series A Investor Shares in another money market portfolio and
for Series A or Series B Investor Shares in the Fund's non-money market
investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND'S SERVICE SHARES AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE SERVICE SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Service Shares. Both yield figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the
income generated by an investment in the Portfolio's Service Shares over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the
17
<PAGE> 58
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio's Service Shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The Portfolio's "tax-equivalent yield" may
also be quoted from time to time for its Service Shares, which shows the level
of taxable yield needed to produce an after-tax equivalent to the Portfolio's
tax-free yield for Service Shares. This is done by increasing the Portfolio's
yield for Service Shares (calculated as above) by the amount necessary to
reflect the payment of Federal, state and local income tax at a stated tax rate.
Performance data for Service Shares of the Portfolio may be compared to
that of other mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Service Shares of
the Portfolio may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service. Performance information may also include evaluations of the Portfolio
published by nationally recognized ranking services and information as reported
by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Service Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on Service
Shares will fluctuate and are not necessarily representative of future results.
Any fees charged by Institutions directly to their Customers in connection with
investments in Service Shares are not reflected in the yields of the Service
Shares, and such fees, if charged, will reduce the actual return received by
such Customers on their investments.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7762 (in Delaware call collect (302)
791-1111).
* * *
18
<PAGE> 59
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 60
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 9
Net Asset Value................ 11
Management..................... 11
Dividends and Distributions.... 14
Taxes.......................... 15
Description of Shares.......... 16
Performance Information........ 17
Reports and Inquiries.......... 18
</TABLE>
PIF-P-025S
THE
OHIO
MUNICIPAL
MONEY MARKET
PORTFOLIO
Service Class
[LOGO]
Prospectus
January 30, 1995
- --------------------------------------------------------------------------------
<PAGE> 61
THE OHIO MUNICIPAL
MONEY MARKET PORTFOLIO
INSTITUTIONAL CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Institutional Shares" or "Shares")
representing interests in the Ohio Municipal Money Market Portfolio (the
"Portfolio") with the following objective: to seek as high a level of current
income exempt from Federal and, to the extent possible, from Ohio income tax as
is consistent with maintaining liquidity and stability of principal. It pursues
this objective by investing primarily in short-term municipal obligations issued
by the State of Ohio and its political subdivisions, agencies, instrumentalities
and authorities and tax-exempt derivative securities relating thereto ("Ohio
Municipal Obligations").
Institutional Shares of the Portfolio are sold by the Fund's distributor to
institutional investors ("Institutions"). Institutional Shares are sold and
redeemed at net asset value without any purchase or redemption charge imposed by
the Fund.
Shares of the Portfolio are intended for residents of Ohio.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 62
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
OHIO
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .13%
Other operating expenses.......................................................... .15
---
Administration fees(1)....................................................... .08
Other expenses(1)............................................................ .07
---
Total fund operating expenses..................................................... .28%
===
</TABLE>
- ------------------
(1) Advisory fees are net of a .32% fee waiver and administration fees are net
of a .07% fee waiver for the Portfolio. PIMC and the Administrators are
under no obligation to waive or continue waiving such fees, but have
informed the Fund that they expect to waive or continue waiving such fees as
necessary to maintain the Portfolio's total operating expenses during the
current fiscal year at the level set forth in the table. The expenses noted
above under "Other expenses" are estimated based on the level of such
expenses for the Fund's most recent fiscal year.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Ohio Municipal Money Market Portfolio........ $3 $9 $16 $36
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The information in the table is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
Portfolio for the fiscal year ended September 30, 1994, as restated to reflect
revised fee waivers. Total operating expenses would have been .67% for
Institutional Shares of the Ohio Municipal Money Market Portfolio without such
fee waivers. See Footnote 1 to the Expense Table, "Financial Highlights--
Background," "Management" and "Description of Shares" for a further description
of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 63
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Description of Shares" for a description of the Service Plan
and shareholder support activities. Series A Investor Shares bear the expense of
the Fund's Distribution and Service Plan at an annual rate not to exceed .55% of
the average daily net asset value of the Portfolio's outstanding Series A
Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. The financial data included in the table below has been
derived from financial statements incorporated by reference in the Statement of
Additional Information and has been audited by Coopers & Lybrand, L.L.P., the
Fund's independent accountants. This financial data should be read in
conjunction with such financial statements. Further information about the
performance of the Portfolio is available in the annual report to shareholders.
Both the Statement of Additional Information and the annual report to
shareholders may be obtained from the Fund free of charge by calling the number
on the front cover of this Prospectus.
3
<PAGE> 64
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
----------------------- ----------------------- --------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 6/10/931 YEAR 6/1/931 10/5/931
ENDED THROUGH ENDED THROUGH THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income.................. 0.0252 0.0073 0.0225 0.0074 0.0199
Net realized gain (loss) on
investments.......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment operations..... 0.0252 0.0073 0.0225 0.0074 0.0199
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment
income............................... (0.0252) (0.0073) (0.0225) (0.0074) (0.0199)
Distributions from net realized capital
gains................................ -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions.................. (0.0252) (0.0073) (0.0225) (0.0074) (0.0199)
-------- -------- -------- -------- --------
Net asset value at end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return............................. 2.55% 0.73% 2.27% 0.75% 2.01%
Ratios/Supplemental data
Net assets at end of period (in
thousands)........................... $ 10,521 $ 12,026 $ 44,066 $ 15,239 $ 28
Ratios of expenses to average net
assets
After advisory/administration fee
waivers............................ 0.13% 0.10%(2) 0.40% 0.23%(2) 0.62%(2)
Before advisory/administration fee
waivers............................ 0.77% 0.83%(2) 1.04% 0.96%(2) 1.26%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers............................ 2.56% 2.45%(2) 2.29% 2.23%(2) 1.94%(2)
Before advisory/administration fee
waivers............................ 1.93% 1.72%(2) 1.65% 1.50%(2) 1.30%(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 65
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Ohio Municipal Obligations. The
Portfolio may also invest in short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Other Investment Policies" for a description of Municipal
Obligations. Portfolio obligations held by the Portfolio will have maturities of
13 months or less as determined in accordance with the rules of the SEC.
The concentration of investments in Ohio Municipal Obligations raises
special investment considerations. While diversifying more into the service and
other non-manufacturing areas, the economy of Ohio continues to rely in part on
durable goods manufacturing, largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. As a result, general
economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture is an important segment of the Ohio economy, with over half the
State's area devoted to farming and approximately 15% of total employment in
agribusiness. In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the national figure of 5.5%. However,
for 1991, 1992 and 1993 the State rates (6.4%, 7.2% and 6.5%) were below the
national rates (6.7%, 7.4% and 6.8%). The unemployment rate and its effects vary
among particular geographic areas of the State. There can be no assurance that
future national, regional or state-wide economic difficulties and the resulting
impact on State or local government finances will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of the respective obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "Other Investment Policies" for a description
of other securities in which the Portfolio may invest.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in Ohio Municipal
Obligations. During temporary defensive periods, the Portfolio may invest
without limitation in obligations which are not Municipal Obligations and may
hold without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to Municipal Obligations set forth below, or if unrated, are of
comparable quality as determined by the adviser or sub-adviser, and may also
include, without limitation, other debt obligations, such as bank obligations.
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to purchase
at the Portfolio's option specified Municipal Obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions
5
<PAGE> 66
relating to such projects and bonds to a greater extent than it would be if its
assets were not so invested. The Portfolio may invest 25% or more of its net
assets in Municipal Obligations the interest on which is paid solely from
revenues of similar projects. The amount of information regarding the financial
condition of issuers of Municipal Obligations may not be as extensive as that
which is made available by public corporations, and the secondary market for
Municipal Obligations may be less liquid than that for taxable obligations.
Accordingly, the ability of the Portfolio to buy and sell tax-exempt securities
may, at any particular time and with respect to any particular securities, be
limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in the
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is
6
<PAGE> 67
appropriated on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a relatively new
type of financing that is not yet as marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are
7
<PAGE> 68
rendered by counsel to the respective sponsors of such securities. The Fund and
its investment adviser will rely on such opinions and will not review
independently the underlying proceedings relating to the issuance of Municipal
Obligations, the creation of any tax-exempt derivative securities, or the bases
for such opinions.
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or sub-
adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in the Appendix to the Statement of
Additional Information.
FUNDAMENTAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5%
of its total assets are outstanding. Securities held in escrow or
separate accounts in connection with the Portfolio's investment
practices are not deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b)
instruments issued by domestic banks (which may include U.S. branches
of foreign banks); (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the
8
<PAGE> 69
parents; and (iii) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will be each considered a separate industry.
For purposes of this limitation, a security is considered to be issued
by the entity (or entities) whose assets and revenues back the security.
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Institutional Shares are offered to Institutions at the net asset value per
share next determined after an order is received by PFPC Inc. ("PFPC"), the
Fund's transfer agent. Shares may be purchased on any Business Day. A "Business
Day" is any weekday that the New York Stock Exchange (the "NYSE") and the
Federal Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase
orders may be transmitted by telephoning PFPC at (800) 441-7450 not later than
12:00 noon (Eastern Time) on any Business Day. Orders received before noon will
be executed at noon. If payment for such orders is not received by 4:00 p.m.,
the order will be cancelled and notice thereof will be given to the Institution
placing the order. Orders received after 12:00 noon will not be accepted. The
Fund may in its discretion reject any order for Shares.
Payment for Institutional Shares may be made only in Federal funds or other
funds immediately available to the Fund's custodian. The minimum initial
investment by an Institution is $5,000. There is no minimum subsequent
investment requirement.
9
<PAGE> 70
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)
441-7450. Shares are redeemed at the net asset value per share next determined
after PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND
THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE.
IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR
BANK). While the Fund intends to use its best efforts to maintain the
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a Share's
net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Institution is unable to contact
PFPC by telephone, the Institution may also deliver the redemption request to
PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
An Institution may be required to redeem Shares in the Portfolio if the
balance in such shareholder's account in the Portfolio drops below $5,000 as the
result of a redemption request and the Institution does not increase the balance
to at least $5,000 upon thirty days' written notice.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Institutional Share of the Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. The Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of the Portfolio is determined
independently of the other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the
10
<PAGE> 71
Statement of Additional Information under "Valuation of Shares." There can be no
assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank serves as
the sub-adviser for the Portfolio. PNC Bank, whose principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of
PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. The Fund paid PIMC advisory fees at the
annual rate of .44% of the average daily net assets of the Portfolio, and PIMC
waived advisory fees at the annual rate of .01% of the average daily net assets
of the Portfolio for that year. During the same period, PIMC reimbursed expenses
at the annual rate of .02% of the average daily net assets of the Portfolio. See
"Management--Expenses" for a discussion of PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the year ended
September 30, 1994, PNC Bank waived all sub-advisory fees with respect to the
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
11
<PAGE> 72
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at the annual rate of .01% of the average daily net assets
of the Portfolio for the year ended September 30, 1994, and the Administrators
waived combined administration fees at the annual rate of .14% of the average
daily net assets of the Portfolio for that year. During the same period, the
Administrators reimbursed expenses at the annual rate of .01% of the average
daily net assets of the Portfolio. See "Management--Expenses" for a discussion
of the Administrators' voluntary fee waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio will
be borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to
12
<PAGE> 73
the extent required by such regulations in proportion to the advisory and
administration fees otherwise payable to them for such year. Such amount, if
any, will be estimated and accrued daily and paid on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC and PFPC are subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Institutional Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
shareholder.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Institutional Shares
is reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. See "Purchase and Redemption of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolio does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Institutional Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
13
<PAGE> 74
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional Shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate taxpayers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived from all other Municipal Obligations must be taken into
account by corporate taxpayers in determining certain adjustments for
alternative minimum and environmental tax purposes. In addition, investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from such private activity bonds.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Portfolio,
the loss also will be disallowed for state tax purposes to the same extent, even
though, for state income tax purposes, some portion of such dividends actually
may have been subject to state income tax.
