<PAGE> 1
As filed with the Securities and Exchange Commission on October 10, 1995
Registration No. 33-
==================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No.____ / / Post-Effective Amendment No.____
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
THE PNC(R) FUND
Area Code and Telephone Number:
(302) 792-2555
Address of Principal Executive Offices:
Bellevue Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, DE 19809
Name and Address of Agent for Service:
JEFFREY A. DALKE, ESQ.
Drinker Biddle and Reath
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
Copies to:
Edward J. Roach Richard W. Grant, Esq. Richard T. Prins, Esq.
400 Bellevue Parkway Morgan, Lewis & Bockius Skadden, Arps, Slate,
Suite 100 2000 One Logan Square Meagher & Flom
Wilmington, DE 19809 Philadelphia, PA 19103 919 Third Avenue
New York, NY 10022
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on November 9, 1995
pursuant to Rule 488.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required because an indefinite number of shares have previously been
registered on Form N-1A (Registration No. 33-26305) pursuant to Rule 24f-2
under the Investment Company Act of 1940. The registrant is filing as an
exhibit to this Registration Statement a copy of its earlier declaration under
Rule 24f-2. Pursuant to Rule 429, this Registration Statement relates to the
aforesaid registration statement on Form N-1A.
<PAGE> 2
THE PNC FUND
FORM N-14
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Beginning of Registration
Statement and Outside Front
Cover Page of Prospectus . . . . Cover Page
2. Beginning and Outside Back
Cover Page of Prospectus . . . . Table of Contents
3. Fee Table, Synopsis
Information, and Risk
Factors . . . . . . . . . . . . Summary; Appendix III, Appendix IV; Appendix V
4. Information About the
Transaction . . . . . . . . . . Information Relating to the Proposed Transactions;
Comparison of PNC, Compass and BIT -- Share Structure;
Appendix I; Appendix II
5. Information About the
Registrant . . . . . . . . . . . Cover Page; Information Relating to the Proposed
Transactions; Comparison of PNC, Compass and BIT;
Additional Information About PNC; Additional Information
About Investment Advisers, Distributors and
Administrators; Financial Statements and Experts;
Appendix III; Appendix V
6. Information About the
Company Being Acquired . . . . . Cover Page; Information Relating to the Proposed
Transactions; Comparison of PNC, Compass and BIT;
Additional Information About Compass; Additional
Information About BIT; Additional Information About
Investment Advisers, Distributors and Administrators;
Financial Statements and Experts; Appendix III;
Appendix V
7. Voting Information . . . . . . . Information Relating to Voting Matters
8. Interest of Certain
Persons and Experts . . . . . . Additional Information About PNC; Additional
Information About Compass; Additional Information
About BIT
9. Additional Information
Required for Reoffering
by Persons Deemed to
be Underwriters . . . . . . . . Inapplicable
</TABLE>
<PAGE> 3
The Compass Capital Group of Funds
680 East Swedesford Road
Wayne, PA 19087
(800) 451-8371
_________________________________________________________________
November __, 1995
Dear Compass Shareholder,
The Board of Trustees of The Compass Capital Group of Funds ("Compass" or "the
Fund") is pleased to call a special shareholders meeting concerning matters
that are important to you.
As you may be aware, PNC Bank Corp. recently announced a definitive plan to
acquire MidLantic Corporation, the parent company of The Compass Capital Group
of Funds. Anticipating the consummation of the merger (expected to close
December 1995), PNC Bank Corp. is taking steps to consolidate the mutual fund
investment advisory activities of MidLantic Corporation with those of other PNC
affiliates, in order to create one consolidated family of mutual funds to offer
shareholders more investment options in an efficient manner. Subject to
Compass shareholder approval, the consolidated entity will be under the
advisory supervision of PNC Asset Management Group. The Board of Trustees of
The Compass Capital Group of Funds believes that these actions are in the best
interests of the Fund's shareholders.
The Compass Capital Group of Funds Board of Trustees has carefully reviewed the
proposal to combine all portfolios of The Compass Capital Group of Funds with
PNC and/or BlackRock funds with similar investment objectives and policies (the
"Transaction") and has considered the effects of this Transaction on
shareholder value with respect to investment performance, expense levels and
shareholder services. In light of such consideration, the Board of Trustees
unanimously recommends the proposed Asset Purchase Agreement. As you evaluate
the proposal, please note the following points:
- - The absolute dollar value of your investment before the Transaction will NOT
change, and will be the same immediately after the Transaction although the
number of shares and the net asset value of each share may be different.
- - The Transaction will be tax-free and will not involve any sales loads,
commissions or transaction charges.
- - The investment objectives and policies of your fund will be substantially
similar to your fund's current objectives and policies except as stated in
the enclosures.
<PAGE> 4
- - The contractual investment advisory fee for your fund after the Transaction
will be the same as, or LOWER than, it is currently.
- - PNC's service providers have agreed to waive fees and reimburse expenses to
ensure that for the fiscal year ending September 30, 1996 the operating
expenses of the portfolios it manages are limited to the ratios stated in
the Combined Proxy Statement/Prospectus.
The Board recommends the approval of this Transaction in light of the following
shareholder benefits which are expected to result in:
- - Broader array of investment options available to shareholders;
- - Ability to add to your existing holdings at no sales charge;
- - Maintenance of all existing investor features plus additional benefits
including 24-hour [customer service] for accounts held directly with the
Fund; and
- - [Economies of scale from an investment management, custodial and
administrative perspective.]
Enclosed is a proxy card for the meeting. IT IS IMPORTANT THAT YOU COMPLETE,
SIGN AND RETURN YOUR PROXY IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. This
will ensure that your shares will be represented at the shareholders meeting
held on December 20, 1995.
Please read the attached materials carefully. If you have any questions,
please feel free to call our Compass representatives at 800-451-8371. Thank
you for your cooperation.
Sincerely,
<PAGE> 5
The BFM Institutional Trust
345 Park Avenue, 30th Floor
New York, NY 10154
(800)227-7236
- ------------------------------------------------------------------------------
[date]
Dear BFM Institutional Trust (BIT) Shareholder,
The Board of Trustees of The BFM Institutional Trust ("BIT" or "The Trust") is
pleased to call a special shareholders meeting concerning matters that are
important to you.
In order to create one consolidated family of mutual funds to offer
shareholders more investment options in an efficient manner, BlackRock
Financial Management, together with its parent, PNC Bank N.A., are taking steps
to consolidate the mutual fund investment advisory activities of the BIT
portfolios with those of other PNC affiliates, including The Compass Capital
Group of Funds which are anticipated to be acquired following the consummation
of PNC's acquisition of MidLantic Corporation (expected to close December
1995). Subject to necessary shareholder approval, the consolidated entity will
be a new mutual fund company under the advisory supervision of PNC Asset
Management Group. The Board of Trustees of BFM Institutional Trust believes
that these actions are in the best interests of the Trust's shareholders.
The BFM Institutional Trust's Board of Trustees has carefully reviewed the
proposal to combine the BIT portfolios with PNC and/or Compass Funds with
similar investment objectives and policies ("the Transaction") and has
considered the effects of this Transaction on shareholder value with respect to
investment performance, expense levels and shareholder services. In light of
such consideration, the Board of Trustees unanimously recommends the proposed
Asset Purchase Agreement. As you evaluate the proposal, please note the
following points:
. The absolute dollar value of your investment before the Transaction will
NOT change, and will be the same immediately after the Transaction
[although the number of shares and the net asset value of each share may
be different].
. The Transaction will be tax-free and will not involve any sales loads,
commissions or transaction charges.
. The investment objectives and policies of your fund will be substantially
similar to your fund's current objectives and policies.
. The contractual investment advisory fee for your fund after the
Transaction will be the same as, or LOWER than, it is currently.
. [PNC's service providers have agreed to waive fees and reimburse expenses
to ensure that the operating expenses of the portfolios are limited to the
ratios stated in the Combined Proxy Statement/Prospectus through fiscal
year-end September 30, 1996.]
The Board recommends the approval of this transaction in light of the following
shareholder benefits which are expected to result:
. Broader array of investment options available to shareholders;
<PAGE> 6
. Maintenance of all existing investor features plus additional benefits
including 24-hour [customer service] for accounts held directly with the
Fund.
Enclosed is a proxy card for the meeting. IT IS IMPORTANT THAT YOU COMPLETE,
SIGN AND RETURN YOUR PROXY IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. This
will ensure that your shares will be represented at the shareholders meeting
held on December __, 1995.
Please read the attached materials carefully. If you have any questions,
please feel free to call our BlackRock representatives at 800-227-7236 or Sarah
Brown at (212)754-5550. Thank you for your cooperation.
Sincerely,
<PAGE> 7
[PRELIMINARY COPY]
100595 DRAFT
THE COMPASS CAPITAL GROUP OF FUNDS(R)
680 EAST SWEDESFORD ROAD
WAYNE, PA 19087
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON DECEMBER ___, 1995
TO COMPASS SHAREHOLDERS:
NOTICE IS GIVEN THAT a Special Meeting of Shareholders of The Compass
Capital Group of Funds(R) ("Compass") will be held at the offices of SEI
Financial Management Corporation, 680 East Swedesford Road, Wayne, PA 19087 on
December 20, 1995 at _____ A.M. Eastern Time for the following purposes:
ITEM 1. To approve an Asset Purchase Agreement (the "Compass
Agreement") providing for (a) the transfer of the assets and
liabilities of the following Compass portfolios to corresponding
portfolios of The PNC(R) Fund (the "Compass Transaction") and (b) the
approval of interim investment advisory and (for some portfolios)
sub-advisory agreements for the following Compass Portfolios if the
merger of Midlantic Corporation and PNC Bank Corp. occurs before the
closing of the Compass Transaction:
<TABLE>
<S> <C>
Municipal Money Fund Equity Income Fund
New Jersey Municipal Money Fund Growth Fund
Pennsylvania Municipal Money Fund Small Company Fund
Cash Reserve Fund International Equity Fund
U.S. Treasury Fund Balanced Fund
Municipal Bond Fund Short/Intermediate Fund
New Jersey Municipal Bond Fund Fixed Income Fund
Pennsylvania Municipal Bond Fund International Fixed Income Fund
</TABLE>
ITEM 2. To transact such other business as may properly come before
the Special Meeting or any adjournment.
Compass shareholders of record as of the close of business on November
__, 1995 are entitled to notice of, and to vote at, this Special Meeting or any
adjournment.
THE COMPASS BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE COMPASS AGREEMENT.
The Compass Agreement and related matters are described in the
attached Combined Proxy Statement/Prospectus.
<PAGE> 8
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE
COMPASS BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO COMPASS A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED
PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
Richard W. Grant
Secretary
November ___, 1995
-2-
<PAGE> 9
[PRELIMINARY COPY]
100595 DRAFT
THE BFM INSTITUTIONAL TRUST INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON DECEMBER ___, 1995
TO SHAREHOLDERS OF THE BFM INSTITUTIONAL TRUST INC.:
NOTICE IS GIVEN THAT a Special Meeting of Shareholders of The BFM
Institutional Trust Inc. ("BIT") will be held at the offices of [BlackRock
Financial Management, Inc., 345 Park Avenue, New York, New York 10154,] on
December ___, 1995 at _____ A.M. Eastern Time for the following purposes:
ITEM 1. To approve an Asset Purchase Agreement (the "BIT Agreement")
providing for the transfer of the assets and liabilities of BIT's
Short Duration Portfolio, Core Fixed Income Portfolio and Multi-Sector
Mortgage Securities Portfolio III to corresponding portfolios of The
PNC(R) Fund.
ITEM 2. To transact such other business as may properly come before
the Special Meeting or any adjournment.
BIT shareholders of record as of the close of business on
____________, 1995 are entitled to notice of, and to vote at, this Special
Meeting or any adjournment.
THE BIT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE BIT AGREEMENT.
The BIT Agreement and related matters are described in the attached
Combined Proxy Statement/Prospectus.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE
BIT BOARD OF DIRECTORS. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO
BIT A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
James Grosfeld
Director and President
November ___, 1995
<PAGE> 10
[PRELIMINARY COPY]
COMBINED PROXY STATEMENT/PROSPECTUS
DATED NOVEMBER ___, 1995
THE PNC(R) FUND
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
800-422-6538
THE COMPASS CAPITAL GROUP OF FUNDS(R)
680 EAST SWEDESFORD ROAD
WAYNE, PA 19087
800-451-8371
THE BFM INSTITUTIONAL TRUST INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
800-555-3890
This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of The Compass
Capital Group of Funds ("Compass") for a Special Meeting of Compass
Shareholders to be held at _____ A.M. Eastern Time on December 20, 1995 at the
offices of SEI Financial Management Corporation, 680 East Swedesford Road,
Wayne, PA 19087. At the meeting, Compass shareholders will be asked to approve
a proposed Asset Purchase Agreement dated October ___, 1995 (the "Compass
Agreement"), between Compass and The PNC(R) Fund ("PNC") and the matters
contemplated therein. A copy of the Compass Agreement is attached as Appendix
I.
This Combined Proxy Statement/Prospectus is also furnished in
connection with the solicitation of proxies by the Board of Directors of The
BFM Institutional Trust Inc. ("BIT") for a Special Meeting of BIT Shareholders
to be held at _________ A.M. Eastern Time on December ____, 1995 at the offices
of [BlackRock Financial Management, Inc., 345 Park Avenue, New York, New York
10154]. At the meeting BIT shareholders will be asked to approve a proposed
Asset Purchase Agreement dated October ____, 1995 (the "BIT Agreement"),
between BIT and PNC and the matters contemplated in that agreement. A copy of
the BIT Agreement is attached as Appendix II.
Compass and PNC are open-end management investment companies (mutual
funds) that offer a series of money market, tax-exempt, fixed income and equity
investment portfolios. The Compass Agreement provides for the transfer of the
assets and liabilities of the sixteen Compass portfolios listed under Item 1 in
the Compass Notice of Meeting and under "Information Relating to the Proposed
Transactions" below (the "Compass Portfolios") to
<PAGE> 11
corresponding investment portfolios of PNC (the "PNC Portfolios") in exchange
for an aggregate amount of shares of the PNC Portfolios of equal value (the
"Compass Transaction"). After the consummation of the Compass Transaction,
shareholders of the Compass Portfolios will be shareholders of the PNC
Portfolios, Compass will be deregistered as an investment company and
terminated under state law.
BIT is also an open-end management investment company. The BIT
Agreement provides for the transfer of the assets and liabilities of the three
fixed income portfolios listed under Item 1 in the BIT Notice of Meeting and
under "Information Relating to the Proposed Transactions" below (the "BIT
Portfolios") to corresponding PNC Portfolios in exchange for an aggregate
amount of shares of the PNC Portfolios of equal value (the "BIT Transaction").
After the consummation of the BIT Transaction, shareholders of the BIT
Portfolios will be shareholders of their corresponding PNC Portfolios, and BIT
will be deregistered as an investment company and terminated under state law.
This Combined Proxy Statement/Prospectus sets forth concisely the
information that shareholders of Compass and BIT should know before voting, and
should be retained for future reference. This Combined Proxy
Statement/Prospectus is accompanied by the following documents as appropriate:
(1) For each PNC Portfolio except the Municipal Money Market Portfolio, New
Jersey Municipal Money Market Portfolio, Pennsylvania Municipal Money Market
Portfolio, Money Market Portfolio, Government Money Market Portfolio, New
Jersey Tax-Free Income Portfolio, Core Fixed Income Portfolio, International
Fixed Income Portfolio and Multi-Sector Mortgage Securities Portfolio III --
1994 Annual Shareholders Reports; and (2) For each PNC Portfolio except the New
Jersey Tax-Free Income Portfolio, Core Fixed Income Portfolio and Multi-Sector
Mortgage Securities Portfolio III -- Prospectuses dated July 24, 1995 for the
PNC Municipal Money Market Portfolio, New Jersey Municipal Money Market
Portfolio, Money Market Portfolio and Government Money Market Portfolio and
Prospectuses dated January 30, 1995 for the other PNC Portfolios (each as
supplemented through the date hereof). Additional information is set forth in
the statement of additional information relating to this Combined Proxy
Statement/Prospectus, dated November ___, 1995, and in the prospectuses dated
July 1, 1995 for the Compass Portfolios and the prospectuses dated April 3,
1995 for the BIT Portfolios (each as supplemented through the date hereof).
Each of these documents is on file with the Securities and Exchange Commission
(the "SEC"), and is available without charge upon oral or written request by
calling or writing PNC, Compass or BIT at the respective telephone numbers or
addresses stated above. The information contained in these prospectuses and
statements of additional information is incorporated herein by reference.
-2-
<PAGE> 12
This Combined Proxy Statement/Prospectus is the proxy statement of
Compass and BIT, respectively, for the special meetings of their shareholders,
and the prospectus of PNC for the shares of the PNC Portfolios that have been
registered with the SEC and are to be issued in connection with the Compass and
BIT Transactions.
The Combined Proxy Statement/Prospectus is expected to first be sent
to shareholders on or about November ___, 1995.
SHARES OF THE PNC PORTFOLIOS 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 COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PNC, COMPASS, BIT OR THEIR
RESPECTIVE SPONSORS AND DISTRIBUTORS.
AN INVESTMENT IN A PNC MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THE PNC MONEY
MARKET PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
SHARES OF PNC, COMPASS AND BIT ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, PNC, MIDLANTIC OR ANY OTHER BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE DISTRIBUTOR AND SPONSOR
OF COMPASS IS SEI FINANCIAL SERVICES COMPANY. THE DISTRIBUTOR AND SPONSOR OF
PNC AND BIT IS PROVIDENT DISTRIBUTORS, INC.
-2-
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Proposed Compass Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Proposed BIT Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Board Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Overview of PNC, Compass and BIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Voting Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INFORMATION RELATING TO THE PROPOSED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Description of the Compass and BIT Agreements . . . . . . . . . . . . . . . . . . . . . . . 13
Compass Board Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
BIT Board Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PNC Board Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Interim Compass Advisory and Sub-Advisory Agreements . . . . . . . . . . . . . . . . . . . . 20
COMPARISON OF PNC, COMPASS AND BIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Advisers and Other Service Providers . . . . . . . . . . . . . . . . . . . . . . 21
Share Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Purchase, Redemption and Dividend Policies . . . . . . . . . . . . . . . . . . . . . . . . . 24
INTERIM COMPASS ADVISORY AND SUB-ADVISORY AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 24
INFORMATION RELATING TO VOTING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Compass Shareholder and Board Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 33
BIT Shareholder and Board Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Other Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ADDITIONAL INFORMATION ABOUT PNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ADDITIONAL INFORMATION ABOUT COMPASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ADDITIONAL INFORMATION ABOUT BIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ADDITIONAL INFORMATION ABOUT INVESTMENT ADVISERS,
DISTRIBUTORS AND ADMINISTRATORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Other Investment Companies Advised by PIMC, PEAC, PCM, BlackRock or Morgan Grenfell . . . . 48
Information About Distributors and Administrators . . . . . . . . . . . . . . . . . . . . . 56
FINANCIAL STATEMENTS AND EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SHAREHOLDER INQUIRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
-3-
<PAGE> 14
<TABLE>
<S> <C> <C>
APPENDICES I - COMPASS ASSET PURCHASE AGREEMENT
II - BIT ASSET PURCHASE AGREEMENT
III - INVESTMENT OBJECTIVES AND FUNDAMENTAL LIMITATIONS
IV - EXPENSE SUMMARIES
V - SHAREHOLDER TRANSACTIONS AND SERVICES
VI - INTERIM COMPASS ADVISORY AND SUB-ADVISORY AGREEMENTS
VII - PNC PORTFOLIO SIX-MONTH FINANCIAL
HIGHLIGHTS
</TABLE>
-4-
<PAGE> 15
SUMMARY
The following is a summary of certain information relating to the
proposed Compass and BIT Transactions and related matters, and is qualified by
reference to the more complete information contained elsewhere in this Combined
Proxy Statement/Prospectus, the prospectuses and statements of additional
information of PNC, Compass and BIT, respectively, and the Appendices attached
hereto.
PROPOSED COMPASS TRANSACTION. Based upon their evaluations of the
relevant information presented to them, and in light of their fiduciary duties
under Federal and state law, the Boards of Trustees of Compass and PNC,
including all of the non-interested members of each Board, have determined that
the proposed Compass Transaction is in the best interests of the shareholders
of Compass and PNC, respectively, and that the interests of the shareholders of
the respective companies will not be diluted as a result of the Compass
Transaction. The Board of Trustees of Compass recommends that Compass
shareholders approve the Compass Agreement and the matters contemplated
therein.
Subject to shareholder approval, the Compass Agreement provides for:
(a) the acquisition by PNC of all of the assets and liabilities of each of the
Compass Portfolios in exchange for Service Shares of the PNC Portfolios that
correspond to the Compass Portfolios; (b) the distribution of these PNC Service
Shares to the shareholders of the Compass Portfolios in liquidation of the
Compass Portfolios; and (c) the deregistration of Compass as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its termination under state law.
As a result of the proposed Compass Transaction, each shareholder of a
Compass Portfolio will become a shareholder of a corresponding PNC Portfolio
and will hold, immediately after the time the Compass Transaction becomes
effective (the "Effective Time of the Compass Transaction"), Service Shares of
the corresponding PNC Portfolio having an aggregate net asset value equal to
the aggregate net asset value of the shares of the Compass Portfolio the
shareholder held immediately before the Effective Time of the Compass
Transaction.
In addition, the Compass Agreement provides that if the merger of
Midlantic Corporation and PNC Bank Corp. (the "Midlantic/PNC Bank Merger")
occurs before the Compass Transaction, the Compass Portfolios will enter into
interim investment advisory and (for some portfolios) sub-advisory agreements
that will be effective for the period between the date of such merger and the
Effective Time of the Compass Transaction. The provisions of the interim
agreements, including the advisory and sub-advisory fee rates, will be
substantially the same as those in the existing investment advisory and
sub-advisory agreements for the Compass Portfolios.
-5-
<PAGE> 16
PNC has entered into separate agreements with Compass and BIT as
described in this Combined Proxy Statement/Prospectus, and consummation of the
Compass Transaction is in no way subject to consummation of the BIT Transaction
described below. IF THE COMPASS AGREEMENT IS APPROVED BY COMPASS SHAREHOLDERS
AT THE COMPASS MEETING, IT IS EXPECTED THAT THE COMPASS TRANSACTION WILL BE
COMPLETED WHETHER OR NOT THE BIT TRANSACTION IS COMPLETED.
For further information, see "Information Relating to the Proposed
Transactions" and "Interim Compass Investment Advisory and Sub-Advisory
Agreements."
PROPOSED BIT TRANSACTION. Based upon their evaluations of the
relevant information presented to them, and in light of their fiduciary duties
under Federal and state law, the governing Boards of BIT and PNC, including all
of the non-interested members of each Board, have determined that the proposed
BIT Transaction is in the best interests of the shareholders of BIT and PNC,
respectively, and that the interests of shareholders of the respective
companies will not be diluted as a result of the BIT Transaction. The Board of
Directors of BIT recommends that BIT shareholders approve the BIT Agreement and
the matters contemplated therein.
Subject to shareholder approval, the BIT Agreement provides for: (a)
the acquisition by PNC of all of the assets and liabilities of each of the BIT
Portfolios in exchange for Institutional Shares of the PNC Portfolios that
correspond to the BIT Portfolios; (b) the distribution of these PNC
Institutional Shares to the shareholders of the BIT Portfolios in liquidation
of the BIT Portfolios; and (c) the deregistration of BIT as an investment
company under the 1940 Act and its termination under state law.
As a result of the proposed BIT Transaction, each shareholder of a BIT
Portfolio will become a shareholder of a corresponding PNC Portfolio and will
hold, immediately after the time the BIT Transaction becomes effective (the
"Effective Time of the BIT Transaction"), Institutional Shares of the
corresponding PNC Portfolio having an aggregate net asset value equal to the
aggregate net asset value of the shares of the BIT Portfolio the shareholder
holds immediately before the Effective Time of the BIT Transaction.
PNC has entered into separate agreements with Compass and BIT as
described in this Combined Proxy Statement/Prospectus, and consummation of the
BIT Transaction is in no way subject to consummation of the Compass
Transaction. IF THE BIT AGREEMENT IS APPROVED BY BIT SHAREHOLDERS AT THE BIT
MEETING, IT IS EXPECTED THAT THE BIT TRANSACTION WILL BE COMPLETED WHETHER OR
NOT THE COMPASS TRANSACTION IS COMPLETED.
-6-
<PAGE> 17
For further information, see "Information Relating to the Proposed
Transactions."
BOARD CONSIDERATIONS. In reviewing the proposed Compass Transaction,
the Compass and PNC Boards considered the pending merger of Midlantic
Corporation, the parent corporation of Midlantic Bank, N.A., ("Midlantic")
which serves as investment adviser to the Compass Portfolios, and PNC Bank
Corp., the parent corporation of the companies that provide investment advisory
and other services to the PNC Portfolios. This pending merger presents the
opportunity to combine the separate Compass and PNC mutual fund families into a
single, larger consolidated group. In considering Midlantic's recommendation
in favor of the Compass Transaction, the Compass Board considered the potential
impact of the Compass Transaction on shareholders, including (a) the terms and
conditions of the Compass Transaction and the provisions intended to avoid the
dilution of shareholder interests; (b) the capabilities of the organizations
that will provide investment advisory and other services to the PNC Portfolios,
and the terms on which these services are provided; (c) the investment
objectives and policies of the PNC Portfolios and the shareholder services
offered by them; (d) the historical investment performance of the PNC
Portfolios; and (e) the historical and projected investment advisory fee rates
and operating expenses of the PNC Portfolios.
In reviewing the proposed BIT Transaction, the BIT and PNC Boards
noted that both BIT and PNC currently receive investment advisory (or
sub-advisory), administration, distribution, custody and transfer agency
services from the same companies. The Boards also noted that the total assets
of all of PNC's investment portfolios were approximately $7,089 million, whereas
the total assets of all of BIT's investment portfolios were approximately $195
million. The Boards believed that portfolio and other efficiencies might be
achieved by combining the BIT Portfolios with the PNC mutual fund family.
For further information, see "Information Relating to the Proposed
Transactions - Compass Board Consideration" and "BIT Board Consideration."
FEDERAL INCOME TAX CONSEQUENCES. Drinker Biddle & Reath will issue an
opinion (based on certain assumptions) as of the Effective Time of each
Transaction to the effect that the respective Compass and BIT Transactions will
not give rise to the recognition of income, gain or loss for Federal income tax
purposes to the Compass Portfolios, the PNC Portfolios, the BIT Portfolios and
their respective shareholders. See "Information Relating to the Proposed
Transactions - Federal Income Tax Consequences."
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<PAGE> 18
OVERVIEW OF PNC, COMPASS AND BIT. The investment objectives and
policies of the Compass Portfolios and BIT Portfolios are generally similar to
those of their corresponding PNC Portfolios. There are, however, differences.
For example, the PNC Money Market Portfolio, unlike the Compass Cash Reserve
Portfolio, (a) normally invests at least 25% of its assets in bank obligations
or instruments secured by bank obligations; and (b) may invest in securities
rated in either the highest or second highest rating category. The PNC
Government Money Market Portfolio, unlike the Compass U.S. Treasury Fund, may
currently invest in obligations issued by U.S. Government agencies and
instrumentalities. The PNC Government Money Market Portfolio will, however,
change its name and investment policies before the Effective Time of the
Compass Transaction to provide that it will invest only in U.S. Treasury
securities and related repurchase agreements. The PNC Municipal Money Market,
New Jersey Municipal Money Market and Pennsylvania Municipal Money Market
Portfolios, unlike the corresponding Compass Portfolios, (a) may invest in
securities rated in either the highest or second highest rating category and
(b) (for the PNC Municipal Money Market Portfolio only) must normally invest at
least 80% of its assets in municipal securities that are exempt from both
regular Federal income tax and Federal alternative minimum tax. The PNC
Tax-Free Income Portfolio, New Jersey Tax-Free Income Portfolio and
Pennsylvania Tax-Free Income Portfolio, unlike their corresponding Compass
Portfolios, (a) may invest in investment grade securities rated in the four
(rather than three) highest rating categories and (b) must normally invest at
least 80% of its assets in municipal securities that are exempt from both
regular Federal income tax and Federal alternative minimum tax. The PNC
International Fixed Income Portfolio, unlike the Compass International Fixed
Income Fund, may invest its assets in securities rated below the highest three
rating categories. The PNC Growth Equity Portfolio emphasizes companies in the
middle and higher capitalization ranges (over $1 billion) while the Compass
Growth Fund limits its investments to companies with market capitalizations in
excess of $200 million.
In connection with the Compass Transaction and BIT Transaction
described in this Combined Proxy Statement/Prospectus, the PNC Core Fixed
Income Portfolio and PNC Short-Term Bond Portfolio will adopt investment
objectives and policies that are substantially the same as the investment
objectives and policies of the BIT Core Fixed Income Portfolio and BIT Short
Duration Portfolio. The BIT Core Fixed Income Portfolio and BIT Short Duration
Portfolio have historically invested a significant percentage of their assets
in mortgage-related and asset-backed securities. In addition, these two
portfolios have actively engaged in reverse repurchase agreements and dollar
mortgage rolls to increase income. Both the PNC and the BIT Core Fixed Income
Portfolios may invest in securities with lower ratings than those purchased by
the Compass Fixed
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<PAGE> 19
Income Portfolio. On the other hand, the PNC Short-Term Bond Portfolio will
change its investment policies before the Effective Times of the respective
Transactions to limit its investments, like the BIT Short Duration Portfolio,
to U.S. Government securities and triple-A corporate obligations. The
permitted dollar-weighted average portfolio maturities of these BIT and PNC
Portfolios also differ from their corresponding Compass Portfolios.
Additional information concerning portfolio investment objectives and
policies is provided below under "Comparison of PNC, Compass and BIT -
Investment Objectives and Policies" and in Appendix III attached to this
Combined Proxy Statement/Prospectus, which sets forth the investment
objectives, fundamental investment limitations and other differences in the
investment policies of the Compass Portfolios, BIT Portfolios and their
corresponding PNC Portfolios.
PNC Institutional Management Corporation ("PIMC") currently serves as
the investment adviser of each PNC Portfolio. It is expected that
contemporaneously with the consummation of the Compass Transaction and BIT
Transaction, PNC Asset Management Group, Inc. ("PAMG"), PIMC's parent
corporation, will become the investment adviser of each PNC Portfolio (except
the PNC Multi-Sector Mortgage Securities Portfolio III), substantially the same
terms as those stated in the prospectuses of the PNC Portfolios, and that the
companies listed below will provide sub-advisory services to the PNC Portfolios
as follows:
<TABLE>
<CAPTION>
Name of Sub-Adviser PNC Portfolios
------------------- --------------
<S> <C>
BlackRock Financial Management, Inc. PNC Tax-Free Income Portfolio
("BlackRock") PNC New Jersey Tax-Free Income Portfolio
PNC Pennsylvania Tax-Free Income Portfolio
PNC Short-Term Bond Portfolio
PNC Core Fixed Income Portfolio
PNC Balanced Portfolio (fixed income portion)
PNC Equity Advisers Company ("PEAC") PNC Growth Equity Portfolio
PNC Small Cap Growth Equity Portfolio
Provident Capital Management, Inc. ("PCM") PNC Value Equity Portfolio
PNC Small Cap Value Equity Portfolio
PNC International Equity Portfolio
PNC Balanced Portfolio (equity portion)
PNC Institutional Management Corporation PNC Municipal Money Market Portfolio
("PIMC") PNC New Jersey Municipal Money Market Portfolio
PNC Pennsylvania Municipal Money Market Portfolio
PNC Money Market Portfolio
PNC Government Money Market Portfolio
</TABLE>
The Compass Portfolios and PNC Portfolios have different
administrators, distributors, custodians, transfer agents and trustees, but the
same independent accountants. The BIT Portfolios and PNC Portfolios have the
same administrators,
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<PAGE> 20
distributors, custodians and transfer agents, but different independent
accountants and Board members. For further information, see "Comparison of
PNC, Compass and BIT - Investment Advisers and Other Service Providers," and
the tables showing the fees and expenses for each of the PNC Portfolios,
Compass Portfolios and BIT Portfolios attached as Appendix IV to this Combined
Proxy Statement/Prospectus.
As discussed under "Comparison of PNC, Compass and BIT - Share
Structure," each of the PNC Portfolios currently offers multiple classes of
shares called Service Shares, Institutional Shares and Investor Shares.
Service Shares and Institutional Shares are sold without a sale load to
institutional and other qualified investors. Series A Investor Shares of the
PNC Portfolios (other than the money market funds) are sold with a front-end
sales load, and Series B Investor Shares are sold with a contingent deferred
sales load, to the general public, as well as to customers of PNC and other
institutions. Each of the Compass Portfolios and BIT Portfolios offer one
share class to all investors.
The purchase and redemption policies applicable to the BIT Portfolios
and Institutional Shares of the PNC Portfolios are generally similar as
described in Appendix V to this Combined Proxy Statement/Prospectus. With
respect to the Compass Portfolios, PNC and its service providers will establish
purchase and redemption policies for Compass shareholders who receive Service
Shares in connection with the Compass Transaction that are substantially
similar to those currently offered by Compass. Share exchange privileges and
certain other shareholder services will not, however, be available with respect
to Service Shares of the PNC Portfolios. To accommodate those shareholders who
wish to have these privileges and programs, after the Effective Time of the
Compass Transaction, former Compass shareholders will be able to switch, if
they choose, their PNC Service Shares for PNC Investor Shares, which offer
share exchange privileges and additional shareholder programs but have higher
operating expense ratios and are sold with a sale load. After the Effective
Time of the Compass Transaction, each former Compass shareholder will also be
permitted to purchase, without a sales charge, additional Service Shares of the
same PNC Portfolio in which the shareholder receives shares in the Compass
Transaction.
As set forth in Appendix IV to this Combined Proxy
Statement/Prospectus, the annualized per share ordinary operating expense
ratios (that is, a portfolio's ordinary operating expenses expressed as a
percentage of its average daily net assets) of PNC Service Shares during the
current fiscal year are expected to be the same as, or lower than, the current
ordinary operating expense ratios of the Compass Portfolios, except the Compass
Equity Income Fund, Compass Growth Fund, and Compass International Equity Fund.
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<PAGE> 21
The frequency of dividend declarations and distributions differ for
certain Compass and BIT Portfolios and their corresponding PNC Portfolios.
Additional information on the purchase, redemption, dividend and other
policies of the Compass Portfolios, BIT Portfolios and PNC Portfolios is
provided under "Comparison of PNC, Compass and BIT - Purchase, Redemption and
Dividend Policies" and in Appendix V to this Combined Proxy
Statement/Prospectus.
VOTING INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Compass Board
of Trustees for a Special Meeting of Shareholders to be held at the offices of
SEI Financial Management Corporation, 680 East Swedesford Road, Wayne, PA 19087
on December 20, 1995 at _____ A.M. Eastern Time. (This meeting and any
adjournment thereof is referred to as the "Compass Meeting.") Only Compass
shareholders of record at the close of business on ____________, 1995 will be
entitled to vote at the Compass Meeting.
This Combined Proxy Statement/Prospectus is also being furnished in
connection with the solicitation of proxies by the BIT Board of Directors for a
Special Meeting of Shareholders to be held at the offices of [BlackRock
Financial Management, Inc., 345 Park Avenue, New York, New York 10154], on
December __, 1995 at ____A.M. Eastern Time. (This meeting and any adjournment
thereof is referred to as the "BIT Meeting.") Only BIT shareholders of record
at the close of business on _______________, 1995 will be entitled to vote at
the BIT Meeting.
Each whole or fractional Compass or BIT share is entitled to a whole
or fractional vote. Shares represented by a properly executed proxy will be
voted in accordance with the instructions thereon or, if no specification is
made, the persons named as proxies will vote in favor of the proposal set forth
in the respective Notices of Meeting. Proxies may be revoked at any time
before they are exercised by submitting a written notice of revocation or a
subsequently executed proxy or by attending the particular Meeting and voting
in person. For additional information, including a description of the
shareholder votes required for approval of each proposal see "Information
Relating to Voting Matters."
RISK FACTORS. Because of the similarities of the investment
objectives and policies of the Compass Portfolios, BIT Portfolios and the
corresponding PNC Portfolios, management believes that an investment in a PNC
Portfolio involves risks that are similar to those of the corresponding Compass
Portfolio or BIT Portfolio. These investment risks include those typically
associated with investing in a portfolio of high quality, short-term money
market
-11-
<PAGE> 22
instruments in the case of the money market portfolios; government or
investment grade bonds in the case of the taxable and tax-exempt bond
portfolios; common stocks in the case of the stock portfolios; and foreign
securities in the case of the international portfolios.
There are differences, however, between the Compass Portfolios, BIT
Portfolios and PNC Portfolios as noted above under "Summary-Overview of PNC,
Compass and BIT." These differences can result in different risks. For
example, the PNC money market funds may invest in securities with lower credit
ratings than their corresponding Compass Portfolios, and certain PNC and BIT
Portfolios, unlike the Compass Portfolios, may engage in dollar roll
transactions and certain leveraging techniques. In addition, the PNC
International Fixed Income Portfolio, unlike its corresponding Compass
Portfolio, may invest up to 5% of its assets in securities rated below
investment grade.
Although the money market portfolios offered by Compass and PNC seek
to maintain a stable net asset value of $1.00 per share, there is no assurance
they will be able to do so. The per share price of the other portfolios will
fluctuate with changes in value of the investments held by each portfolio.
Certain portfolios may seek to achieve their investment objectives through
investments in securities of foreign issuers that involve risks not typically
associated with U.S. issuers; stocks of small capitalization companies that
have limited product lines, markets and financial resources; debt instruments
with the lowest or below investment grade rating which are speculative;
mortgage-backed, asset-backed securities and other derivative instruments;
illiquid instruments; interest rate swaps, floors and caps; and certain
options, futures and foreign currency strategies. Some of the PNC and BIT
fixed-income portfolios may have high turnover rates that may result in
higher portfolio costs, and may engage in leveraging techniques that can
cause their net asset values to rise or fall faster than they otherwise
would. The policy of the Compass and PNC state tax-free portfolios to
invest primarily in municipal obligations of a particular state, and the
non-diversified status of each Compass and PNC state tax-free portfolio,
and the BIT Multi-Sector Mortgage Securities Portfolio III (and its
corresponding PNC Portfolio) present additional risks. There is no assurance
that any portfolio will achieve its investment objective.
INFORMATION RELATING TO THE PROPOSED TRANSACTIONS
The terms and conditions of the Compass Transaction are set forth in
the Compass Agreement. The terms and conditions of the BIT Transaction are set
forth in the BIT Agreement. Significant provisions of these Agreements are
summarized below; however, this summary is qualified in its entirety by
reference to the Compass Agreement and BIT Agreement, copies of which are
attached as Appendices I and II to this Combined Proxy Statement/
-12-
<PAGE> 23
Prospectus.
DESCRIPTION OF THE COMPASS AND BIT AGREEMENTS. The Compass Agreement
provides that at the Effective Time of the Compass Transaction the assets and
liabilities of the Compass Portfolios will be transferred to corresponding PNC
Portfolios in exchange for full and fractional Service Shares of the PNC
Portfolios as shown in the following table.
<TABLE>
<CAPTION>
CORRESPONDING
COMPASS PORTFOLIO PNC PORTFOLIO
----------------- -------------
<S> <C>
Municipal Money Fund Municipal Money Market Portfolio
New Jersey Municipal Money Fund New Jersey Municipal Money Market Portfolio
Pennsylvania Municipal Money Fund Pennsylvania Municipal Money Market Portfolio
Cash Reserve Fund Money Market Portfolio
U.S. Treasury Fund Government Money Market Portfolio (to be
renamed Treasury Money Market Portfolio)
Municipal Bond Fund Tax-Free Income Portfolio
New Jersey Municipal Bond Fund New Jersey Tax-Free Income Portfolio
Pennsylvania Municipal Bond Fund Pennsylvania Tax-Free Income Portfolio
Equity Income Fund Value Equity Portfolio
Growth Fund Growth Equity Portfolio
Small Company Fund Small Cap Growth Equity Portfolio
International Equity Fund International Equity Portfolio
Balanced Fund Balanced Portfolio
Short/Intermediate Fund Short-Term Bond Portfolio
Fixed Income Fund Core Fixed Income Portfolio
International Fixed Income Fund International Fixed Income Portfolio
</TABLE>
-13-
<PAGE> 24
The BIT Agreement provides that at the Effective Time of the BIT
Transaction the assets and liabilities of the BIT Portfolios will be
transferred to corresponding PNC Portfolios in exchange for full and fractional
Institutional Shares of the PNC Portfolio as shown in the following table.
<TABLE>
<CAPTION>
BIT PORTFOLIO CORRESPONDING PNC PORTFOLIO
------------- ---------------------------
<S> <C>
Short Duration Portfolio Short-Term Bond Portfolio
Core Fixed Income Portfolio Core Fixed Income Portfolio
Multi-Sector Mortgage Securities Portfolio III Multi-Sector Mortgage Securities Portfolio III
</TABLE>
The shares issued by PNC in the Compass Transaction will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the respective Compass Portfolios that are outstanding immediately before
the Effective Time of the Compass Transaction. Similarly, the shares issued by
PNC in the BIT Transaction will have an aggregate net asset value equal to the
aggregate net asset value of the shares of the respective BIT Portfolios that
are outstanding immediately before the Effective Time of the BIT Transaction.
After the transfer of their assets and liabilities in exchange for PNC
Portfolio shares, the respective Compass Portfolios and BIT Portfolios will
distribute the shares of PNC Portfolios to their shareholders in liquidation of
the Compass Portfolios and BIT Portfolios. Each shareholder owning shares of a
particular Compass Portfolio or BIT Portfolio at the Effective Time of the
respective Transactions will receive an aggregate amount of shares of the PNC
Portfolio designated in the foregoing table of equal value, plus the right to
receive any unpaid dividends or distributions that were declared on the Compass
Portfolio or BIT Portfolio shares owned by the shareholder before the Effective
Time of the particular Transaction. PNC will establish an account for each
former shareholder of the Compass Portfolios and BIT Portfolios reflecting the
appropriate number of PNC Portfolio shares distributed to the shareholder.
These accounts will be identical to the accounts currently maintained by
Compass and BIT for their shareholders. For economy and convenience, shares of
the PNC Portfolios will be in uncertified form unless otherwise requested by a
shareholder.
Upon completion of the respective Transactions, all outstanding shares
of the Compass Portfolios and BIT Portfolios will be cancelled, and Compass and
BIT will each be deregistered as an investment company under the 1940 Act and
will be terminated under state law. The stock transfer books of the Compass
Portfolios and BIT Portfolios will be permanently closed
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<PAGE> 25
as of the close of business immediately preceding the Effective Times of the
respective Transactions. Redemption requests received thereafter will be
deemed to be redemption requests for shares of the PNC Portfolios distributed
to the former shareholders of the Compass Portfolios and BIT Portfolios. If
any shares of the Compass Portfolios or BIT Portfolios are represented by a
share certificate, the certificate must be surrendered to PNC's transfer agent
for cancellation before the PNC Portfolio shares issued to a shareholder in the
Transactions may be redeemed.
Both the Compass Transaction and the BIT Transaction are subject to a
number of conditions including, in the case of the Compass Transaction,
approval of the Compass Agreement and the related matters described in this
Combined Proxy Statement/Prospectus by Compass shareholders and, in the case
of the BIT Transaction, approval of the BIT Agreement by BIT shareholders; the
receipt of certain legal opinions described in Sections 9 and 10 of the Compass
and BIT Agreements (which include an opinion of counsel that PNC shares issued
in the respective Transactions will be validly issued, fully paid and
non-assessable by PNC); the receipt of certain certificates from the parties
concerning the continuing accuracy of the representations and warranties in the
Agreements and other matters; the parties' performance in all material respects
of their respective agreements and undertakings in the Agreements; and, in the
case of the Compass Transaction, the consummation of the Midlantic/PNC Bank
Merger.
Assuming satisfaction of the conditions in the Compass Agreement, the
Effective Time of the Compass Transaction will be January 15, 1996 or such
other date as is agreed to by PNC and Compass. The Compass Agreement provides,
however, that if the difference between the per share net asset values of a
Compass Portfolio that is a money market fund and its corresponding PNC
Portfolio equals or exceeds $.0025 at the close of business on the day
preceding the time at which the Compass Transaction is to be effective, as
computed by using the market values of such portfolios' assets, the Board of
Trustees of either Compass or PNC may postpone the Effective Time of the
Compass Transaction with respect to such portfolios until such time as the per
share difference is less than $.0025. Assuming satisfaction of the conditions
in the BIT Agreement, the Effective Time of the BIT Transaction will be on
January 15, 1996 or such other date as is agreed to by the parties to that
agreement.
The Compass Agreement provides that, to the extent not borne by their
respective investment advisers, Compass and PNC will each pay or otherwise
provide for the payment of its own expenses incurred in connection with the
Compass Transaction. Compass and PNC estimate that their expenses (which
include the fees and disbursements of attorneys and auditors, proxy printing
and solicitation expenses and any Federal or state stock transfer
-15-
<PAGE> 26
taxes) will be approximately $______________. Similarly, the BIT Agreement
provides that BIT and PNC will each pay or otherwise provide for the payment of
its own expenses incurred in connection with the BIT Transaction. BIT and PNC
estimate that their expenses (which include the fees and disbursements of
attorneys and auditors, proxy printing and solicitation expenses and any
Federal or state stock transfer taxes) will be approximately $_________. PNC
will also bear all share registration expenses arising in connection with each
Transaction.
Each Transaction may be abandoned at any time prior to its Effective
Time upon the concurring votes of a majority of the entire governing Boards of
the parties to that Transaction. The Compass Agreement and BIT Agreement each
provide further that at any time before or (to the fullest extent permitted by
law) after approval of the Compass Agreement or BIT Agreement by the
shareholders of Compass or BIT, respectively, (a) the parties may, by written
agreement authorized by their respective governing Boards and with or without
the approval of their shareholders, amend any of the provisions of the Compass
Agreement or BIT Agreement, respectively, and (b) either party may waive any
breach by the other party or the failure to satisfy any of the conditions to
its obligations (the waiver to be in writing and authorized by the governing
Board of the waiving party with or without the approval of the party's
shareholders).
COMPASS BOARD CONSIDERATIONS. In connection with its approval of the
Compass Agreement, the Board of Trustees of Compass considered the pending
merger between Midlantic Corporation and PNC Bank Corp. Consummation of the
Midlantic/PNC Bank Merger will result in the automatic termination of the
existing investment advisory agreement between Compass and Midlantic and the
existing sub-advisory agreements between Midlantic and Compass' sub-advisors
pursuant to the provisions of those agreements. In addition, Midlantic and
PNC's service providers are planning for the consolidation of the mutual fund
services provided to Compass and PNC after the Midlantic/PNC Bank Merger. In
light of the foregoing, Midlantic has recommended that the assets of the
Compass Portfolios be sold to the PNC Portfolios as described in this Combined
Proxy Statement/Prospectus, and that Compass enter into interim advisory and
sub-advisory agreements pending such sale as described below under "Interim
Compass Advisory and Sub-Advisory Agreements."
The Compass Board of Trustees considered the recommendation of
Midlantic, and the potential effect of the Midlantic/PNC Bank Merger on the
operations of Compass. During its deliberations, the Compass Board of Trustees
(with the advice and assistance of its counsel) considered, among other things:
(1) the investment objectives, policies and limitations of the PNC Portfolios,
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<PAGE> 27
including their relative compatibility with the Compass Portfolios; (2) the
additional risks of investing in certain of the PNC Portfolios, and the means
by which these risks would be disclosed to Compass Shareholders; (3) the
capabilities and investment practices of PNC's investment adviser,
sub-advisers, and other service contractors; (4) the management fees paid by
the PNC Portfolios and their historical and projected expense ratios as
compared to the Compass Portfolios; (5) the portfolio and other efficiencies
that may result from the Compass Transaction; (6) the investment performance of
the Compass Portfolios and the existing PNC Portfolios both on an
aggregate and individual basis; (7) the terms and conditions of the Compass
Transaction, including provisions intended to avoid dilution of the interests
of Compass and PNC shareholders; (8) the costs of the Compass Transaction,
including the portion of such costs to be borne by the Compass Shareholders;
(9) the anticipated tax consequences of the Compass Transaction; (10) the
structure of PNC's share classes; (11) the shareholder services offered by PNC
in connection with its Service Shares; (12) the qualifications and duties of
PNC Bank as the New custodian; and (13) the continuation of Morgan Grenfell as
such-advisor to the International Fixed Income Funds.
Based on the considerations described above, the Compass Board of
Trustees unanimously approved the Compass Agreement, as well as the interim
investment advisory and sub-advisory agreements described under "Interim
Compass Advisory and Sub-Advisory Agreements, at a meeting held on October 3,
1995.
BIT BOARD CONSIDERATIONS. In connection with its approval of the BIT
Agreement, the Board of Directors of BIT noted that both BIT and PNC currently
receive investment advisory (or sub-advisory), administration, distribution,
custody and transfer agency services from the same companies. The Board also
noted that the total assets of PNC's investment portfolios were significantly
greater than the total assets of BIT's investment portfolios. The Board
believed that portfolio and other efficiencies might be achieved by combining
BIT with PNC.
During its deliberations, the BIT Board of Directors (with the advice
and assistance of its counsel) also considered, among other things: (1) the
investment objectives, policies and limitations of the PNC Portfolios,
including their relative compatibility with the BIT Portfolios; (2) the
management fees paid by the PNC Portfolios and their historical and projected
expense ratios as compared to the BIT Portfolios; (3) the terms and conditions
of the BIT Transaction, including provisions intended to avoid dilution of the
interests of BIT and PNC shareholders; (4) the anticipated tax consequences of
the BIT Transaction; and (5) the structure of PNC's share classes.
Based on the considerations described above, the BIT Board of Directors
approved the BIT Agreement at a meeting held on September 28, 1995.
PNC BOARD CONSIDERATIONS. The PNC Board of Trustees unanimously
approved the Compass Agreement and BIT Agreement at a meeting held on September
29, 1995. In approving the Agreements, the PNC Board of Trustees considered,
in particular, the pending Midatlantic/PNC Bank Merger, the potential portfolio
and other efficiencies that can result from greater asset size, the terms of
the respective Agreements, the provisions intended to avoid the dilution of
shareholder interests and the anticipated tax consequences of the respective
Transactions.
CAPITALIZATION. Thirteen of the Compass Portfolios are similar to PNC
Portfolios and/or BIT Portfolios that have commenced investment operations. In
addition, two of the BIT Portfolios are similar to currently operating PNC
Portfolios and/or Compass Portfolios. The following table sets forth as of
September 29, 1995, (i) the capitalization of each of these thirteen Compass
Portfolios; (ii) the capitalization of each of the two BIT Portfolios; (iii)
the capitalization of each of the corresponding PNC Portfolios; and (iv) the
pro forma capitalization of each PNC Portfolio as adjusted to give effect to
the respective Compass and BIT Transactions. If consummated, the
capitalization of each portfolio is likely to be different at the Effective
Times of the respective Transactions as a result of daily share purchase and
redemption activity in the portfolios as well as the effects of the portfolios'
operations. Because the Compass New Jersey Municipal Money, New Jersey
Municipal Bond and International Fixed Income Funds and the BIT Multi-Sector
Mortgage Securities Portfolio III are to be acquired by PNC Portfolios that
currently have nominal assets and liabilities, information on the
capitalization of these four portfolios is not presented.
-17-
<PAGE> 28
PRO FORMA CAPITALIZATION TABLE
<TABLE>
<CAPTION>
NET ASSET
TOTAL NET ASSETS - SERVICE SHARES VALUE PER
SERVICE CLASS (EXCEPT AS OUTSTANDING SERVICE SHARE
NOTED) (EXCEPT AS NOTED) (EXCEPT AS NOTED)
-------------------------- ---------------- -----------------
<S> <C> <C> <C>
Money Market Portfolios
-----------------------
A. PNC Money Market Portfolio $1,194,015,051 11,194,038,553 $1.00
Compass Cash Reserve Fund $535,684,644 535,794,389 $1.00
Pro Forma Combined $1,729,699,695 1,729,832,942 $1.00
B. PNC Government Money Market
Portfolio $550,958,502 550,949,434 $1.00
Compass U.S. Treasury Fund $529,798,012 529,792,661 $1.00
Pro Forma Combined $1,080,756,514 1,080,742,095 $1.00
C. PNC Municipal Money Market
Portfolio $265,629,380 265,659,395 $1.00
Compass Municipal Money Fund $32,973,046 32,998,204 $1.00
Pro Forma Combined $298,602,426 298,657,599 $1.00
D. PNC Pennsylvania Municipal
Money Market Portfolio $147,739,396 147,740,008 $1.00
Compass Pennsylvania
Municipal Money Fund $42,374,999 42,375,414 $1.00
Pro Forma Combined $190,114,395 190,115,422 $1.00
Bond Funds
----------
E. PNC Tax-Free Income
Portfolio $4,712,677 444,256 $10.61
Compass Municipal Bond Fund $28,788,349 2,721,976 $10.58
Pro Forma Combined $33,501,026 3,157,578 $10.61
F. PNC Pennsylvania Tax-Free
Income Portfolio $13,374,359 1,295,217 $10.33
Compass Pennsylvania
Municipal Bond Fund $17,237,893 1,741,406 $ 9.90
Pro Forma Combined $30,612,252 2,963,938 $10.33
</TABLE>
-18-
<PAGE> 29
<TABLE>
<CAPTION>
NET ASSET
TOTAL NET ASSETS - SERVICE SHARES VALUE PER
SERVICE CLASS (EXCEPT AS OUTSTANDING SERVICE SHARE
NOTED) (EXCEPT AS NOTED) (EXCEPT AS NOTED)
-------------------------- ---------------- -----------------
<S> <C> <C> <C>
G. PNC Short-Term Bond
Portfolio $6,579,129 677,806 $ 9.71
Compass Short/Intermediate
Fund $192,085,466 18,656,236 $10.30
Pro Forma PNC Short-Term
Bond Portfolio and Compass
Short/Intermediate $198,664,595 20,460,037 $ 9.71
Fund Only
PNC Short-Term Bond
Portfolio (Institutional) $8,561,095 882,003 $ 9.71
BIT Short Duration
Portfolio $44,108,945 4,478,177 $ 9.85
Pro Forma PNC Short-Term
Bond (Institutional) and
BIT Short Duration
Portfolio Only $52,670,040 5,424,634 $ 9.71*
Pro Forma Combined - All
Portfolios (Service and
Institutional) $251,334,635 25,884,671 $9.71/9.71**
H. PNC Core Fixed Income
Portfolio $0 0 $0
Compass Fixed Income Fund $250,228,116 23,709,190 $10.55
BIT Core Fixed Income
Portfolio $37,065,353 3,749,768 $ 9.88
PNC Core Fixed Income
Portfolio and Compass
Fixed Income Fund Only $250,228,116 25,326,732 $ 9.88
PNC Core Fixed Income
Portfolio and BIT Core
Fixed Income Portfolio Only $37,065,353 3,749,768 $ 9.88*
Pro Forma Combined - All
Portfolios $287,293,469 29,076,500 $
9.88/9.88**
Equity Funds
------------
I. PNC Value Equity Portfolio $170,776,782 12,268,712 $13.92
Compass Equity Income Fund $346,839,053 24,448,284 $14.19
Pro Forma Combined $517,615,835 37,185,311 $13.92
J. PNC Growth Equity Portfolio $76,959,735 5,912,548 $13.02
Compass Growth Fund $163,044,388 12,385,019 $13.16
Pro Forma Combined $240,004,123 18,435,158 $13.02
K. PNC Small Cap Growth Equity
Portfolio $62,618,323 4,167,776 $15.02
Compass Small Company Fund $27,804,714 2,165,765 $12.84
Pro Forma Combined $90,423,037 6,018,955 $15.02
</TABLE>
-19-
<PAGE> 30
<TABLE>
<CAPTION>
NET ASSET
TOTAL NET ASSETS - SERVICE SHARES VALUE PER
SERVICE CLASS (EXCEPT AS OUTSTANDING SERVICE SHARE
NOTED) (EXCEPT AS NOTED) (EXCEPT AS NOTED)
-------------------------- ---------------- -----------------
<S> <C> <C> <C>
L. PNC International Equity
Portfolio $106,084,639 8,011,213 $13.24
Compass International Equity
Fund $46,703,366 3,457,188 $13.51
Pro Forma Combined $152,788,005 11,538,658 $13.24
Balanced Fund
-------------
M. PNC Balanced Portfolio $85,706,926 6,245,535 $13.72
Compass Balanced Fund $33,066,469 2,928,819 $11.29
Pro Forma Combined $118,773,395 8,655,628 $13.72
</TABLE>
- ---------------------
* Net asset value per PNC Institutional Share.
** Net asset value per PNC Service Share and Institutional Share,
respectively.
-20-
<PAGE> 31
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the Compass
Transaction and BIT Transaction is subject to the condition that the respective
parties receive an opinion from Drinker Biddle & Reath to the effect that for
federal income tax purposes: (i) the transfer of all of the assets and
liabilities of each Compass Portfolio and BIT Portfolio (referred to below as a
"Liquidating Portfolio") to its corresponding PNC Portfolio in exchange for
shares of the PNC Portfolio and the distribution of these PNC shares to
shareholders of the Liquidating Portfolio, as described in the Compass
Agreement and BIT Agreement, will constitute a tax-free transaction under
Section 368(a)(1)(C), Section 368(a)(1)(D) or Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended; (ii) no gain or loss will be
recognized by the Liquidating Portfolios as a result of these transactions;
(iii) no gain or loss will be recognized by the PNC Portfolios as a result of
the transactions; (iv) no gain or loss will be recognized by the shareholders
of each Liquidating Portfolio on the distribution to them of shares of the
corresponding PNC Portfolios in exchange for their shares of the Liquidating
Portfolios; (v) the aggregate basis of PNC Portfolio shares received by a
shareholder of a Liquidating Portfolio will be the same as the aggregate basis
of the shareholder's Liquidating Portfolio shares immediately before the
Compass Transaction or BIT Transaction, as applicable; (vi) the basis to each
PNC Portfolio of the assets of the corresponding Liquidating Portfolio received
pursuant to these transactions will be the same as the basis of the assets in
the hands of the Liquidating Portfolio immediately before the transactions;
(vii) a shareholder's holding period for PNC Portfolio shares will be
determined by including the period for which the shareholder held the
Liquidating Portfolio shares exchanged therefor, provided the shareholder held
the Liquidating Portfolio shares as a capital asset; and (vii) each PNC
Portfolio's holding period with respect to the assets received in the Compass
Transaction and BIT Transaction will include the period for which the assets
were held by the corresponding Liquidating Portfolio.
PNC, Compass and BIT have not sought a tax ruling from the Internal
Revenue Service ("IRS"). The opinion of counsel is not binding on the IRS and
does not preclude the IRS from adopting a contrary position. Shareholders
should consult their own advisers concerning the potential tax consequences to
them, including state and local income tax consequences.
INTERIM COMPASS ADVISORY AND SUB-ADVISORY AGREEMENTS. The Compass
Agreement provides that the Compass Transaction will occur contemporaneously
with, or after, the consummation of the Midlantic/PNC Bank Merger. Because the
Midlantic/PNC Bank Merger will result in a change in control of Midlantic, each
of the existing investment advisory and sub-advisory agreements for the Compass
Portfolios will, by its terms, automatically terminate on the date the
Midlantic/PNC Bank Merger occurs. The Compass
-21-
<PAGE> 32
Agreement provides, therefore, that if the Midlantic/PNC Bank Merger and the
Compass Transaction do not occur contemporaneously, subject to approval of the
Compass Agreement by its shareholders, each Compass Portfolio will enter into
an interim investment advisory and (for certain Compass Portfolios)
sub-advisory agreement for the period between the date of the Midlantic/PNC
Bank Merger and the Effective Time of the Compass Transaction. The investment
advisory and sub-advisory fee rates stated in the interim agreements will be
the same, and the other provisions of the interim agreements will be
substantially the same, as those in the existing investment advisory and
sub-advisory agreements for the Compass Portfolios. See "Interim Compass
Advisory and Sub-Advisory Agreements" below.
COMPARISON OF PNC, COMPASS AND BIT
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and
policies of the PNC Portfolios are generally similar to those of the
corresponding Compass Portfolios and BIT Portfolios. There are, however,
differences as discussed above under "Summary - Overview of PNC, Compass and
BIT." Other differences in the investment objectives, investment policies and
those investment limitations that are fundamental (that is, limitations that
may be changed only by shareholder vote) are discussed in Appendix III to this
Combined Proxy Statement/ Prospectus. Each PNC Portfolio's investment
objective may be changed by the PNC Board of Trustees without a vote of the
holders of a majority of the outstanding shares of the Portfolio. In contrast,
the Compass and BIT Portfolios may not change their investment objectives
without a shareholder vote.
INVESTMENT ADVISERS AND OTHER SERVICE PROVIDERS. After the
consummation of the Compass and BIT Transactions, PAMG will serve as investment
adviser for each of the PNC Portfolios (except the Multi-Sector Mortgage
Securities Portfolio III), and affiliates of PAMG will serve as sub-advisers to
the respective PNC Portfolios (except the PNC International Fixed Income
Portfolio), as stated under "Summary - Overview of PNC, Compass and BIT."
After the consummation of these Transactions, BlackRock will serve as
investment adviser of the PNC Multi-Sector Mortgage Securities Portfolio III,
and Morgan Grenfell Investment Services Limited ("Morgan Grenfell") will serve
as sub-adviser to the PNC International Fixed Income Portfolio. Currently,
Midlantic provides investment advisory services to the Compass Portfolios.
Wellington Management Company ("Wellington") serves as sub-adviser to the
Compass Equity Income and Growth Funds; Seligman Henderson Co. ("Seligman")
serves as sub-adviser to the Compass International Equity Fund; Wall Street
Associates ("WSA") serves as sub-adviser to the Compass Small Company Fund; and
Morgan Grenfell serves as sub-adviser to the International Fixed Income Fund.
BlackRock is the investment adviser for each of the BIT Portfolios.
-22-
<PAGE> 33
The other service providers for the Compass Portfolios, BIT Portfolios
and the PNC Portfolios are set forth in the following table.
OTHER SERVICE PROVIDERS FOR COMPASS PORTFOLIOS, BIT PORTFOLIOS
AND PNC PORTFOLIOS
<TABLE>
<CAPTION>
Compass Portfolios BIT Portfolios PNC Portfolios
------------------ -------------- --------------
<S> <C> <C> <C>
Distributor SEI Financial Services Provident Distributors, Provident
Company Inc. Distributors, Inc.
Administrator SEI Financial Management PFPC Inc. PFPC Inc., PNC
Corporation Mutual Fund Company
and Provident
Distributors, Inc.
Transfer Agent State Street Bank & Trust Co. PFPC Inc. PFPC Inc.
Custodian Citibank, N.A. PNC Bank, National PNC Bank, National
Association Association
Independent Coopers & Lybrand, LLP Deloitte & Touche LLP Coopers & Lybrand,
Accountants LLP
</TABLE>
PNC Mutual Fund Company and PFPC Inc. are affiliates of PAMG and each of the
sub-advisers for the PNC Portfolios, except Morgan Grenfell.