14
<PAGE> 75
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio
personal income tax or municipal or school district income taxes in Ohio will
not be subject to such taxes on distributions from the Portfolio to the extent
that such distributions consist of interest on Ohio Municipal Obligations or
obligations issued by the U.S. Government, its agencies, instrumentalities or
territories (if the interest on such obligations is exempt from state income
taxation under the laws of the United States) ("U.S. Obligations"), provided
that the Portfolio continues to qualify as a regulated investment company for
federal income tax purposes and that at all times at least 50% of the value of
the total assets of the Portfolio consists of Ohio Municipal Obligations or
similar obligations of other states or their subdivisions. (It is assumed for
purposes of this discussion of Ohio tax considerations that these requirements
are satisfied.) Corporations that are subject to the Ohio corporation franchise
tax will not have to include distributions from the Portfolio in their net
income base for purposes of calculating their Ohio corporation franchise tax
liability to the extent that such distributions either constitute
exempt-interest dividends or consist of interest on Ohio Municipal Obligations
or U.S. Obligations. However, shares of the Portfolio will be included in a
corporation's net worth base for purposes of calculating the Ohio corporation
franchise tax. Distributions consisting of gain on the sale, exchange or other
disposition of Ohio Municipal Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in Ohio and
will not be included in the net income base of the Ohio corporation franchise
tax. Distributions attributable to other sources will be subject to the Ohio
personal income tax and the Ohio corporation franchise tax. For additional Ohio
tax considerations, see "Taxes" above.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 Classes of "Series B
Investor Shares" and 25 classes each of "Institutional Shares," "Service Shares"
and "Series A Investor Shares") representing interests in the Fund's investment
portfolios. This Prospectus describes the Ohio Municipal Money Market Portfolio,
which is classified as a non-diversified company under the 1940 Act. In
addition, the Board of Trustees has authorized the issuance of additional
classes of shares representing interests in other investment portfolios of the
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Purchase and Redemption
of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's
15
<PAGE> 76
state of organization, and the Fund's Declaration of Trust and Code of
Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Institutional Shares bear no servicing or distribution fees. Holders of the
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that will be paid under the Fund's Service Plan. Payments under
the Service Plan will cover expenses relating to the support services provided
to beneficial owners of Service Shares by certain institutions. Such services
are intended to supplement the services provided by the Fund's Administrators
and transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .15% (on an annualized basis) of the average daily net asset
value of Service Shares owned beneficially by their customers, institutions may
provide one or more of the following services to such customers: processing
purchase and redemption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with respect to Service
Shares beneficially owned by customers or the information necessary for
sub-accounting; and other similar services. In consideration for payment of a
service fee of up to a separate .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their customers,
institutions may provide one or more of these additional services to such
customers: responding to customer inquiries relating to the services performed
by the institution and to customer inquiries concerning their investments in
Service Shares; providing information periodically to customers showing their
positions in Service Shares; and other similar shareholder liaison services.
Similarly, holders of the Portfolio's Series A Investor Shares bear the payments
described in the prospectus for such shares that are paid under the Fund's
Distribution and Service Plan (the "Distribution Plan"). Under the Distribution
Plan, the Distributor is entitled to payments by the Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing Series A Investor Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Series A Investor Shares.
Service Organizations may also provide support services such as establishing and
maintaining accounts and records relating to shareholders of Series A Investor
Shares for whom the Service Organizations are the dealer of record or holder of
record for shareholders with whom the Service Organizations have a servicing
relationship. The Distribution Plan provides for payments to the Distributor at
an annual rate not to exceed .55% of the average daily net asset value of the
Portfolio's outstanding Series A Investor Shares. As a result of these different
fees, the net yields on the Fund's Institutional Shares will generally be higher
than those on the Fund's Service Shares and the net yields on the Fund's Service
Shares will generally be higher than those on the Fund's Series A Investor
Shares if payments by the Portfolio under both the Service Plan and the
Distribution Plan are made at the maximum rates. Standardized yield quotations
will be computed separately for each class of Shares. Series A Investor Shares
are exchangeable at the option of the holder for Series A Investor Shares in
another money market portfolio and for Series A or Series B Investor Shares in
the Fund's non-money market investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INSTITUTIONAL SHARES AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE INSTITUTIONAL SHARES.
16
<PAGE> 77
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Institutional Shares. Both yield figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers to
the income generated by an investment in the Portfolio's Institutional Shares
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio's Institutional Shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The Portfolio's "tax equivalent yield" may
also be quoted from time to time for its Institutional Shares, which shows the
level of taxable yield needed to produce an after-tax equivalent to the
Portfolio's tax-free yield for Institutional Shares. This is done by increasing
the Portfolio's yield for Institutional Shares (calculated as above) by the
amount necessary to reflect the payment of Federal, state and local income tax
at a stated tax rate.
Performance data of Institutional Shares of the Portfolio may be compared
to those of mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Institutional
Shares of the Portfolio may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Performance information may also include evaluations of the
Portfolio published by nationally recognized ranking services and information as
reported by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Institutional Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Institutional Shares will fluctuate and are not necessarily representative of
future results.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7764 (in Delaware call collect (302)
791-1104).
* * *
17
<PAGE> 78
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 79
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 9
Net Asset Value................ 10
Management..................... 11
Dividends and Distributions.... 13
Taxes.......................... 14
Description of Shares.......... 15
Performance Information........ 17
Reports and Inquiries.......... 17
</TABLE>
THE
OHIO
MUNICIPAL
MONEY MARKET
PORTFOLIO
Institutional Class
[LOGO]
Prospectus
January 30, 1995
PIF-P-025I
- --------------------------------------------------------------------------------
<PAGE> 80
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 81
THE NORTH CAROLINA MUNICIPAL
MONEY MARKET PORTFOLIO
SERVICE CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Service Shares" or "Shares") representing
interests in the North Carolina Municipal Money Market Portfolio (the
"Portfolio") with the following objective: to seek as high a level of current
interest income exempt from Federal and, to the extent possible, from North
Carolina income tax as is consistent with maintaining liquidity and stability of
principal. It pursues this objective by investing primarily in short-term
municipal obligations issued by the State of North Carolina and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("North Carolina Municipal Obligations").
Service Shares are sold by the Fund's distributor to institutional
investors ("Institutions") acting on behalf of their customers ("Customers").
These Customers, which may include individuals, trusts, partnerships and
corporations, must maintain accounts (such as custody, trust or escrow accounts)
with the Institutions. Service Shares are sold and redeemed at net asset value
without any purchase or redemption charge imposed by the Fund, although the
Institutions may receive compensation from the Fund for providing various
shareholder services and may charge their customer accounts for services
provided in connection with the purchase or redemption of Shares.
Shares of the Portfolio are intended for residents of North Carolina.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 82
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .13%
Other operating expenses.......................................................... .45
----
Administration fees(1).................................................. .05
Shareholder servicing fee............................................... .15
Other expenses(1)(2).................................................... .25
---
Total fund operating expenses..................................................... .58%
====
</TABLE>
- ------------------
(1) Advisory fees are net of a .32% fee waiver and administration fees are net
of a .10% fee waiver for the Portfolio. PIMC and the Administrators are
under no obligation to waive or continue waiving such fees, but have
informed the Fund that they expect to waive or continue waiving such fees as
necessary to maintain the Portfolio's total operating expenses during the
current fiscal year at the level set forth in the table. The expenses noted
above under "Other expenses" are estimated based on the level of such
expenses for the Fund's most recent fiscal year.
(2) Institutions may charge their clients additional fees for account services.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
North Carolina Municipal Money Market
Portfolio.................................. $6 $19 $ 32 $73
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The information in the table is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
Portfolio for the fiscal year ended September 30, 1994, as restated to reflect
fees relating to the Service Plan and fees for other shareholder support
activities borne by Service Shares and revised fee waivers. Total operating
expenses would have been 1.00% for Service Shares of the North Carolina
Municipal Money Market Portfolio without such fee waivers and with fees relating
to the Service Plan and fees for other shareholder support activities. See
Footnote 1 to the Expense Table, "Financial Highlights--Background,"
"Management" and "Description of Shares" for a further description of operating
expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 83
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Management--Shareholder Servicing" for a description of the
Service Plan and shareholder support activities. Series A Investor Shares bear
the expense of the Fund's Distribution and Service Plan at an annual rate not to
exceed .55% of the average daily net asset value of the Portfolio's outstanding
Series A Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. Because the public offering of Series A Investor Shares
of the Portfolio had not commenced during the year ended September 30, 1994, the
table below presents only information pertaining to Institutional Shares and
Service Shares of the Portfolio.
The financial data included in the table below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolio is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
3
<PAGE> 84
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
----------------------- --------
FOR THE FOR THE
PERIOD PERIOD
YEAR 5/4/93(1) 4/29/94(1)
ENDED THROUGH THROUGH
9/30/94 9/30/93 9/30/94
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income................................ 0.0249 0.0097 0.0099
Net realized gain (loss) on investments.............. -- -- --
-------- -------- --------
Total from investment operations.................. 0.0249 0.0097 0.0099
-------- -------- --------
Less distributions
Distributions from net investment income............. (0.0249) (0.0097) (0.0099)
Distributions from net realized capital gains........ -- -- --
-------- -------- --------
Total distributions............................... (0.0249) (0.0097) (0.0099)
-------- -------- --------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00
======== ========= =========
Total return........................................... 2.52% 0.97% 0.99%
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $69,673 $34,135 $ -- (3)
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.10% 0.10 %(2) 0.36 %(2)
Before advisory/administration fee waivers........ 0.76% 0.81 %(2) 1.02 %(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers......... 2.53% 2.35 %(2) 2.54 %(2)
Before advisory/administration fee waivers........ 1.87% 1.64 %(2) 1.87 %(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
4
<PAGE> 85
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in North Carolina Municipal
Obligations. The Portfolio may also invest in short-term obligations issued by
or on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities and tax-exempt derivative securities relating
thereto ("Municipal Obligations"). See "Other Investment Policies" for a
description of Municipal Obligations. Portfolio obligations held by the
Portfolio will have maturities of 13 months or less as determined in accordance
with the rules of the SEC.
The concentration of investments in North Carolina Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities and authorities could adversely affect
the value of the Portfolio and its portfolio securities. Growth of North
Carolina tax revenues slowed considerably during fiscal 1990-92 requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in the timing of certain collections and payments,
and other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993 and
1994, however, ended with a positive General Fund balance of approximately $500
million each year on a budgetary basis. By law, 25% of such positive fund
balance was required to be reserved in the General Fund of North Carolina as
part of a "Savings Revenue" (subject to a maximum reserve of 5% of the preceding
fiscal year's operating appropriation). An additional portion of such positive
fund balance was reserved in the General Fund as part of a "Reserve for Repair
and Renovation of State Facilities," leaving the remaining unrestricted fund
balance at the end of each such year available for future appropriations. See
the Statement of Additional Information for further discussion of investment
considerations associated with North Carolina Municipal Obligations and see
"Other Investment Policies" for a description of other investment policies of
the Portfolio.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in North Carolina
Municipal Obligations. During temporary defensive periods, the Portfolio may
invest without limitation in obligations which are not Municipal Obligations and
may hold without limitation uninvested cash reserves. Such securities may
include, without limitation, bonds, notes, variable rate demand notes and
commercial paper, provided such securities are rated within the relevant
categories applicable to Municipal Obligations set forth below, or if unrated,
are of comparable quality as determined by the adviser or sub-adviser, and may
also include, without limitation, other debt obligations, such as bank
obligations. The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase at the Portfolio's option specified Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligation to which such
commitment relates. The Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. The Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of
5
<PAGE> 86
similar projects. The amount of information regarding the financial condition of
issuers of Municipal Obligations may not be as extensive as that which is made
available by public corporations, and the secondary market for Municipal
Obligations may be less liquid than that for taxable obligations. Accordingly,
the ability of the Portfolio to buy and sell tax-exempt securities may, at any
particular time and with respect to any particular securities, be limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in the
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
6
<PAGE> 87
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on
7
<PAGE> 88
such opinions and will not review independently the underlying proceedings
relating to the issuance of Municipal Obligations, the creation of any
tax-exempt derivative securities, or the bases for such opinions.
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days, and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or sub-
adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in the Appendix to the Statement of
Additional Information.
FUNDAMENTAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5% of
its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Portfolio's investment practices are not
deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b) instruments
issued by domestic banks (which may include U.S. branches of foreign
banks); (ii) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related
to financing the activities of the parents; and (iii) utilities will be
divided according to their services, for example, gas, gas transmission,
8
<PAGE> 89
electric and gas, electric and telephone will be each considered a
separate industry. For purposes of this limitation, a security is
considered to be issued by the entity (or entities) whose assets and
revenues back the security.
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Shares are offered without a sales load on a continuous basis to
Institutions acting on behalf of their Customers. Service Shares will normally
be held of record by Institutions or in the names of nominees of Institutions.
All Share purchases are effected through a Customer's account at an Institution
through procedures established in connection with the requirements of the
account. Confirmations of Share purchases and redemptions will be sent to the
Institutions. Beneficial ownership of Shares will be recorded by the
Institutions and reflected in the account statements provided by such
Institutions to their Customers. Investors wishing to purchase Shares should
contact their Institutions.
Service Shares are sold at the net asset value per share next determined
after an order is received by PFPC Inc. ("PFPC"), the Fund's transfer agent.
Shares may be purchased by Institutions on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase orders
may be transmitted by telephoning PFPC at (800) 441-7450 no later than 12:00
noon (Eastern Time) on any Business Day. Orders received before noon will be
executed at noon. If payment for such orders is not received by 4:00 p.m., the
order will be cancelled and notice thereof will be given to the
9
<PAGE> 90
Institution placing the order. Orders received after 12:00 noon will not be
accepted. The Fund may in its discretion reject any order for Shares.
Payment for Service Shares may be made only in Federal funds or other funds
immediately available to the Fund's custodian. The minimum initial investment by
an Institution is $5,000; however, Institutions may set a higher minimum for
their Customers. There is no minimum subsequent investment requirement.
Conflict of interest restrictions may apply to an Institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Shares. Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in Service Shares. See also "Management--Shareholder Servicing."
REDEMPTION OF SHARES
A Customer may redeem all or part of his Service Shares in accordance with
the instructions and limitations pertaining to his account at an Institution.
These procedures will vary according to the type of account and the Institution
involved, and Customers should consult their account managers in this regard. It
is the responsibility of Institutions to transmit redemption orders to PFPC and
credit their Customers' accounts with the redemption proceeds on a timely basis.
In the case of shareholders holding share certificates, the certificates must
accompany the redemption request.
Institutions may transmit redemption orders to PFPC by telephone at (800)
441-7450. Shares are redeemed at the net asset value per share next determined
after PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND
THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE.
IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/ OR
BANK). While the Fund intends to use its best efforts to maintain the
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a Share's
net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming shareholder on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund, although Institutions may charge Customer accounts for redemption
services. Information relating to such redemption services and charges, if any,
should be obtained by Customers from their Institution.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If any Institution is unable to
contact PFPC by telephone, the Institution may also deliver the redemption
request to PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
10
<PAGE> 91
A shareholder of record may be required to redeem Shares in the Portfolio
if the balance in such shareholder's account in the Portfolio drops below $5,000
as the result of a redemption request and the shareholder does not increase the
balance to at least $5,000 upon thirty days' written notice. If a Customer has
agreed with an Institution to maintain a minimum balance in his account with the
Institution, and the balance in the account falls below that minimum, the
Customer may be obligated to redeem all or part of his Shares in the Portfolio
to the extent necessary to maintain the minimum balance required.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
It is the responsibility of the Institutions to provide their Customers
with account statements with respect to Share transactions made for accounts
maintained at the Institutions.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Service Share of the Portfolio for the purpose
of pricing purchase and redemption orders is determined twice each day, once as
of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on each
Business Day. The Portfolio's net asset value per share is calculated by adding
the value of all securities, cash and other assets of the Portfolio, subtracting
the liabilities and dividing the result by the number of Shares outstanding. The
net asset value per Share of the Portfolio is determined independently of the
other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under "Valuation of Shares." There can
be no assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway,
11
<PAGE> 92
Wilmington, Delaware 19809. PNC Bank serves as the sub-adviser for the
Portfolio. PNC Bank, whose principal business address is Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of PNC Bank Corp. PNC
Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/ dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. For the year ended September 30, 1994,
PIMC waived all advisory fees with respect to the Portfolio. During the same
period, PIMC reimbursed expenses at the annual rate of .05% of the average daily
net assets of the Portfolio. See "Management--Expenses" for a discussion of
PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the year ended
September 30, 1994, PNC Bank waived all sub-advisory fees with respect the
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware, 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Administrators waived all combined
administration fees with respect to the Portfolio for the year ended September
30, 1994. During the same period, the Administrators reimbursed expenses at the
annual rate of .02% of the average daily net assets of the Portfolio. See
"Management--Expenses" for a discussion of the Administrators' voluntary fee
waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
12
<PAGE> 93
------------------------------------
SHAREHOLDER SERVICING
The Fund intends to enter into service agreements with Institutions
(including PNC Bank and its affiliates) pursuant to which Institutions will
render certain support services to Customers who are the beneficial owners of
Service Shares. 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 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 this Prospectus in light of the terms and fees
governing their accounts with Institutions. These fees are not paid to
Institutions with respect to other classes of shares of the Portfolio ("Series A
Investor Shares" and "Institutional Shares"). See "Description of Shares."
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio
(such as fees relating to the Fund's Service Plan for Service Shares) will be
borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
13
<PAGE> 94
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC, PFPC and Institutions that are banks or bank
affiliates are subject to such banking laws and regulations. In addition, state
securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Service Shares, the Fund might
be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Service
Shares. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
Customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Service Shares is
reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. The Portfolio's net investment income available for
distribution to the holders of Service Shares will be reduced by the amount of
other expenses allocated to the Portfolio's Service Shares, including fees
payable under the Fund's Service Plan. See "Purchase and Redemption of Shares"
and "Management--Shareholder Servicing."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolio does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Service Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
14
<PAGE> 95
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate tax payers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived from all other Municipal Obligations must be taken into
account by corporate taxpayers in determining certain adjustments for
alternative minimum and environmental tax purposes. In addition, investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from such private activity bonds.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Portfolio,
the loss also will be disallowed for state tax purposes to the same extent, even
though, for state income tax purposes, some portion of such dividends actually
may have been subject to state income tax.
15
<PAGE> 96
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
NORTH CAROLINA TAX CONSIDERATIONS. Interest received in the form of
dividends from the Portfolio is exempt from North Carolina state income tax to
the extent the distributions represent interest on direct obligations of the
U.S. Government or North Carolina Municipal Obligations. Distributions derived
from interest earned on obligations of political subdivisions of Puerto Rico,
Guam and the U.S. Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, are also exempt from North Carolina
state income tax. Distributions paid out of interest earned on obligations that
are merely backed or guaranteed by the U.S. Government (e.g., GNMAs, FNMAs), on
repurchase agreements collateralized by U.S. Government securities or on
obligations of other states (which the Portfolio may acquire and hold for
temporary or defensive purposes) are not exempt from North Carolina state income
tax.
Any distributions of net realized gain earned by the Portfolio on the sale
or exchange of certain obligations of the State of North Carolina or its
subdivisions will also be exempt from North Carolina income tax to the
Portfolio's shareholders. Distributions of gains earned by the Portfolio on the
sale or exchange of all other obligations will be subject to North Carolina
income tax.
Shares of the Portfolio will not be subject to the North Carolina
intangibles personal property tax so long as certain filings are made with the
North Carolina Department of Revenue and on December 31 of each year the
Portfolio is composed entirely of North Carolina Municipal Obligations and
obligations of the United States (including the District of Columbia and U.S.
possessions), and at least 80% of the fair market value of the Portfolio's
assets consists of North Carolina Municipal Obligations. For all years in which
this portfolio-composition requirement is met, the Portfolio will file with the
North Carolina Department of Revenue a certification in order for shareholders
to qualify for this exemption. If the portfolio-composition requirement is not
met, shareholders may reduce for North Carolina intangibles personal property
tax purposes the value of their investment in the Portfolio in direct proportion
to the percentage of the Portfolio's assets invested in exempt U.S. Government
(including U.S. possessions) or North Carolina obligations as of December 31.
Shareholders also should note that the future of the North Carolina
intangibles personal property tax is uncertain. A challenge to the
constitutionality of such tax presently is on appeal to the United States
Supreme Court. In addition, several bills were introduced in recent State
legislative sessions that would have either repealed the North Carolina
intangibles personal property tax in total or significantly amended its
provisions. The Governor of North Carolina has also proposed that the
legislature repeal this tax. Although no such legislation has yet been enacted,
further attempts may be made to repeal or modify this tax in the future.
Accordingly, no assurance can be given that an investment in the North Carolina
Municipal Money Market Portfolio while it owns exempt U.S. government
obligations or North Carolina Municipal Obligations will in future years provide
shareholders with any reductions from the North Carolina intangibles personal
property tax that they otherwise might owe.
16
<PAGE> 97
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Service Shares," "Series A Investor
Shares" and "Institutional Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes the North Carolina Municipal
Money Market Portfolio, which is classified as a non-diversified company under
the 1940 Act. The Board of Trustees has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Fund. For information regarding these other portfolios,
contact the Distributor by phone at (800) 998-7633 or at the address listed in
"Purchase and Redemption of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under Massachusetts law, the
Fund's state of organization, and the Fund's Declaration of Trust and Code of
Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Holders of Service Shares bear the fees described under
"Management--Shareholder Servicing" that are paid to Institutions under the
Fund's Service Plan. Similarly, holders of the Portfolio's Series A Investor
Shares will bear the payments described in the prospectus for such shares that
are paid under the Fund's Distribution and Service Plan (the "Distribution
Plan"). Under the Distribution Plan, the Distributor is entitled to payments by
each Portfolio for: (i) direct out-of-pocket promotional expenses incurred in
connection with advertising and marketing Series A Investor Shares; and (ii)
payments to broker/dealers that are not affiliated with the Distributor
("Service Organizations") for distribution assistance such as advertising and
marketing of Series A Investor Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders of Series A Investor Shares for whom the Service
Organizations are the dealer of record or holder of record for shareholders with
whom the Service Organizations have a servicing relationship. The Distribution
Plan provides for payments to the Distributor at an annual rate not to exceed
.55% of the average daily net asset value of the Portfolio's outstanding Series
A Investor Shares. Institutional Shares bear no shareholder servicing or
distribution fees. As a result of these different fees, the net yields on the
Fund's Institutional Shares will generally be higher than those on the Fund's
Service Shares and the net yields on the Fund's Service Shares will generally be
higher than those on the Fund's Series A Investor Shares if payments by the
Portfolio under both the Service Plan and the Distribution Plan are made at the
maximum rates. Standardized yield quotations will be computed separately for
each class of Shares. Series A Investor Shares are exchangeable at the option of
the holder for Series A Investor Shares in another money market portfolio and
for Series A or Series B Investor Shares in the Fund's non-money market
investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
17
<PAGE> 98
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND'S SERVICE SHARES AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE SERVICE SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Service Shares. Both yield figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the
income generated by an investment in the Portfolio's Service Shares over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. "Effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio's Service Shares is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The Portfolio's "tax-equivalent yield" may also be
quoted from time to time for its Service Shares, which shows the level of
taxable yield needed to produce an after-tax equivalent to the Portfolio's
tax-free yield for Service Shares. This is done by increasing the Portfolio's
yield for Service Shares (calculated as above) by the amount necessary to
reflect the payment of Federal, state and local income tax at a stated tax rate.
Performance data for Service Shares of the Portfolio may be compared to
that of other mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Service Shares of
the Portfolio may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service. Performance information may also include evaluations of the Portfolio
published by nationally recognized ranking services and information as reported
by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Service Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on Service
Shares will fluctuate and are not necessarily representative of future results.
Any fees charged by Institutions directly to their Customers in connection with
investments in Service Shares are not reflected in the yields of the Service
Shares, and such fees, if charged, will reduce the actual return received by
such Customers on their investments.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7762 (in Delaware call collect (302)
791-1111).