The trustees and officers of PNC, Compass and BIT are different as set
forth in their respective prospectuses and statements of additional
information.
Additional information on the fees and expenses of the PNC Portfolios,
Compass Portfolios and BIT Portfolio (including the investment advisory,
sub-advisory, administration, transfer agency and custodial fees payable by the
PNC Portfolios to PAMG and its affiliates) is included in Appendix IV to this
Combined Proxy Statement/Prospectus.
SHARE STRUCTURE. PNC, Compass and BIT are each registered as open-end
management investment companies under the 1940 Act. After the Compass and BIT
Transactions, PNC expects to offer twenty-eight separate investment portfolios.
Currently, Compass offers sixteen portfolios, and BIT has three portfolios that
have commenced investment operations. After the respective Transactions,
Compass and BIT each expect to file a Form N-8F with the Securities and
Exchange Commission in order to deregister as an open-end management investment
company and to be terminated under state law.
-23-
<PAGE> 34
Compass and PNC are each organized as a Massachusetts business trust,
and each is subject to the provisions of its Declaration of Trust originally
dated October 1, 1987 and December 22, 1988, respectively. BIT is organized as
a Maryland corporation under Articles of Incorporation originally dated
November 27, 1991. Shares of the Compass Portfolios have a par value of .00001
per share, shares of the BIT Portfolios have a par value of $.0001 per share,
and shares of the PNC Portfolios have a par value of $.001 per share. Compass
and PNC are authorized to issue an unlimited number of shares in each of their
portfolios; BIT is authorized to issue 100 million shares in each of the BIT
Portfolios. Shares of the Compass Portfolios, BIT Portfolios and PNC
Portfolios are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
portfolio or class except as otherwise required by law or when portfolio or
class voting is permitted by the governing Board. Shares of the Compass
Portfolios, BIT Portfolios and PNC Portfolios do not have pre-emptive or
cumulative voting rights, and only such conversion and exchange rights as the
governing Board of Compass, BIT or PNC, respectively, may grant in its
discretion. When issued for payment as described in their respective
prospectuses, shares of the Compass Portfolios, BIT Portfolios and PNC
Portfolios are fully paid and non-assessable by such entities, except as
required under Massachusetts law in the case of the Compass and PNC Portfolios.
The governing Boards of Compass and BIT have authorized the issuance
of one class of shares in each of the respective Compass and BIT Portfolios.
Each of the PNC Portfolios offers four classes of shares ("Service,"
"Institutional," "Series A Investor" and "Series B Investor"), except the PNC
Municipal Money Market Portfolio, New Jersey Municipal Money Market Portfolio,
Pennsylvania Municipal Money Market Portfolio and Government Money Market
Portfolio, which each offer three classes of shares ("Service," "Institutional"
and "Series A Investor").
The shares of each class in a PNC Portfolio represent equal
pro rata interests in the Portfolio, except that they bear different expenses
which reflect differences in their service and distribution arrangements.
Under PNC's Service Plan, Service Shares bear the expense of fees at an annual
rate not to exceed .15% of the average daily net asset value of each PNC
Portfolio's outstanding Service Shares. These fees are paid to institutions
(including PNC Bank) that render support services to the beneficial owners of
Service Shares. These services may include processing purchase and redemption
requests for Service Shares and placing orders with PNC's transfer agent or
distributor; processing dividend payments; providing sub-accounting with
respect to Service Shares or the information necessary for sub-accounting; and
other similar services. Service Shares also bear the expense of a separate
service fee at an annual rate not to
-24-
<PAGE> 35
exceed .15% of the average daily net asset value of each Portfolio's
outstanding Service Shares for other shareholder support activities provided by
institutions (including PNC Bank) such as responding to inquiries from
investors relating to their investments in Service Shares; providing
information periodically to investors showing their positions in Service
Shares; and other similar shareholder liaison services. Series A Investor
Shares bear expenses under PNC's Distribution and Service Plan at an annual
rate not to exceed .55% of the average daily net asset value of each PNC
Portfolio's outstanding Series A Investor Shares. Series B Investor Shares
bear expenses under PNC's Series B Distribution Plan and Series B Service Plan
at annual rate not to exceed .75% and .25%, respectively, of the average daily
net asset value of each PNC Portfolio's outstanding Series B Investor Shares.
Institutional Shares bear none of these shareholder servicing or distribution
expenses. As a result of these different expenses, the performance on the
Institutional Shares of a PNC Portfolio will generally be higher than that of
the Portfolio's Service Shares, and the performance on the Portfolio's Service
Shares will generally be higher than that of the Portfolio's Series A Investor
Shares and Series B Investor Shares if payments by the Portfolio under the
Service Plan, the Distribution and Service Plan, the Series B Distribution Plan
and the Series B Service Plan are made at the maximum rates. Subject to
certain exemptions, Series A Investor Shares of the PNC Portfolios (other than
the money market funds) are sold with a front-end sales load and Series B
Investor Shares are sold with a contingent deferred sales load. Service Shares
and Institutional Shares of all PNC Portfolios are sold without a sales load.
PURCHASE, REDEMPTION AND DIVIDEND POLICIES. The purchase, redemption
and dividend policies of the Compass Portfolios, BIT Portfolios and PNC
Portfolios are discussed above under "Summary - Overview of PNC, Compass and
BIT" and below in Appendix V to this Combined Proxy Statement/Prospectus.
INTERIM COMPASS ADVISORY AND SUB-ADVISORY AGREEMENTS
The Compass Agreement provides that the Effective Time of the Compass
Transaction will occur contemporaneously with, or after, the consummation of
the Midlantic/PNC Bank Merger. As stated above, because the Midlantic/PNC Bank
Merger will result in a change in control of Midlantic, each of the existing
investment advisory and sub-advisory agreements for the Compass Portfolios with
Midlantic and any sub-adviser will, by their terms, automatically terminate on
the date the Midlantic/PNC Bank Merger occurs. The Compass Agreement provides,
therefore, that if the Midlantic/PNC Bank Merger and the Compass Transaction do
not occur contemporaneously, subject to approval of the Compass Agreement by
its shareholders, each Compass Portfolio will enter into interim investment
advisory and (for certain Compass
-25-
<PAGE> 36
Portfolios) sub-advisory agreements (the "Interim Agreements") for the period
between the date of the Midlantic/PNC Bank Merger and the Effective Time of the
Compass Transaction (the "Interim Period").
In particular, it is contemplated that the firms that provide
investment advisory and sub-advisory services for the PNC Portfolios will
provide similar services to the Compass Portfolios during the Interim Period
under the Interim Agreements as follows:
<TABLE>
<CAPTION>
NAME OF INVESTMENT ADVISER/
NAME OF COMPASS PORTFOLIO SUB-ADVISER FOR INTERIM PERIOD
------------------------- ------------------------------
<S> <C>
Municipal Money Fund PIMC
New Jersey Municipal Money Fund PIMC
Pennsylvania Municipal Money Fund PIMC
Cash Reserve Fund PIMC
U.S. Treasury Fund PIMC
Municipal Bond Fund BlackRock
New Jersey Municipal Bond Fund BlackRock
Pennsylvania Municipal Bond Fund BlackRock
Equity Income Fund PAMG(adviser)/PCM(sub-adviser)
Growth Fund PAMG(adviser)/PEAC(sub-adviser)
Small Company Fund PAMG(adviser)/PEAC(sub-adviser)
International Equity Fund PAMG(adviser)/PCM(sub-adviser)
Balanced Fund PCM and BlackRock (co-advisers)
Short/Intermediate Fund BlackRock
Fixed Income Fund BlackRock
International Fixed Income Fund PAMG(adviser)/Morgan Grenfell (sub-adviser)
</TABLE>
The investment advisory and sub-advisory fee rates stated in the
Interim Agreements will be the same, and the other provisions of the Interim
Agreements will be substantially the same, as
-26-
<PAGE> 37
those in the current investment and sub-advisory agreements for the Compass
Portfolios. The Interim Agreements will differ, however, with respect to dates
and the contracting parties.
Copies of the proposed Interim Agreements are attached as Appendix VI.
In the Interim Agreements, each investment adviser agrees, subject to the
supervision of the Compass Board of Trustees, to provide a continuous
investment program for the Compass Portfolio involved and to determine from
time to time what securities and other investments will be purchased, retained
or sold in accordance with that Portfolio's investment objectives, policies and
restrictions. An investment adviser's responsibilities include, but are not
limited to, placing purchase and sale orders for portfolio transactions;
maintaining books and records with respect to a Portfolio's securities
transactions; and furnishing periodic and special reports to the Compass Board
of Trustees as they may request. The Interim Agreements further provide that a
Portfolio's investment adviser will pay all expenses incurred by it in
connection with its advisory activities, other than the cost of securities
(including brokerage commissions, if any) purchased for a Portfolio.
With respect to certain Compass Portfolios, some of an investment
adviser's responsibilities under the Interim Agreements will be performed by
sub-advisers as indicated in the above table. In particular, PCM will, subject
to supervision by PAMG and the Compass Board of Trustees, manage the investment
operations of the Compass Equity Income Fund and International Equity Fund
during the Interim Period and determine the composition of each of these
Portfolios, including the purchase, retention and disposition of securities in
accordance with each Portfolio's investment objectives, policies and
restrictions. Similarly, PEAC, with respect to the Compass Growth Fund and
Small Company Fund, and Morgan Grenfell, with respect to the Compass
International Fixed Income, will, subject to supervision by PAMG and the
Compass Board of Trustees, furnish an investment program in respect of, and
make decisions for, all assets of these portfolios, and place all orders for
the purchase and sale of securities on behalf of the portfolios.
Under the Interim Agreements, in placing orders with brokers and
dealers, the investment advisers and sub-advisers are to attempt to obtain
prompt execution of orders at the most favorable price. Consistent with this
obligation, when the execution and price offered by two or more brokers or
dealers are comparable, an investment adviser or sub-adviser may, in its
discretion, purchase and sell portfolio securities to and from brokers and
dealers that provide research advice and other services. These brokerage and
research services might consist of reports and statistics on specific companies
of industries, general summaries of groups of stocks or bonds and their
-27-
<PAGE> 38
comparative earnings and yields, or broad overviews of the securities markets
and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by an investment adviser or
sub-adviser, and does not reduce the advisory fees payable the Compass
Portfolios. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which an investment adviser or sub-adviser exercises
investment discretion. Conversely, the Compass Portfolios may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Investment decisions for the Compass Portfolios and for other
investment accounts managed by the investment advisers and sub-advisers during
the Interim Period will be made independently of each other in light of
differing conditions. However, the same investment decision may be made for
two or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then allocated in a manner believed by the
investment adviser or sub-adviser to be equitable to each such account. While
in some cases this practice could have a detrimental effect on the price or
value of the security as far as a Compass Portfolio is concerned, in other
cases it may be beneficial to the portfolio. To the extent permitted by law,
an investment adviser or sub-adviser may aggregate the securities to be sold or
purchased for the Compass Portfolios with those to be sold or purchased for
other investment companies or accounts in executing transactions. Portfolio
securities will not be purchased from or sold to the investment advisers,
sub-advisers, or any affiliated person (as defined in the 1940 Act) during the
Interim Period.
If in any fiscal year the aggregate expenses of any Compass Portfolio
exceeds the expense limitation of any state having jurisdiction over Compass,
the Interim Agreements provide that the Portfolio's investment adviser will
reimburse the Portfolio for a portion of such excess expenses equal to such
excess times the ratio of the fees otherwise payable by the Portfolio to the
investment adviser to the aggregate fees otherwise payable by the Portfolio to
the investment adviser and to the Portfolio's administrator under its
administration agreement. The obligation of the investment adviser to
reimburse a Portfolio is limited in any fiscal year to the amount of its fee
for such fiscal year, provided that an investment adviser will reimburse a
Portfolio for such proportion of such excess expenses regardless of the amount
of fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over Compass so require. As of
the date hereof, the most
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<PAGE> 39
restrictive expense limitation applicable to a Compass Portfolio limits its
aggregate annual expenses (as defined by applicable regulations) to 2-1/2% of
the first $30 million of its average net assets, 2% of the next $70 million of
its average net assets, and 1-1/2% of its remaining net assets.
An investment adviser or sub-adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Compass Portfolio
in connection with the performance of its agreements, except a loss arising
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from wilful misfeasance, bad faith or gross
negligence on the part of the investment adviser or sub-adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the agreements.
Unless sooner terminated, the Interim Agreements will continue in
effect until the Effective Time of the Compass Transaction or, if sooner, July
31, 1996. If the Effective Time of the Compass Transaction has not occurred,
the Interim Agreements may thereafter be renewed for successive periods with
respect to a Compass Portfolio if specifically approved at least annually (a)
by the vote of a majority of those members of the Compass Board of Trustees who
are not parties to the agreements or interested persons of any party to the
agreements, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of a majority of the Compass Board of
Trustees or by the vote of a majority of all votes attributable to the
outstanding shares of the Portfolio.
The Interim Agreements will terminate upon their assignment (as
defined in the 1940 Act). In addition, the Interim Agreements may be
terminated with respect to any Compass Portfolio by the Compass Board of
Trustees, by vote of a majority of the shares of that Portfolio voted, by
the investment adviser or, in the case of an Interim Sub-Advisory Agreement, by
either the investment adviser or sub-adviser upon notice as stated in the
particular agreement.
The following table shows (i) the current investment
adviser/sub-adviser of each of the Compass Portfolios, (ii) the current
contractual fee rates for these Portfolios, which will be the same throughout
the Interim Period until the Effective Time of the Compass Transaction, (iii)
the advisory/sub-advisory fees actually paid by the Compass Portfolios for
their last fiscal year net of waivers, and (iv) the effective rate of advisory
fees for the Portfolios for their last fiscal year net of waivers. All fee
rates are annualized, and are computed daily and payable monthly based on a
Portfolio's average daily net assets.
-29-
<PAGE> 40
COMPASS INVESTMENT ADVISORY FEE INFORMATION
<TABLE>
<CAPTION>
ADVISORY/ EFFECTIVE RATE
SUB-ADVISORY OF ADVISORY/
CURRENT FEES FOR SUB-ADVISORY FEES
CURRENT CONTRACTUAL FISCAL YEAR FOR FISCAL YEAR
NAME OF INVESTMENT ADVISORY/SUB- ENDED 2/28/95 ENDED 2/28/95
COMPASS PORTFOLIO ADVISER/SUB-ADVISER ADVISORY FEE RATE * (NET OF WAIVERS)* (NET OF WAIVERS)*
------------------- ------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash Reserve Fund Mid(1) .35% $1,494,954 .35%
Municipal Money Fund Mid(1) .40% $ 179,677 .40%
New Jersey Municipal
Money Fund Mid(1) .40% $158,240 .40%
Pennsylvania Municipal
Money Fund Mid(1) .40% $109,047 .28%
U.S. Treasury Fund Mid(1) .35% $1,259,186 .35%
Municipal Bond Fund Mid(1) .60% $166,647 .51%
New Jersey Municipal
Bond Fund Mid(1) .60% $607,485 .60%
Pennsylvania Municipal
Bond Fund Mid(1) .60% $67,344 .36%
Short/Intermediate Fund Mid(1) .60% $1,360,255 .60%
Fixed Income Fund Mid(1) .60% $1,510,610 .60%
International Fixed Income
Fund Mid(1)/MGIS(2) .80%/.40%(6) $361,620/$180,759 .80%/.40%
Equity Income Fund Mid(1)/WMC(3) .70%/.40%(6)* $1,980,970/$784,044 .70%/.28%
Growth Fund Mid(1)/WMC(3) .70%/.325%(6) $939,431/$355,351 .70%/.25%
Small Company Fund Mid(1)/WSA(4) .90%/.50%(6) $217,501/$ 120,819 .90%/.50%
International Equity Fund Mid(1)/SH(5) .90%/.45%(6) $311,314/$155,647 .90%/.45%
Balanced Fund Mid .70% $37,962 .37%
</TABLE>
* Sub-advisory fees are paid by Midlantic and have no effect on the
advisory fees paid by each Compass Portfolio.
(1) Midlantic Bank, N.A.
(2) Morgan Grenfell Investment Services Limited
(3) Wellington Management Company
(4) Wall Street Associates (note that sub-advisory fees listed on
this line were paid to a former sub-adviser to the Small Cap Value
Fund.)
(5) Seligman Henderson Co.
(6) This percentage represents the maximum sub-advisory fee rate. The
full sub-advisory fee rate schedules are as follows: International
Fixed Income Fund - .40% of average daily net assets up to $75 million
and .325% of the remainder; Equity Income Fund - .40% of average daily
net assets up to $100 million, .30% of the next $100 million and .25%
of average daily net assets over $200 million; Growth Fund - .325% of
average daily net assets up to $50 million, .225% of the next $100
million, .20% of the next $350 million and .15% of average daily net
assets over $500 million; and International Equity Fund - .45% of
average daily net assets up to $100 million and .40% of the remainder.
Except for the advisory fees stated in an foregoing table, the Compass
Portfolios did not make any other payments to Midlantic, PAMG or their
affiliates during the Portfolios' fiscal year ended February 28, 1995.
-30-
<PAGE> 41
Midlantic's current investment advisory agreement for the Compass
Portfolios dated March 1, 1989 (the "Midlantic Agreement") was approved last by
Compass shareholders on June 26, 1992 except for the Compass Balanced Fund,
which was approved by that Fund's sole shareholder on [July 1, 1994].
The continuance of the Midlantic Agreement was most recently approved by the
Compass Board of Trustees on May 24, 1995.
Wellington serves as sub-adviser to the Compass Growth Fund and
Compass Equity Income Fund pursuant to sub-advisory agreements dated June 22,
1993 (the "Wellington Agreements"). The Wellington Agreements were last
approved by shareholders of the Growth Fund and Equity Income Fund on June 21,
1993. The
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<PAGE> 42
continuance of the Wellington Agreements was most recently approved by the
Compass Board of Trustees on May 24, 1995.
Morgan Grenfell serves as sub-adviser to the Compass International
Fixed Income Fund pursuant to a sub-advisory agreement dated June 19, 1991 (the
"Morgan Agreement"). The Morgan Agreement was last approved by shareholders of
the International Fixed Income Fund on June 26, 1992. The continuance of the
Morgan Agreement was most recently approved by the Compass Board of Trustees on
May 24, 1995.
WSA serves as sub-adviser to the Compass Small Company Fund pursuant
to a sub-advisory agreement dated July 1, 1995 (the "WSA Agreement"). The WSA
Agreement was approved by the Compass Board of Trustees on May 24, 1995 and by
shareholders of the Small Company Fund on June 28, 1995.
Seligman serves as sub-adviser to the Compass International Equity
Fund pursuant to a sub-advisory agreement dated July 1, 1993 (the "Seligman
Agreement"). The Seligman Agreement was approved by shareholders of the
International Equity Fund on June 21, 1993. The continuance of the Seligman
Agreement was most recently approved by the Compass Board of Trustees on May
24, 1995.
At the time of these Board approvals (and the approvals of the Compass
Agreement and the Interim Agreements), and as of the date hereof, Robert A.
Nesher and Raymond J. Clark were "interested" members of the Compass Board of
Trustees (which is comprised of six members) because Mr. Nesher is a
shareholder and a former officer of the parent corporation of the distributor
of Compass, and Mr. Clark's, son is an employee of midlantic.
As stated above, the Midlantic, Wellington, Morgan, WSA and Seligman
Agreements will automatically terminate upon the consummation of the
Midlantic/PNC Bank Merger. If this merger is not consummated, the Compass
Transaction will not occur, and each of the foregoing agreements will continue
in effect with respect to the Compass Portfolios in accordance with their
terms.
If the Midlantic/PNC Bank Merger occurs but the Compass Agreement is
not approved with respect to a particular Compass Portfolio, the existing
advisory (and any sub-advisory) agreement for that Portfolio will nevertheless
automatically terminate, the Interim Agreements will not be effective with
respect to that Portfolio, and the Compass Board of Trustees will reconsider
the proposed investment advisory and sub-advisory agreements for that
Portfolio.
-32-
<PAGE> 43
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is
being furnished (a) in connection with the solicitation of proxies for the
Compass Meeting by the Compass Board of Trustees and (b) in connection with the
solicitation of proxies for the BIT Meeting by the BIT Board of Directors. It
is expected that the solicitation of proxies will be primarily by mail.
Officers and service providers of PNC, Compass and BIT may also solicit proxies
by telephone, telegraph or personal interview. [NAME] has been retained to aid
in the solicitation of proxies for an estimated fee of $_______ plus
out-of-pocket expenses. Any Compass shareholder giving a proxy may revoke it
at any time before it is exercised by submitting to Compass a written notice of
revocation or a subsequently executed proxy or by attending the Compass Meeting
and voting in person. Similarly, any BIT shareholder giving a proxy may revoke
it at any time before it is exercised by submitting to BIT a written notice of
revocation or a subsequently executed proxy or by attending the BIT Meeting and
voting in person.
Only Compass shareholders of record at the close of business on
November __, 1995 will be entitled to vote at the Compass Meeting. On that
date, the following Compass shares were outstanding and entitled to be voted:
<TABLE>
<CAPTION>
NAME OF COMPASS PORTFOLIO SHARES ENTITLED TO VOTE
------------------------- -----------------------
<S> <C>
Municipal Money Fund
New Jersey Municipal Money Fund
Pennsylvania Municipal Money Fund
Cash Reserve Fund
U.S. Treasury Fund
Municipal Bond Fund
New Jersey Municipal Bond Fund
Pennsylvania Municipal Bond Fund
Equity Income Fund
Growth Fund
Small Company Fund
International Equity Fund
Balanced Fund
Short/Intermediate Fund
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
NAME OF COMPASS PORTFOLIO SHARES ENTITLED TO VOTE
------------------------- -----------------------
<S> <C>
Fixed Income Fund
International Fixed Income Fund
</TABLE>
Only BIT shareholders of record at the close of business on November
__, 1995 will be entitled to vote at the BIT Meeting. On that date, the
following BIT shares were outstanding and entitled to be voted:
<TABLE>
<CAPTION>
NAME OF BIT PORTFOLIO SHARES ENTITLED TO VOTE
--------------------- -----------------------
<S> <C>
Short Duration Portfolio
Core Fixed Income Portfolio
Multi-Sector Mortgage Securities Portfolio
</TABLE>
Each whole and fractional share is entitled to a whole or fractional
vote at the Compass Meeting or BIT Meeting, as applicable. As used below, the
term "majority of the outstanding shares" of a particular portfolio means [the
lesser of (a) 67% of the shares of the particular portfolio present at the
Meeting at which such shares are to be voted, if the holders of more than 50%
of the outstanding shares of such portfolio are present or (b) more than 50% of
the outstanding shares of the particular portfolio.]
If the accompanying proxy is executed and returned in time for the
Meeting to which it pertains, the shares covered thereby will be voted in
accordance with the proxy on all matters that may properly come before that
Meeting.
The vote of the shareholders of the PNC Portfolios is not being
solicited, since their approval or consent is unnecessary for either the
Compass Transaction, the BIT Transaction or the matters contemplated by these
agreements.
COMPASS SHAREHOLDER AND BOARD APPROVALS. The Compass Agreement,
including the implementation of the Interim Agreements, and other matters
contemplated therein, is being submitted for approval at the Compass Meeting by
the holders of a majority of the shares of each Compass Portfolio voted, voting
separately on a portfolio-by-portfolio basis, pursuant to the provisions of the
Declaration of Trust of Compass and the requirements of the 1940 Act. The
Compass Agreement provides that in the event the Compass Agreement is approved
with respect to some but not all of the Compass Portfolios, the Board of
Trustees of PNC may, in the exercise of its sole discretion,
-34-
<PAGE> 45
determine to either abandon the Compass Agreement with respect to all of the
Compass Portfolios or direct that the Compass Transaction be consummated to the
extent it deems advisable.
The approval of the Compass Agreement by the governing Boards of
Compass and PNC is discussed above under "Information Relating to the Proposed
Transactions."
BIT SHAREHOLDER AND BOARD APPROVALS. The BIT Agreement, including the
matters contemplated therein, is being submitted for approval at the BIT
Meeting by the holders of a majority of the outstanding shares of each BIT
Portfolio, voting separately on a portfolio-by-portfolio basis, pursuant to
provisions of charter of BIT and the requirements of the 1940 Act. The BIT
Agreement provides that in the event the BIT Agreement is approved with respect
to one but not all of the BIT Portfolios, the Board of Trustees of PNC may, in
the exercise of its sole discretion, determine to either abandon the BIT
Agreement with respect to all of the BIT Portfolios or direct that the BIT
Transaction be consummated to the extent it deems advisable.
The approval of the BIT Agreement by the governing Boards of
BIT and PNC is discussed above under "Information Relating to the Proposed
Transactions."
QUORUM. In the event that a quorum is not present at either the
Compass Meeting or the BIT Meeting, or in the event that a quorum is present at
either Meeting but sufficient votes to approve any matter presented at that
Meeting are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit the further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares affected by the adjournment that are represented at the particular
Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote FOR the Compass
Agreement or BIT Agreement, as applicable, in favor of such adjournments, and
will vote those proxies required to be voted AGAINST such proposal against any
adjournment. A shareholder vote may be taken with respect to one or more
Compass Portfolios or BIT Portfolios (but not the other Portfolios) on some or
all matters before any such adjournment if sufficient votes have been received
for approval. A quorum is constituted with respect to a Compass Portfolio or
BIT Portfolio by the presence in person or by proxy of the holders of more than
50% of the outstanding shares of the portfolio entitled to vote at the
particular Meeting. For purposes of determining the presence of a quorum for
transacting business at each Meeting, abstentions, but not broker "non-votes"
(that is, proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owners or other persons entitled
to vote shares on a particular matter with respect to which the brokers or
nominees
-35-
<PAGE> 46
do not have discretionary power), will be treated as shares that are present at
the Meeting but which have not been voted. Abstentions and broker "non-votes"
will have the effect of a "no" vote for purposes of obtaining the requisite
approval of each proposal.
ANNUAL MEETINGS. Neither PNC, Compass nor BIT presently intends to
hold annual meetings of shareholders for the election of Board members and
other business unless and until such time as less than a majority of the
trustees or directors holding office have been elected by the shareholders, at
which time the Board will call a shareholders' meeting for the election of
Board members. Under certain circumstances, however, shareholders have the
right to call a meeting of shareholders to consider the removal of one or more
Board members and such meetings will be called when requested by the holders of
record of 10% or more of the outstanding shares of PNC, Compass or BIT,
respectively. To the extent required by law, PNC, Compass and BIT will assist
in shareholder communications in such matters.
OTHER SHAREHOLDER INFORMATION. At the record date for the Compass
Meeting affiliates of PNC Bank Corp. or their nominees held of record
substantially all of the outstanding shares of the PNC Portfolios as agent or
custodian for their customers. At that date the name, address and share
ownership of each person who may have possessed sole or shared voting or
investment power with respect to more than 5% of the outstanding shares of
PNC's respective share classes were as follows:
<TABLE>
<CAPTION>
CLASS AND AMOUNT PERCENTAGE PERCENTAGE OF
OF OF CLASS PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS SHARES OWNED OWNED OWNED
--------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Managed Income . Saxon & Company ___% ___%
PNC Bank Service Shares
Attn: Income Collections
200 Stevens Drive
Suite 260
Lester, PA 19113
BHC Securities ___% ___%
Attn: Mutual Funds Series A Investor
Department Shares
100 N. 20th Street
Philadelphia, PA 19103
Saxon & Company ___% ___%
PNC Bank Institutional
Attn: Income Collections Shares
200 Stevens Drive,
Suite 260
Lester, PA 19113
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
CLASS AND AMOUNT PERCENTAGE PERCENTAGE OF
OF OF CLASS PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS SHARES OWNED OWNED OWNED
--------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Tax-Free Income . Saxon & Company ___% ___%
PNC Bank Service Shares
Attn: Income Collections
200 Stevens Drive,
Suite 260
Lester, PA 19113
BHC Securities ___% ___%
Attn: Mutual Funds Series A Investor
Department Shares
100 N. 20th Street
Philadelphia, PA 19103
Saxon & Company ___% ___%
PNC Bank Institutional
Attn: Income Collections Shares
200 Stevens Drive,
Suite 260
Lester, PA 19113
Pennsylvania Tax- Saxon & Company ___% ___%
Free Income . . PNC Bank Service Shares
Attn: Income Collections
200 Stevens Drive,
Suite 260
Lester, PA 19113
BHC Securities ___% ___%
Attn: Mutual Funds Series A Investor
Department Shares
100 N. 20th Street
Philadelphia, PA 19103
Saxon & Company ___% ___%
PNC Bank Institutional
Attn: Income Collections Shares
200 Stevens Drive,
Suite 260
Lester, PA 19113
BHC Securities ___% ___%
Attn: Mutual Funds Series B Investor
Department Shares
100 N. 20th Street
Philadelphia, PA 19103
Short-Term Bond . Saxon & Company ___% ___%
PNC Bank Service Shares
Attn: Income Collections
200 Stevens Drive,
Suite 260
Lester, PA 19113
BHC Securities ___% ___%
Attn: Mutual Funds Series A Investor
Department Shares
100 N. 20th Street
Philadelphia, PA 19103
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
CLASS AND AMOUNT PERCENTAGE PERCENTAGE OF
OF OF CLASS PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS SHARES OWNED OWNED OWNED
--------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
MMC&P Inc. ___% ___%
Recordkeeper for Sage Series A Investor
Corporation Shares
Profit Sharing Plan
One Gateway Center,
11th Floor
Pittsburgh, PA 15222
Rafiou Barry & Raye Barry ___% ___%
JTWROS Series A Investor
C/O Halco Mining Inc. Shares
900 Two Allegheny Center
Pittsburgh, PA 15212
Saxon & Company ___% ___%
PNC Bank Institutional
Attn: Income Collections Shares
200 Stevens Drive,
Suite 260
Lester, PA 19113
Medical Practice Account ___% ___%
Thomas Jefferson University Institutional
Attn: Treasurer's Office Shares
1020 Walnut Street
Philadelphia, PA 19107
Money Market BHC Securities, ___% ___%
Portfolio: 2005 Market St. __________ Shares
Phila., PA 19103
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
PNC Bank Ohio ___% ___%
201 E. Fifth St. __________ Shares
Cincinnati, OH 45202
Government Money PNC Bank ___% ___%
Market Portfolio: 200 Stevens Dr., __________ Shares
Suite 260
Lester, PA 19113
Municipal Money PNC Bank Pittsburgh ___% ___%
Market: Portfolio: __________ Shares
960 Ft. Duquesne Blvd.
Pittsburgh, PA 15222
PNC Bank Ohio ___% ___%
201 E. Fifth St. __________ Shares
Cincinnati, OH 45202
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Ohio Municipal BHC Securities ___% ___%
Money Market 2005 Market St. __________ Shares
Portfolio: Phila., PA 19103
</TABLE>
-38-
<PAGE> 49
<TABLE>
<CAPTION>
CLASS AND AMOUNT PERCENTAGE PERCENTAGE OF
OF OF CLASS PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS SHARES OWNED OWNED OWNED
--------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Wayco & Co. ___% ___%
Wayne County National Bank __________ Shares
P.O. Box 550
Wooster, OH 44691
North Carolina Centura Bank ___% ___%
Municipal Money P.O. Box 1220 __________ Shares
Market Portfolio: Rocky Mount, NC 27802
Southern National Bank ___% ___%
P.O. Box 1489 __________ Shares
Lumberton, NC 28358
WACCO ___% ___%
United Carolina Bank __________ Shares
Whiteville
P.O. Drawer 632
Whiteville, NC 28472
First Charter National Bank ___% ___%
P.O. Box 228 __________ Shares
Concord, NC 28926
McWood & Co. ___% ___%
First Citizens Bank __________ Shares
P.O. Box 29522
Raleigh, NC 27626
Salem Trust Bank ___% ___%
P.O. Box 5376 __________ Shares
Winston-Salem, NC 27113
North Carolina Trust Co. ___% ___%
301 North Elm St. __________ Shares
Greensboro, NC 27402
Pennsylvania BHC Securities ___% ___%
Municipal Money 2005 Market St. __________ Shares
Market Portfolio: Phila., PA 19103
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Virginia Municipal Oldom & Co. ___% ___%
Money Market First Virginia Bank Inc. __________ Shares
Portfolio: 6400 Arlington Blvd.
Falls Church, VA 22042
Ohio Tax-Free BHC Securities ___% ___%
Income Portfolio 2005 Market Street __________ Shares
Philadelphia, PA 19103
</TABLE>
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<PAGE> 50
<TABLE>
<CAPTION>
CLASS AND AMOUNT PERCENTAGE PERCENTAGE OF
OF OF CLASS PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS SHARES OWNED OWNED OWNED
--------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
PNC Bank ___% ___%
200 Stevens Drive __________ Shares
Suite 260
Lester, PA 19113
Intermediate PNC Bank ___% ___%
Government 200 Stevens Dr. __________ Shares
Portfolio: Suite 260
Lester, PA 19113
Intermediate-Term PNC Bank ___% ___%
Bond Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Government Income BHC Securities ___% ___%
Portfolio: 100 N. 20th St. __________ Shares
Phila., PA 19103
International BHC Securities ___% ___%
Emerging Markets 100 N. 20th St. __________ Shares
Portfolio: Phila., PA 19103
First Charter National Bank ___% ___%
P.O. Box 228 __________ Shares
Concord, NC 28026
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Growth Equity PNC Bank ___% ___%
Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Index Equity PNC Bank ___% ___%
Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Small Cap Value BHC Securities ___% ___%
Equity Portfolio: 100 N. 20th St. __________ Shares
Phila., PA 19103
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
International PNC Bank ___% ___%
Equity Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Balanced BHC Securities ___% ___%
Portfolio: 100 N. 20th St. __________ Shares
Phila., PA 19103
</TABLE>
-40-
<PAGE> 51
<TABLE>
<CAPTION>
CLASS AND AMOUNT PERCENTAGE PERCENTAGE OF
OF OF CLASS PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS SHARES OWNED OWNED OWNED
--------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
PNC Bank ___% ___%
200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Value Equity PNC Bank ___% ___%
Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Small Cap Growth PNC Bank ___% ___%
Equity Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
Core Equity PNC Bank ___% ___%
Portfolio: 200 Stevens Dr. __________ Shares
Suite 260
Lester, PA 19113
</TABLE>
At the record date for the Compass Meeting, Midlantic held of record
___%, ___%, ___%, ___% and ___% of the outstanding shares of the Compass
Municipal Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania Municipal
Bond Fund, Equity Income Fund and Small Company Fund, respectively, and
[substantially all] of the outstanding shares of the other Compass Portfolios.
At that date the name, address and share ownership of each person who may have
possessed sole or shared voting or investment power with respect to more than
5% of the outstanding shares of the Compass Portfolios were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT OF SHARES PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS OWNED OWNED
--------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Municipal Money Jordan McGrath & Case __________ ___%
445 Park Avenue
New York, NY 10022
Princeton Insurance Company __________ ___%
746 Alexander Road
Princeton, NJ 08543
Martha Megerle Special __________ ___%
4 Headquarters Plaza North
Morristown, NJ 07960
New Jersey Wilson Kaplen __________ ___%
Municipal Money . 100 Hugenot Avenue
Englewood, NJ 07631
Lillian Lewis __________ ___%
1350 Hudson Road
Teaneck, NJ 07666
</TABLE>
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<PAGE> 52
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT OF SHARES PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS OWNED OWNED
--------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Pennsylvania Healthcare Services Group __________ ___%
Municipal Money 2643 Huntingdon Pike
Market . . . . . Huntingdon Valley, PA 19006
Harold Honickman __________ ___%
8275 US Rt. 130
Pennsauken, NJ 08110
Cash Reserve . . Carrier - ILA Container Royalty __________ ___%
One Evertrust Plaza 3rd Pl.
Jersey City, NJ 07302
Pennsylvania Helen Annette Segnere __________ ___%
Municipal Bond . 600 Rosedale Drive
Pottstown, PA 19464
Donald Z. Wade __________ ___%
710 Delaware Drive
P.O. Box 145
Matamoras, PA 18336
Equity Income . . Midlantic Retirement Plan __________ ___%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
Growth . . . . . Midlantic Retirement Plan __________ ___%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
Small Company . . Hatfield Quality Meats __________ ___%
2700 Funks Road
P.O. Box 902
Hatfield, PA 19440
Midlantic Retirement Plan __________ ___%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
International Midlantic Retirement Plan __________ ___%
Equity . . . . . Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
Balanced . . . . Wood Press Profit Sharing Plan __________ ___%
515 East 41st Street
Paterson, NJ 07509
Market Source 401K __________ ___%
10 Abeel Road
Cranbury, NJ 08512
Midlantic Retirement Plan __________ ___%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT OF SHARES PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS OWNED OWNED
--------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Short/ Midlantic Retirement Plan __________ ___%
Intermediate . . Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
Fixed Income . . Midlantic Retirement Plan __________ ___%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
International Verona Construction Company __________ ___%
Fixed Income . . 1201 N. Market Street
Suite 1705
Wilmington, DE 19801
Huls Salaried Retirement __________ ___%
Turner Place
P.O. Box 365
Piscataway, NJ 08854
Midlantic Retirement Plan __________ ___%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
At the record date for the BIT Meeting the name, address and share
ownership of each person who may have owned of record, or had sole or shared
voting or investment power with respect to, more than 5% of the outstanding
shares of the BIT Portfolios were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT OF SHARES PORTFOLIO SHARES
PORTFOLIO NAME AND ADDRESS OWNED OWNED
--------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Short Duration . . . __________ ___%
Core Fixed Income . . __________ ___%
Multi-Sector Mortgage __________ ___%
Securities
Portfolio III
</TABLE>
The percentage of PNC's respective share classes that would be owned
by affiliates of PNC Bank Corp. and the other persons named above upon the
consummation of the Compass and BIT Transactions based on their holdings as of
the dates indicated is expected to be substantially the same, except as follows
[COMPLETE]:
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more than 25 percent of the voting securities
of a company is presumed to "control" such company. Under this definition, PNC
Bank Corp. and its affiliates may be deemed to be controlling persons of PNC.
-43-
<PAGE> 54
At November __, 1995, the trustees and officers of PNC, Compass and
BIT as a group owned beneficially less than 1% of the outstanding shares of
each of the investment portfolios of PNC, Compass and BIT, respectively.
PNC and Compass have been advised by Midlantic that the shares of each
Compass Portfolio over which affiliates of Midlantic Corporation have voting
power will either be voted by one or more independent fiduciaries or else be
voted by the affiliates FOR and AGAINST the respective proposals presented at
the Compass Meeting in the same proportions as the total votes that are cast
FOR and AGAINST the proposals by other shareholders of the respective Compass
Portfolios.
ADDITIONAL INFORMATION ABOUT PNC
The business and affairs of PNC are managed under the direction of its
Board of Trustees. Currently, PIMC is the investment adviser for each PNC
Portfolio. As stated above, it is expected that after the consummation of the
Compass Transaction and BIT Transaction, PAMG will be the investment adviser
for each PNC Portfolio except the PNC Multi-Sector Mortgage Securities
Portfolio III. Blackrock will serve as the investment adviser for that PNC
Portfolio. The adviser for a PNC Portfolio is responsible for the overall
management of that Portfolio. The sub-adviser for a PNC Portfolio is
responsible for the day-to-day management of the particular Portfolio, and
generally makes all purchase and sale decisions regarding the investments made
by the Portfolio. The sub-adviser also provides research and credit analysis
as well as certain other services. Brokerage transactions for the PNC
Portfolios may be directed through broker/dealers that have entered into
selling agreements with PNC's distributor, subject to the requirements of best
execution. As adviser for the PNC Multi-Sector Mortgage Securities Portfolio
III, BlackRock provides all of the advisory and sub-advisory described above
for that Portfolio.
PNC Mutual Fund Company ("PMFCo"), PFPC Inc. ("PFPC") and Provident
Distributors, Inc. ("PDI") serve as PNC's co-administrators. PMFCo and PFPC
are indirect wholly-owned subsidiaries 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. As co-administrators, PMFCo,
PFPC and PDI generally assist PNC in all aspects of its administration and
operation, including matters relating to the maintenance of financial records
and fund accounting.
Expenses are deducted from the total income of each PNC Portfolio
before dividends and distributions are paid. These expenses include, but are
not limited to, investment advisory, administration, custodial and transfer
agency fees; fees and
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<PAGE> 55
expenses of officers and trustees who are not affiliated with PNC's investment
adviser or distributor or any of their affiliates; taxes; interest;
professional fees; servicing fees; fees and expenses in registering and
qualifying PNC 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; expenses related
to shareholder reports, shareholder meetings and proxy solicitations; fidelity
bond and trustees and officers liability insurance premiums; expenses of
independent pricing services; and other expenses which are not expressly
assumed by PNC's service providers.
Purchases and redemptions of Service Shares and Institutional Shares
of the PNC Portfolios are effected at the net asset value per share next
determined after an order is received by PNC's transfer agent. PNC's taxable
and tax-exempt money market portfolios calculate their per share net asset
value as of 12:00 noon (Eastern Time) and 4:00 p.m. (Eastern Time) on each
weekday that both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open ("Business Day"), and the other PNC Portfolios calculate
their per share net asset value as of the close of trading on the New York
Stock Exchange (currently 4:00 p.m. Eastern Time) on each Business Day. Net
asset value is determined by adding the market value or fair value (if market
quotations are not readily available) of the securities, cash and other assets
allocated to a particular class of shares, subtracting the liabilities
allocated to that class, and dividing by the total number of the shares of that
class that are outstanding. Amortized cost valuation, rather than market
valuation, is used by PNC for its taxable and tax-exempt money market funds and
for debt obligations with 60 days or less remaining to maturity.
Each PNC Portfolio intends to be taxed as a regulated investment
company under the Internal Revenue Code of 1986, as amended. So long as a
Portfolio qualifies for this tax treatment, it generally will be relieved of
federal income tax on amounts distributed to the 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). PNC will
inform shareholders at least annually of the amount and nature of the
distributions of income and gains made to them.
Information about the PNC Portfolios is included herein and in the PNC
prospectuses accompanying this Combined Proxy Statement/Prospectus, which are
incorporated by reference herein. Additional information about the PNC
Portfolios is included in the statement of additional information related to
this Combined
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<PAGE> 56
Proxy Statement/Prospectus and in PNC's statement of additional information
dated July 24, 1995 (as supplemented to the date hereof), which have been filed
with the SEC. A copy of these statements of additional information may be
obtained without charge by calling 1-800-821-7432. PNC is subject to the
informational requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, as applicable, and, in accordance with such
requirements, files proxy materials, reports and other information with the
SEC. These materials can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the offices of PDI listed above. In addition, these materials
can be inspected and copied at the SEC's Regional Offices at 77 Park Place, New
York, New York 10007, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511. Copies of these materials can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
Financial highlights for certain PNC Portfolios for the six-month
period ended March 31, 1995 are attached to this Combined Proxy
Statement/Prospectus as Appendix VII.
Information in this Combined Proxy Statement/Prospectus and the other
documents mentioned above concerning PNC was provided by PNC.
ADDITIONAL INFORMATION ABOUT COMPASS
Information about the Compass Portfolios is included in its
prospectuses and statement of additional information dated July 1, 1995 (as
supplemented to the date hereof), copies of which may be obtained without
charge by writing or calling Compass at the address and telephone number shown
on the cover page of this Combined Proxy Statement/Prospectus. Reports and
other information filed by Compass can be inspected and copied at the Public
Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices at 77 Park Place, New
York, New York 10007, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511. Copies of these materials can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
Information in this Combined Proxy Statement/Prospectus and the other
documents mentioned above concerning Compass was provided by Compass.
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<PAGE> 57
ADDITIONAL INFORMATION ABOUT BIT
Information about the BIT Portfolios is included in its prospectus and
statement of additional information dated April 3, 1995 (as supplemented to the
date hereof), copies of which may be obtained without charge by writing or
calling BIT at the address and telephone number shown on the cover page of this
Combined Proxy Statement/Prospectus. Reports and other information filed by
BIT can be inspected and copied at the Public Reference Facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices at 77 Park Place, New York, New York 10007, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511. Copies of these materials can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
Information in this Combined Proxy Statement/Prospectus and the other
documents mentioned above concerning BIT was provided by BIT.
ADDITIONAL INFORMATION ABOUT INVESTMENT ADVISERS,
DISTRIBUTORS AND ADMINISTRATORS
PAMG, PIMC, PCM, PEAC, BLACKROCK AND MORGAN GRENFELL. PIMC's
principal offices are located at Bellevue Park Corporate Center, 400 Bellevue
Parkway, Wilmington, Delaware 19809. PCM's principal offices are 1700 Market
Street, 27th Floor, Philadelphia, Pennsylvania 19103. PEAC's principal offices
are located at 1835 Market Street, 15th Floor, Philadelphia, Pennsylvania
19103. BlackRock's principal offices are located at 345 Park Avenue, New York,
New York 10154. PIMC, PCM, PEAC and BlackRock are each registered as an
investment adviser under the Investment Advisers Act of 1940.
PIMC, PCM, PEAC and BlackRock are wholly-owned corporate subsidiaries
of PAMG. All of the capital stock of AMG, which is located at 1835 Market
Street, 15th Floor, Philadelphia, Pennsylvania 19103, is owned by PNC Bank.
All of the capital stock of PNC Bank, which has principal offices at Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101, is owned by PNC Bancorp,
Inc. All of the capital stock of PNC Bancorp, Inc., which is located at 3411
Silverside Road, Wilmington, Delaware 19810, is owned by PNC Bank Corp. PNC
Bank Corp. is a publicly held bank holding company with principal offices at
5th and Wood Streets, Pittsburgh, Pennsylvania 15265.
BlackRock Financial Management L.P. (the predecessor of BlackRock)
sold its business to PAMG on February 28, 1995. At the time of the sale,
BlackRock Financial Management L.P. changed
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<PAGE> 58
from a limited partnership to a corporation and changed its name to BlackRock
Financial Management Inc.
To Compass' knowledge, no person owned beneficially or of record 10%
or more of any class of issued and outstanding voting securities of PNC Bank
Corp. at __________, 1995.
The name and principal occupation of the principal executive officers
and each director of PAMG as of September __, 1995 were as follows: Richard C.
Caldwell, Chairman of PAMG and Executive Vice President of PNC Bank, N.A.; J.
Richard Carnall, Chairman of PIMC and Executive Vice President, PNC Bank, N.A.;
Young D. Chin, Chairman and Chief Executive Officer of PCM; Robert J.
Christian, Chief Investment Officer of PNC Bank, N.A.; Vincent J. Ciavardini,
President and Director of PFPC Inc., Senior Vice President of PIMC; Laurence D.
Fink, Chairman and Chief Executive Officer of BlackRock; Ralph L. Schlosstein,
President of BlackRock Financial Management; Thomas Whitford, Senior Vice
President of PAMG. All of the above persons may be reached c/o PAMG, 1835
Market Street, 15th Floor, Philadelphia, Pennsylvania 19103.
The name and principal occupation of the principal executive officers
and each director of PIMC as of September __, 1995 were as follows: J. Richard
Carnall, Chairman of PIMC and Executive Vice President, PNC Bank, N.A.; Richard
C. Caldwell, Executive Vice President, PNC Bank Corp.; Richard L. Smoot,
President and Chief Executive Officer, PNC Bank, N.A. (Philadelphia); Joseph N.
Sgroi, Jr., Vice President and Secretary, PNC Bank, Delaware, N.A.; and Thomas
H. Nevin, President and Chief Investment Officer. All of the above persons may
be reached c/o PIMC, 400 Bellevue Parkway, Wilmington, Delaware 19809.All of
the above persons may be reached c/o PIMC, 400 Bellevue Parkway, Wilmington,
Delaware 19809.
The name and principal occupation of the principal executive officer
and each director of PCM as of September __, 1995 were as follows: Richard C.
Caldwell, Executive Vice President of PNC Bank, N.A.; Ernest E. Ceilia, Chief
Investment Officer,
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<PAGE> 59
President and Chief Executive Officer of PNC Equity Advisors Company; Robert J.
Christian, Chief Investment Officer of PNC Bank, N.A.; Young D. Chin, President
and Chief Executive Officer of PCM; Timothy M. Alles, Chief Financial Officer
and Treasurer of PEAC; and Lynn K. Shipman, Secretary of PCM. All of the above
persons may be reached c/o PCM, 1700 Market Street, 27th Floor, Philadelphia,
Pennsylvania 19103.
The name and principal occupation of the principal executive officer
and each director of PEAC as of September __, 1995 were as follows: Timothy M.
Alles, Chief Financial Officer and Treasurer of PEAC; Richard C. Caldwell,
Executive Vice President of PNC Bank, N.A.; Ernest E. Ceilia, Chief Investment
Officer, President and Chief Executive Officer of PNC Equity Advisors Company;
Young D. Chin, President and Chief Executive Officer of PCM; Robert J.
Christian, Chief Investment Officer of PNC Bank, N.A.; Lisa P. Howard, Chief
Compliance Officer of PEAC; Leah L. Tompkins, Secretary and Chief Legal Counsel
of PEAC; and Thomas H. O'Brien, Chief Executive Officer of PNC Bank Corp.
The name and principal occupation of the principal executive officers
and each director of BlackRock as of September __, 1995 were as follows:
Laurence D. Fink, Chairman and Chief Executive Officer; Ralph L. Schlosstein,
President, and Richard C. Caldwell, Executive Vice President of PNC Bank Corp.
All of the above may be reached c/o BlackRock, 345 Park Avenue, New York, New
York 10154.
Morgan Grenfell Investment Services Limited ("Morgan Grenfell") is
located at 20 Finsbury Circus, London, ECZM 1NB England. Morgan Grenfell is a
registered investment adviser under the Investment Advisers Act of 1940.
Morgan Grenfell is a wholly-owned subsidiary of Morgan Grenfell Asset
Management ("MGAM"), which is located at 20 Finsbury Circus, London, ECZM 1NB
England. MGAM is a wholly-owned subsidiary of Morgan Grenfell Group, P.L.C.
("MGG"), which is located at 23 Great Winchester Street, London EC2P 2AX
England. MGG is in turn a wholly-owned subsidiary of Deutsche Bank, A.G.,
which is located at Taunusanlage 12, 60325 Frankfurt, Germany.
The name and principal occupation of the principal executive officers
and each director of Morgan Grenfell as of September __, 1995 were as follows:
Graham David Bamping, Director; Michael Bullock, Chairman and Chief Investment
Officer; Patrick William Wynn Disney, Chief Executive; Martin Alexander Hall,
Director; Julian Ross Johnston, Director; Ian Donald Kelson, Director; Richard
Llewelyn, Director; Jeremy Goulding Lodwick, Director; William Gethin Mayrick
Thomas, Director; Patrick Nicholas Charles Walker, Director; Stephen Andrew
Jonathan Ward, Director; Alan Michael Wheatley, Director; James Knowles
Anderson, Fund Manager; Stewart William Armer, Fund Manager; Clare Louise
Batchelor, Fund Manager Assistant; and Paul Christopher Berriman, Fund Manager.
All of the above persons may be reached c/o Morgan Grenfell, 20 Finsbury
Circus, London ECZM 1NB England.
OTHER INVESTMENT COMPANIES ADVISED BY PIMC, PEAC, PCM, BLACKROCK OR
MORGAN GRENFELL. The table below sets forth certain information concerning the
other investment companies for which PIMC, PEAC, PCM, BlackRock or Morgan
Grenfell act as investment adviser or sub-adviser, and describes the existing
fee agreements with them as of August 31, 1995. PIMC, PEAC, PCM, BlackRock and
Morgan Grenfell were waiving, as of the date of this Combined Proxy
Statement/Prospectus, some or all of the fees payable by certain of the
companies listed below. Those waivers are not reflected in the table. As of
the date of this Combined Proxy
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<PAGE> 60
Statement/Prospectus, PAMG did not serve as investment adviser or sub-adviser
to any investment company.
-50-
<PAGE> 61
PIMC ADVISED FUNDS
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
AND/OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
Independence Square Income Securities Inc.
("ISIS") . . . . . . . . . . . . . . . . . $ 33,064 .20% of net assets.
The PNC Fund, Index Equity Portfolio . . . . $ 249,021 .20% of net assets.
The PNC Fund, Small Cap Value Equity
Portfolio . . . . . . . . . . . . . . . . $ 246,496 .55% of the first $1 billion;
.50% of the next $1 billion;
.475% of the next $1 billion;
.45% of net assets over $3 billion.
The PNC Fund, Core Equity Portfolio . . . . $ 247,327 Same as PNC Small Cap Value
Equity Portfolio.
The PNC Fund, International Emerging Markets
Portfolio . . . . . . . . . . . . . . . . $ 45,288 1.25% of the first $1 billion;
1.20% of the next $1 billion;
1.155% of the next $1 billion;
1.10% of net assets over $3 billion.
The PNC Fund, Managed Income Portfolio . . . $ 563,512 .50% of the first $1 billion;
.45% of the next $1 billion;
.425% of the next $1 billion;
.40% of net assets over $3 billion.
The PNC Fund, Intermediate Government
Portfolio . . . . . . . . . . . . . . . . . $ 192,356 Same as PNC Managed Income Portfolio.
The PNC Fund, Intermediate-Term Bond
Portfolio . . . . . . . . . . . . . . . . $ 158,727 Same as PNC Managed Income
Portfolio.
The PNC Fund, Government Income Portfolio . $ 12,559 Same as PNC Managed Income Portfolio.
The PNC Fund
Value Equity . . . . . . . . . . . . . . . $ 677,130 Same as PNC Small Cap Value Equity
Portfolio.
Provident Institutional Funds, Inc.
Short Duration Fund . . . . . . . . . . . . $ 81,340 .40% of net assets.
Provident Institutional Funds, Inc.
Intermediate Duration Fund . . . . . . . . $ 20,573 .40% of net assets.
Municipal Fund for Temporary Investment
Intermediate Municipal Fund Portfolio . . . $ 6,432 .20% of net assets.
Municipal Fund for Temporary Investment
MuniFund Portfolio . . . . . . . . . . . . $ 712,642 .175% of the first $1 billion;
.15% of the next $1 billion;
.125% of the next $1 billion;
.1% of the next $1 billion;
.095% of the next $1 billion;
.09% of the next $1 billion;
.085% of the next $1 billion;
.08% of net assets over $7 billion.
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
AND/OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
Municipal Fund for Temporary Investment
MuniCash Portfolio . . . . . . . . . . . . $ 406,890 Same as MuniFund Portfolio.
Trust for Federal Securities, Federal
Trust Fund . . . . . . . . . . . . . . . . $ 289,683 .175% of the first $1 billion of the combined
net assets of
FedFund, T-Fund, FedCash Fund, T-Cash Fund,
Federal Trust
Fund and Treasury Trust Fund;
.150% of the next $1 billion;
.125% of the next $1 billion;
.100% of the next $1 billion;
.095% of the next $1 billion;
.090% of the next $1 billion;
.085% of the next $1 billion;
.080% of combined net assets over $7 billion.
Trust for Federal Securities, FedCash
Fund . . . . . . . . . . . . . . . . . . . $ 429,340 Same as Federal Trust Fund.
Trust for Federal Securities, Treasury
Trust Fund . . . . . . . . . . . . . . . . $ 1,275,889 Same as Federal Trust Fund.
Trust for Federal Securities, T-Fund . . . . $ 1,393,108 Same as Federal Trust Fund.
Trust for Federal Securities, T-Cash
Portfolio . . . . . . . . . . . . . . . . . $ 478,584 Same as Federal Trust Fund.
Trust for Federal Securities, FedFund . . . . $ 1,487,959 Same as Federal Trust Fund.
Trust for Federal Securities, Short
Government Portfolio . . . . . . . . . . . $ 4,488 .20% of net assets.
Temporary Investment Fund, Inc., TempFund . . $ 5,955,973 .175% of the first $1 billion;
.15% of the next $1 billion;
.125% of the next $1 billion;
.1% of the next $1 billion;
.095% of the next $1 billion;
.09% of the next $1 billion;
.08% of the next $1 billion;
.075% of the next $1 billion;
.07% of its net assets over $8 billion.
Temporary Investment Fund, Inc., TempCash
Portfolio . . . . . . . . . . . . . . . . . $ 2,530,175 .175% of the first $1 billion;
.15% of the next $1 billion;
.125% of the next $1 billion;
.1% of the next $1 billion;
.095% of the next $1 billion;
.09% of the next $1 billion;
.085% of the next $1 billion;
.08% of its net assets over $7 billion.
The RBB Fund, Inc., Money Market Portfolio . $ 1,821,372 .45% of first $250 million;
.40% of next $250 million;
.35% of net assets over $500
million.
The RBB Fund, Inc., Government Obligations
Money Market Portfolio . . . . . . . . . . $ 512,459 Same as RBB Money Market Portfolio.
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
AND/OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
The RBB Fund, Inc., Municipal Money Market
Portfolio . . . . . . . . . . . . . . . . . $ 422,754 .35% of first $250 million;
.30% of next $250 million;
.25% of net assets in excess of $500 million.
The RBB Fund, Inc., Government Securities
Portfolio . . . . . . . . . . . . . . . . . $ 10,771 .40% of first $250 million;
.35% of next $250 million;
.30% in excess of $500 million.
The RBB Fund, Inc., Tax Free Portfolio . . . $ 4,117 .50% of first $250 million;
.45% of next $250 million;
.40% of net assets over $500
million.
Chestnut Street Exchange Fund . . . . . . . . $ 238,255 .50% of the first $100 million;
.40% of net assets exceeding $100 million.
Municipal Fund for California Investors
Cal Money $ 483,520 Same as PNC Small Cap Value
Cal Intermediate $ 14,938 Equity Portfolio.
</TABLE>
PIMC SUB-ADVISED FUNDS
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
Alex Brown $ 522,765 .15% of first $250 million;
Cash Reserve Fund, Inc. .13% of the next $250 million;
Tax-Free Series .11% of the next $250 million;
.09% of the next $250 million;
.075% of the next $3 billion;
.06% in excess of $4 billion.
- -----------------------------------------------------------------------------------------------------------------------------
First Funds
US Treasury Money $ 75,830 .08% of first $500 million;
Market Portfolio .06% of next $500 million;
.05% net assets over $1 billion.
US Government $ 103,763
Money Market Portfolio
Municipal Money $ 109,013
Market Portfolio
Cash Reserve Portfolio $ 15,403
- -----------------------------------------------------------------------------------------------------------------------------
Warburg Pincus
Cash Reserve $ 273,891 .25% of net assets.
Fund (k)
Warburg Pincus
New York $ 72,704 .25% of net assets.
Tax-Exempt Fund (k)
</TABLE>
PCM SUB-ADVISED FUNDS
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
AND/OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
The PNC Fund, International Emerging Markets
Portfolio See PIMC Advised Funds 1.10% of the first $1 billion;
1.05% of the next $1 billion;
1.005% of the next $1 billion;
.45% of net assets over $3 billion.
The PNC Fund, Small Cap Value Equity
Portfolio See PIMC Advised Funds .40% of the first billion;
.35% of the next billion;
.325% of the next billion;
.30% of net assets over $3 billion.
</TABLE>
PEAC SUB-ADVISED FUNDS
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
AND/OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
The PNC Fund, Core Equity
Portfolio . . . . . . . . . . . . . . . . . See PIMC Advised Funds Same as PNC Small Cap Value
Equity Portfolio.
The PNC Fund, Index Equity Portfolio . . . . See PIMC Advised Funds .15% of net assets.
</TABLE>
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<PAGE> 64
BLACKROCK ADVISED FUNDS
<TABLE>
<CAPTION>
NAME OF INVESTMENT COMPANY APPROXIMATE
AND/OR PORTFOLIO NET ASSET VALUE
(OPEN-END MANAGEMENT AS OF AUGUST 31, 1995 ANNUAL FEE
INVESTMENT COMPANIES) (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
The BlackRock Advantage Term Trust Inc. . . . $ 95,054 .60% of the average weekly net assets until
December 31, 1995; .50% from January 1, 1996
through December 31, 2000;
.40% from January 1, 2001 through termination
The BlackRock Income Trust Inc. . . . . . . . $ 475,096 .65% of the average weekly net assets
The BlackRock Municipal Target Term
Trust Inc. . . . . . . . . . . . . . . . . $ 496,610 .35% of the average weekly total assets
The BlackRock 1998 Term Trust Inc. . . . . . $ 562,149 .50% of the average weekly net assets until
December 31,
1994;
.40% from January 1, 1995 through December 31,
1996;
.30% from January 1, 1997 through termination
The BlackRock 1999 Term Trust Inc. . . . . . $ 195,107 .40% of the average weekly net assets
The BlackRock 2001 Term Trust Inc. . . . . . $ 1,237,786 .40% of the average weekly net assets
The BlackRock Insured Municipal 2008 Term
Trust Inc. . . . . . . . . . . . . . . . . $ 425,308 .35% of the average weekly total assets
The BlackRock Broad Investment Grade
2009 Term Trust Inc. . . . . . . . . . . . $ 38,743 .55% of the average weekly net assets
The BlackRock North American Government
Income Trust Inc. . . . . . . . . . . . . . $ 398,488 .60% of the average weekly net assets
The BlackRock Strategic Term Trust Inc. . . . $ 511,146 .60% of the average weekly net assets until
December 31, 1994;
.45% from January 1, 1995 through December 31,
1998;
.30% from January 1, 1999 through termination
The BlackRock Target Term Trust Inc. . . . . $ 931,501 .45% of the average weekly net assets until
December 31, 1996;
.30% from January 1, 1997 through termination
The BlackRock Insured Municipal Term
Trust Inc. . . . . . . . . . . . . . . . . $ 275,849 .35% of the average weekly total assets
The BlackRock Investment Quality Term
Trust Inc. . . . . . . . . . . . . . . . . $ 236,030 .60% of the average weekly net assets until
December 31, 1998;
.50% from January 1, 1999 through December 31,
2002;
.40% from January 1, 2003 through termination
</TABLE>
The BlackRock Investment Quality Municipal
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<PAGE> 65
<TABLE>
<CAPTION>
NAME OF INVESTMENT COMPANY APPROXIMATE
AND/OR PORTFOLIO NET ASSET VALUE
(OPEN-END MANAGEMENT AS OF AUGUST 31, 1995 ANNUAL FEE
INVESTMENT COMPANIES) (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
Trust Inc. . . . . . . . . . . . . . . . . $ 230,641 .35% of the average weekly total assets
The BlackRock New Jersey Investment Quality
Municipal Trust Inc. . . . . . . . . . . . $ 13,184 .35% of the average weekly total assets
</TABLE>
BLACKROCK SUB-ADVISED FUNDS
<TABLE>
<CAPTION>
NET ASSET VALUE
NAME OF INVESTMENT COMPANY AS OF AUGUST 31, 1995 ANNUAL FEE
AND/OR PORTFOLIO (000S) (BASED ON AVERAGE NET ASSETS)
-------------------------- --------------------- -----------------------------
<S> <C> <C>
The PNC Fund, Managed Income Portfolio . . . * .35% of the first $1 billion;
.30% of the next $1 billion;
.275% of the next $1 billion;
.25% of net assets over $3 billion.