* * *
18
<PAGE> 99
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 100
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 9
Net Asset Value................ 11
Management..................... 11
Dividends and Distributions.... 14
Taxes.......................... 15
Description of Shares.......... 17
Performance Information........ 18
Reports and Inquiries.......... 18
</TABLE>
THE
NORTH CAROLINA
MUNICIPAL
MONEY MARKET
PORTFOLIO
Service Class
[LOGO]
Prospectus
January 30, 1995
PIF-P-024S
- --------------------------------------------------------------------------------
<PAGE> 101
THE NORTH CAROLINA MUNICIPAL
MONEY MARKET PORTFOLIO
INSTITUTIONAL CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Institutional Shares" or "Shares")
representing interests in the North Carolina Municipal Money Market Portfolio
(the "Portfolio") with the following objective: to seek as high a level of
current interest income exempt from Federal and, to the extent possible, from
North Carolina income tax as is consistent with maintaining liquidity and
stability of principal. It pursues this objective by investing primarily in
short-term municipal obligations issued by the State of North Carolina and its
political subdivisions, agencies, instrumentalities and authorities and
tax-exempt derivative securities relating thereto ("North Carolina Municipal
Obligations").
Institutional Shares of the Portfolio are sold by the Fund's distributor to
institutional investors ("Institutions"). Institutional Shares are sold and
redeemed at net asset value without any purchase or redemption charge imposed by
the Fund.
Shares of the Portfolio are intended for residents of North Carolina.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 102
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .13%
Other operating expenses.......................................................... .15
----
Administration fees(1)....................................................... .05
Other expenses(1)............................................................ .10
---
Total fund operating expenses..................................................... .28%
====
</TABLE>
- ------------------
(1) Advisory fees are net of a .32% fee waiver and administration fees are net
of a .10% fee waiver for the Portfolio. PIMC and the Administrators are
under no obligation to waive or continue waiving such fees, but have
informed the Fund that they expect to waive or continue waiving such fees as
necessary to maintain the Portfolio's total operating expenses during the
current fiscal year at the level set forth in the table. The expenses noted
above under "Other expenses" are estimated based on the level of such
expenses for the Fund's most recent fiscal year.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
North Carolina Municipal Money Market Portfolio... $3 $ 9 $ 16 $36
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The information in the table is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
Portfolio for the fiscal year ended September 30, 1994, as restated to reflect
revised fee waivers. Total operating expenses would have been .70% for
Institutional Shares of the North Carolina Municipal Money Market Portfolio
without such fee waivers. See Footnote 1 to the Expense Table, "Financial
Highlights--Background," "Management" and "Description of Shares" for a further
description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 103
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Description of Shares" for a description of the Service Plan
and shareholder support activities. Series A Investor Shares bear the expense of
the Fund's Distribution and Service Plan at an annual rate not to exceed .55% of
the average daily net asset value of the Portfolio's outstanding Series A
Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. Because the public offering of Series A Investor Shares
of the Portfolio had not commenced during the year ended September 30, 1994, the
table below presents only information pertaining to Institutional Shares and
Service Shares of the Portfolio.
The financial data included in the table below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolio is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
3
<PAGE> 104
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
----------------------- --------
FOR THE FOR THE
PERIOD PERIOD
YEAR 5/4/93(1) 4/29/94(1)
ENDED THROUGH THROUGH
9/30/94 9/30/93 9/30/94
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income................................... 0.0249 0.0097 0.0099
Net realized gain (loss) on investments................. -- -- --
-------- -------- --------
Total from investment operations..................... 0.0249 0.0097 0.0099
-------- -------- --------
Less distributions
Distributions from net investment income................ (0.0249) (0.0097) (0.0099)
Distributions from net realized capital gains........... -- -- --
-------- -------- --------
Total distributions.................................. (0.0249) (0.0097) (0.0099)
-------- -------- --------
Net asset value at end of period.......................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return.............................................. 2.52% 0.97% 0.99%
Ratios/Supplemental data
Net assets at end of period (in thousands).............. $ 69,673 $ 34,135 $ --(3)
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.10% 0.10%(2) 0.36%(2)
Before advisory/administration fee waivers........... 0.76% 0.81%(2) 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 2.53% 2.35%(2) 2.54%(2)
Before advisory/administration fee waivers........... 1.87% 1.64%(2) 1.87%(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
4
<PAGE> 105
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in North Carolina Municipal
Obligations. The Portfolio may also invest in short-term obligations issued by
or on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities and tax-exempt derivative securities relating
thereto ("Municipal Obligations"). See "Other Investment Policies" for a
description of Municipal Obligations. Portfolio obligations held by the
Portfolio will have maturities of 13 months or less as determined in accordance
with the rules of the SEC.
The concentration of investments in North Carolina Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities and authorities could adversely affect
the value of the Portfolio and its portfolio securities. Growth of North
Carolina tax revenues slowed considerably during fiscal 1990-92 requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in the timing of certain collections and payments,
and other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993 and
1994, however, ended with a positive General Fund balance of approximately $500
million each year on a budgetary basis. By law, 25% of such positive fund
balance was required to be reserved in the General Fund of North Carolina as
part of a "Savings Reserve" (subject to a maximum reserve of 5% of the preceding
fiscal year's operating appropriation). An additional portion of such positive
fund balance was reserved in the General Fund as part of a "Reserve for Repair
and Renovation of State Facilities," leaving the remaining unrestricted fund
balance at the end of each such year available for future appropriations. See
the Statement of Additional Information for further discussion of investment
considerations associated with North Carolina Municipal Obligations and see
"Other Investment Policies" for a description of other investment policies of
the Portfolio.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in North Carolina
Municipal Obligations. During temporary defensive periods, the Portfolio may
invest without limitation in obligations which are not Municipal Obligations and
may hold without limitation uninvested cash reserves. Such securities may
include, without limitation, bonds, notes, variable rate demand notes and
commercial paper, provided such securities are rated within the relevant
categories applicable to Municipal Obligations set forth below, or if unrated,
are of comparable quality as determined by the adviser or sub-adviser, and may
also include, without limitation, other debt obligations, such as bank
obligations. The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held by it. Under a stand-by commitment, a dealer agrees
to purchase at the Portfolio's option specified Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligation to which such
commitment relates. The Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. The Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of
5
<PAGE> 106
similar projects. The amount of information regarding the financial condition of
issuers of Municipal Obligations may not be as extensive as that which is made
available by public corporations, and the secondary market for Municipal
Obligations may be less liquid than that for taxable obligations. Accordingly,
the ability of the Portfolio to buy and sell tax-exempt securities may, at any
particular time and with respect to any particular securities, be limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in an
Appendix to the Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
6
<PAGE> 107
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on
7
<PAGE> 108
such opinions and will not review independently the underlying proceedings
relating to the issuance of Municipal Obligations, the creation of any
tax-exempt derivative securities, or the bases for such opinions.
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or sub-
adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in an Appendix to the Statement of
Additional Information.
FUNDAMENTAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes
in amounts up to one-third of the value of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Portfolio's total assets at the
time of such borrowing. The Portfolio will not purchase securities
while its aggregate borrowings (including borrowings from banks) in
excess of 5% of its total assets are outstanding. Securities held in
escrow or separate accounts in connection with the Portfolio's
investment practices are not deemed to be pledged for purposes of this
limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of
purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry. In
applying the investment limitations stated in this paragraph, (i) there
is no limitation with respect to the purchase of (a) instruments issued
or guaranteed by the United States, any state, territory or possession
of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions and
(b) instruments issued by domestic banks (which may include U.S.
branches of foreign banks); (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents; and
(iii) utilities will be divided according to their services, for
example, gas, gas transmission,
8
<PAGE> 109
electric and gas, electric and telephone will be each
considered a separate industry. For purposes of this limitation, a
security is considered to be issued by the entity (or entities) whose
assets and revenues back the security.
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Institutional Shares are offered to Institutions at the net asset value per
share next determined after an order is received by PFPC Inc. ("PFPC"), the
Fund's transfer agent. Shares may be purchased on any Business Day. A "Business
Day" is any weekday that the New York Stock Exchange (the "NYSE") and the
Federal Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase
orders may be transmitted by telephoning PFPC at (800) 441-7450 not later than
12:00 noon (Eastern Time) on any Business Day. Orders received before noon will
be executed at noon. If payment for such orders is not received by 4:00 p.m.,
the order will be cancelled and notice thereof will be given to the Institution
placing the order. Orders received after 12:00 noon will not be accepted. The
Fund may in its discretion reject any order for Shares.
Payment for Institutional Shares may be made only in Federal funds or other
funds immediately available to the Fund's custodian. The minimum initial
investment by an Institution is $5,000. There is no minimum subsequent
investment requirement.
9
<PAGE> 110
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)
441-7450. Shares are redeemed at the net asset value per share next determined
after PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND
THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE.
IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR
BANK). While the Fund intends to use its best efforts to maintain the
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a Share's
net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Institution is unable to contact
PFPC by telephone, the Institution may also deliver the redemption request to
PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
An Institution may be required to redeem Shares in the Portfolio if the
balance in such shareholder's account in the Portfolio drops below $5,000 as the
result of a redemption request and the Institution does not increase the balance
to at least $5,000 upon thirty days' written notice.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Institutional Share of the Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. The Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of the Portfolio is determined
independently of the other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the
10
<PAGE> 111
Statement of Additional Information under "Valuation of Shares." There can be no
assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank serves as
the sub-adviser for the Portfolio. PNC Bank, whose principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of
PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. For the year ended September 30, 1994,
PIMC waived all advisory fees with respect to the Portfolio. During the same
period, PIMC reimbursed expenses at the annual rate of .05% of the average daily
net assets of the Portfolio. See "Management--Expenses" for a discussion of
PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the year ended
September 30, 1994, PNC Bank waived all sub-advisory fees with respect to the
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
11
<PAGE> 112
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Administrators waived all combined
administration fees with respect to the Portfolio for the year ended September
30, 1994. During the same period, the Administrators reimbursed expenses at the
annual rate of .02% of the average daily net assets of the Portfolio. See
"Management--Expenses" for a discussion of the Administrators' voluntary fee
waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio will
be borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
12
<PAGE> 113
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC and PFPC are subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Institutional Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
shareholder.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Institutional Shares
is reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. See "Purchase and Redemption of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolio does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Institutional Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
13
<PAGE> 114
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate taxpayers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived from all other Municipal Obligations must be taken into
account by corporate taxpayers in determining certain adjustments for
alternative minimum and environmental tax purposes. In addition, investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from such private activity bonds.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Portfolio,
the loss also will be disallowed for state tax purposes to the same extent, even
though, for state income tax purposes, some portion of such dividends actually
may have been subject to state income tax.
14
<PAGE> 115
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations of which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
NORTH CAROLINA TAX CONSIDERATIONS. Interest received in the form of
dividends from the Portfolio is exempt from North Carolina state income tax to
the extent the distributions represent interest on direct obligations of the
U.S. Government or North Carolina Municipal Obligations. Distributions derived
from interest earned on obligations of political subdivisions of Puerto Rico,
Guam and the U.S. Virgin Islands, including the governments thereof and their
agencies, instrumentalities and authorities, are also exempt from North Carolina
state income tax. Distributions paid out of interest earned on obligations that
are merely backed or guaranteed by the U.S. Government (e.g., GNMAs, FNMAs), on
repurchase agreements collateralized by U.S. Government securities or on
obligations of other states (which the Portfolio may acquire and hold for
temporary or defensive purposes) are not exempt from North Carolina state income
tax.
Any distributions of net realized gain earned by the Portfolio on the sale
or exchange of certain obligations of the State of North Carolina or its
subdivisions will also be exempt from North Carolina income tax to the
Portfolio's shareholders. Distributions of gains earned by the Portfolio on the
sale or exchange of all other obligations will be subject to North Carolina
income tax.
Shares of the Portfolio will not be subject to the North Carolina
intangibles personal property tax so long as certain filings are made with the
North Carolina Department of Revenue and on December 31 of each year the
Portfolio is composed entirely of North Carolina Municipal Obligations and
obligations of the United States (including the District of Columbia and U.S.
possessions), and at least 80% of the fair market value of the Portfolio's
assets consists of North Carolina Municipal Obligations. For all years in which
this portfolio-composition requirement is met, the Portfolio will file with the
North Carolina Department of Revenue a certification in order for shareholders
to qualify for this exemption. If the portfolio-composition requirement is not
met, shareholders may reduce for North Carolina intangibles personal property
tax purposes the value of their investment in the Portfolio in direct proportion
to the percentage of the Portfolio's assets invested in exempt U.S. Government
(including U.S. possessions) or North Carolina obligations as of December 31.
Shareholders also should note that the future of the North Carolina
intangibles personal property tax is uncertain. A challenge to the
constitutionality of such tax presently is on appeal to the United States
Supreme Court. In addition, several bills were introduced in recent State
legislative sessions that would have either repealed the North Carolina
intangibles personal property tax in total or significantly amended its
provisions. The Governor of North Carolina has also proposed that the
legislature repeal this tax. Although no such legislation has yet been enacted,
further attempts may be made to repeal or modify this tax in the future.
Accordingly, no assurance can be given that an investment in the North Carolina
Municipal Money Market Portfolio while it owns exempt U.S. government
obligations or North Carolina Municipal Obligations will in future years provide
shareholders with any reductions from the North Carolina intangibles personal
property tax that they otherwise might owe.
15
<PAGE> 116
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Institutional Shares," "Service Shares"
and "Series A Investor Shares") representing interests in the Fund's investment
portfolios. This Prospectus describes the North Carolina Municipal Money Market
Portfolio, which is classified as a non-diversified company under the 1940 Act.
In addition, the Board of Trustees has authorized the issuance of additional
classes of shares representing interests in other investment portfolios of the
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Purchase and Redemption
of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Institutional Shares bear no servicing or distribution fees. Holders of the
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that will be paid under the Fund's Service Plan. Payments under
the Service Plan will cover expenses relating to the support services provided
to beneficial owners of Service Shares by certain institutions. Such services
are intended to supplement the services provided by the Fund's Administrators
and transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .15% (on an annualized basis) of the average daily net asset
value of Service Shares owned beneficially by their customers, institutions may
provide one or more of the following services to such customers: processing
purchase and redemption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with respect to Service
Shares beneficially owned by customers or the information necessary for
sub-accounting; and other similar services. In consideration for payment of a
service fee of up to a separate .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their customers,
institutions may provide one or more of these additional services to such
customers: responding to customer inquiries relating to 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.
Similarly, holders of the Portfolio's Series A Investor Shares bear the payments
described in the prospectus for such shares that are paid under the Fund's
Distribution and Service Plan (the "Distribution Plan"). Under the Distribution
Plan, the Distributor is entitled to payments by the Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing Series A Investor Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Series A Investor Shares.
Service Organizations may also provide support services such as establishing and
maintaining accounts and records relating to shareholders of Series A Investor
Shares for whom the Service Organizations are the dealer of record or
16
<PAGE> 117
holder of record for shareholders with whom the Service Organizations have a
servicing relationship. The Distribution Plan provides for payments to the
Distributor at an annual rate not to exceed .55% of the average daily net asset
value of the Portfolio's outstanding Series A Investor Shares. As a result of
these different fees, the net yields on the Fund's Institutional Shares will
generally be higher than those on the Fund's Service Shares and the net yields
on the Fund's Service Shares will generally be higher than those on the Fund's
Series A Investor Shares if payments by the Portfolio under both the Service
Plan and the Distribution Plan are made at the maximum rates. Standardized yield
quotations will be computed separately for each class of Shares. Series A
Investor Shares are exchangeable at the option of the holder for Series A
Investor Shares in another money market portfolio and for Series A or Series B
Investor Shares in the Fund's non-money market investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INSTITUTIONAL SHARES AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE INSTITUTIONAL SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Institutional Shares. Both yield figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers to
the income generated by an investment in the Portfolio's Institutional Shares
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio's Institutional Shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The Portfolio's "tax equivalent yield" may
also be quoted from time to time for its Institutional Shares, which shows the
level of taxable yield needed to produce an after-tax equivalent to the
Portfolio's tax-free yield for Institutional Shares. This is done by increasing
the Portfolio's yield for Institutional Shares (calculated as above) by the
amount necessary to reflect the payment of Federal, state and local income tax
at a stated tax rate.
Performance data of Institutional Shares of the Portfolio may be compared
to those of mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Institutional
Shares of the Portfolio may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Performance information may also include evaluations of the
Portfolio published by nationally recognized ranking services and information as
reported by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Institutional Shares of the Portfolio.
17
<PAGE> 118
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Institutional Shares will fluctuate and are not necessarily representative of
future results.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7764 (in Delaware call collect (302)
791-1104).
* * *
18
<PAGE> 119
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 120
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PRO SPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 9
Net Asset Value................ 10
Management..................... 11
Dividends and Distributions.... 13
Taxes.......................... 14
Description of Shares.......... 16
Performance Information........ 17
Reports and Inquiries.......... 18
</TABLE>
THE
NORTH CAROLINA
MUNICIPAL
MONEY MARKET
PORTFOLIO
Institutional Class
[LOGO]
Prospectus
January 30, 1995
PIF-P-024I
- --------------------------------------------------------------------------------
<PAGE> 121
THE VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
SERVICE CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Service Shares" or "Shares") representing
interests in the Virginia Municipal Money Market Portfolio (the "Portfolio")
with the following objective: to seek as high a level of current income exempt
from Federal and, to the extent possible, from Virginia income tax as is
consistent with maintaining liquidity and stability of principal. It pursues
this objective by investing primarily in short-term municipal obligations issued
by the Commonwealth of Virginia and its political subdivisions, agencies,
instrumentalities and authorities and tax-exempt derivative securities relating
thereto ("Virginia Municipal Obligations").
Service Shares are sold by the Fund's distributor to institutional
investors ("Institutions") acting on behalf of their customers ("Customers").
These Customers, which may include individuals, trusts, partnerships and
corporations, must maintain accounts (such as custody, trust or escrow accounts)
with the Institutions. Service Shares are sold and redeemed at net asset value
without any purchase or redemption charge imposed by the Fund, although the
Institutions may receive compensation from the Fund for providing various
shareholder services and may charge their customer accounts for services
provided in connection with the purchase or redemption of Shares.
Shares of the Portfolio are intended for residents of Virginia.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 122
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
VIRGINIA
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .05%
Other operating expenses.......................................................... .53
----
Administration fees(1)....................................................... .02
Shareholder servicing fees................................................... .15
Other expenses(1)(2)......................................................... .36
----
Total fund operating expenses..................................................... .58%
----
----
</TABLE>
- ------------------
(1) Advisory fees are net of a .40% fee waiver and administration fees are net
of a .13% waiver for the Portfolio. PIMC and the Administrators are under no
obligation to waive or continue waiving such fees, but have informed the
Fund that they expect to waive or continue waiving such fees as necessary to
maintain the Portfolio's total operating expenses during the current fiscal
year at the level set forth in the table. The expenses noted above under
"Other expenses" are estimated based on the level of such expenses for the
Fund's most recent fiscal year.
(2) Institutions may charge their clients additional fees for account services.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------- -----------
<S> <C> <C>
Virginia Municipal Money Market Portfolio............................ $6 $19
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The table estimates fees, expenses, waivers and assets for the
Portfolio for the current fiscal year. Total operating expenses would have been
1.11% for Service Shares of the Virginia Municipal Money Market Portfolio
without such fee waivers and with fees relating to the Service Plan and fees for
other shareholder support activities. See Footnote 1 to the Expense Table,
"Financial Highlights--Background," "Management" and "Description of Shares" for
a further description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 123
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Management--Shareholder Servicing" for a description of the
Service Plan and shareholder support activities. Series A Investor Shares bear
the expense of the Fund's Distribution and Service Plan at an annual rate not to
exceed .55% of the average daily net asset value of the Portfolio's outstanding
Series A Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. Because the public offering of Service Shares and Series
A Investor Shares of the Portfolio had not commenced during the year ended
September 30, 1994, the table below presents only information pertaining to
Institutional Shares of the Portfolio.
The financial data included in the table below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolio is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
3
<PAGE> 124
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
MONEY MARKET
PORTFOLIO
------------------
INSTITUTIONAL
CLASS
------------------
FOR THE
PERIOD
7/25/94(1)
THROUGH
9/30/94
------------------
<S> <C>
Net asset value at beginning of period.......................................... $ 1.00
-------------
Income from investment operations
Net investment income......................................................... 0.0053
Net realized gain (loss) on investments....................................... --
-------------
Total from investment operations........................................... 0.0053
-------------
Less distributions
Distributions from net investment income...................................... (0.0053)
Distributions from net realized capital gains................................. --
-------------
Total distributions........................................................ (0.0053)
-------------
Net asset value at end of period................................................ $ 1.00
============
Total return.................................................................... 0.53%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................... $ 13,831
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................. 0.10%(2)
Before advisory/administration fee waivers................................. 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................. 2.89%(2)
Before advisory/administration fee waivers................................. 1.97%(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 125
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Virginia Municipal Obligations. The
Portfolio may also invest in short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Other Investment Policies" for a description of Municipal
Obligations. Instruments held by the Portfolio will have maturities of 13 months
or less as determined in accordance with the rules of the SEC.
The Portfolio may also purchase obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government such as the Government
National Mortgage Association ("GNMA") are supported by the United States' full
faith and credit; others such as those of the Federal National Mortgage
Association ("FNMA") and the Student Loan Marketing Association are supported by
the right of the issuer to borrow from the U.S. Treasury; others such as those
of the Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation
are supported only by the credit of the agency or instrumentality issuing the
obligation. No assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored agencies or instrumentalities if
it is not obligated to do so by law.
The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the taxing,
revenue-collecting and spending authority of Virginia issuers or otherwise
affect the ability of Virginia issuers to pay interest, repay principal, or any
premium. Certain of these developments are described herein. The rate of
economic growth in the Commonwealth of Virginia slowed in 1990 and 1991, but has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8% rate of growth in per capita personal income was slightly ahead of the
national rate of growth of 4.7%. During 1990, 1991 and 1992, Virginia's per
capita personal income grew at a slightly lower rate than the U.S. average. Per
capita income in Virginia has been consistently above national levels over the
past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment and manufacturing.
Because of Virginia's proximity to Washington, D.C. and the concentration of
military installations in the Commonwealth (the largest such concentration in
the United States), the Federal government has a greater economic impact on
Virginia relative to its size than on any of the other states except Alaska and
Hawaii. It is unclear what effect the current efforts by the Federal government
to restructure the defense budget will have on the long-term economic conditions
of the Commonwealth. According to statistics published by the U.S. Department of
Labor, the Commonwealth typically has one of the lowest unemployment rates in
the nation. This is generally attributed to the balance among the various
sectors represented in the economy. During 1993, an average of 5.9% of
Virginians were unemployed as compared with the national average of 6.8%. 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% annually in
1987 and, in 1993, was approximately 1.8%. 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. See "Special Considerations
Regarding Investment in Virginia Municipal Obligations" in the Statement of
Additional Information. See also "Other Investment Policies" for a description
of other investment policies.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in Virginia Municipal
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Obligations. During temporary defensive periods, the Portfolio may invest
without limitation in obligations which are not Municipal Obligations and may
hold without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to Municipal Obligations set forth below, or if unrated, are of
comparable quality as determined by the adviser or sub-adviser, and may also
include, without limitation, other debt obligations, such as bank obligations.
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to purchase
at the Portfolio's option specified Municipal Obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. The Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. The amount of information regarding
the financial condition of issuers of Municipal Obligations may not be as
extensive as that which is made available by public corporations, and the
secondary market for Municipal Obligations may be less liquid than that for
taxable obligations. Accordingly, the ability of the Portfolio to buy and sell
tax-exempt securities may, at any particular time and with respect to any
particular securities, be limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
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OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in an
Appendix to the Statement of Additional Information.
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The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
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demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days, and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or sub-
adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in an Appendix to the Statement of
Additional Information.
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FUNDAMENTAL INVESTMENT RESTRICTIONS
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The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5% of
its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Portfolio's investment practices are not
deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b) instruments
issued by domestic banks (which may include U.S. branches of foreign
banks); (ii) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related
to financing the activities of the parents; and (iii) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will be each considered a
separate industry. For purposes of this limitation, a security is
considered to be issued by the entity (or entities) whose assets and
revenues back the security.
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
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PURCHASE AND REDEMPTION OF SHARES
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DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Shares are offered without a sales load on a continuous basis to
Institutions acting on behalf of their Customers. Service Shares will normally
be held of record by Institutions or in the names of nominees of Institutions.