The PNC Fund, Intermediate Government
Portfolio . . . . . . . . . . . . . . . . . * .35% of the first $1 billion;
.30% of the next $1 billion;
.275% of the next $1 billion;
.25% of net assets over $3 billion.
The PNC Fund, Intermediate-Term Bond
Portfolio . . . . . . . . . . . . . . . . . * .35% of the first $1 billion;
.30% of the next $1 billion;
.275% of the next $1 billion;
.25% of net assets over $3 billion.
The PNC Fund, Government Income Portfolio . . * .35% of the first $1 billion;
.30% of the next $1 billion;
.275% of the next $1 billion;
.25% of net assets over $3 billion.
Provident Institutional Funds, Inc.
Short Duration Fund . . . . . . . . . . . . * .25% of net assets.
Provident Institutional Funds, Inc.
Intermediate Duration Fund . . . . . . . . * .25% of net assets.
Investors Trust Government Fund . . . . . . . 1,183,027 .15% of average daily net asset value up to $5
million;
.10% of the next $250 million;
.05% of next $500 million;
.045% in excess of $1.25 billion.
Sierra Variable Trust -
U.S. Government Fund . . . . . . . . . . . 48,343 .185% of average daily net asset value up to
$650 million;
.15% of the next $350 million;
.10% in excess of $1 billion.
</TABLE>
- ------------------
* See PIMC Advised Funds above.
-55-
<PAGE> 66
<TABLE>
<S> <C> <C>
Sierra Trust Funds -
U.S. Government Fund . . . . . . . . . . . 487,889 .185% of average daily net asset value up to $650
million;
.15% of the next $350 million;
.10% in excess of $1 billion.
Sierra Trust Funds -
Target Maturity 2008 . . . . . . . . . . . 2,948 Greater of .05% of average daily net assets or
$25,000.
Frank Russell Investment Company Volatility
Constrained Bond Fund . . . . . . . . . . . 45,822 .25% of average daily net assets up to $1 billion;
.20% in excess of $1 billion.
Frank Russell Investment Company
Fixed Income II Fund . . . . . . . . . . . 39,260 .25% of average daily net assets up to $1 billion;
.20% in excess of $1 billion.
</TABLE>
Morgan Grenfell Advised Funds
<TABLE>
<CAPTION>
Name of Investment Company Annual Fee (based on
and/or Portfolio Net Asset Value average net assets)
-------------------------- --------------- -------------------
<S> <C> <C>
Dean Witter Euro Growth Fund . . . . $ 829,700,000 1.0% of the first $500 million;
0.95% of net assets over $500 million
Dean Witter Pacific Growth Fund . . . 1,474,900,000 1.0% of the first $1 billion;
0.95% of net assets over $1 billion
Dean Witter Variable Pacific
Fund . . . . . . . . . . . . . . . . 90,100,000 1% of net assets
Dean Witter Variable European
Fund . . . . . . . . . . . . . . . . 176,000,000 1% of net assets
Dean Witter Small Cap Fund . . . . . 102,000,000 1.25% of net assets
Dean Witter Global Asset
Allocation Fund . . . . . . . . . . . 19,500,000 0.225% of net assets
Dean Witter World Wide Fund . . . . . 363,000,000 0.3% of net assets
SEI European Equity Portfolio . . . . 186,700,000 .325% of net assets
RSI Retirement Fund . . . . . . . . . 30,800,000 0.6% of first $50 million;
0.5% of net assets over $50 million
Morgan Grenfell International
Equity Fund . . . . . . . . . . . . . 2,687,652 0.70% of net assets
Morgan Grenfell Small Cap
Equity Fund . . . . . . . . . . . . . 69,108,901 1.00% of net assets
Morgan Grenfell European
Small Cap Equity Fund . . . . . . . . 9,125,943 1.00% of net assets
Morgan Grenfell Emerging
Markets Equity Fund . . . . . . . . . 2,651,772 1.00% of net assets
Morgan Grenfell Global
Fixed Income Fund . . . . . . . . . . 117,597,563 0.50% of net assets
</TABLE>
-56-
<PAGE> 67
<TABLE>
<CAPTION>
Name of Investment Company Annual Fee (based on
and/or Portfolio Net Asset Value average net assets)
-------------------------- --------------- -------------------
<S> <C> <C>
Morgan Grenfell International
Fixed Income Fund . . . . . . . . . . 26,786,917 0.50% of net assets
Morgan Grenfell Emerging
Markets Debt Fund . . . . . . . . . . 72,110,780 1.50% of net assets
</TABLE>
The Glass-Steagall Act, among other things, prohibits banks from
engaging to any extent in the business of underwriting securities, although
national and state-chartered banks generally are permitted to purchase and sell
securities upon the order and for the account of their customers. In 1971, the
United States Supreme Court held in Investment Company Institute v. Camp that
the Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank-holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers
to registered closed-end investment companies.
PAMG, PIMC, PCM, PEAC and BlackRock believe that they may perform the
services contemplated by their agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. If,
however, they were prevented by judicial or administrative decisions or
interpretations from performing the services by their advisory and sub-advisory
agreements, it is anticipated that the Board would consider the possibility of
selecting other qualified companies. Any new investment advisory or
sub-advisory agreement would normally be subject to shareholder approval.
INFORMATION ABOUT DISTRIBUTORS AND ADMINISTRATORS. SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658, serves as the administrator for the Compass Portfolios and SEI
Financial Services Company, 680 Swedesford Road, Wayne, Pennsylvania 19087,
serves as their
-57-
<PAGE> 68
distributor. PMFCo, 345 Park Avenue, New York, New York 10154, PFPC Inc., 400
Bellevue Parkway, Wilmington, Delaware 19809 and Provident Distributors, Inc.,
259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087, serve as
co-administrators for each of the PNC Portfolios. Provident Distributors, Inc.
also serves as their distributor.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements for Service and Institutional Shares of the
PNC Portfolios for the annual period ended September 30, 1994 and six-month
period ended March 31, 1995 are incorporated by reference in the statement of
additional information related to this Combined Proxy Statement/Prospectus. In
addition, the financial statements for shares of the Compass Portfolios for the
annual period ended February 28, 1995 and the six-month period ended August 31,
1995, as well as the financial statements for shares of the BIT Portfolios
for the annual period ended June 30, 1995 are incorporated by reference in
the statement of additional information related to this Combined Proxy
Statement/Prospectus.
The annual financial statements of PNC and Compass have been audited by
Coopers and Lybrand L.L.P. and the annual financial statements of BIT have been
audited by Deloitte & Touche LLP to the extent indicated in their reports
thereon, which are also incorporated by reference in such statement of
additional information, and have been incorporated therein by reference in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
OTHER BUSINESS
The Compass Board of Trustees knows of no other business to be brought
before the Compass Meeting. The BIT Board of Directors knows of no other
business to be brought before the BIT Meeting. However, if any other matters
come before the Compass Meeting or the BIT Meeting, respectively, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Inquiries of Compass shareholders may be addressed to The Compass
Capital Group of Funds in writing at the address on the cover page of this
Combined Proxy Statement/Prospectus or by telephoning 1-800-451-8371.
Inquiries of BIT shareholders may be addressed to The BFM Institutional Trust
Inc. in writing at the address on the cover page of this Combined Proxy
Statement/Prospectus or by telephoning 1-800-555-3890.
* * *
-58-
<PAGE> 69
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE RESPECTIVE
MEETINGS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
COMPASS WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS 1995 ANNUAL AND
SEMI-ANNUAL SHAREHOLDER REPORTS TO ANY SHAREHOLDER UPON REQUEST ADDRESSED TO
680 SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087 OR BY TELEPHONE AT
1-800-451-8371.
BIT WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS 1995 ANNUAL
SHAREHOLDERS REPORT TO ANY SHAREHOLDER UPON REQUEST ADDRESSED TO 345 PARK
AVENUE, NEW YORK, NEW YORK 10154 OR BY TELEPHONE AT 1-800-555-3890.
-59-
<PAGE> 70
10/05/95 Draft
APPENDIX I
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
THE PNC(R) FUND
AND
THE COMPASS CAPITAL GROUP OF FUNDS(R)
DATED: AS OF OCTOBER __, 1995
I-1
<PAGE> 71
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Conveyance of Assets of Compass Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
Liquidation of Compass Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-10
Valuation Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-11
Certain Representations, Warranties and Agreements of Compass . . . . . . . . . . . . . . . . . . . . . . . . . . . I-11
Certain Representations, Warranties and Agreements of PNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-20
Shareholder Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-26
Regulatory Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-27
Effective Time of the Compass Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
PNC Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-29
Compass Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-43
Termination of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-44
Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-44
Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-45
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Brokerage Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
PNC Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-46
Compass Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-47
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-48
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
</TABLE>
I-2
<PAGE> 72
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this __th
day of October, 1995 by and between The Compass Capital Group of Funds(R)
("Compass"), a Massachusetts business trust consisting of multiple investment
portfolios named the Municipal Money Fund, New Jersey Municipal Money Fund,
Pennsylvania Municipal Money Fund, Cash Reserve Fund, U.S. Treasury Fund,
Municipal Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania Municipal
Bond Fund, Equity Income Fund, Growth Fund, Small Company Fund, International
Equity Fund, Balanced Fund, Short/Intermediate Fund, Fixed Income Fund and
International Fixed Income Fund (the "Compass Portfolios") and The PNC Fund(R)
("PNC"), a Massachusetts business trust consisting of multiple investment
portfolios which include the Municipal Money Market Portfolio, New Jersey
Municipal Money Portfolio, Pennsylvania Municipal Money Portfolio, Money Market
Portfolio, Government Money Market Portfolio, Tax-Free Income Portfolio, New
Jersey Tax-Free Income Portfolio, Pennsylvania Tax- Free Income Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, International Equity Portfolio, Balanced Portfolio, Short-Term Bond
Portfolio, Core Fixed Income Portfolio and International Fixed Income Portfolio
(the "PNC Portfolios").
WHEREAS, Compass and PNC are each an open-end management investment
company registered with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
I-3
<PAGE> 73
WHEREAS, Compass currently receives investment advisory services from
Midlantic Bank, N.A., an affiliate of Midlantic Corporation, and PNC currently
receives investment advisory services from affiliates of PNC Bank Corp.; and
WHEREAS, Midlantic Corporation and PNC Bank Corp. have entered into an
agreement providing for their merger (the "Bank Holding Company Merger"); and
WHEREAS, subject to the consummation of the Bank Holding Company Merger,
the parties desire that the assets and liabilities of each Compass Portfolio be
conveyed to, and be acquired and assumed by, the respective PNC Portfolio
corresponding thereto, as stated herein, in exchange for "Service" class shares
of the corresponding PNC Portfolio which shall thereafter be distributed by
Compass to the shareholders of the Compass Portfolio in connection with its
liquidation as described in this Agreement (the "Compass Transaction"); and
WHEREAS, PNC also maintains twelve additional investment portfolios --
Ohio Municipal Money Market Portfolio, North Carolina Municipal Money Market
Portfolio, Virginia Municipal Money Market Portfolio, Intermediate Government
Portfolio, Ohio Tax-Free Income Portfolio, Intermediate-Term Bond Portfolio,
Government Income Portfolio, Managed Income Portfolio, Core Equity Portfolio,
Small Cap Value Equity Portfolio, Index Equity Portfolio and International
Emerging Markets Portfolio -- that are not parties to the Compass Transaction;
and
I-4
<PAGE> 74
WHEREAS, the parties anticipate that PNC may enter into separate
acquisition agreements with The BFM Institutional Trust Inc. (the "BIT
Agreement") or other entities that provide for the acquisition of additional
investment portfolios by the PNC Portfolios, and the parties intend that the
execution and consummation of this Agreement shall neither prevent nor be
subject to the execution or consummation of any such agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, the
parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF ASSETS OF COMPASS PORTFOLIOS. At the Effective Time of
the Compass Transaction as defined in Section 8, all property of every
description, and all interests, rights, privileges and powers of each of the
Compass Portfolios, subject to all liabilities of such Portfolios, whether
accrued, absolute, contingent or otherwise existing as of the Effective Time of
the Compass Transaction (such assets subject to such liabilities are herein
referred to as the "Fund Assets"), shall be transferred and conveyed by each
Compass Portfolio to the corresponding PNC Portfolio (as set forth below) and
shall be accepted and assumed by said PNC Portfolio as more particularly set
forth in the following paragraph, such that at and after the Effective Time of
the Compass Transaction: (a) all assets of the Compass Portfolios shall become
and be the assets of the respective corresponding PNC Portfolios; and (b) all
such liabilities and
I-5
<PAGE> 75
obligations of the Compass Portfolios that are so existing shall attach to the
respective corresponding PNC Portfolios as aforesaid and may thenceforth be
enforced against the respective PNC Portfolios to the extent as if the same had
been incurred by them.
Without limiting the generality of the foregoing, it is understood that
the Fund Assets shall include all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents, securities, claims
and receivables (including dividend and interest receivables) owned by each
Compass Portfolio, and any deferred or prepaid expenses shown as an asset on
each Compass Portfolio's books, at the Effective Time of the Compass
Transaction, and all good will, all other intangible property and all books and
records belonging to the Compass Portfolios, including the "Compass" name and
registered marks, if any.
I-6
<PAGE> 76
In particular, the Fund Assets of each Compass Portfolio shall be
transferred and conveyed to the corresponding PNC Portfolio, as set forth
below:
<TABLE>
<CAPTION>
====================================================================================================
CORRESPONDING
COMPASS PORTFOLIO PNC PORTFOLIO
- ----------------------------------------------------------------------------------------------------
<S> <C>
Municipal Money Fund Municipal Money Market Portfolio
- ----------------------------------------------------------------------------------------------------
New Jersey Municipal Money New Jersey Municipal Money Market Portfolio
Fund
- ----------------------------------------------------------------------------------------------------
Pennsylvania Municipal Money Fund Pennsylvania Municipal Money Market Portfolio
- ----------------------------------------------------------------------------------------------------
Cash Reserve Fund Money Market Portfolio
- ----------------------------------------------------------------------------------------------------
U.S. Treasury Fund Government Money Market Portfolio
- ----------------------------------------------------------------------------------------------------
Municipal Bond Fund Tax-Free Income Portfolio
- ----------------------------------------------------------------------------------------------------
New Jersey Municipal Bond New Jersey Tax-Free Income Portfolio
Fund
- ----------------------------------------------------------------------------------------------------
Pennsylvania Municipal Bond Pennsylvania Tax-Free Income Portfolio
Fund
- ----------------------------------------------------------------------------------------------------
Equity Income Fund Value Equity Portfolio
- ----------------------------------------------------------------------------------------------------
Growth Fund Growth Equity Portfolio
- ----------------------------------------------------------------------------------------------------
Small Company Fund Small Cap Growth Equity Portfolio
- ----------------------------------------------------------------------------------------------------
International Equity Fund International Equity Portfolio
- ----------------------------------------------------------------------------------------------------
Balanced Fund Balanced Portfolio
- ----------------------------------------------------------------------------------------------------
Short-Term Intermediate Fund Short-Term Bond Portfolio
- ----------------------------------------------------------------------------------------------------
Fixed Income Fund Core Fixed Income Portfolio
- ----------------------------------------------------------------------------------------------------
International Fixed Income International Fixed Income Portfolio
Fund
====================================================================================================
</TABLE>
I-7
<PAGE> 77
In exchange for the transfer of the Fund Assets, each PNC Portfolio shall
simultaneously issue to the corresponding Compass Portfolio at the Effective
Time of the Compass Transaction full and fractional shares of beneficial
interest in said PNC Portfolio's so-called "Service" share class having an
aggregate net asset value equal to the net value of the Fund Assets so conveyed
to such PNC Portfolio, all determined and adjusted as provided in this Section
1. In particular, each PNC Portfolio shall deliver to the corresponding
Compass Portfolio the number of shares of its "Service" share class, including
fractional shares, determined by dividing the value of the Fund Assets of the
corresponding Compass Portfolio that are so conveyed, computed in the manner
and as of the time and date set forth in this Section, by the net asset value
of one PNC Portfolio "Service" share that is to be delivered with respect
thereto, computed in the manner and as of the time and date set forth in this
Section. It is contemplated that at the Effective Time of the Compass
Transaction the net asset value of one PNC Portfolio Service Share will be the
same as the net asset value of one share of its corresponding Compass Portfolio
in the case of the PNC New Jersey Tax-Free Income Portfolio and PNC
International Fixed Income Portfolio and, in the event that the Effective Time
of the Compass Transaction occurs simultaneously with the effective time of the
transaction contemplated in the BIT Agreement, that the net asset value of one
PNC Portfolio Service Share will be adjusted to be the same as the net asset
value of
I-8
<PAGE> 78
one share of the corresponding portfolio of The BFM Institutional Trust Inc. in
the case of the PNC Short-Term Bond Portfolio and PNC Core Fixed Income
Portfolio. All computations shall be made by PNC in consultation with Coopers
& Lybrand, L.L.P.
The net asset value of shares to be delivered by the PNC Portfolios, and
the net value of the Fund Assets to be conveyed by the Compass Portfolios,
shall, in each case, be determined as of the Valuation Time specified in
Section 3. The net asset value of shares of the PNC Portfolios shall be
computed in the manner set forth in the PNC Portfolios' then current
prospectuses under the Securities Act of 1933, as amended (the "1933 Act").
The net value of the Fund Assets to be transferred by the Compass Portfolios
shall be computed by PNC and shall be subject to adjustment by the amount, if
any, agreed to by PNC and the respective Compass Portfolios. In determining
the value of the securities transferred by the Compass Portfolios to the PNC
Portfolios, each security shall be priced in accordance with the policies and
procedures of PNC described in its then current prospectuses and statements of
additional information and adopted by PNC's Board of Trustees. For such
purposes, price quotations and the security characteristics relating to
establishing such quotations shall be determined by PNC, provided that such
determination shall be subject to the approval of Compass.
It is understood and agreed that the value of the Fund Assets of the
Compass Municipal Money Fund, New Jersey Municipal Money Fund, Pennsylvania
Municipal Money Fund, Cash Reserve Fund
I-9
<PAGE> 79
and U.S. Treasury Fund (each a "Compass Money Market Fund") and the value of
shares the corresponding PNC Portfolios for purposes of sales and redemptions
shall be based on the amortized cost valuation procedures that have been
adopted by the Board of Trustees of Compass; provided that if the difference
between the per share net asset values of a Compass Money Market Fund and its
corresponding PNC Portfolio equals or exceeds $.0025 at the Valuation Time, as
computed by using such market values in accordance with the policies and
procedures established by PNC (or as otherwise mutually determined by the
Boards of Trustees of Compass and PNC), either the Board of Trustees of Compass
or the Board of Trustees of PNC shall have the right to postpone the Valuation
Time and the Effective Time of the Compass Transaction with respect to such
Compass Money Market Fund until such time as the per share difference is less
than $.0025.
2. LIQUIDATION OF COMPASS PORTFOLIOS. At the Effective Time of the
Compass Transaction, each of the Compass Portfolios shall make a liquidating
distribution to its shareholders as follows. Shareholders of record of each
Compass Portfolio shall be credited with full and fractional shares of the
class of beneficial interest that are issued by the corresponding PNC Portfolio
in connection with the Compass Transaction with respect to the shares that are
held of record by the shareholder. In addition, each shareholder of record of
a Compass Portfolio shall have the right to receive any unpaid dividends or
other distributions which were declared before the Effective Time of
I-10
<PAGE> 80
the Compass Transaction with respect to the shares of such Compass Portfolio
that are held by the shareholder at the Effective Time of the Compass
Transaction. In accordance with instructions it receives from Compass, PNC
shall record on its books the ownership of the respective PNC Portfolio shares
by the shareholders of record of the Compass Portfolios (the "Transferor Record
Holders"). No redemption or repurchase of any PNC Portfolio shares credited to
former shareholders of the Compass Portfolios that are represented by
unsurrendered share certificates shall be permitted until such certificates
have been surrendered to PNC's transfer agent for cancellation. All of the
issued and outstanding shares of the Compass Portfolios at the Effective Time
of the Compass Transaction shall be redeemed and cancelled on the books of
Compass at such time. As soon as practicable after the Effective Time of the
Compass Transaction, Compass shall make all filings and take all other steps as
shall be necessary and proper to effect its complete dissolution, and shall
file an application pursuant to Section 8(f) of the 1940 Act for an order
declaring that it has ceased to be an investment company. After the Effective
Time of the Compass Transaction, Compass shall not conduct any business except
in connection with its liquidation, dissolution, and deregistration.
3. VALUATION TIME. The Valuation Time for each of the Compass
Portfolios and the PNC Portfolios, shall be 4:01 P.M., Eastern Time, on January
12, 1996 or such earlier or later date as agreed to by the parties to this
Agreement.
I-11
<PAGE> 81
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF COMPASS.
Compass, on behalf of itself and the Compass Portfolios, represents and
warrants to, and agrees with, PNC as follows (such representations, warranties
and agreements being made on behalf of each Compass Portfolio on a several and
not joint, nor joint and several, basis):
(a) Compass is a Massachusetts business trust duly created
pursuant to its Declaration of Trust for the purpose of
acting as a management investment company under the 1940
Act, and is validly existing under the laws of the
Commonwealth of Massachusetts. Compass is registered as
an open-end management investment company under the 1940
Act, and its registration with the SEC as an investment
company is in full force and effect.
(b) Compass has the power to own all of its properties and
assets and, subject to the approvals of shareholders
referred to in Section 6, to carry out and consummate the
transactions contemplated herein, and has all necessary
federal, state and local authorizations to carry on its
business as now being conducted and to consummate the
transactions contemplated by this Agreement.
I-12
<PAGE> 82
(c) This Agreement has been duly authorized, executed and
delivered by Compass, and represents a valid and binding
contract, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar
laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The
execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this
Agreement will not, violate the Amended and Restated
Agreement and Declaration of Trust or By-laws of Compass
or, except as previously disclosed to PNC in writing, any
agreement or arrangement to which Compass is a party or by
which it is bound.
(d) Each Compass Portfolio has elected to qualify and has
qualified as a regulated investment company under Part I
of Subchapter M of Subtitle A, Chapter 1, of the Internal
Revenue Code of 1986, as amended (the "Code"), as of and
since its first taxable year; has been a regulated
investment company under such Part of the Code at all
times
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since the end of its first taxable year when it so
qualified; and qualifies and shall continue to qualify as
a regulated investment company for its taxable year ending
upon its liquidation.
(e) The audited financial statements of Compass for its fiscal
year ended February 28, 1995 (copies of which have been
previously furnished to PNC), and the unaudited financial
statements of Compass for its six-month period ended
August 31, 1995 (copies of which will be promptly
furnished to PNC when available), present (or will present
in the case of said unaudited financial statements) fairly
the financial position of the Compass Portfolios as of the
dates indicated and the results of their operations for
the periods indicated, in conformity with generally
accepted accounting principles applied on a consistent
basis. There has been no material adverse change in the
financial position of any Compass Portfolio since the
dates of said financial statements.
(f) Except as previously disclosed to PNC in writing, there
are no contingent liabilities of any Compass Portfolio not
disclosed in
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said financial statements delivered pursuant to Section
4(e).
(g) Each Compass Portfolio has valued, and will continue to
value, its portfolio securities and other assets in
accordance with applicable legal requirements.
(h) Except as previously disclosed to PNC in writing, there
are no material legal, administrative or other proceedings
pending or, to its knowledge threatened, against Compass
or the Compass Portfolios which could result in liability
on the part of Compass or the Compass Portfolios.
(i) At the Effective Time of the Compass Transaction, all
federal and other tax returns and reports of each Compass
Portfolio required by law to have been filed by such time
shall have been filed, and all federal and other taxes
shall have been paid so far as due, or provision shall
have been made for the payment thereof and, to the best
knowledge of each Compass Portfolio, no such return or
report shall be currently under audit and no assessment
shall have been asserted with respect to such returns or
reports.
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(j) Subject to the approvals of shareholders referred to in
Section 6, at both the Valuation Time and the Effective
Time of the Compass Transaction, Compass shall have full
right, power and authority to sell, assign, transfer and
deliver the Fund Assets and, upon delivery and payment for
the Fund Assets as contemplated herein, the PNC Portfolios
shall acquire good and marketable title thereto, subject
to no restrictions on the ownership or transfer thereof
(except as imposed by federal or state securities laws).
(k) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation
by Compass of the transactions contemplated by this
Agreement, except such as may be required under the 1933
Act, the Securities Exchange Act of 1934, as amended
("1934 Act"), the 1940 Act, the rules and regulations
under those Acts, or state securities laws.
(l) Insofar as the following relate to Compass, the
registration statement filed by PNC on Form N-14 relating
to the shares of the PNC Portfolios that will be
registered with the SEC pursuant to this Agreement, which
shall
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include or incorporate by reference the proxy statement of
the Compass Portfolios and prospectuses of the PNC
Portfolios with respect to the transactions contemplated
by this Agreement, and any supplement or amendment thereto
or to the documents contained or incorporated therein by
reference (the "N-14 Registration Statement"), and the
proxy materials of Compass, if any, otherwise filed with
the SEC pursuant to Section 14(a) of the 1934 Act and
Section 20(a) of the 1940 Act with respect to the
transactions contemplated by this Agreement, and any
supplement or amendment thereto or the documents appended
thereto (the "Compass Transaction Proxy Materials"), on
their effective and clearance dates with the SEC, at the
time of the shareholders meeting referred to in Section 6
and at the Effective Time of the Compass Transaction: (i)
shall comply in all material respects with the provisions
of the 1933 Act, 1934 Act and the 1940 Act, the rules and
regulations thereunder, and state securities laws, and
(ii) shall not contain any untrue statement of a material
fact or omit to state a
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material fact required to be stated therein or necessary
to make the statements therein not misleading; provided,
that the representations and warranties made by Compass in
this subsection shall not apply to statements in or
omissions from the N-14 Registration Statement or to
Compass Transaction Proxy Materials made in reliance upon
and in conformity with information furnished by PNC for
use therein as provided in Section 7.
(m) All of the issued and outstanding shares of each of the
Compass Portfolios have been validly issued and are fully
paid and non-assessable, and were offered for sale and
sold in conformity with all applicable federal and state
securities laws.
(n) Compass shall not sell or otherwise dispose of any shares
of the PNC Portfolios to be received in the transactions
contemplated herein, except in distribution to its
shareholders as contemplated herein.
(o) Compass shall operate its business in the ordinary course
between the date hereof and the Effective Time of the
Compass Transaction. It is understood that such
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ordinary course of business will include the declaration
and payment of customary dividends and distributions and
any other dividends and distributions deemed advisable,
and the continued good faith performance by the investment
adviser, sub-advisers, administrator, distributor and
other service providers of Compass of their respective
responsibilities in accordance with the provisions of
their agreements with Compass and applicable law.
(p) Except for agreements or other arrangements relating to
the purchase and sale of portfolio securities, Compass has
furnished PNC with copies or descriptions of all contracts
or legally binding arrangements to which it is a party.
(q) Each Compass Portfolio shall deliver to PNC on November
30, 1995 a statement of all of the specific assets and
specific liabilities of the Compass Portfolios, together
with a list of the portfolio securities of each Compass
Portfolio showing the tax costs of such securities by lot
and the holding periods of such securities, and clearly
reflecting the basis used for determination
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of gain or loss realized on the partial sale of any
security. Each Compass Portfolio shall immediately notify
PNC of any portfolio security thereafter acquired or sold
by the Compass Portfolio and, upon PNC's request, shall
promptly and periodically update the other information
described in this paragraph. Upon notice by PNC, each
Compass Portfolio shall immediately sell any portfolio
security that PNC identifies as impermissible under the
investment policies, objectives and limitations of the
corresponding PNC Portfolio.
(r) Subject to approval of this Agreement and the transactions
contemplated herein by its shareholders, each Compass
Portfolio shall enter into an interim investment advisory
agreement and/or sub- investment advisory agreement that
will be effective for the period beginning at the time the
Bank Holding Company Merger is effective and ending at the
Effective Time of the Compass Transaction in the event
these two times are not concurrent.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PNC. PNC, on
behalf of itself and the PNC Portfolios, represents and warrants to, and agrees
with, Compass as follows (such
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representations, warranties and agreements being made on behalf of each PNC
Portfolio on a several and not joint, nor joint and several, basis):
(a) PNC is a Massachusetts business trust duly created
pursuant to its Declaration of Trust for the purpose of
acting as a management investment company under the 1940
Act, and is validly existing under the laws of the
Commonwealth of Massachusetts. PNC is registered as an
open-end management investment company under the 1940 Act
and its registration with the SEC as an investment company
is in full force and effect.
(b) PNC has the power to own all of its properties and assets
and to consummate the transactions contemplated herein,
and has all necessary federal, state and local
authorizations to carry on its business as now being
conducted and to consummate the transactions contemplated
by this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by PNC, and represents a valid and binding
contract, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium and
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other similar laws of general applicability relating to or
affecting creditors' rights and to general equity
principles. The execution and delivery of this Agreement
does not, and the consummation of the transactions
contemplated by this Agreement will not, violate PNC's
Declaration of Trust, as amended, or the Code of
Regulations or any agreement or arrangement to which PNC
is a party or by which it is bound.
(d) Each PNC Portfolio that has not conducted operations prior
to the Effective Time of the Compass Transaction intends
to qualify as a regulated investment company under Part I
of Subchapter M of the Code, and with respect to each PNC
Portfolio that has conducted operations prior to the
Effective Time of the Compass Transaction, has elected to
qualify and has qualified as a regulated investment
company under Part I of Subchapter M of Subtitle A,
Chapter 1, of the Code, as of and since its first taxable
year; has been a regulated investment company under such
Part of the Code at all times since the end of its first
taxable year when it so qualified; and qualifies and shall
continue to qualify as a
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regulated investment company for its current taxable year.
(e) The audited financial statements of PNC for its fiscal
year ended September 30, 1994, and the unaudited financial
statements of PNC for the six-month period ended March 31,
1995 (copies of which have been previously furnished to
Compass), and the audited financial statements of PNC for
the fiscal year ended September 30, 1995 (copies of which
will be promptly furnished to Compass when available),
present (or will present in the case of said audited
financial statements for its fiscal year ended September
30, 1995) fairly the financial position of the PNC
Portfolios as of the dates indicated and the results of
their operations for the periods indicated, in conformity
with generally accepted accounting principles applied on a
consistent basis. There has been no material adverse
change in the financial position of any PNC Portfolio
since the dates of said financial statements.
(f) Each PNC Portfolio has valued, and will continue to value,
its portfolio securities
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and other assets in accordance with applicable legal
requirements.
(g) There are no material legal, administrative or other
proceedings pending or, to its knowledge threatened,
against PNC or the PNC Portfolios which could result in
liability on the part of PNC or the PNC Portfolios.
(h) At the Effective Time of the Compass Transaction, all
federal and other tax returns and reports of each PNC
Portfolio required by law to have been filed by such time
shall have been filed, and all federal and other taxes
shall have been paid so far as due, or provision shall
have been made for the payment thereof and, to the best
knowledge of each PNC Portfolio, no such return or report
shall be currently under audit and no assessment shall
have been asserted with respect to such returns or
reports.
(i) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation
by PNC of the transactions contemplated by this Agreement,
except such as may be required under 1933 Act, the 1934
Act, the 1940 Act, the rules
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and regulations under those Acts, or state securities laws.
(j) The N-14 Registration Statement and the Compass
Transaction Proxy Materials, on their effective and
clearance dates with the SEC, at the time of the
shareholders meeting referred to in Section 6 and at the
Effective Time of the Compass Transaction, insofar as they
relate to PNC (i) shall comply in all material respects
with the provisions of the 1933 Act, 1934 Act and the 1940
Act, the rules and regulations thereunder, and state
securities laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein not misleading; provided, that the
representations and warranties in this subsection shall
not apply to statements in or omissions from the N-14
Registration Statement or the Compass Transaction Proxy
Materials made in reliance upon and in conformity with
information furnished by Compass for use therein as
provided in Section 7.
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(k) The shares of the PNC Portfolios to be issued and
delivered to the Compass Portfolios for the account of the
shareholders of the Compass Portfolios, pursuant to the
terms hereof, shall have been duly authorized as of the
Effective Time of the Compass Transaction and, when so
issued and delivered, shall be duly and validly issued,
fully paid and non-assessable, and no shareholder of PNC
shall have any preemptive right of subscription or
purchase in respect thereto.
(l) PNC shall operate its business in the ordinary course
between the date hereof and the Effective Time of the
Compass Transaction. It is understood that (i) such
ordinary course of business will include the declaration
and payment of customary dividends and distributions and
any other dividends and distributions deemed advisable,
and the continued good faith performance by the investment
advisers, sub-advisers, administrators, distributor and
other service providers of PNC of their respective
responsibilities in accordance with the provisions of
their agreements with PNC and applicable law; and (ii)
nothing in this
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Agreement shall prevent PNC from entering into and
consummating the BIT Agreement or any other agreement
providing for the acquisition of additional investment
portfolios (whether or not registered under the 1940 Act)
by the PNC Portfolios.
6. SHAREHOLDER ACTION. As soon as practicable after the effective date
of the N-14 Registration Statement and SEC clearance of the proxy solicitation
materials referred to in Section 7, but in any event prior to the Effective
Time of the Compass Transaction and as a condition thereto, the Board of
Trustees of Compass shall call, and Compass shall hold, a meeting of the
shareholders of all of its investment portfolios for the purpose of considering
and voting upon:
(a) In the case of all investment portfolios, approval of this
Agreement and the transactions contemplated hereby.
(b) In the case of all investment portfolios, approval of
interim investment advisory agreements and/or
sub-investment advisory agreements which would be
effective for the period beginning at the time the Bank
Holding Company Merger is effective and ending at the
Effective Time of the Compass Transaction in the event
those two times are not concurrent.
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(c) Such other matters as may be determined by the Boards of
Trustees of the parties.
The matter referred to in paragraph (b) above has been, or shall be,
approved by the Board of Trustees of Compass in accordance with the
requirements of the 1940 Act and Board policy.
7. REGULATORY FILINGS. PNC shall file a post-effective amendment (the
"N-1A Post-Effective Amendment") to its registration statement on Form N-1A
(File No. 33-26305) with the SEC, and with the appropriate state securities
commissions, as promptly as practicable so that all PNC Portfolios and their
shares are registered under the 1933 Act, 1940 Act and applicable state
securities laws. In addition, PNC shall file an N-14 Registration Statement
with the SEC and the appropriate state securities commissions relating to the
matters described in Section 6 as promptly as practicable. PNC and Compass
have cooperated and shall continue to cooperate with each other, and have
furnished and shall continue to furnish each other with the information
relating to itself that is required by the 1933 Act, the 1934 Act, the 1940
Act, the rules and regulations under each of those Acts and state securities
laws, to be included in the N-1A Post-Effective Amendment, the N-14
Registration Statement and the Compass Transaction Proxy Materials.
8. EFFECTIVE TIME OF THE COMPASS TRANSACTION. Delivery of the Fund
Assets and the shares of the PNC Portfolios to be issued pursuant to Section 1
and the liquidation of the Compass
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Portfolios pursuant to Section 2 shall occur on the next business day following
the Valuation Time, or on such other date, and at such place and time, agreed
to by each of the parties. The date and time at which such actions are taken
are referred to herein as the "Effective Time of the Compass Transaction." To
the extent any Fund Assets are, for any reason, not transferred at the
Effective Time of the Compass Transaction, Compass shall cause such Fund Assets
to be transferred in accordance with this Agreement at the earliest practicable
date thereafter.
9. PNC CONDITIONS. The obligations of PNC hereunder shall be subject to
the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of
Trustees of Compass and, subject to the provisions of
Section 14, by the holders of at least a majority of the
outstanding shares of the respective Compass Portfolios
voting separately on a portfolio-by-portfolio basis.
(b) Each Compass Portfolio shall have delivered to its
corresponding PNC Portfolio a statement of the specific
assets and specific liabilities of the Compass Portfolio,
together with a list of the portfolio securities of the
Compass Portfolio showing the tax costs of such securities
by lot and
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the holding periods of such securities, as of the
Valuation Time, and clearly reflecting the basis used for
determination of gain or loss realized on the partial sale
of any security transferred to PNC, certified by the
Treasurer or Assistant Treasurer of the Compass Portfolio.
(c) Compass shall have duly executed and delivered to PNC such
bills of sale, assignments, certificates and other
instruments of transfer ("Transfer Documents") as PNC may
deem necessary or desirable to transfer all of each
Compass Portfolio's right, title and interest in and to
the Fund Assets. Such Assets shall be accompanied by all
necessary state stock transfer stamps or cash for the
appropriate purchase price therefor.
(d) Each Compass Portfolio shall have delivered to its
corresponding PNC Portfolio a copy of the shareholder
ledger accounts for all the shareholders of record of said
Compass Portfolio as of the Effective Time of the Compass
Transaction who are to become shareholders of the
corresponding PNC Portfolio as a result of the Compass
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Transaction, certified by its Transfer Agent or its
President to the best of his or her knowledge and belief.
(e) As of the Valuation Time and the Effective Time of the
Compass Transaction there shall have been no material
adverse change in the financial position of any Compass
Portfolio since the dates of the financial statements
referred to in Section 4(e).
(f) All representations and warranties of Compass and the
Compass Portfolios made in this Agreement shall be true
and correct in all material respects as if made at and as
of the Valuation Time and the Effective Time of the
Compass Transaction.
(g) Compass shall have delivered to PNC a certificate executed
in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to PNC and dated as of the Effective Time of
the Compass Transaction, to the effect that the
representations and warranties of Compass and the Compass
Portfolios made in this Agreement are true and correct at
and as of the Effective Time of the Compass Transaction,
except as they
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may be affected by the transactions contemplated by this
Agreement.
(h) PNC shall have received an opinion of Morgan, Lewis &
Bockius, counsel to Compass, in form reasonably
satisfactory to PNC and dated the Effective Time of the
Compass Transaction, substantially to the effect that (i)
Compass is a Massachusetts business trust duly established
and validly existing under the laws of the Commonwealth
of Massachusetts; (ii) this Agreement and the Transfer
Documents have been duly authorized, executed and
delivered by Compass and represent legal, valid and
binding contracts, enforceable in accordance with their
terms, subject to the effect of bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and
court decisions with respect thereto, and such counsel
shall express no opinion with respect to the application
of equitable principles in any proceeding, whether at law
or in equity; (iii) the execution and delivery of this
Agreement did not, and the consummation of the
transactions contemplated by this
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Agreement will not, violate the Amended and Restated
Agreement and Declaration of Trust or By-laws of Compass
or any material contract known to such counsel to which
Compass is a party or by which it is bound; and (iv) no
consent, approval, authorization or order of any court or
governmental authority is required for the consummation by
Compass of the transactions contemplated by this
Agreement, except such as have been obtained under the
1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those Acts and such as may be required
under the state securities laws. Such opinion may rely on
the opinion of other counsel to the extent set forth in
such opinion, provided such other counsel is reasonably
acceptable to PNC.
(i) PNC shall have received an opinion of Drinker Biddle &
Reath addressed to PNC and Compass in form reasonably
satisfactory to them, and dated the Effective Time of the
Compass Transaction, substantially to the effect that for
federal income tax purposes (i) the transfer by each
Compass Portfolio of all of its Fund Assets to the
corresponding PNC
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Portfolio in exchange for shares of the corresponding PNC
Portfolio, and the distribution of said shares to the
shareholders of the Compass Portfolio, as provided in this
Agreement, will constitute a tax-free transaction within
the meaning of Section 368(a)(1)(C), (D) or (F) of the
Code; (ii) in accordance with Sections 361(a), 361(c)(1)
and 357(a) of the Code, no gain or loss will be recognized
by the Compass Portfolios as a result of such
transactions; (iii) in accordance with Section 1032(a) of
the Code, no gain or loss will be recognized by the PNC
Portfolios as a result of such transactions; (iv) in
accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized by the shareholders of the Compass
Portfolios on the distribution to them by the Compass
Portfolios of shares of the corresponding PNC Portfolios
in exchange for their shares of the Compass Portfolios;
(v) in accordance with Section 358(a)(1) of the Code, the
basis of the PNC Portfolio shares received by each
shareholder of a Compass Portfolio will be the same as the
basis of the shareholder's Compass Portfolio
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shares immediately prior to the transactions; (vi) in
accordance with Section 362(b) of the Code, the basis of
the Fund Assets received by each PNC Portfolio will be the
same as the basis of such Fund Assets in the hands of the
corresponding Compass Portfolio immediately prior to the
transactions; (vii) in accordance with Section 1223(1) of
the Code, a shareholder's holding period for PNC Portfolio
shares will be determined by including the period for
which the shareholder held the shares of the Compass
Portfolio exchanged therefor, provided that the
shareholder held such shares of the Compass Portfolio as a
capital asset; (viii) in accordance with Section 1223(2)
of the Code, the holding period of the PNC Portfolios with
respect to the Fund Assets will include the period for
which such Fund Assets were held by the corresponding
Compass Portfolios; and (ix) in accordance with Section
381(a) of the Code, each PNC Portfolio will succeed to the
tax attributes of the corresponding Compass Portfolios
described in Section 381(c) of the Code.
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(j) The Fund Assets to be transferred to a PNC Portfolio under
this Agreement shall include no assets which such PNC
Portfolio may not properly acquire pursuant to its
investment limitations or objectives or may not otherwise
lawfully acquire.
(k) The N-1A Post-Effective Amendment and the N-14
Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the
knowledge of PNC, contemplated by the SEC and the parties
shall have received all permits and other authorizations
necessary under state securities laws to consummate the
transactions contemplated by this Agreement.
(l) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which
it is sought to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the
transactions contemplated herein.
(m) Prior to the Valuation Time, each Compass Portfolio shall
have declared a dividend or dividends, with a record date
and ex-dividend
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date prior to the Effective Time of the Compass
Transaction, which, together with all previous dividends,
shall have the effect of distributing to its shareholders
all of its net investment company income, if any, for the
taxable periods or years ending February 28, 1995 and for
the periods from said date to and including the Effective
Time of the Compass Transaction (computed without regard
to any deduction for dividends paid), and all of its net
capital gain, if any, realized in taxable periods or years
ending February 28, 1995 and in the periods from said date
to and including the Effective Time of Compass
Transaction.
(n) Compass shall have performed and complied in all material
respects with each of its agreements and covenants
required by this Agreement to be performed or complied
with by it prior to or at the Valuation Time and the
Effective Time of the Compass Transaction.
(o) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted
any proceeding seeking to enjoin consummation of the
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transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
(p) The Bank Holding Company Merger referred to in the
recitals shall have been consummated.
(q) PNC shall have been furnished at the Effective Time of the
Compass Transaction with a certificate signed by any Vice
President or Treasurer of SEI Financial Management
Corporation ("SEI") dated as of said date stating that all
statistical and research data, clerical, accounting and
bookkeeping records, periodic reports to the SEC and any
state securities agencies, tax returns and other tax
filings, shareholder lists and other material shareholder
data, complaint files and all other information, books,
records and documents maintained by SEI (or any affiliate
of SEI) and belonging to the Compass Portfolios including
those required to be maintained by Section 31(a) of the
1940 Act and Rules 31a-1 to 31a-3 thereunder, have been
delivered to PNC.
10. COMPASS CONDITIONS. The obligations of Compass hereunder shall be
subject to the following conditions precedent:
(a) This Agreement shall have been adopted and the
transactions contemplated by this
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Agreement shall have been approved by the Board of
Trustees of PNC and, subject to the provisions of Section
14, by the holders of at least a majority of the
outstanding shares of the respective Compass Portfolios
voting separately on a portfolio-by-portfolio basis.
(b) As of the Valuation Time and the Effective Time of the
Compass Transaction there shall have been no material
adverse change in the financial position of any PNC
Portfolio since the dates of the financial statements
referred to in Section 5(e).
(c) All representations and warranties of PNC and the PNC
Portfolios made in this Agreement shall be true and
correct in all material respects as if made at and as of
the Valuation Time and the Effective Time of the Compass
Transaction.
(d) PNC shall have delivered to Compass a certificate executed
in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to Compass and dated as of the Effective Time
of the Compass Transaction, to the effect that the
representations and warranties of PNC and the PNC
Portfolios made
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in this Agreement are true and correct at and as of the
Effective Time of the Compass Transaction, except as they
may be affected by the transactions contemplated by this
Agreement and that, to its best knowledge, the Fund Assets
to be transferred to each PNC Portfolio under this
Agreement as set forth in Section 9(b) include only assets
which such PNC Portfolio may properly acquire under its
investment policies, limitations and objectives and may
otherwise be lawfully acquired by such PNC Portfolio.
(e) Compass shall have received an opinion of Drinker Biddle &
Reath, counsel to PNC, in form reasonably satisfactory to
Compass and dated the Effective Time of the Compass
Transaction, substantially to the effect that (i) PNC is a
Massachusetts business trust duly established and validly
existing under the laws of the Commonwealth of
Massachusetts; (ii) the shares of the PNC Portfolios to be
delivered to the Compass Portfolios as provided for by
this Agreement are duly authorized and upon delivery will
be validly issued, fully paid and non-assessable by PNC;
(iii) this Agreement has been duly
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authorized, executed and delivered by PNC, and represents
a legal, valid and binding contract, enforceable in
accordance with its terms, subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto,
and such counsel shall express no opinion with respect to
the application of equitable principles in any proceeding
whether at law or in equity; (iv) the execution and
delivery of this Agreement did not, and the consummation
of the transaction contemplated by this Agreement will
not, violate the Declaration of Trust, as amended, or the
Code of Regulations of PNC or any material contract known
to such counsel to which PNC is a party or by which it is
bound; and (v) no consent, approval, authorization or
order of any court or governmental authority is required
for the consummation by PNC of the transactions
contemplated by this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act,
the rules and regulations under those Acts and such as may
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be required by state securities laws. Such opinion may
rely on the opinion of other counsel to the extent set
forth in such opinion, provided such other counsel is
reasonably acceptable to Compass.
(f) Compass shall have received an opinion of Drinker Biddle &
Reath addressed to PNC and Compass in form reasonably
satisfactory to them, and dated the Effective Time of the
Compass Transaction, with respect to the matters specified
in Section 9(i).
(g) The N-1A Post-Effective Amendment and the N-14
Registration Statement shall have become effective under
the 1933 Act and no stop order suspending the
effectiveness shall have been instituted, or to the
knowledge of PNC, contemplated by the SEC and the parties
shall have received all permits and other authorizations
necessary under state securities laws to consummate the
transactions contemplated herein.
(h) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which
it is sought to restrain or prohibit, or obtain damages or
other relief in connection with, this
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Agreement or the transactions contemplated herein.
(i) PNC shall have performed and complied in all material
respects with each of its agreements and covenants
required by this Agreement to be performed or complied
with by it prior to or at the Valuation Time and the
Effective Time of the Compass Transaction.
(j) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted
any proceeding seeking to enjoin consummation of the
transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
(k) The Bank Holding Company Merger referred to in the
recitals shall have been consummated.
11. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to the other party hereto each of the
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items required under this Agreement as a condition to such party's obligations
hereunder. In addition, Compass shall deliver or cause to be delivered to PNC,
each account, book, record or other document of the Compass Portfolios required
to be maintained by Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3
thereunder (regardless of whose possession they are in).
12. TERMINATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the parties set forth in this Agreement shall terminate upon
the delivery of the Fund Assets to the PNC Portfolios and the issuance of the
shares of the PNC Portfolios at the Effective Time of the Compass Transaction.
13. TERMINATION OF AGREEMENT. This Agreement may be terminated by a
party at any time at or prior to the Effective Time of the Compass Transaction
by a vote of a majority of its Board of Trustees as provided below:
(a) By PNC if the conditions set forth in Section 9 are not
satisfied as specified in said Section;
(b) By Compass if the conditions set forth in Section 10 are
not satisfied as specified in said Section; and
(c) By mutual consent of both parties.
14. AMENDMENT AND WAIVER. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of
Compass (a) the parties hereto may, by written agreement authorized by their
respective Boards of
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Trustees and with or without the further approval of their shareholders, amend
any of the provisions of this Agreement, and (b) either party may waive any
breach by the other party or the failure to satisfy any of the conditions to
its obligations (such waiver to be in writing and authorized by the Board of
Trustees of the waiving party with or without the approval of such party's
shareholders). Without limiting the foregoing, in the event shareholder
approval of the matters specified in Sections 6, 9(a) and 10(a) is obtained
with respect to certain Compass Portfolios but not with respect to the other
Compass Portfolios, with the result that the transactions contemplated by this
Agreement may be consummated with respect to some but not all of the Compass
Portfolios, the Board of Trustees of PNC may, in the exercise of its sole and
unilateral discretion, determine to either abandon this Agreement with respect
to all of the Compass Portfolios or direct that the Compass Transaction and
other transactions described herein be consummated to the degree the Board
deems advisable.
15. GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be governed, construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
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<PAGE> 115
17. BENEFICIARIES. Nothing contained in this Agreement shall be deemed
to create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
18. BROKERAGE FEES AND EXPENSES. Compass and PNC each represents and
warrants to the other that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for herein.
19. PNC LIABILITY. The names "The PNC Fund" and "Trustees of The PNC
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated December 22, 1988 which is hereby referred to and a copy of which
is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of
"The PNC Fund" entered into in the name of or on behalf thereof by any of its
Trustees, officers, representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees, shareholders,
officers, representatives or agents of the Trust personally, but bind only the
Trust Property (as defined in the Declaration of Trust), and all persons
dealing with any class of shares of the Trust must look solely to the Trust
Property belonging to such class for the enforcement of any claims against the
Trust. Both parties specifically acknowledge and agree that any liability of
PNC under this Agreement in connection with the transactions contemplated
herein with respect to a PNC Portfolio or its
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<PAGE> 116
corresponding Compass Portfolio shall be discharged only out of the assets of
that PNC Portfolio and that no other portfolio of PNC shall be liable with
respect thereto.
20. COMPASS LIABILITY. The names "The Compass Capital Group" and
"Trustees of The Compass Capital Group" refer respectively to the Trust created
and the Trustees, as trustees but not individually or personally, acting from
time to time under a Declaration of Trust dated as of October 1, 1987 to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of The Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Compass Capital Group" entered into in the name
or on behalf thereof by any of the Trustees, representatives or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, interest holders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any Portfolio of the
Trust must look solely to the assets of the Trust belonging to such Portfolio
for the enforcement of any claims against the Trust.
21. NOTICES. All notices required or permitted herein shall be in
writing and shall be deemed to be properly given when delivered personally or
by telecopier to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, or delivered to an
internationally recognized
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overnight courier service, in each case properly addressed to the party
entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to PNC:
The PNC(R) Fund
c/o Karen H. Sabath
BlackRock Financial Management, Inc.
345 Park Avenue
New York, New York 10154
With copies to:
Jeffrey A. Dalke, Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
If to Compass:
The Compass Capital Group of Funds(R)
680 E. Swedesford Road
Wayne, PA 19087
With copies to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
22. EXPENSES. To the extent not borne by their respective investment
advisers, each party shall be responsible for the payment of all expenses
incurred by such party in connection with this Agreement and the transactions
contemplated hereby.
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23. ANNOUNCEMENTS. Any announcement or similar publicity with respect to
this Agreement or the transactions contemplated herein shall be made only at
such time and in such manner as the parties shall agree; provided that nothing
herein shall prevent either party upon notice to the other party from making
such public announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
24. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior
agreements, arrangements and understandings relating to matters provided for
herein.
25. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
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<PAGE> 119
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date
first written above.
THE COMPASS CAPITAL GROUP OF FUNDS(R)
ATTEST:
_______________________ By: ______________________________
Secretary
THE PNC(R) FUND
ATTEST:
_______________________ By: ______________________________
Secretary
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<PAGE> 120
10/05/95 Draft
APPENDIX II
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
THE PNC(R) FUND
AND
THE BFM INSTITUTIONAL TRUST INC.
DATED: AS OF OCTOBER __, 1995
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<PAGE> 121
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Conveyance of Assets of BIT Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-4
Liquidation of BIT Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-7
Valuation Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-9
Certain Representations, Warranties and Agreements of BIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-9
Certain Representations, Warranties and Agreements of PNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-17
Shareholder Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-23
Regulatory Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-23
Effective Time of the BIT Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-24
PNC Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-25
BIT Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-33
Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-38
Termination of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-38
Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-38
Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-39
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-40
Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-40
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-40
Brokerage Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-40
PNC Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-40
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-41
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-42
Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-42
Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-42
Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-43
</TABLE>
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<PAGE> 122
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this __th
day of October, 1995 by and between The BFM Institutional Trust Inc. ("BIT"), a
Maryland corporation consisting of multiple investment portfolios including the
Short Duration Portfolio, Core Fixed Income Portfolio and Multi-Sector Mortgage
Securities Portfolio III (the "BIT Portfolios") and The PNC(R) Fund ("PNC"), a
Massachusetts business trust consisting of multiple investment portfolios which
include the Short-Term Bond Portfolio, the Core Fixed Income Portfolio and
Multi-Sector Mortgage Securities Portfolio III (the "PNC Portfolios").
WHEREAS, BIT and PNC are each an open-end management investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the parties desire that the assets and liabilities of each BIT
Portfolio be conveyed to, and be acquired and assumed by, the respective PNC
Portfolio corresponding thereto, as stated herein, in exchange for
"Institutional" class shares of the corresponding PNC Portfolio which shall
thereafter be distributed by BIT to the shareholders of the BIT Portfolio in
connection with its liquidation as described in this Agreement (the "BIT
Transaction"); and
WHEREAS, PNC also maintains twenty-six additional investment portfolios
that are not parties to the BIT Transaction; and
WHEREAS, the parties anticipate that PNC may enter into separate
acquisition agreements with The Compass Capital Group of
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<PAGE> 123
Funds(R) (the "Compass Agreement") or other entities that provide for the
acquisition of additional investment portfolios by the PNC Portfolios, and the
parties intend that the execution and consummation of this Agreement shall
neither prevent nor be subject to the execution or consummation of any such
agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, the
parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF ASSETS OF BIT PORTFOLIOS. Prior to the Effective Time
of the BIT Transaction as defined in Section 8, BIT shall execute and file
Articles of Transfer with respect to the transactions contemplated hereby with
the Department of Assessments and Taxation of the State of Maryland (the
"Department of Assessments"). At the Effective Time of the BIT Transaction,
all property of every description, and all interests, rights, privileges and
powers of each of the BIT Portfolios, subject to all liabilities of such
Portfolios, whether accrued, absolute, contingent or otherwise existing as of
the Effective Time of the BIT Transaction (such assets subject to such
liabilities are herein referred to as the "Fund Assets"), shall be transferred
and conveyed by each BIT Portfolio to the corresponding PNC Portfolio (as set
forth below) and shall be accepted and assumed by said PNC Portfolio as more
particularly set forth in the following paragraph, such that at and after the
Effective Time of the BIT Transaction: (a) all assets of the BIT
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Portfolios shall become and be the assets of the respective corresponding PNC
Portfolios; and (b) all such liabilities and obligations of the BIT Portfolios
that are so existing shall attach to the respective corresponding PNC
Portfolios as aforesaid and may thenceforth be enforced against the respective
PNC Portfolios to the extent as if the same had been incurred by them.
Without limiting the generality of the foregoing, it is understood that
the Fund Assets shall include all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents, securities, claims
and receivables (including dividend and interest receivables) owned by each BIT
Portfolio, and any deferred or prepaid expenses shown as an asset on each BIT
Portfolio's books, at the Effective Time of the BIT Transaction, and all good
will, all other intangible property and all books and records belonging to the
BIT Portfolios, but excluding BIT's name and registered marks, if any.
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In particular, the Fund Assets of each BIT Portfolio shall be transferred
and conveyed to the corresponding PNC Portfolio, as set forth below:
<TABLE>
<CAPTION>
==================================================================================================
CORRESPONDING
BIT PORTFOLIO PNC PORTFOLIO
- --------------------------------------------------------------------------------------------------
<S> <C>
Short Duration Portfolio Short-Term Bond Portfolio
- --------------------------------------------------------------------------------------------------
Core Fixed Income Portfolio Core Fixed Income Portfolio
- --------------------------------------------------------------------------------------------------
Multi-Sector Mortgage Securities Portfolio III Multi-Sector Mortgage Securities Portfolio III
==================================================================================================
</TABLE>
In exchange for the transfer of the Fund Assets, each PNC Portfolio shall
simultaneously issue to the corresponding BIT Portfolio at the Effective Time
of the BIT Transaction full and fractional shares of beneficial interest in
said PNC Portfolio's so-called "Institutional" Share class having an aggregate
net asset value equal to the net value of the Fund Assets so conveyed to such
PNC Portfolio, all determined and adjusted as provided in this Section 1. In
particular, each PNC Portfolio shall deliver to the corresponding BIT Portfolio
the number of shares of its "Institutional" share class, including fractional
shares, that is equal to the number of shares of such BIT Portfolio that are
issued and outstanding at the Effective Time of the BIT Transaction, and will
adjust appropriately the per share net asset value of the "Institutional" share
class of such PNC Portfolio so that neither the shareholders of such PNC
Portfolio nor those of the corresponding BIT Portfolio experience dilution
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as a result of the BIT Transaction. All computations shall be made by PNC in
consultation with Coopers & Lybrand, L.L.P.
The net asset value of shares to be delivered by the PNC Portfolios, and
the net value of the Fund Assets to be conveyed by the BIT Portfolios, shall,
in each case, be determined as of the Valuation Time specified in Section 3.
The net asset value of shares of the PNC Portfolios shall be computed in the
manner set forth in the PNC Portfolios' then current prospectuses under the
Securities Act of 1933, as amended (the "1933 Act"). The net value of the Fund
Assets to be transferred by the BIT Portfolios shall be computed by BIT and
shall be subject to adjustment by the amount, if any, agreed to by PNC and the
respective BIT Portfolios. In determining the value of the securities
transferred by the BIT Portfolios to the PNC Portfolios, each security shall be
priced in accordance with the policies and procedures of PNC described in its
then current prospectuses and statements of additional information and adopted
by PNC's Board of Trustees. For such purposes, price quotations and the
security characteristics relating to establishing such quotations shall be
determined by PNC, provided that such determination shall be subject to the
approval of BIT.
2. LIQUIDATION OF BIT PORTFOLIOS. At the Effective Time of the BIT
Transaction, each of the BIT Portfolios shall make a liquidating distribution
to its shareholders as follows. Shareholders of record of each BIT Portfolio
shall be credited with full and fractional shares of the class of beneficial
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interest that are issued by the corresponding PNC Portfolio in connection with
the BIT Transaction with respect to the shares that are held of record by the
shareholder. In addition, each shareholder of record of a BIT Portfolio shall
have the right to receive any unpaid dividends or other distributions which
were declared before the Effective Time of the BIT Transaction with respect to
the shares of such BIT Portfolio that are held by the shareholder at the
Effective Time of the BIT Transaction. In accordance with instructions it
receives from BIT, PNC shall record on its books the ownership of the
respective PNC Portfolio shares by the shareholders of record of the BIT
Portfolios (the "Transferor Record Holders"). No redemption or repurchase of
any PNC Portfolio shares credited to former shareholders of the BIT Portfolios
that are represented by unsurrendered share certificates shall be permitted
until such certificates have been surrendered to PNC's transfer agent for
cancellation. All of the issued and outstanding shares of the BIT Portfolios
at the Effective Time of the BIT Transaction shall be redeemed and cancelled on
the books of BIT at such time. As soon as practicable after the Effective Time
of the BIT Transaction, BIT shall file Articles of Dissolution for recordation
with the Department of Assessments, and shall take, in accordance with Maryland
General Corporation Law, all other steps as shall be necessary and proper to
effect its complete dissolution, and shall file an application pursuant to
Section 8(f) of the 1940 Act for an order declaring that it has ceased to be an
investment
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<PAGE> 128
company. After the Effective Time of the BIT Transaction, BIT shall not
conduct any business except in connection with its liquidation, dissolution,
and deregistration.
3. VALUATION TIME. The Valuation Time for each of the BIT Portfolios
and the PNC Portfolios shall be 4:01 P.M., Eastern Time, on January 12, 1996,
or such earlier or later date as agreed to by the parties to this Agreement.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BIT. BIT, on
behalf of itself and the BIT Portfolios, represents and warrants to, and agrees
with, PNC as follows (such representations, warranties and agreements being
made on behalf of each BIT Portfolio on a several and not joint, nor joint and
several, basis):
(a) BIT is a Maryland corporation duly created pursuant to its
Articles of Incorporation for the purpose of acting as a
management investment company under the 1940 Act, and is
validly existing under the laws of the State of Maryland.
BIT is registered as an open-end management investment
company under the 1940 Act, and its registration with the
SEC as an investment company is in full force and effect.
(b) BIT has the power to own all of its properties and assets
and, subject to the approvals of shareholders referred to
in
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Section 6, to carry out and consummate the transactions
contemplated herein, and has all necessary federal, state
and local authorizations to carry on its business as now
being conducted and to consummate the transactions
contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by BIT, and represents a valid and binding
contract, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar
laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The
execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this
Agreement will not, violate BIT's Charter or By-laws or,
except as previously disclosed to PNC in writing, any
agreement or arrangement to which BIT is a party or by
which it is bound.
(d) Each BIT Portfolio has elected to qualify and has
qualified as a regulated investment company under Part I
of Subchapter M of Subtitle A, Chapter 1, of the Internal
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<PAGE> 130
Revenue Code of 1986, as amended (the "Code"), as of and
since its first taxable year; has been a regulated
investment company under such Part of the Code at all
times since the end of its first taxable year when it so
qualified; and qualifies and shall continue to qualify as
a regulated investment company for its taxable year ending
upon its liquidation.
(e) The audited financial statements of BIT for its fiscal
year ended June 30, 1995 (copies of which have been
previously furnished to PNC), present fairly the financial
position of the BIT Portfolios as of the date indicated
and the results of their operations for the periods
indicated, in conformity with generally accepted
accounting principles applied on a consistent basis.
There has been no material adverse change in the financial
position of any BIT Portfolio since the date of said
financial statements.
(f) There are no contingent liabilities of any BIT Portfolios
not disclosed in financial statements delivered pursuant
to Section 4(e).
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(g) Each BIT Portfolio has valued, and will continue to value,
its portfolio securities and other assets in accordance
with applicable legal requirements.
(h) There are no material legal, administrative or other
proceedings pending or, to its knowledge threatened,
against BIT or the BIT Portfolios which could result in
liability on the part of BIT or the BIT Portfolios.
(i) At the Effective Time of the BIT Transaction, all federal
and other tax returns and reports of each BIT Portfolio
required by law to have been filed by such time shall have
been filed, and all federal and other taxes shall have
been paid so far as due, or provision shall have been made
for the payment thereof and, to the best knowledge of each
BIT Portfolio, no such return or report shall be currently
under audit and no assessment shall have been asserted
with respect to such returns or reports.
(j) Subject to the approvals of shareholders referred to in
Section 6, at both the Valuation Time and the Effective
Time of the BIT Transaction, BIT shall have full right,
power and authority to sell, assign, transfer
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and deliver the Fund Assets and, upon delivery and payment
for the Fund Assets as contemplated herein, the PNC
Portfolios shall acquire good and marketable title
thereto, subject to no restrictions on the ownership or
transfer thereof (except as imposed by federal or state
securities laws).