All Share purchases are effected through a Customer's account at an Institution
through procedures established in connection with the requirements of the
account. Confirmations of Share purchases and redemptions will be sent to the
Institutions. Beneficial ownership of Shares will be recorded by the
Institutions and reflected in the account statements provided by such
Institutions to their Customers. Investors wishing to purchase Shares should
contact their Institutions.
Service Shares are sold at the net asset value per share next determined
after an order is received by PFPC Inc. ("PFPC"), the Fund's transfer agent.
Shares may be purchased by Institutions on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase orders
may be transmitted by telephoning PFPC at (800) 441-7450 no later than 12:00
noon (Eastern Time) on any Business Day. Orders received before noon will be
executed at noon. If payment for such orders is not received by 4:00 p.m., the
order will be cancelled and notice thereof will be given to the Institution
placing the order. Orders received after 12:00 noon will not be accepted. The
Fund may in its discretion reject any order for Shares.
Payment for Service Shares may be made only in Federal funds or other funds
immediately available to the Fund's custodian. The minimum initial investment by
an Institution is $5,000; however, Institutions may set a higher minimum for
their Customers. There is no minimum subsequent investment requirement.
Conflict of interest restrictions may apply to an Institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Shares. Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in Service Shares. See also "Management--Shareholder Servicing."
REDEMPTION OF SHARES
A Customer may redeem all or part of his Service Shares in accordance with
the instructions and limitations pertaining to his account at an Institution.
These procedures will vary according to the type of account and the Institution
involved, and Customers should consult their account managers in this regard. It
is the responsibility of Institutions to transmit redemption orders to PFPC and
credit their Customers' accounts with the redemption proceeds on a timely basis.
In the case of shareholders holding share certificates, the certificates must
accompany the redemption request.
Institutions may transmit redemption orders to PFPC by telephone at (800)
441-7450. Shares are redeemed at the net asset value per share next determined
after PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND
THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE
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INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO
CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL USE SUCH
PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS
AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE NAME IN WHICH
AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS IN THE
ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR BANK).
While the Fund intends to use its best efforts to maintain the Portfolio's net
asset value per share at $1.00, the proceeds paid upon redemption may be more or
less than the amount invested depending upon a Share's net asset value at the
time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming shareholder on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund, although Institutions may charge Customer accounts for redemption
services. Information relating to such redemption services and charges, if any,
should be obtained by Customers from their Institution.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If any Institution is unable to
contact PFPC by telephone, the Institution may also deliver the redemption
request to PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
A shareholder of record may be required to redeem Shares in the Portfolio
if the balance in such shareholder's account in the Portfolio drops below $5,000
as the result of a redemption request and the shareholder does not increase the
balance to at least $5,000 upon thirty days' written notice. If a Customer has
agreed with an Institution to maintain a minimum balance in his account with the
Institution, and the balance in the account falls below that minimum, the
Customer may be obligated to redeem all or part of his Shares in the Portfolio
to the extent necessary to maintain the minimum balance required.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
It is the responsibility of the Institutions to provide their Customers
with account statements with respect to Share transactions made for accounts
maintained at the Institutions.
NET ASSET VALUE
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The net asset value for each Service Share of the Portfolio for the purpose
of pricing purchase and redemption orders is determined twice each day, once as
of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on each
Business Day. The Portfolio's net asset value per share is calculated by adding
the value of all securities, cash and other assets of the Portfolio, subtracting
the liabilities and dividing the result by the number of Shares outstanding. The
net asset value per Share of the Portfolio is determined independently of the
other investment portfolios of the Fund.
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The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under "Valuation of Shares." There can
be no assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
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BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank serves as
the sub-adviser for the Portfolio. PNC Bank, whose principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of
PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. For the period ended September 30, 1994,
PIMC waived all advisory fees with respect to the Portfolio. During the same
period, PIMC reimbursed expenses at the annual rate of .24% of the average daily
net assets of the Portfolio. See "Management--Expenses" for a discussion of
PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the period ended
September 30, 1994, PNC Bank waived all sub-advisory fees for the Portfolio. See
"Management--Expenses" for a discussion of the sub-adviser's fee waivers.
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ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware, 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Administrators waived all combined
administration fees with respect to the Portfolio for the period ended September
30, 1994. During the same period, the Administrators reimbursed expenses at the
annual rate of .08% of the average daily net assets of the Portfolio. See
"Management-- Expenses" for a discussion of the Administrators' voluntary fee
waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
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SHAREHOLDER SERVICING
The Fund intends to enter into service agreements with Institutions
(including PNC Bank and its affiliates) pursuant to which Institutions will
render certain support services to Customers who are the beneficial owners of
Service Shares. 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 up to a separate .15% (on a 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 this
Prospectus in light of the terms and fees governing their accounts with
Institutions. These fees are not paid to Institutions with respect to other
classes of shares of the Portfolio ("Series A Investor Shares" and
"Institutional Shares"). See "Description of Shares."
13
<PAGE> 134
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio
(such as fees relating to the Fund's Service Plan for Service Shares) will be
borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC, PFPC and Institutions that are banks or bank
affiliates are subject to such banking laws and regulations. In addition, state
securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Service Shares, the Fund might
be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Service
Shares. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
Customer.
14
<PAGE> 135
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend (i) to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading hours on the NYSE on
days on which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Service Shares is
reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. The Portfolio's net investment income available for
distribution to the holders of Service Shares will be reduced by the amount of
other expenses allocated to the Portfolio's Service Shares, including fees
payable under the Fund's Service Plan. See "Purchase and Redemption of Shares"
and "Management--Shareholder Servicing."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolio does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Service Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
15
<PAGE> 136
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate taxpayers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived from all other Municipal Obligations must be taken into
account by corporate taxpayers in determining certain adjustments for
alternative minimum and environmental tax purposes. In addition, investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from such private activity bonds.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
VIRGINIA TAX CONSIDERATIONS. Subject to the provisions discussed below,
dividends paid to shareholders by the Virginia Municipal Money Market Portfolio
and derived from interest on obligations of the Commonwealth of Virginia or of
any political subdivision or instrumentality of the Commonwealth or derived from
interest or dividends on obligations of the United States excludable from
Virginia taxable income under the laws of the United States, which obligations
are issued in the exercise of the borrowing power of the Commonwealth or the
United States and are backed by the full faith and credit of the Commonwealth or
the United States ("Virginia or U.S. Obligations"), will be exempt from the
Virginia income tax. Dividends paid to shareholders by the Portfolio and derived
from interest on debt obligations of certain territories and possessions of the
United States (those issued by Puerto Rico, the Virgin Islands and Guam) will be
exempt from the Virginia income tax. To the extent a portion of the dividends
are derived from interest on debt obligations other than those described above,
such portion will be subject to the Virginia income tax even though it may be
excludable from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and
derived from capital gains from the disposition of Virginia or U.S. Obligations
will be taxable to the shareholders. To the extent any portion of the dividends
16
<PAGE> 137
are derived from taxable interest for Virginia purposes or from net short-term
capital gains, such portion will be taxable to the shareholders as ordinary
income. The character of long-term capital gains realized and distributed by the
Portfolio will flow through to its shareholders regardless of how long the
shareholders have held their shares. Capital gains distributed to shareholders
derived from Virginia obligations issued pursuant to special Virginia enabling
legislation which provides a specific exemption for such gains will be exempt
from Virginia income tax. Generally, interest on indebtedness incurred by
shareholders to purchase or carry shares of the Portfolio will not be deductible
for Virginia income tax purposes.
As a regulated investment company, the Portfolio may distribute dividends
that are exempt from the Virginia income tax to its shareholders if the
Portfolio satisfies all requirements for conduit treatment under Federal law
and, at the close of each quarter of its taxable year, at least 50% of the value
of its total assets consists of obligations the interest on which is exempt from
taxation under Federal law. The Portfolio intends to qualify under the above
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Service Shares," "Series A Investor
Shares" and "Institutional Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes the Virginia Municipal Money
Market Portfolio, which is classified as a non-diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes of shares representing interests in other investment portfolios of the
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Purchase and Redemption
of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and
17
<PAGE> 138
proportionate fractional votes for fractional shares held, and will vote in the
aggregate and not by class, except where otherwise required by law or when the
Board of Trustees determines that the matter to be voted upon affects only the
interests of the shareholders of a particular class or investment portfolio.
Under Massachusetts law, the Fund's state of organization, and the Fund's
Declaration of Trust and Code of Regulations, the Fund is not required and does
not currently intend to hold annual meetings of shareholders for the election of
trustees (except as required under the 1940 Act). For a further discussion of
the voting rights of shareholders, see "Additional Information Concerning
Shares" in the Statement of Additional Information.
Holders of Service Shares bear the fees described under
"Management--Shareholder Servicing" that are paid to Institutions under the
Fund's Service Plan. Similarly, holders of the Portfolio's Series A Investor
Shares will bear the payments described in the prospectus for such shares that
are paid under the Fund's Distribution and Service Plan (the "Distribution
Plan"). Under the Distribution Plan, the Distributor is entitled to payments by
each Portfolio for: (i) direct out-of-pocket promotional expenses incurred in
connection with advertising and marketing Series A Investor Shares; and (ii)
payments to broker/dealers that are not affiliated with the Distributor
("Service Organizations") for distribution assistance such as advertising and
marketing of Series A Investor Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders of Series A Investor Shares for whom the Service
Organizations are the dealer of record or holder of record for shareholders with
whom the Service Organizations have a servicing relationship. The Distribution
Plan provides for payments to the Distributor at an annual rate not to exceed
.55% of the average daily net asset value of the Portfolio's outstanding Series
A Investor Shares. Institutional Shares bear no shareholder servicing or
distribution fees. As a result of these different fees, the net yields on the
Fund's Institutional Shares will generally be higher than those on the Fund's
Service Shares and the net yields on the Fund's Service Shares will generally be
higher than those on the Fund's Series A Investor Shares if payments by the
Portfolio under both the Service Plan and the Distribution Plan are made at the
maximum rates. Standardized yield quotations will be computed separately for
each class of Shares. Series A Investor Shares are exchangeable at the option of
the holder for Series A Investor Shares in another money market portfolio and
for Series A or Series B Investor Shares in the Fund's non-money market
investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND'S SERVICE SHARES AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE SERVICE SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Service Shares. Both yield figures are based on historical earnings
and are not intended to indicate future performance. "Yield" refers to the
income generated by an investment in the Portfolio's Service Shares over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. "Effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio's Service Shares is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The Portfolio's "tax-equivalent yield" may also be
quoted from time to time for its Service Shares, which shows the level of
taxable yield needed to
18
<PAGE> 139
produce an after-tax equivalent to the Portfolio's tax-free yield for Service
Shares. This is done by increasing the Portfolio's yield for Service Shares
(calculated as above) by the amount necessary to reflect the payment of Federal,
state and local income tax at a stated tax rate.
Performance data for Service Shares of the Portfolio may be compared to
that of other mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Service Shares of
the Portfolio may be compared to data prepared by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. and Weisenberger Investment Company
Service. Performance information may also include evaluations of the Portfolio
published by nationally recognized ranking services and information as reported
by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Service Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on Service
Shares will fluctuate and are not necessarily representative of future results.
Any fees charged by Institutions directly to their Customers in connection with
investments in Service Shares are not reflected in the yields of the Service
Shares, and such fees, if charged, will reduce the actual return received by
such Customers on their investments.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7762 (in Delaware call collect (302)
791-1111).
* * *
19
<PAGE> 140
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 10
Net Asset Value................ 11
Management..................... 12
Dividends and Distributions.... 15
Taxes.......................... 15
Description of Shares.......... 17
Performance Information........ 18
Reports and Inquiries.......... 19
</TABLE>
THE
VIRGINIA
MUNICIPAL
MONEY MARKET
PORTFOLIO
Service Class
[LOGO]
Prospectus
PIF-P-045S January 30, 1995
- --------------------------------------------------------------------------------
<PAGE> 141
THE VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
INSTITUTIONAL CLASS
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
For purchase and redemption orders only call: (800) 441-7450
For yield and other information call: (800) 821-7432.