(k) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation
by BIT of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, the
Securities Exchange Act of 1934, as amended ("1934 Act"),
the 1940 Act, the rules and regulations under those Acts,
or state securities laws.
(l) Insofar as the following relate to BIT, the registration
statement filed by PNC on Form N-14 relating to the shares
of the PNC Portfolios that will be registered with the SEC
pursuant to this Agreement, which shall include or
incorporate by reference the proxy statement of the BIT
Portfolios and prospectuses of the PNC Portfolios with
respect to the transactions contemplated by this
Agreement, and any supplement or
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amendment thereto or to the documents contained or
incorporated therein by reference (the "N-14 Registration
Statement"), and the proxy materials of BIT, if any,
otherwise filed with the SEC pursuant to Section 14(a) of
the 1934 Act and Section 20(a) of the 1940 Act with
respect to the transactions contemplated by this
Agreement, and any supplement or amendment thereto or the
documents appended thereto (the "BIT Transaction Proxy
Materials"), on their effective and clearance dates with
the SEC, at the time of the shareholders meeting referred
to in Section 6 and at the Effective Time of the BIT
Transaction: (i) shall comply in all material respects
with the provisions of the 1933 Act, 1934 Act and the 1940
Act, the rules and regulations thereunder, and state
securities laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein not misleading; provided, that the
representations and warranties made by BIT in this
subsection shall not apply to statements
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<PAGE> 134
in or omissions from the N-14 Registration Statement or to
BIT Transaction Proxy Materials made in reliance upon and
in conformity with information furnished by PNC for use
therein as provided in Section 7.
(m) All of the issued and outstanding shares of each of the
BIT Portfolios have been validly issued and are fully paid
and non-assessable, and were offered for sale and sold in
conformity with all applicable federal and state
securities laws.
(n) BIT shall not sell or otherwise dispose of any shares of
the PNC Portfolios to be received in the transactions
contemplated herein, except in distribution to its
shareholders as contemplated herein.
(o) BIT shall operate its business in the ordinary course
between the date hereof and the Effective Time of the BIT
Transaction. It is understood that such ordinary course
of business will include the declaration and payment of
customary dividends and distributions and any other
dividends and distributions deemed advisable, and the
continued good faith performance by the investment
adviser, administrator,
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<PAGE> 135
distributor and other service providers of BIT of their
respective responsibilities in accordance with the
provisions of their agreements with BIT and applicable
law.
(p) Except for agreements or other arrangements relating to
the purchase and sale of portfolio securities, BIT has
furnished PNC with copies or descriptions of all contracts
or legally binding arrangements to which it is a party.
(q) Each BIT Portfolio shall deliver to PNC on November 30,
1995 a statement of all of the specific assets and
specific liabilities of the BIT Portfolios, together with
a list of the portfolio securities of each BIT Portfolio
showing the tax costs of such securities by lot and the
holding periods of such securities, and clearly reflecting
the basis used for the determination of gain or loss
realized on the partial sale of any security. Each BIT
Portfolio shall immediately notify PNC of any portfolio
security thereafter acquired or sold by the BIT Portfolio
and, upon PNC's request, shall promptly and periodically
update the other information described in this
sub-paragraph.
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Upon notice by PNC, each BIT Portfolio shall immediately
sell any portfolio security that PNC identifies as
impermissible under the investment policies, objectives
and limitations of the corresponding PNC Portfolio.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PNC. PNC, on
behalf of itself and the PNC Portfolios, represents and warrants to, and agrees
with, BIT as follows (such representations, warranties and agreements being
made on behalf of each PNC Portfolio on a several and not joint, nor joint and
several, basis):
(a) PNC is a Massachusetts business trust duly created
pursuant to its Declaration of Trust for the purpose of
acting as a management investment company under the 1940
Act, and is validly existing under the laws of the
Commonwealth of Massachusetts. PNC is registered as an
open-end management investment company under the 1940 Act
and its registration with the SEC as an investment company
is in full force and effect.
(b) PNC has the power to own all of its properties and assets
and to consummate the transactions contemplated herein,
and has all necessary federal, state and local
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authorizations to carry on its business as now being
conducted and to consummate the transactions contemplated
by this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by PNC, and represents a valid and binding
contract, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The
execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this
Agreement will not, violate PNC's Declaration of Trust, as
amended, or the Code of Regulations or any agreement or
arrangement to which PNC is a party or by which it is
bound.
(d) Each PNC Portfolio intends to qualify as a regulated
investment company under Part I of Subchapter M of the
Code, and with respect to each PNC Portfolio that has
conducted operations prior to the Effective Time of the
BIT Transaction, has elected to qualify and has qualified
as a regulated investment
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company under Part I of Subchapter M of Subtitle A,
Chapter 1, of the Code, as of and since its first taxable
year; has been a regulated investment company under such
Part of the Code at all times since the end of its first
taxable year when it so qualified; and qualifies and shall
continue to qualify as a regulated investment company for
its current taxable year.
(e) The audited financial statements of PNC for its fiscal
year ended September 30, 1994, and the unaudited financial
statements of PNC for the six-month period ended March 31,
1995 (copies of which have been previously furnished to
BIT), and the audited financial statements of PNC for the
fiscal year ended September 30, 1995 (copies of which will
be promptly furnished to BIT when available) present (or
will present in the case of said audited financial
statements for its fiscal year ended September 30, 1995),
fairly the financial position of the PNC Portfolios as of
the dates indicated and the results of their operations
for the periods indicated, in conformity with generally
accepted accounting principles applied on a consistent
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basis. There has been no material adverse change in the
financial position of any PNC Portfolio since the dates of
said financial statements.
(f) Each PNC Portfolio has valued, and will continue to value,
its portfolio securities and other assets in accordance
with applicable legal requirements.
(g) There are no material legal, administrative or other
proceedings pending or, to its knowledge threatened,
against PNC or the PNC Portfolios which could result in
liability on the part of PNC or the PNC Portfolios.
(h) At the Effective Time of the BIT Transaction, all federal
and other tax returns and reports of each PNC Portfolio
required by law to have been filed by such time shall have
been filed, and all federal and other taxes shall have
been paid so far as due, or provision shall have been made
for the payment thereof and, to the best knowledge of each
PNC Portfolio, no such return or report shall be currently
under audit and no assessment shall have been asserted
with respect to such returns or reports.
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(i) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation
by PNC of the transactions contemplated by this Agreement,
except such as may be required under 1933 Act, the 1934
Act, the 1940 Act, the rules and regulations under those
Acts, or state securities laws.
(j) The N-14 Registration Statement and the BIT Transaction
Proxy Materials, on their effective and clearance dates
with the SEC, at the time of the shareholders meeting
referred to in Section 6 and at the Effective Time of the
BIT Transaction, insofar as they relate to PNC (i) shall
comply in all material respects with the provisions of the
1933 Act, 1934 Act and the 1940 Act, the rules and
regulations thereunder, and state securities laws, and
(ii) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading; provided, that the representations and
warranties in this subsection shall not apply to
statements in or omissions from the N-14 Registration
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Statement or the BIT Transaction Proxy Materials made in
reliance upon and in conformity with information furnished
by BIT for use therein as provided in Section 7.
(k) The shares of the PNC Portfolios to be issued and
delivered to the BIT Portfolios for the account of the
shareholders of the BIT Portfolios, pursuant to the terms
hereof, shall have been duly authorized as of the
Effective Time of the BIT Transaction and, when so issued
and delivered, shall be duly and validly issued, fully
paid and non-assessable, and no shareholder of PNC shall
have any preemptive right of subscription or purchase in
respect thereto.
(l) PNC shall operate its business in the ordinary course
between the date hereof and the Effective Time of the BIT
Transaction. It is understood that (i) such ordinary
course of business will include the declaration and
payment of customary dividends and distributions and any
other dividends and distributions deemed advisable, and
the continued good faith performance by the investment
advisers, sub-advisers, administrators, distributor and
other service
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providers of PNC of their respective responsibilities in
accordance with the provisions of their agreements with
PNC and applicable law; and (ii) nothing in this Agreement
shall prevent PNC from entering into and consummating the
Compass Agreement or any other agreement providing for the
acquisition of additional investment portfolios (whether
or not registered under the 1940 Act) by the PNC
Portfolios.
6. SHAREHOLDER ACTION. As soon as practicable after the effective date
of the N-14 Registration Statement and SEC clearance of the proxy solicitation
materials referred to in Section 7, but in any event prior to the Effective
Time of the BIT Transaction and as a condition thereto, the Board of Trustees
of BIT shall call, and BIT shall hold, a meeting of the shareholders of the BIT
Portfolios for the purpose of considering and voting upon:
(a) Approval of this Agreement and the transactions
contemplated hereby.
(b) Such other matters as may be determined by the governing
Boards of the parties.
7. REGULATORY FILINGS. PNC shall file a post-effective amendment (the
"N-1A Post-Effective Amendment") to its registration statement on Form N-1A
(File No. 33-26305) with the SEC, and with the appropriate state securities
commissions, as
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promptly as practicable so that all PNC Portfolios and their shares are
registered under the 1933 Act, 1940 Act and applicable state securities laws.
In addition, PNC shall file an N-14 Registration Statement with the SEC and
with appropriate state securities commissions relating to the matters described
in Section 6 as promptly as practicable. PNC and BIT have cooperated and shall
continue to cooperate with each other, and have furnished and shall continue to
furnish each other with the information relating to itself that is required by
the 1933 Act, the 1934 Act, the 1940 Act, the rules and regulations under each
of those Acts and state securities laws, to be included in the N-1A
Post-Effective Amendment, the N-14 Registration Statement and the BIT
Transaction Proxy Materials.
8. EFFECTIVE TIME OF THE BIT TRANSACTION. Delivery of the Fund Assets
and the shares of the PNC Portfolios to be issued pursuant to Section 1 and the
liquidation of the BIT Portfolios pursuant to Section 2 shall occur on the next
business day following the Valuation Time, or on such other date, and at such
place and time, agreed to by each of the parties. The date and time at which
such actions are taken are referred to herein as the "Effective Time of the BIT
Transaction." To the extent any Fund Assets are, for any reason, not
transferred at the Effective Time of the BIT Transaction, BIT shall cause such
Fund Assets to be transferred in accordance with this Agreement at the earliest
practicable date thereafter.
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9. PNC CONDITIONS. The obligations of PNC hereunder shall be subject to
the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of
Directors of BIT and, subject to the provisions of Section
14, by the holders of at least [a majority of the
outstanding shares of the respective BIT Portfolios voting
separately on a portfolio-by-portfolio basis].
(b) Each BIT Portfolio shall have delivered to its
corresponding PNC Portfolio a statement of the specific
assets and specific liabilities of the BIT Portfolio,
together with a list of the portfolio securities of the
BIT Portfolio showing the tax costs of such securities by
lot and the holding periods of such securities, as of the
Valuation Time, and clearly reflecting the basis used for
the determination of gain or loss realized on the partial
sale of any security transferred to PNC, certified by the
Treasurer or Assistant Treasurer of the BIT Portfolio.
(c) BIT shall have duly executed and delivered to PNC such
bills of sale, assignments,
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certificates and other instruments of transfer ("Transfer
Documents") as PNC may deem necessary or desirable to
transfer all of each BIT Portfolio's right, title and
interest in and to the Fund Assets. Such Assets shall be
accompanied by all necessary state stock transfer stamps
or cash for the appropriate purchase price therefor.
(d) Each BIT Portfolio shall have delivered to its
corresponding PNC Portfolio a copy of the shareholder
ledger accounts for all of the shareholders of record of
said BIT Portfolio as of the Effective Time of the BIT
Transaction who are to become shareholders of the
corresponding PNC Portfolio as a result of the BIT
Transaction, certified by its Transfer Agent or its
President to the best of his or her knowledge and belief.
(e) As of the Valuation Time and the Effective Time of the BIT
Transaction there shall have been no material adverse
change in the financial position of any BIT Portfolio
since the date of the financial statements referred to in
Section 4(e).
(f) All representations and warranties of BIT and the BIT
Portfolios made in this Agreement
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shall be true and correct in all material respects as if
made at and as of the Valuation Time and the Effective
Time of the BIT Transaction.
(g) BIT shall have delivered to PNC a certificate executed in
its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to PNC and dated as of the Effective Time of
the BIT Transaction, to the effect that the
representations and warranties of the BIT and the BIT
Portfolios made in this Agreement are true and correct at
and as of the Effective Time of the BIT Transaction,
except as they may be affected by the transactions
contemplated by this Agreement.
(h) PNC shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom, counsel to BIT, in form reasonably
satisfactory to PNC and dated the Effective Time of the
BIT Transaction, substantially to the effect that (i) BIT
is a Maryland corporation duly established and validly
existing under the laws of the State of Maryland; (ii)
this Agreement and the Transfer Documents have been duly
authorized, executed and delivered
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by BIT and represent legal, valid and binding contracts,
enforceable in accordance with their terms, subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with
respect thereto, and such counsel shall express no opinion
with respect to the application of equitable principles in
any proceeding, whether at law or in equity; (iii) the
execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this
Agreement will not, violate the Charter or By-laws of BIT
or any material contract known to such counsel to which
BIT is a party or by which it is bound; and (iv) no
consent, approval, authorization or order of any court or
governmental authority is required for the consummation by
BIT of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, the rules and regulations under
those Acts and such as may be required under the state
securities laws. Such opinion may rely
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on the opinion of other counsel to the extent set forth in
such opinion, provided such other counsel is reasonably
acceptable to PNC.
(i) PNC shall have received an opinion of Drinker Biddle &
Reath addressed to PNC and BIT in form reasonably
satisfactory to them, and dated the Effective Time of the
BIT Transaction, substantially to the effect that for
federal income tax purposes (i) the transfer by each BIT
Portfolio of all of its Fund Assets to the corresponding
PNC Portfolio in exchange for shares of the corresponding
PNC Portfolio, and the distribution of said shares to the
shareholders of the BIT Portfolio, as provided in this
Agreement, will constitute a tax-free transaction within
the meaning of Section 368(a)(1)(C), (D) or (F) of the
Code; (ii) in accordance with Sections 361(a), 361(c)(1)
and 357(a) of the Code, no gain or loss will be recognized
by the BIT Portfolios as a result of such transactions;
(iii) in accordance with Section 1032(a) of the Code, no
gain or loss will be recognized by the PNC Portfolios as a
result of such transactions;
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(iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized by the shareholders of the
BIT Portfolios on the distribution to them by the BIT
Portfolios of shares of the corresponding PNC Portfolios
in exchange for their shares of the BIT Portfolios; (v) in
accordance with Section 358(a)(1) of the Code, the basis
of the PNC Portfolio shares received by each shareholder
of a BIT Portfolio will be the same as the basis of the
shareholder's BIT Portfolio shares immediately prior to
the transactions; (vi) in accordance with Section 362(b)
of the Code, the basis of the Fund Assets received by each
PNC Portfolio will be the same as the basis of such Fund
Assets in the hands of the corresponding BIT Portfolio
immediately prior to the transactions; (vii) in accordance
with Section 1223(1) of the Code, a shareholder's holding
period for PNC Portfolio shares will be determined by
including the period for which the shareholder held the
shares of the BIT Portfolio exchanged therefor, provided
that the shareholder held such shares of the BIT Portfolio
as a capital asset; (viii) in
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accordance with Section 1223(2) of the Code, the holding
period of the PNC Portfolios with respect to the Fund
Assets will include the period for which such Fund Assets
were held by the corresponding BIT Portfolios; and (ix) in
accordance with Section 381(a) of the Code, each PNC
Portfolio will succeed to the tax attributes of the
corresponding BIT Portfolios described in Section 381(c)
of the Code.
(j) The Fund Assets to be transferred to a PNC Portfolio under
this Agreement shall include no assets which such PNC
Portfolio may not properly acquire pursuant to its
investment limitations or objectives or may not otherwise
lawfully acquire.
(k) The N-1A Post-Effective Amendment and the N-14
Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the
knowledge of PNC, contemplated by the SEC and the parties
shall have received all permits and other authorizations
necessary under state securities laws to consummate the
transactions contemplated by this Agreement.
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(l) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which
it is sought to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the
transactions contemplated herein.
(m) Prior to the Valuation Time, each BIT Portfolio shall have
declared a dividend or dividends, with a record date and
ex-dividend date prior to the Effective Time of the BIT
Transaction, which, together with all previous dividends,
shall have the effect of distributing to its shareholders
all of its net investment company income, if any, for the
taxable periods or years ending June 30, 1995 and for the
periods from said date to and including the Effective Time
of the BIT Transaction (computed without regard to any
deduction for dividends paid), and all of its net capital
gain, if any, realized in taxable periods or years ending
June 30, 1995 and in the periods from said date to and
including the Effective Time of BIT Transaction.
(n) BIT shall have performed and complied in all material
respects with each of its agreements
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and covenants required by this Agreement to be performed
or complied with by it prior to or at the Valuation Time
and the Effective Time of the BIT Transaction.
(o) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted
any proceeding seeking to enjoin consummation of the
transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
10. BIT CONDITIONS. The obligations of BIT hereunder shall be subject to
the following conditions precedent:
(a) This Agreement shall have been adopted and the
transactions contemplated by this Agreement shall have
been approved by the Board of Trustees of PNC and, subject
to the provisions of Section 14, by the holders of at
least a [majority of the outstanding shares of the
respective BIT Portfolios voting separately on a
portfolio-by-portfolio basis].
(b) As of the Valuation Time and the Effective Time of the BIT
Transaction there shall have been no material adverse
change in the financial position of any PNC Portfolio
since
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the dates of the financial statements referred to in
Section 5(e).
(c) All representations and warranties of PNC and the PNC
Portfolios made in this Agreement shall be true and
correct in all material respects as if made at and as of
the Valuation Time and the Effective Time of the BIT
Transaction.
(d) PNC shall have delivered to BIT a certificate executed in
its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to BIT and dated as of the Effective Time of
the BIT Transaction, to the effect that the
representations and warranties of PNC and the PNC
Portfolios made in this Agreement are true and correct at
and as of the Effective Time of the BIT Transaction,
except as they may be affected by the transactions
contemplated by this Agreement and that, to its best
knowledge, the Fund Assets to be transferred to each PNC
Portfolio under this Agreement as set forth in Section
9(b) include only assets which such PNC Portfolio may
properly acquire under its investment policies,
limitations and objectives and may
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otherwise be lawfully acquired by such PNC Portfolio.
(e) BIT shall have received an opinion of Drinker Biddle &
Reath in form reasonably satisfactory to BIT and dated the
Effective Time of the BIT Transaction, substantially to
the effect that (i) PNC is a Massachusetts business trust
duly established and validly existing under the laws of
the Commonwealth of Massachusetts; (ii) the shares of the
PNC Portfolios to be delivered to the BIT Portfolios as
provided for by this Agreement are duly authorized and
upon delivery will be validly issued, fully paid and
non-assessable by PNC; (iii) this Agreement has been duly
authorized, executed and delivered by PNC, and represents
a legal, valid and binding contract, enforceable in
accordance with its terms, subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto,
and such counsel shall express no opinion with respect to
the application of equitable principles in any proceeding
whether at law or in equity;
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(iv) the execution and delivery of this Agreement did not,
and the consummation of the transaction contemplated by
this Agreement will not, violate the Declaration of Trust,
as amended, or the Code of Regulations of PNC or any
material contract known to such counsel to which PNC is a
party or by which it is bound; and (v) no consent,
approval, authorization or order of any court or
governmental authority is required for the consummation by
PNC of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, the rules and regulations under
those Acts and such as may be required by state securities
laws. Such opinion may rely on the opinion of other
counsel to the extent set forth in such opinion, provided
such other counsel is reasonably acceptable to BIT.
(f) BIT shall have received an opinion of Drinker Biddle &
Reath addressed to PNC and BIT in form reasonably
satisfactory to them, and dated the Effective Time of the
BIT Transaction, with respect to the matters specified in
Section 9(i).
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<PAGE> 156
(g) The N-1A Post-Effective Amendment and the N-14
Registration Statement shall have become effective under
the 1933 Act and no stop order suspending the
effectiveness shall have been instituted, or to the
knowledge of PNC, contemplated by the SEC and the parties
shall have received all permits and other authorizations
necessary under state securities laws to consummate the
transactions contemplated herein.
(h) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which
it is sought to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the
transactions contemplated herein.
(i) PNC shall have performed and complied in all material
respects with each of its agreements and covenants
required by this Agreement to be performed or complied
with by it prior to or at the Valuation Time and the
Effective Time of the BIT Transaction.
(j) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted
any proceeding
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seeking to enjoin consummation of the transactions
contemplated by this Agreement under Section 25(c) of the
1940 Act.
11. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to the other party hereto each of the
items required under this Agreement as a condition to such party's obligations
hereunder. In addition, BIT shall deliver or cause to be delivered to PNC,
each account, book, record or other document of the BIT Portfolios required to
be maintained by Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3
thereunder (regardless of whose possession they are in).
12. TERMINATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the parties set forth in this Agreement shall terminate upon
the delivery of the Fund Assets to the PNC Portfolios and the issuance of the
shares of the PNC Portfolios at the Effective Time of the BIT Transaction.
13. TERMINATION OF AGREEMENT. This Agreement may be terminated by a
party at any time at or prior to the Effective
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Time of the BIT Transaction by a vote of a majority of its Board of Trustees as
provided below:
(a) By PNC if the conditions set forth in Section 9 are not
satisfied as specified in said Section;
(b) By BIT if the conditions set forth in Section 10 are not
satisfied as specified in said Section; and
(c) By mutual consent of both parties.
14. AMENDMENT AND WAIVER. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of BIT
(a) the parties hereto may, by written agreement authorized by their respective
governing Boards and with or without the further approval of their
shareholders, amend any of the provisions of this Agreement, and (b) either
party may waive any breach by the other party or the failure to satisfy any of
the conditions to its obligations (such waiver to be in writing and authorized
by the governing Board of the waiving party with or without the approval of
such party's shareholders). Without limiting the foregoing, in the event
shareholder approval of the matters specified in Sections 6, 9(a) and 10(a) is
obtained with respect to one BIT Portfolio but not with respect to the other
BIT Portfolio, with the result that the transactions contemplated by this
Agreement may be consummated with respect to one but not both of the BIT
Portfolios, the Board of Trustees of PNC may, in the exercise of its sole and
unilateral discretion,
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determine to either abandon this Agreement with respect to both of the BIT
Portfolios or direct that the BIT Transaction and other transactions described
herein be consummated to the degree the Board deems advisable.
15. GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be governed, construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by either party without the consent of the other party.
17. BENEFICIARIES. Nothing contained in this Agreement shall be deemed
to create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
18. BROKERAGE FEES AND EXPENSES. BIT and PNC each represents and
warrants to the other that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for herein.
19. PNC LIABILITY. The names "The PNC Fund"and "Trustees of The PNC
Fund" refer respectively to the trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated December 22, 1988, which is hereby referred to and a copy of which
is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The
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obligations of "The PNC Funds" entered into in the name of or on behalf thereof
by any of the Trustees, officers, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, officers representatives or agents of the Trust
personally, but bind only the Trust Property (as defined in the Declaration of
Trust), and all persons dealing with any class of shares of the Trust must look
solely to the Trust Property belonging to such class for the enforcement of any
claims against the Trust.
Both parties specifically acknowledge and agree that any liability of PNC
under this Agreement in connection with the transactions contemplated herein
with respect to a PNC Portfolio or its corresponding BIT Portfolio shall be
discharged only out of the assets of that PNC Portfolio and that no other
portfolio of PNC shall be liable with respect thereto.
20. NOTICES. All notices required or permitted herein shall be in
writing and shall be deemed to be properly given when delivered personally or
by telecopier to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, or delivered to an
internationally recognized overnight courier service, in each case properly
addressed to the party entitled to receive such notice at the address or
telecopier number stated below or to such other address or telecopier number as
may hereafter be furnished in writing by notice similarly given by one party to
the other party hereto:
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If to PNC:
The PNC(R) Fund
c/o Karen H. Sabath
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
With copies to:
Jeffrey A. Dalke, Esq.
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
If to BIT:
The BFM Institutional Trust Inc.
345 Park Avenue
New York, New York 10154
With copies to:
[To Follow]
21. EXPENSES. Each party shall be responsible for the payment of all
expenses incurred by such party in connection with this Agreement and the
transactions contemplated hereby.
22. ANNOUNCEMENTS. Any announcement or similar publicity with respect to
this Agreement or the transactions contemplated herein shall be made only at
such time and in such manner as the parties shall agree; provided that nothing
herein shall prevent either party upon notice to the other party from making
such public announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
23. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes
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any and all prior agreements, arrangements and understandings relating to
matters provided for herein.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date
first written above.
THE BFM INSTITUTIONAL TRUST INC.
ATTEST:
_______________________ By: ______________________________
Secretary
THE PNC(R) FUND
ATTEST:
_______________________ By: ______________________________
Secretary
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100595 DRAFT
APPENDIX III
INVESTMENT OBJECTIVES AND FUNDAMENTAL LIMITATIONS
OF COMPASS PORTFOLIOS, BIT PORTFOLIOS AND PNC PORTFOLIOS
This Appendix sets forth the investment objectives and fundamental
limitations of the Compass Portfolios, BIT Portfolios and their corresponding
PNC Portfolios. This Appendix also includes comments on the differences among
certain important non-fundamental investment policies of these Portfolios.
Except where noted below, (i) each PNC Portfolio's investment
objective and policies may be changed by the PNC Board of Trustees without a
vote of the holders of a majority of the outstanding shares of the Portfolio;
and (ii) each Compass Portfolio and BIT Portfolio may not change its investment
objective without a vote of a majority of the outstanding shares of the
Portfolio, but may change its investment policies without a shareholder vote.
I. MONEY MARKET PORTFOLIOS
A. Investment Objectives and Policies - Taxable Money Market
Portfolios
1. Compass Cash Reserve Fund: To seek to produce
current income with liquidity and stability of
principal.
2. PNC Money Market Portfolio: To provide as high a
level of current interest income as is consistent
with maintaining liquidity and stability of
principal.
Comment: Each of these Portfolios is a money market
fund that seeks to maintain a net asset value of
$1.00 per share, although there is no assurance they
will be able to do so. Both the Compass Cash Reserve
Fund and the PNC Money Market Portfolio may invest in
a broad range of U.S. dollar-denominated, high
quality, short-term instruments, including U.S.
Government obligations, repurchase agreements and
bank obligations. The PNC Money Market Portfolio
must normally invest at least 25% of its total assets
in obligations of issuers in the banking industry and
instruments, such as repurchase agreements, secured
by such obligations. The Compass Cash Reserve Fund
does not have a similar policy.
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The Compass Cash Reserve Fund may only invest in
money market instruments rated in the highest
short-term rating category or, if unrated, are of
comparable quality. The PNC Money Market Portfolio
may invest its assets in securities that are rated in
the highest two rating categories, provided that
investments in securities that are not "First Tier
Securities" (as defined below) may not exceed 5% of
its assets, and investments in securities of any
single issuer that is not "First Tier" may not exceed
the greater of 1% of its total assets or $1 million.
"First Tier Securities" are securities that (i) are
rated in the highest rating category by a nationally
recognized statistical rating organization ("NRSRO");
(ii) are rated in the highest rating category by at
least two NRSROs, if rated by more than one NRSRO;
(iii) have no short-term rating, but have been issued
by an issuer that has other outstanding short-term
obligations that have been so rated and are of
comparable quality; and (iv) are unrated but have
been determined to be of comparable quality.
The PNC Money Market Portfolio may invest in
interest-bearing savings deposits not in excess of 5%
of its total assets. The Compass Cash Reserve Fund
is not bound by this restriction. In addition, the
PNC Money Market Portfolio may invest in bank
obligations of issuers having total assets at the
time of purchase in excess of $1 billion; the Compass
Cash Reserve Fund may invest in bank obligations of
issuers having total assets at the time of purchase
in excess of $100 million. The Compass Cash Reserve
Fund may invest up to 10% of its total assets in
guaranteed investment contracts issued by insurance
companies, while the PNC Money Market Portfolio may
only invest up to 5% of its assets in such
securities.
3. Compass U.S. Treasury Fund: To seek to produce
current income with liquidity and stability of
principal.
4. PNC Government Money Market Fund: To provide as high
a level of current interest income as is consistent
with maintaining liquidity and stability of
principal.
Comment: Each of these Portfolios is a money market
fund that seeks to maintain a net asset value of
$1.00 per share, although there is no
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assurance they will be able to do so. The Compass
U.S. Treasury Fund invests exclusively in short-term
obligations issued by the U.S. Treasury, some of
which may be subject to repurchase agreements
collateralized by the underlying U.S. Treasury
obligation. The PNC Government Money Market
Portfolio invests in obligations issued by U.S.
Government agencies and instrumentalities, as well as
U.S. Treasury obligations, and in repurchase
agreements collateralized by these obligations. The
PNC Government Money Market Portfolio will, however,
change its name and investment policies before the
Effective Time of the Compass Transaction to provide
that it will invest only in U.S. Treasury Securities
and related repurchase agreements.
B. Investment Objectives and Policies - Municipal Money Market
Funds
1. Compass Municipal Money Fund: To seek current income
that is exempt from Federal taxation with
preservation of capital and relative stability of
principal.
2. Compass New Jersey/Pennsylvania Municipal Money
Funds: To seek current income that is exempt from
Federal and New Jersey or Pennsylvania, respectively,
personal income taxation with preservation of capital
and relative stability of principal.
3. PNC Municipal Money Market Portfolio: To provide as
high a level of current interest income exempt from
Federal income taxes as is consistent with
maintaining liquidity and stability of principal.
4. PNC New Jersey/Pennsylvania Municipal Money Market
Portfolios: To seek as high a level of current
income exempt from Federal and, to the extent
possible, from New Jersey or Pennsylvania,
respectively, income tax as is consistent with
maintaining liquidity and stability of principal.
Comment: Each of these Portfolios is a money market
fund that seeks to maintain a net asset value of
$1.00 per share, although there is no assurance they
will be able to do so.
(i) Compass/PNC Municipal Money Funds: The Compass
Municipal Money Fund invests at least 80% of its
assets in municipal securities the interest
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on which is exempt from regular Federal income tax,
without regard to Federal alternative minimum tax.
The PNC Municipal Money Market Portfolio invests at
least 80% of its net assets in municipal securities,
the interest on which is both exempt from regular
Federal income tax and not an item of tax preference
for purposes of the Federal alternative minimum tax.
Unlike the Compass Municipal Money Fund, the PNC
Municipal Money Market Portfolio may not invest more
than 25% of its total assets in the municipal
securities of issuers located in any individual
state, territory or possession of the United States.
(ii) Compass/PNC New Jersey/Pennsylvania Municipal
Money Funds: The Compass New Jersey/Pennsylvania
Municipal Money Funds, like the PNC New
Jersey/Pennsylvania Municipal Money Market
Portfolios, invest at least 80% of their total assets
in municipal securities, the interest on which is
exempt from regular Federal income tax without regard
to Federal alternative minimum tax. In addition, the
Compass New Jersey/Pennsylvania Municipal Money Funds
must normally invest at least 80% of their total
assets in municipal securities that are exempt from
New Jersey and Pennsylvania personal income tax,
respectively, or, in the case of the Compass New
Jersey Municipal Money Fund, direct obligations of
the United States, its territories and certain of its
agencies and instrumentalities. The PNC New Jersey/
Pennsylvania Money Market Portfolios must normally
invest at least 65% of their respective total assets
in New Jersey and Pennsylvania municipal securities.