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to shares ("Institutional Shares" or "Shares")
representing interests in the Virginia Municipal Money Market Portfolio (the
"Portfolio") with the following objective: to seek as high a level of current
income exempt from Federal and, to the extent possible, from Virginia income tax
as is consistent with maintaining liquidity and stability of principal. It
pursues this objective by investing primarily in short-term municipal
obligations issued by the Commonwealth of Virginia and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("Virginia Municipal Obligations").
Institutional Shares of the Portfolio are sold by the Fund's distributor to
institutional investors ("Institutions"). Institutional Shares are sold and
redeemed at net asset value without any purchase or redemption charge imposed by
the Fund.
Shares of the Portfolio are intended for residents of Virginia.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 821-7432. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 142
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
VIRGINIA
MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------
<S> <C> <C>
Advisory fees(1).................................................................. .05%
Other operating expenses.......................................................... .23
---
Administration fees(1)....................................................... .02
Other expenses(1)............................................................ .21
---
Total fund operating expenses..................................................... .28%
===
</TABLE>
- ------------------
(1) Advisory fees are net of a .40% fee waiver and administration fees are net
of a .13% fee waiver for the Portfolio. PIMC and the Administrators are
under no obligation to waive or continue waiving such fees, but have
informed the Fund that they expect to waive or continue waiving such fees as
necessary to maintain the Portfolio's total operating expenses during the
current fiscal year at the level set forth in the table. The expenses noted
above under "Other expenses" are estimated based on the level of such
expenses for the Fund's most recent fiscal year.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------- -----------
<S> <C> <C>
Virginia Municipal Money Market Portfolio............................ $3 $9
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolio will pay. Investors bear these expenses
since they reduce the amount of income paid by the Portfolio to investors as
dividends. The table estimates fees, expenses, fee waivers and assets for the
Portfolio for the current fiscal year. Total operating expenses would have been
.81% for Institutional Shares of the Virginia Municipal Money Market Portfolio
without such fee waivers. See Footnote 1 to the Expense Table, "Financial
Highlights--Background," "Management" and "Description of Shares" for a further
description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 143
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in the
Portfolio--Service, Series A Investor and Institutional Shares. Service, Series
A Investor and Institutional Shares represent equal pro rata interests in the
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of the Portfolio's outstanding Service Shares.
Service Shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of the Portfolio's outstanding
Service Shares for other shareholder support activities provided by service
organizations. See "Description of Shares" for a description of the Service Plan
and shareholder support activities. Series A Investor Shares bear the expense of
the Fund's Distribution and Service Plan at an annual rate not to exceed .55% of
the average daily net asset value of the Portfolio's outstanding Series A
Investor Shares. See "Description of Shares" for a description of the
Distribution and Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
The SEC requires that this Prospectus contain Financial Highlights for each
class of the Portfolio. Because the public offering of Service Shares and Series
A Investor Shares of the Portfolio had not commenced during the year ended
September 30, 1994, the table below presents only information pertaining to
Institutional Shares of the Portfolio.
The financial data included in the table below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolio is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
3
<PAGE> 144
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
MONEY MARKET
PORTFOLIO
------------------
INSTITUTIONAL
CLASS
------------------
FOR THE
PERIOD
7/25/94(1)
THROUGH
9/30/94
------------------
<S> <C>
Net asset value at beginning of period.......................................... $ 1.00
--------
Income from investment operations
Net investment income......................................................... 0.0053
Net realized gain (loss) on investments....................................... --
--------
Total from investment operations........................................... 0.0053
--------
Less distributions
Distributions from net investment income...................................... (0.0053)
Distributions from net realized capital gains................................. --
--------
Total distributions........................................................ (0.0053)
--------
Net asset value at end of period................................................ $ 1.00
========
Total return.................................................................... 0.53%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................... $ 13,831
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................. 0.10%(2)
Before advisory/administration fee waivers................................. 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................. 2.89%(2)
Before advisory/administration fee waivers................................. 1.97%(2)
</TABLE>
- ------------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 145
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Virginia Municipal Obligations. The
Portfolio may also invest in short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities and tax-exempt derivative securities relating thereto ("Municipal
Obligations"). See "Other Investment Policies" for a description of Municipal
Obligations. Instruments held by the Portfolio will have maturities of 13 months
or less as determined in accordance with the rules of the SEC.
The Portfolio may also purchase obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government such as the Government
National Mortgage Association ("GNMA") are supported by the United States' full
faith and credit; others such as those of the Federal National Mortgage
Association ("FNMA") and the Student Loan Marketing Association are supported by
the right of the issuer to borrow from the U.S. Treasury; others such as those
of the Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation
are supported only by the credit of the agency or instrumentality issuing the
obligation. No assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored agencies or instrumentalities if
it is not obligated to do so by law.
The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the taxing,
revenue-collecting and spending authority of Virginia issuers or otherwise
affect the ability of Virginia issuers to pay interest, repay principal, or any
premium. Certain of these developments are described herein. The rate of
economic growth in the Commonwealth of Virginia slowed in 1990 and 1991, but has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8% rate of growth in per capita personal income was slightly ahead of the
national rate of growth of 4.7%. During 1990, 1991 and 1992, Virginia's per
capita personal income grew at a slightly lower rate than the U.S. average. Per
capita income in Virginia has been consistently above national levels over the
past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment and manufacturing.
Because of Virginia's proximity to Washington, D.C. and the concentration of
military installations in the Commonwealth (the largest such concentration in
the United States), the Federal government has a greater economic impact on
Virginia relative to its size than on any of the other states except Alaska and
Hawaii. It is unclear what effect the current efforts by the Federal government
to restructure the defense budget will have on the long-term economic conditions
of the Commonwealth. According to statistics published by the U.S. Department of
Labor, the Commonwealth typically has one of the lowest unemployment rates in
the nation. This is generally attributed to the balance among the various
sectors represented in the economy. During 1993, an average of 5.9% of
Virginians were unemployed as compared with the national average of 6.8%. 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% annually in
1987 and, in 1993, was approximately 1.8%. 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. See "Special Consideration
Regarding Investment in Virginia Municipal Obligations" in the Statement of
Additional Information. See also "Other Investment Policies" for a description
of other investment policies.
During normal market conditions, up to 20% of the Portfolio's net assets
may be invested in securities which are not Municipal Obligations and at least
65% of the Portfolio's total net assets will be invested in Virginia Municipal
5
<PAGE> 146
Obligations. During temporary defensive periods, the Portfolio may invest
without limitation in obligations which are not Municipal Obligations and may
hold without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to Municipal Obligations set forth below, or if unrated, are of
comparable quality as determined by the adviser or sub-adviser, and may also
include, without limitation, other debt obligations, such as bank obligations.
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to purchase
at the Portfolio's option specified Municipal Obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
The Portfolio may invest without limitation in private activity bonds the
interest on which is an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Paper"). Interest on AMT Paper that is received by
taxpayers subject to the Federal alternative minimum tax is taxable. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from AMT Paper. To the extent the
Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. The Portfolio may invest 25% or
more of its net assets in Municipal Obligations the interest on which is paid
solely from revenues of similar projects. The amount of information regarding
the financial condition of issuers of Municipal Obligations may not be as
extensive as that which is made available by public corporations, and the
secondary market for Municipal Obligations may be less liquid than that for
taxable obligations. Accordingly, the ability of the Portfolio to buy and sell
tax-exempt securities may, at any particular time and with respect to any
particular securities, be limited.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment returns on a non-diversified portfolio typically are dependent upon
the performance of a smaller number of securities relative to the number held in
a diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
------------------------------------
OTHER INVESTMENT POLICIES
This section describes other investment policies of the Portfolio. The
Portfolio's investment objective and policies may be changed by the Board of
Trustees without shareholder approval.
MUNICIPAL OBLIGATIONS. The Portfolio invests in Municipal Obligations the
interest on which, in the opinion of bond counsel or counsel to the issuer or
sponsor, is exempt from the regular Federal income tax and which have remaining
maturities of 13 months or less as determined in accordance with the rules of
the SEC. Purchasable Municipal Obligations are determined by the sub-adviser to
present minimal credit risks pursuant to guidelines established by the Board of
Trustees and at the time of purchase are rated in the two highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
or are unrated securities determined at the time of purchase to be of comparable
quality by the sub-adviser pursuant to guidelines approved by the Board of
Trustees. The applicable Municipal Obligations ratings are described in an
Appendix to the Statement of Additional Information.
6
<PAGE> 147
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit the
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. The Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolio
does not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
INVESTMENT COMPANIES. In connection with the management of its daily cash
position, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by the Portfolio within the limits prescribed by the Investment
Company Act of 1940 (the "1940 Act"). The Portfolio currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (i) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or by
the Fund as a whole. As a shareholder of another investment company, the
Portfolio would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit the Portfolio to
7
<PAGE> 148
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the Portfolio, and will be
determined to present minimal credit risks by the adviser. The absence of an
active secondary market with respect to particular variable and floating rate
instruments, however, could make it difficult for the Portfolio to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when 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.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Portfolio may
invest in tax-exempt derivative securities relating to Municipal Obligations,
including tender option bonds, participations, beneficial interests in trusts
and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
UNINVESTED CASH RESERVES. The Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. The Portfolio may also
hold uninvested cash reserves if, in the opinion of its sub-adviser, suitable
obligations bearing tax-free interest are unavailable. During normal market
periods, no more than 20% of the Portfolio's assets will be held uninvested.
Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. The Portfolio will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days and time
deposits that do not provide for payment within seven days after notice, without
taking a reduced price, are subject to this 10% limit. The Portfolio may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act. Any such security will
not be considered illiquid so long as it is determined by the adviser or sub-
adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that particular security. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
ADDITIONAL QUALITY REQUIREMENTS. The Portfolio may only invest in: (i)
securities in the two highest rating categories of an NRSRO, provided that if
they are rated by more than one NRSRO, at least one other NRSRO rates them in
one of its two highest categories; and (ii) unrated securities determined to be
of comparable quality at the time of purchase. The rating symbols of the NRSROs
which the Portfolio may use are described in an Appendix to the Statement of
Additional Information.
8
<PAGE> 149
FUNDAMENTAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed except upon the affirmative vote of
the holders of a majority of the Portfolio's outstanding shares.
1. The Portfolio may not borrow money or issue senior securities, except
that the Portfolio may borrow from banks for temporary purposes in
amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of
such borrowing. The Portfolio will not purchase securities while its
aggregate borrowings (including borrowings from banks) in excess of 5% of
its total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Portfolio's investment practices are not
deemed to be pledged for purposes of this limitation.
2. In addition, the Portfolio may not purchase securities which would cause
25% or more of the value of its total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their
principal business activities in the same industry. In applying the
investment limitations stated in this paragraph, (i) there is no
limitation with respect to the purchase of (a) instruments issued or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (b) instruments
issued by domestic banks (which may include U.S. branches of foreign
banks); (ii) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related
to financing the activities of the parents; and (iii) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will be each considered a
separate industry. For purposes of this limitation, a security is
considered to be issued by the entity (or entities) whose assets and
revenues back the security.
3. The Portfolio will invest at least 80% of its net assets in AMT Paper
and instruments the interest on which is exempt from regular Federal
income tax, except during defensive periods or during periods of unusual
market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by the Portfolio that exceeds the fundamental
investment restrictions stated above must be reduced to meet such restrictions
within the period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolio, see the Fund's Statement of Additional Information.
9
<PAGE> 150
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of the Portfolio are offered on a continuous basis for the Fund by
the distributor, Provident Distributors, Inc. (the "Distributor"). The
Distributor is a registered broker/dealer with principal offices at 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
PURCHASE OF SHARES
Institutional Shares are offered to Institutions at the net asset value per
share next determined after an order is received by PFPC Inc. ("PFPC"), the
Fund's transfer agent. Shares may be purchased on any Business Day. A "Business
Day" is any weekday that the New York Stock Exchange (the "NYSE") and the
Federal Reserve Bank of Philadelphia (the "FRB") are open for business. Purchase
orders may be transmitted by telephoning PFPC at (800) 441-7450 not later than
12:00 noon (Eastern Time) on any Business Day. Orders received before noon will
be executed at noon. If payment for such orders is not received by 4:00 p.m.,
the order will be cancelled and notice thereof will be given to the Institution
placing the order. Orders received after 12:00 noon will not be accepted. The
Fund may in its discretion reject any order for Shares.
Payment for Institutional Shares may be made only in Federal funds or other
funds immediately available to the Fund's custodian. The minimum initial
investment by an Institution is $5,000. There is no minimum subsequent
investment requirement.
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)441-7450.
Shares are redeemed at the net asset value per share next determined after
PFPC's receipt of the redemption order. THE FUND, THE ADMINISTRATORS AND THE
DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR
ACTING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE.
IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE FUND WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION (SUCH AS THE
NAME IN WHICH AN ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS
IN THE ACCOUNT, AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR
BANK). While the Fund intends to use its best efforts to maintain the
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a Share's
net asset value at the time of redemption.
Payment for redeemed Shares for which a redemption order is received by
PFPC before 12:00 noon (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect the Portfolio. No charge for wiring redemption payments is imposed by the
Fund.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Institution is unable to contact
PFPC by telephone, the Institution may also deliver the redemption request to
PFPC by mail at 400 Bellevue Parkway, Wilmington, DE 19809.
10
<PAGE> 151
An Institution may be required to redeem Shares in the Portfolio if the
balance in such shareholder's account in the Portfolio drops below $5,000 as the
result of a redemption request and the Institution does not increase the balance
to at least $5,000 upon thirty days' written notice.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Institutional Share of the Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. The Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of the Portfolio is determined
independently of the other investment portfolios of the Fund.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under "Valuation of Shares." There can
be no assurance that net asset value per share will not vary.
The Portfolio may use a pricing service, bank or broker/dealer experienced
in such matters to value the Portfolio's securities. A more detailed discussion
of net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for the Portfolio. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank serves as
the sub-adviser for the Portfolio. PNC Bank, whose principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19107, is a subsidiary of
PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
As adviser, PIMC is responsible for the overall investment management of
the Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolio. PNC Bank, as sub-adviser for the
11
<PAGE> 152
Portfolio, provides research and credit analysis and certain other services. In
entering into portfolio transactions for the Portfolio with a broker/dealer, the
investment adviser and sub-adviser may take into account the sale by such
broker/dealer of shares of the Fund, subject to the requirements of best
execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed daily
and payable monthly, at an annual rate of .45% of the first $1 billion of the
Portfolio's average daily net assets, .40% of the next $1 billion of the
Portfolio's average daily net assets, .375% of the next $1 billion of the
Portfolio's average daily net assets and .35% of the average daily net assets of
the Portfolio in excess of $3 billion. For the period ended September 30, 1994,
PIMC waived all advisory fees with respect to the Portfolio. During the same
period, PIMC reimbursed expenses at the annual rate of .24% of the average daily
net assets of the Portfolio. See "Management--Expenses" for a discussion of
PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of the Portfolio. Such sub-advisory fees have no effect
on the advisory fees payable by the Portfolio to PIMC. For the period ended
September 30, 1994, PNC Bank waived all sub-advisory fees for the Portfolio. See
"Management--Expenses" for a discussion of the sub-adviser's fee waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809 and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of the
Portfolio's average daily net assets, .13% of the next $500 million of the
Portfolio's average daily net assets, .11% of the next $1 billion of the
Portfolio's average daily net assets and .10% of the Portfolio's average daily
net assets in excess of $2 billion. The Administrators waived all combined
administration fees with respect to the Portfolio for the period ended September
30, 1994. During the same period, the Administrators reimbursed expenses at the
annual rate of .08% of the average daily net assets of the Portfolio. See
"Management-- Expenses" for a discussion of the Administrators' voluntary fee
waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
12
<PAGE> 153
------------------------------------
EXPENSES
Expenses are deducted from the total income of the Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within the Portfolio will
be borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by the
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC and PFPC are subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Institutional Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies. It is not anticipated, however, that any such change would affect the
Portfolio's net asset value per share or result in a financial loss to any
shareholder.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of the Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the Portfolio. The Portfolio's net income is declared daily as a
dividend
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(i) to shareholders of record immediately prior to the determination of net
asset value made as of the close of regular trading hours on the NYSE on days on
which net asset value is determined, or (ii) to shareholders of record
immediately prior to 4:00 p.m. (Eastern Time) on days on which there is no
determination of net asset value. Consequently, shareholders whose purchase
orders are executed at 12:00 noon (Eastern Time) receive dividends for that day.
On the other hand, shareholders whose redemption orders have been received by
12:00 noon (Eastern Time) do not receive dividends for that day, while
shareholders whose redemption orders are received after 12:00 noon (Eastern
Time) do receive dividends for that day. For dividend purposes, the Portfolio's
investment income available for distribution to holders of Institutional Shares
is reduced by accrued expenses directly attributable to the Portfolio and the
general expenses of the Fund prorated to the Portfolio on the basis of its
relative net assets. See "Purchase and Redemption of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolio does not expect to realize net long-term capital gains.
All dividends are reinvested in the form of additional full and fractional
Institutional Shares of the Portfolio, unless an Institution elects to receive
dividends in cash. Such election, or any revocation thereof, must be made in
writing to PFPC, and will become effective with respect to dividends paid after
its receipt by PFPC.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as the Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
The Portfolio does not intend to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability and for corporate taxpayers in determining
environmental tax liability. The Portfolio may invest without limitation in such
private activity bonds. Second, tax-exempt interest and "exempt interest
dividends" derived
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<PAGE> 155
from all other Municipal Obligations must be taken into account by corporate
taxpayers in determining certain adjustments for alternative minimum and
environmental tax purposes. In addition, investors should be aware of the
possibility of state and local alternative minimum or minimum income tax
liability on interest from such private activity bonds. Shareholders who are
recipients of Social Security Act or Railroad Retirement Act benefits should
further note that tax-exempt interest and "exempt interest dividends" derived
from all types of Municipal Obligations will be taken into account in
determining the taxability of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable. Such percentages will apply uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
Any loss upon the sale or exchange of shares of the Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Portfolio
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by the Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
VIRGINIA TAX CONSIDERATIONS. Subject to the provisions discussed below,
dividends paid to shareholders by the Virginia Municipal Money Market Portfolio
and derived from interest on obligations of the Commonwealth of Virginia or of
any political subdivision or instrumentality of the Commonwealth or derived from
interest or dividends on obligations of the United States excludable from
Virginia taxable income under the laws of the United States, which obligations
are issued in the exercise of the borrowing power of the Commonwealth or the
United States and are backed by the full faith and credit of the Commonwealth or
the United States ("Virginia or U.S. Obligations"), will be exempt from the
Virginia income tax. Dividends paid to shareholders by the Portfolio and derived
from interest on debt obligations of certain territories and possessions of the
United States (those issued by Puerto Rico, the Virgin Islands and Guam) will be
exempt from the Virginia income tax. To the extent a portion of the dividends
are derived from interest on debt obligations other than those described above,
such portion will be subject to the Virginia income tax even though it may be
excludable from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and
derived from capital gains from the disposition of Virginia or U.S. Obligations
will be taxable to the shareholders. To the extent any portion of the dividends
are derived from taxable interest for Virginia purposes or from net short-term
capital gains, such portion will be taxable to the shareholders as ordinary
income. The character of long-term capital gains realized and distributed by the
Portfolio will flow through to its shareholders regardless of how long the
shareholders have held their shares. Capital gains distributed to shareholders
derived from Virginia obligations issued pursuant to special Virginia enabling
legislation which provides a specific exemption for such gains will be exempt
from Virginia income tax. Generally, interest on
15
<PAGE> 156
indebtedness incurred by shareholders to purchase or carry shares of the
Portfolio will not be deductible for Virginia income tax purposes.
As a regulated investment company, the Portfolio may distribute dividends
that are exempt from the Virginia income tax to its shareholders if the
Portfolio satisfies all requirements for conduit treatment under Federal law
and, at the close of each quarter of its taxable year, at least 50% of the value
of its total assets consists of obligations the interest on which is exempt from
taxation under Federal law. The Portfolio intends to qualify under the above
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Institutional Shares," "Service Shares"
and "Series A Investor Shares") representing interests in the Fund's investment
portfolios. This Prospectus describes the Virginia Municipal Money Market
Portfolio, which is classified as a non-diversified company under the 1940 Act.
In addition, the Board of Trustees has authorized the issuance of additional
classes of shares representing interests in other investment portfolios of the
Fund. For information regarding these other portfolios, contact the Distributor
by phone at (800) 998-7633 or at the address listed in "Purchase and Redemption
of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the
16
<PAGE> 157
1940 Act). For a further discussion of the voting rights of shareholders, see
"Additional Information Concerning Shares" in the Statement of Additional
Information.
Institutional Shares bear no servicing or distribution fees. Holders of the
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that will be paid under the Fund's Service Plan. Payments under
the Service Plan will cover expenses relating to the support services provided
to beneficial owners of Service Shares by certain institutions. Such services
are intended to supplement the services provided by the Fund's Administrators
and transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .15% (on an annualized basis) of the average daily net asset
value of Service Shares owned beneficially by their customers, institutions may
provide one or more of the following services to such customers: processing
purchase and redemption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with respect to Service
Shares beneficially owned by customers or the information necessary for
sub-accounting; and other similar services. In consideration for payment of a
service fee of up to a separate .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their customers,
institutions may provide one or more of these additional services to such
customers: responding to customer inquiries relating to 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.
Similarly, holders of the Portfolio's Series A Investor Shares bear the payments
described in the prospectus for such shares that are paid under the Fund's
Distribution and Service Plan (the "Distribution Plan"). Under the Distribution
Plan, the Distributor is entitled to payments by the Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing Series A Investor Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Series A Investor Shares.
Service Organizations may also provide support services such as establishing and
maintaining accounts and records relating to shareholders of Series A Investor
Shares for whom the Service Organizations are the dealer of record or holder of
record for shareholders with whom the Service Organizations have a servicing
relationship. The Distribution Plan provides for payments to the Distributor at
an annual rate not to exceed .55% of the average daily net asset value of the
Portfolio's outstanding Series A Investor Shares. As a result of these different
fees, the net yields on the Fund's Institutional Shares will generally be higher
than those on the Fund's Service Shares and the net yields on the Fund's Service
Shares will generally be higher than those on the Fund's Series A Investor
Shares if payments by the Portfolio under both the Service Plan and the
Distribution Plan are made at the maximum rates. Standardized yield quotations
will be computed separately for each class of Shares. Series A Investor Shares
are exchangeable at the option of the holder for Series A Investor Shares in
another money market portfolio and for Series A or Series B Investor Shares in
the Fund's non-money market investment portfolios.
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 subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INSTITUTIONAL SHARES AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE INSTITUTIONAL SHARES.
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<PAGE> 158
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may advertise its "yield" and "effective
yield" for Institutional Shares. Both yield figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers to
the income generated by an investment in the Portfolio's Institutional Shares
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio's Institutional Shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The Portfolio's "tax equivalent yield" may
also be quoted from time to time for its Institutional Shares, which shows the
level of taxable yield needed to produce an after-tax equivalent to the
Portfolio's tax-free yield for Institutional Shares. This is done by increasing
the Portfolio's yield for Institutional Shares (calculated as above) by the
amount necessary to reflect the payment of Federal, state and local income tax
at a stated tax rate.
Performance data of Institutional Shares of the Portfolio may be compared
to those of mutual funds with similar investment objectives and to other
relevant indexes or to ratings or rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. For example, the yield of Institutional
Shares of the Portfolio may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Performance information may also include evaluations of the
Portfolio published by nationally recognized ranking services and information as
reported by financial publications such as Business Week, Fortune, Institutional
Investor, Money Magazine, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of Institutional Shares of the Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Institutional Shares will fluctuate and are not necessarily representative of
future results.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7764 (in Delaware call collect (302)
791-1104).
* * *
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<PAGE> 160
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NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Expense Table.................. 2
Financial Highlights........... 3
Investment Policies............ 5
Purchase and Redemption of
Shares....................... 10
Net Asset Value................ 11
Management..................... 11
Dividends and Distributions.... 13
Taxes.......................... 14
Description of Shares.......... 16
Performance Information........ 18
Reports and Inquiries.......... 18
</TABLE>
PIF-P-045I
THE
VIRGINIA
MUNICIPAL
MONEY MARKET
PORTFOLIO
Institutional Clas
[LOGO]
Prospectus
January 30, 1995
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