(iii) Quality of Investments: The Compass Municipal
Money Fund and the Compass New Jersey/Pennsylvania
Municipal Money Funds limit their investments to
those obligations that, at the time of purchase, are
"First Tier Securities" as defined above in the
Comment under "Investment Objectives and Policies -
Taxable Money Market Funds." The PNC Municipal Money
Market Portfolio and the PNC New Jersey/Pennsylvania
Money Market Portfolios may invest in securities in
the two highest ratings categories or, if unrated,
are determined to be of comparable quality. These
PNC Portfolios may invest in municipal leases and
tax-exempt derivative securities.
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II. BOND PORTFOLIOS
A. Investment Objectives and Policies - Bond Portfolios
1. Compass Municipal Bond Fund: To seek current income
that is exempt from Federal taxation with
preservation of capital.
2. PNC Tax-Free Income Portfolio: To seek as high a
level of current income exempt from Federal income
tax as is consistent with preservation of capital.
Comment: Under normal market conditions, both the
Compass Municipal Bond Fund and the PNC Tax-Free
Income Portfolio must invest at least 80% of their
respective assets in municipal securities the
interest on which is exempt from regular Federal
income tax and, in the case of the PNC Tax-Free
Income Portfolio, is not an item of tax preference
for purposes of the Federal alternative minimum tax.
The Compass Municipal Bond Fund may invest in
municipal securities without regard to Federal
alternative minimum tax. The Compass Municipal Bond
Fund invests only in securities rated at the time of
purchase in the three highest rating categories or
unrated securities of comparable quality; the PNC
Tax-Free Income Portfolio may invest in securities
rated in the four highest rating categories or
unrated securities determined to be of comparable
quality. Normally, the dollar-weighted average
portfolio maturity of the Compass Municipal Bond Fund
will be between five and eighteen years, and the
dollar-weighted average portfolio maturity of the PNC
Tax-Free Income Portfolio will be between ten and
twenty-five years. The PNC Tax-Free Income Portfolio
may invest in municipal leases and tax-exempt
derivative securities.
3. Compass New Jersey/Pennsylvania Municipal Bond Funds:
To seek current income exempt from Federal and New
Jersey or Pennsylvania, respectively, income taxation
with preservation of capital.
4. PNC New Jersey/Pennsylvania Tax-Free Income
Portfolios: To seek as high a level of current
income exempt from Federal and, to the extent
possible, from New Jersey or Pennsylvania,
respectively, income tax as is consistent with
preservation of capital.
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Comment: The Compass New Jersey/Pennsylvania
Municipal Bond Funds must normally invest at least
80% of their respective total assets in municipal
securities the interest on which is exempt from
regular Federal income tax without regard to
Federal alternative minimum tax. In addition, the
Compass New Jersey/Pennsylvania Municipal Bond Funds
must normally invest at least 80% of their respective
total assets in municipal securities that are exempt
from New Jersey and Pennsylvania personal income tax,
respectively, or, in the case of the Compass New
Jersey Municipal Bond Fund, direct obligations of the
United States, its territories and certain of its
agencies and instrumentalities.
The PNC New Jersey/Pennsylvania Tax-Free Income
Portfolios must normally invest at least 80% of their
net assets in municipal securities the interest on
which is exempt from regular Federal income tax and
is not an item of tax preference for purposes of the
Federal alternative minimum tax. In addition, the
PNC New Jersey/Pennsylvania Money Market Portfolios
must normally invest at least 65% of their respective
total assets in New Jersey and Pennsylvania municipal
securities.
The Compass New Jersey/Pennsylvania Municipal Bond
Funds invest only in securities rated at the time of
purchase in the three highest rating categories or
unrated New Jersey/Pennsylvania securities of
comparable quality; the PNC New Jersey/ Pennsylvania
Tax-Free Income Portfolios may invest in securities
rated in the four highest rating categories or
unrated securities determined to be of comparable
quality. Normally, the dollar-weighted average
portfolio maturities of the Compass New
Jersey/Pennsylvania Municipal Bond Funds will be
between five and eighteen years, and the
dollar-weighted average portfolio maturities of the
PNC New Jersey/Pennsylvania Tax-Free Income
Portfolios will be between ten and twenty-five years.
The PNC New Jersey/Pennsylvania Tax-Free Income
Portfolios may invest in municipal leases and
tax-exempt derivative securities.
5. Compass Short/Intermediate Fund: To seek current
income as well as preservation of capital.
6. BIT Short Duration Portfolio: To realize a total
rate of return that exceeds the total rate of
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return of the Merrill Lynch 1-3 year Treasury Index.
7. PNC Short-Term Bond Portfolio: To seek a high level
of current income consistent with prudent investment
risk.
[NOTE: It is expected that after the Effective Time
of the Compass Transaction and BIT Transaction the
investment objective of the PNC Short-Term Bond
Portfolio will be modified to read as follows: "To
seek to realize a rate of return that exceeds the
total return of the Merrill Lynch 1-3 year Treasury
Index."]
Comment: Each of these three portfolios invests
primarily in debt securities. The Compass
Short/Intermediate Fund invests in securities rated
in the three highest rating categories at the time of
purchase (or unrated securities deemed to be of
comparable quality) and under normal conditions
maintains a dollar-weighted average portfolio
maturity between two and five years; the BIT Short
Duration Portfolio invests in U.S. Government and
other securities rated in the highest rating category
at the time of purchase (or unrated securities deemed
to be of comparable quality) and under normal
conditions maintains a dollar-weighted average
maturity longer than three years (although its
"duration" as defined in its prospectus is normally
between one and three years); and the PNC Short-Term
Bond Portfolio may currently invest in investment
grade securities rated in the four highest rating
categories at the time of purchase (or unrated
securities deemed to be of comparable quality) and
under normal conditions maintains a dollar-weighted
average maturity of five years or less. The PNC
Short-Term Bond Portfolio will, however, change its
investment policies before the Effective Times of the
respective Transactions to be consistent with those
of the BIT Short Duration Portfolio stated above.
(As used above, "duration" is a measure of the
expected life of fixed income security on a present
value basis and is indicative of a security's price
volatility or risk associated with changes in
interest rates.)
The Compass Short/Intermediate Fund and PNC
Short-Term Bond Portfolio, [but not the BIT Short
Duration Portfolio,] may invest in U.S.
dollar-denominated "Yankee" and "Eurodollar"
obligations, and may make other investments in
foreign issuers. On the other hand, the BIT Short
Duration Portfolio and the PNC Short-Term Bond
Portfolio, but not the Compass Short/Intermediate
Fund, may engage in reverse repurchase agreements for
leveraging purposes. The PNC Short-Term Bond
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Portfolio and BIT Short Duration Portfolio, but not
the Compass Short/Intermediate Fund, may participate
in dollar roll transactions as described in their
respective prospectuses, while the Compass
Short/Intermediate Fund may not. The BIT Short
Duration Portfolio currently invests, and after the
Effective Times of the respective Transactions the
PNC Short-Term Bond Portfolio expects to invest in
U.S. Government, mortgage-backed, asset-backed and,
to a lesser extent, corporate debt securities.
8. Compass Fixed Income Fund: To seek current income as
well as preservation of capital.
9. BIT Core Fixed Income Portfolio: To realize a total
rate of return that exceeds the total return of the
Lehman Brothers Aggregate Index consistent with
preservation of capital and prudent investment
management.
10. PNC Core Fixed Income Portfolio: To realize a total
rate of return that exceeds the total return of the
Lehman Brothers Aggregate Index, consistent with
preservation of capital and prudent investment
management.
Comment: The Compass Fixed Income Fund invests in
securities within the three highest rating categories
and unrated securities deemed to be of comparable
quality. The BIT Core Fixed Income Portfolio and PNC
Core Fixed Income Portfolio invest in securities
rated in the four highest rating categories (and
unrated securities deemed to be of comparable
quality), and may invest up to 5% of their assets in
securities whose ratings have been downgraded below
investment grade. The Compass Fixed Income Fund's
dollar-weighted average portfolio maturity ranges
between five and eighteen years. The BIT Core Fixed
Income Portfolio and PNC Core Fixed Income do not
have limits on their portfolio maturities, but each
Portfolio normally maintains a target "duration"
(as defined above in the immediately preceding
"Comment") in the range of plus or minus 20%
around the current duration of the Lehman Brothers
Aggregate Index.
Unlike the Compass Fixed Income Portfolio, the BIT
Core Fixed Income Portfolio and PNC Core Fixed Income
Portfolio may engage in: (i) interest rate swap,
cap and floor transactions, (ii) short sales
against the box, (iii) dollar roll transactions
and (iv) transactions in inverse floating rate
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securities subject to a 10% total asset limit.
Interest rate swaps involve the exchange by a
Portfolio with another party of their respective
commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate
payments. The purchase of an interest rate cap
entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest
rate, to receive payments of interest on a notional
principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a
specified index falls below a predetermined interest
rate, to receive payments of interest on a notional
principal amount from the party selling such interest
rate floor. The Portfolios expect to enter into
these transactions primarily to preserve a return or
spread on a particular investment or portion of their
respective portfolios, as a duration management
technique or to protect against an increase in the
price of securities a Portfolio anticipates
purchasing at a later date. The Portfolios intend to
use these transactions as a hedge and not as a
speculative investment. Each Portfolio may enter into
interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities,
and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted
out, with the Portfolio receiving or paying, as the
case may be, only the net amount of the two payments.
A Portfolio will accrue the net amount of the excess,
if any, of its obligations over its entitlements with
respect to each interest rate swap on a daily basis
and will deliver an amount of cash, U.S. Government
securities or liquid high-grade debt securities
having an aggregate net asset value at least equal to
the accrued excess to a custodian that satisfies the
requirements of the 1940 Act.
The BIT Core Fixed Income Portfolio and the PNC
Core Fixed Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for
delivery in the current month and simultaneously
contracts to repurchase substantially similar (same
type and coupon) securities on a specified future
date from the same party. During the roll period,
the Portfolio forgoes principal and interest paid on
the securities. The Portfolio is compensated by the
difference between the current sales price and the
forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned
on the cash proceeds of the initial sale. Dollar
rolls involve the risk that the market value of the
securities retained by a Portfolio may decline below
the price of the securities the Portfolio has sold
but is obligated to repurchase under the agreement.
The BIT Core Fixed Income Portfolio and PNC
Core Fixed Income Portfolio may only make short sales
of securities "against-the-box." A short sale is a
transaction in which a Portfolio sells a security it
does not own in anticipation that the market price
of that security will decline. The Portfolios
expect to make short sales both as a form of
hedging to offset potential declines in long
positions in similar securities and in order to
maintain portfolio flexibility. In a short sales
"against-the-box", at the time of the sale, the
Portfolio owns or has the immediate and
unconditional right to acquire the identical
security at no additional cost. When selling
short "against-the-box", a Portfolio forgoes
an opportunity for capital appreciation in the
security.
While each of the Compass Fixed Income Fund, BIT Core
Fixed Income Portfolio and PNC Core Fixed Income
Portfolio may invest in various types of futures
contracts and put and call options, the Compass Fixed
Income Fund is subject to a 33% limit on such
transactions, while the BIT Core Fixed Income
Portfolio and PNC Core Fixed Income Portfolio are
subject to a 10% limit on options. The BIT Core
Fixed Income Portfolio and PNC Core Fixed Income
Portfolio, but not the Compass Fixed Income Fund, may
engage in reverse repurchase agreements for
leveraging purposes, and are expected to have high
turnover rates that may increase transaction costs
borne by the Portfolios.
11. Compass International Fixed Income Fund: To seek
current income and preservation of capital consistent
with reasonable investment risk.
12. PNC International Fixed Income Portfolio: To achieve
as high a level of current income as is consistent
with prudent investment risk.
Comment: Both the Compass International Fixed Income
Fund and the PNC International Fixed Income Portfolio
invest at least 65% of their respective total assets
in fixed income obligations of foreign issuers.
Under normal market conditions, the Compass
International Fixed Income Fund's dollar-weighted
average portfolio maturity will range between two and
eighteen years. The PNC International Fixed Income
Portfolio is not restricted to any minimum or maximum
time to maturity. The PNC International Fixed Income
Portfolio may invest in securities rated in the four
highest rating categories (and unrated securities
deemed to be of comparable quality), and may invest
up to 5% of its net assets in securities rated below
investment grade; the Compass International Fixed
Income Fund may only invest in debt securities that
have at the time of purchase one of the three highest
ratings or, if unrated, are deemed to be of
comparable quality.
13. BIT Multi-Sector Mortgage Securities Portfolio III:
To seek to provide a total ratio of return before
fees and expenses over rolling twelve-month
periods that exceeds the total return of the Salomon
Broad Investment Grade Index over the same period by
at least 1.60% on an annualized basis.
14. PNC Multi-Sector Mortgage Securities Portfolio III:
To seek to provide a total ratio of return before
fees and expenses over rolling twelve-month
periods that exceeds the total return of the Salomon
Broad Investment Grade Index over the same period by
at least 1.60% on an annualized basis.
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exceeds the total return of the Salomon Brothers
Mortgage Index.
Comment: Both the BIT Multi-Sector Mortgage
Securities Portfolio III and the PNC Multi-Sector
Mortgage Securities Portfolio III seeks to achieve
its investment objective by investing in a
portfolio of fixed income securities consisting
primarily of commercial and residential mortgage-
backed securities. Each Portfolio may also invest in
securities that are not mortgage-backed securities
issued by the U.S. Government, its agencies or
instrumentalities. Each of the Portfolios may
invest up to 25% of its assets in non-investment
grade securities rated BB or B, of which no more than
half (or 12.5% of the Portfolio's assets) may be
rated B. Each Portfolio has a policy of maintaining
a dollar-weighted average credit quality of at least
A-/A3. In addition, each of the Portfolios may
invest in futures, options, swaps, caps and floors
for bona fide hedging and duration management
purposes. Each Portfolio does not have a limit on its
portfolio maturity, but normally maintains a target
"duration" in the range of plus or minus 20% around
the current duration of the Salomon Brothers Mortgage
Index.
III. EQUITY PORTFOLIOS
A. Investment Objectives and Policies - Equity Portfolios
1. Compass Equity Income Fund: To seek a combination of
current income and capital appreciation.
2. PNC Value Equity Portfolio: To seek long-term
appreciation.
Comment: The Compass Equity Income Fund generally
limits its investments to domestic companies with
market capitalizations in excess of $200 million
without regard to any specific industry, region or
trading market. On average, stocks selected for the
Compass Equity Income Fund are expected to provide to
provide a higher current yield than that of the
general market, as characterized by the S&P 500.
Price-to-earnings and price-to-book ratios are also
part of the stock selection process, and the Compass
Equity Income Fund normally ranks lower in these two
categories than the S&P 500 composite. The Compass
Equity Income Fund may invest up to 35% of its total
assets in preferred stocks, high quality corporate
bonds, notes, warrants, obligations issued by foreign
branches of U.S. domestic and foreign banks and
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high quality, short-term obligations. The PNC Value
Equity Portfolio invests primarily in corporate
stocks and securities convertible into common stocks,
selected on the basis of fundamental and/or
traditional research, that appear to represent good
relative value. The ratios of a security's
price-to-earnings and book value, its earnings trend
and its dividend growth rate are factors considered
in security selection.
3. Compass Growth Fund: To seek primarily capital
appreciation.
4. PNC Growth Equity Portfolio: To seek long-term
growth of capital and, secondarily, to achieve
current income and dividend growth potential.
Comment: Both the Compass Growth Fund and PNC Growth
Equity Portfolio invest primarily in equity
securities. The Compass Growth Fund limits its
investments to companies considered to have favorable
equity-to-debt ratios and market capitalizations in
excess of $200 million. Emphasis is placed on
companies that have demonstrated consistent
historical earnings growth; recent earnings momentum
and price-to-earnings ratios are also considered. The
PNC Growth Equity Portfolio emphasizes companies in
the middle and higher capitalization ranges (over $1
billion market capitalization at the time of
purchase) and growth prospects exceeding that of the
general economy.
5. Compass Small Company Fund: To seek primarily
capital appreciation.
6. PNC Small Cap Growth Equity Portfolio: To seek
long-term capital appreciation.
Comment: Both the Compass Small Company Fund and the
PNC Small Cap Growth Equity Portfolio invest
primarily in securities of domestic companies with a
market capitalization of less than $1 billion at the
time of purchase. The PNC Small Cap Growth Equity
Portfolio invests primarily in stocks of
companies which the portfolio's sub-adviser considers
to have favorable and above average earnings growth
prospects.
7. Compass International Equity Fund: To seek primarily
long-term capital appreciation and, secondarily,
income.
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8. PNC International Equity Portfolio: To provide
long-term capital appreciation.
Comment: The Compass International Equity Portfolio
invests at least 65% of its assets in equity
securities of foreign companies, and may invest up to
35% of its assets in equity and investment grade
fixed income securities of companies domiciled in the
United States. The PNC International Equity Income
Portfolio must invest at least 80% of its assets in
equity securities of foreign issuers, and does not
normally intend to invest in the equity securities of
domestic companies. The PNC International Equity
Portfolio places primary emphasis on the securities
of issuers in countries included in the MSCI Europe,
Australia and Far East Index ("EAFE") whose prices in
their home market or stock exchange are low in
relation to current earnings.
B. Investment Objectives - Balanced Fund
1. Compass Balanced Fund: To provide capital
appreciation and current income.
2. PNC Balanced Portfolio: To achieve total return
through a combination of long-term growth of capital
and current income consistent with preservation of
capital.
Comment: The Compass Balanced Fund invests at least
30% of its total assets in fixed income securities
with the remainder in common stocks and securities
convertible into common stocks; the PNC Balanced
Portfolio invests at least 25% of its total assets in
fixed income senior securities with the remainder in
common stocks and convertible securities. Fixed
income securities acquired by both the Compass
Balanced Fund and the PNC Balanced Portfolio are
investment grade. Equity investments by the Compass
Balanced Fund are primarily in large-capitalization
companies (those companies with market
capitalizations of over $1 billion). Both Portfolios
may invest in foreign securities, but the PNC
Balanced Portfolio's investments in securities of
foreign issuers are limited to 5% of the Portfolio's
total assets.
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IV. FUNDAMENTAL LIMITATIONS -
ALL COMPASS, BIT AND PNC PORTFOLIOS
Except where noted below, the following investment limitations
are fundamental, and may not be changed without shareholder approval, for the
Compass Portfolios, the BIT Portfolios and the PNC Portfolios. The following
discussion does not apply to the fundamental limitations of PNC Multi-Sector
Mortgage Securities Portfolio III, which are the same as the fundamental
limitations of its corresponding BIT Portfolio set forth in the current
Prospectus and Statement of Additional Information for that Portfolio.
1. Diversification
a. The Compass Portfolios may not purchase
securities of any one issuer, other than
obligations issued or guaranteed by the U.S.
Government or its agencies and
instrumentalities, if immediately after such
purchase, more than 5% of the value of their
respective total assets would be invested in
any one issuer or a Portfolio would hold more
than 10% of any class of securities of such
issuer or more than 10% of the outstanding
voting securities of such issuer, except that
(i) with respect to each Compass Portfolio,
except the New Jersey Municipal Money Fund,
Pennsylvania Municipal Money Fund, New Jersey
Municipal Bond Fund and the Pennsylvania
Municipal Bond Fund, up to 25% of the value
of such Compass Funds' total assets may be
invested without regard to such limitation,
(ii) with respect to the Compass New Jersey
Municipal Money Fund, Pennsylvania Municipal
Money Fund, New Jersey Municipal Bond Fund
and Pennsylvania Municipal Bond Fund, up to
50% of the value of each Fund's respective
total assets may be invested in as few as two
issuers.
b. The PNC Portfolios, except the PNC New Jersey
Municipal Money Market Portfolio,
Pennsylvania Money Market Portfolio, New
Jersey Tax-Free Income Portfolio and
Pennsylvania Tax-Free Income Portfolio, may
not purchase securities of any one issuer
(other than securities issued or guaranteed
by the U.S. Government, its agencies or
instrumentalities or certificates of deposit
for such securities) if more than 5% of the
value of the respective Portfolio's total
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assets (taken at current value) would be
invested in the securities of such issuer, or
more than 10% of the issuer's outstanding
voting securities would be owned by the
Portfolio or by PNC, except that up to 25% of
the value of a Portfolio's total assets
(taken at current value) may be invested
without regard to these limitations.
NOTE: The PNC New Jersey Municipal Money
Market Portfolio, Pennsylvania Money Market
Portfolio, New Jersey Tax-Free Income
Portfolio and Pennsylvania Tax-Free Income
Portfolio do not have a fundamental
investment limitation on diversification.
c. The BIT Portfolios may not (i) purchase any
security (other than obligations of the U.S.
Government, its agencies and
instrumentalities) if as a result, with
respect to 75% of their respective total
assets, more than 5% of such total assets
would then be invested in securities of a
single issuer, and (ii) purchase more than
10% of all outstanding voting securities of
any one issuer.
NOTE: Under the foregoing investment
limitations, each Compass, PNC and BIT is
classified as a diversified portfolio under
the 1940 Act except the Compass New Jersey
Municipal Money Market Fund, Compass
Pennsylvania Municipal Money Market Fund,
Compass New Jersey Municipal Bond Fund,
Compass Pennsylvania Municipal Bond Fund and
their corresponding PNC Portfolios. In
addition, the PNC Multi-Sector Mortgage
Securities Portfolio III and BIT Multi-Sector
Mortgage Securities Portfolio III are
classified as non-diversified portfolios
under the 1940 Act.
2. Concentration
a. The Compass Portfolios may not purchase
securities that would cause more than 25% of
the value of their total assets at the time
of purchase to be invested in securities of
one or more issuers conducting their
principal business activities in the same
industry, provided that: (i) there is no
limitation with respect to obligations issued
or guaranteed by the U.S. Government or its
agencies or instrumentalities, domestic bank
certificates of deposit or bankers'
acceptances and repurchase agreements secured
by such obligations; (ii) this limitation
shall not apply to municipal securities or
government guarantees of municipal securities
purchased by the Compass Municipal Money
Market Fund, New Jersey Municipal Money Fund,
Pennsylvania Municipal Money Fund, Municipal
Bond Fund, New Jersey Municipal Bond Fund and
Pennsylvania Municipal Bond Fund; (iii)
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 their
III-14
<PAGE> 177
parents; and (iv) utilities will be divided
according to their services.
b. The PNC Portfolios may not purchase
securities that would cause 25% or more of
the value of their respective 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; except that the PNC Money
Market Portfolio may not purchase any
securities that would cause, at the time of
purchase, less than 25% of the value of its
total assets to be invested in the
obligations of issuers in the banking
industry, or in obligations, such as
repurchase agreements, secured by such
obligations (unless the Portfolio is in a
temporary defensive position) or which would
cause, at the time of purchase, more than 25%
of the value of its total assets to be
invested in the obligations of issuers in any
other industry. These limitations are not
applied to (i) 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; (ii) with respect to
PNC's money market funds only, instruments
issued by domestic banks (which may include
U.S. branches of foreign banks); (iii)
repurchase agreements secured by the
instruments described in the foregoing
clauses (i) and, with respect to PNC's money
market funds only, (ii); and 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 their parents, and
utilities will be divided according to their
services.
c. The BIT Portfolios may not purchase any
security (other than obligations of the U.S.
Government, its agencies and
instrumentalities) if, as a result, 25% or
more of a Portfolio's total assets would be
invested in one or more issuers having their
principal business activities in the same
industry.
III-15
<PAGE> 178
3. Borrowings
a. The Compass Portfolios may not borrow or
issue senior securities, except that they may
borrow from banks or enter into reverse
repurchase agreements for temporary purposes
in amounts up to 10% of the value of their
respective total assets at the time of such
borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection
with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts
borrowed or 10% of the value of its total
assets at the time of the borrowing. The
Compass Portfolios may not purchase
securities while their respective borrowings
(including reverse repurchase agreements)
exceed 5% of their respective total assets.
b. The PNC Portfolios may not borrow money or
issue senior securities, except that they may
borrow from banks and (other than PNC's
tax-exempt money market funds) enter into
reverse repurchase agreements for temporary
purposes in amounts up to one-third of the
value of their respective total assets at the
time of the 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 Portfolios may not
purchase securities when their respective
aggregate outstanding borrowings (including
reverse repurchase agreements and borrowings
from banks) exceed 5% of their respective
total assets.
c. The BIT Portfolios may not issue senior
securities, borrow money or pledge its
assets, except that a Portfolio may borrow
from banks or enter into reverse repurchase
agreements or dollar rolls up to 33 1/3% of
the value of its total assets (calculated
when the loan is made) to take advantage of
investment opportunities and may pledge up to
33 1/3% of the value of its total assets to
secure such borrowings. Each Portfolio is
also authorized to borrow an additional 5% of
its total assets without regard to the
foregoing limitations for temporary purposes
such as clearance of portfolio transactions
III-16
<PAGE> 179
and share redemptions. For purposes of these
restrictions, the purchase or sale of
securities on a "when-issued", delayed
delivery or forward commitment basis, the
purchase and sale of options and futures
contracts and collateral arrangements with
respect thereto are not deemed to be the
issuance of a senior security, a borrowing or
a pledge of assets.
NOTE: It is expected that after the
Effective Times of the Compass Transaction
and the BIT Transaction the fundamental
limitation on borrowings for the PNC
Short-Term Bond Portfolio and PNC Core Fixed
Income Portfolio will be conformed to the
fundamental limitations of the BIT Portfolios
stated above.
4. Loans
a. The Compass Portfolios may not make loans,
except that they may lend their portfolio
securities in accordance with their
investment objectives and policies and may
enter into repurchase agreements.
b. The PNC Portfolios may not make loans, except
that they may purchase and hold debt
instruments and enter into repurchase
agreements in accordance with their
investment objectives and may lend their
portfolio securities.
c. The BIT Portfolios may not make loans, except
through (i) repurchase agreements, and (ii)
loans of portfolio securities limited to 50%
of the value of the Portfolio's total assets.
5. Illiquid Securities
a. The Compass Portfolios may not invest (except
with respect to variable or floating rate
notes subject to a seven-day or less demand
feature) more than 15% of their respective
total assets in illiquid securities,
including repurchase agreements providing for
settlement more than seven days after notice,
and, with respect to the Compass
International Fixed Income and International
Equity Funds, over-the-counter hedging
transactions.
III-17
<PAGE> 180
NOTE: As a matter of non-fundamental policy,
the Compass Cash Reserve and U.S. Treasury
Funds will limit their investments in
illiquid securities to 10%.
NOTE: PNC's money market funds have a 10%
limit, and the other PNC Portfolios have a
15% limit, on investments in illiquid
securities, but these policies are not
fundamental for these Portfolios. The BIT
Portfolios are subject to a 15% limit on such
securities, but this policy is not
fundamental to these Portfolios.
6. Margin Transactions/Trading Accounts
a. The Compass Portfolios may not purchase
securities on margin, sell securities short
or maintain a short position, or participate
on a joint or joint and several basis in any
securities trading account.
b. The PNC Portfolios may not purchase
securities on margin, make short sales of
securities or maintain a short position,
except that (i) this investment limitation
shall not apply to a Portfolio's transactions
in futures contracts and related options or a
Portfolio's sale of securities short against
the box, and (ii) the Portfolios may obtain
short-term credit as may be necessary for the
clearance of purchases and sales of a
Portfolio's securities.
c. The BIT Portfolios may not purchase
securities on margin (but a Portfolio may
obtain such short-term credits as may be
necessary for the clearance of transactions);
provided that the deposit or payment by a
Portfolio of initial or variation margin in
connection with options or futures contracts
is not considered the purchase of a security
on margin. The Portfolios may not make short
sales, except "against-the-box."
7. Underwriting
a. The Compass Portfolios may not underwrite
securities of other issuers, except to the
extent that a Portfolio may be deemed to be
an underwriter under certain securities laws
in the disposition of "restricted securities"
acquired in accordance with the Portfolio's
investment objective and policies.
III-18
<PAGE> 181
b. The PNC Portfolios may not act as an
underwriter within the meaning of the
Securities Act of 1933 except to the extent
that the purchase of obligations directly
from the issuer thereof, or the disposition
of securities, in accordance with a
Portfolio's investment objective, policies
and limitations may be deemed to be
underwriting.
c. The BIT Portfolios may not act as underwriter
except to the extent that, in connection with
the disposition of portfolio securities, it
may be deemed to be an underwriter under
certain Federal securities laws.
8. Options
a. The Compass Portfolios may not write or sell
straddles, spreads or combinations thereof;
the Compass Cash Reserve Fund and U.S.
Treasury Fund may not write or purchase put
or call options; the Compass Municipal Bond
Fund, New Jersey Municipal Bond Fund,
Pennsylvania Municipal Bond Fund, Municipal
Money Fund, New Jersey Municipal Money Fund
and Pennsylvania Municipal Money Fund also
may not write or sell put or call options,
except that they may acquire put options with
respect to municipal securities in their
respective portfolios and sell those put
options in conjunction with a sale of those
municipal securities; the Compass Municipal
Money Fund, New Jersey Municipal Money Fund
and Pennsylvania Municipal Money Fund will
not acquire a put if, immediately after such
acquisition, over 5% of the total amortized
cost value of their respective assets would
be subject to puts from the same institution,
except that (i) up to 25% of the value of
each Portfolio's total assets may be subject
to puts without regard to such 5% limitation,
and (ii) the 5% limitation is inapplicable to
puts that, by their terms, would be readily
exercisable in the event of a default in
payment of principal or interest on the
underlying securities. In applying this
limitation, a Portfolio will aggregate
securities subject to puts from any one
institution with such Portfolio's
investments, if any, in securities issued or
guaranteed by that institution. In addition,
III-19
<PAGE> 182
a put will be considered to be from a party
to whom the Portfolio will look for payment
of the exercise price. The Compass Municipal
Money Fund, New Jersey Municipal Money Fund
and Pennsylvania Municipal Money Fund will
not acquire a put that, by its terms, would
be readily exercisable in the event of a
default in payment of principal and interest
on the underlying security or securities if,
immediately after that acquisition, the
amortized cost value of the security or
securities underlying that put, when
aggregated with the amortized cost value of
any other securities issued or guaranteed by
the issuer of the put, would exceed 10% of
the total amortized cost values of a
Portfolio's assets.
b. The PNC Portfolios are not permitted to write
or sell put options, call options, straddles,
spreads, or any combination thereof, except
for transactions in options on securities,
securities indices, futures contracts and
options on futures contracts.
NOTE: The BIT Portfolios do not have a
fundamental investment limitation on options.
9. Real Estate
a. The Compass Portfolios may not purchase or
sell real estate, including limited
partnership interests (although investments
by the Portfolios in marketable securities of
companies engaged in such activities, and the
investment in securities secured by real
estate or interests therein, are not
precluded to the extent consistent with a
Portfolio's investment objective).
b. The PNC Portfolios may not purchase or sell
real estate, except a Portfolio may purchase
securities of issuers that deal in real
estate and may purchase securities that are
secured by interests in real estate.
c. The BIT Portfolios will not buy or sell real
estate or interests in real estate, except a
the Portfolio may purchase and sell
mortgage-backed securities, securities
collateralized by mortgages, securities that
are secured by
III-20
<PAGE> 183
real estate and securities of companies which
invest or deal in real estate.
10. Other Investment Companies
a. The Compass Municipal Money Fund, Cash
Reserve Fund, U.S. Treasury Fund, New Jersey
Municipal Money Fund and New Jersey Municipal
Bond Fund may not invest in securities of
other investment companies, except where such
securities may be acquired as part of a
merger, consolidation, reorganization, or
acquisition of assets.
b. The PNC Portfolios may not acquire any other
investment company or investment company
security except in connection with a merger,
consolidation, reorganization or acquisition
of assets or where otherwise permitted by the
1940 Act.
NOTE: The BIT Portfolios do not have a
fundamental investment limitation on
investments in other investment companies.
11. Miscellaneous
a. The Compass Portfolios may not invest in any
issuer for purposes of exercising control of
management; nor may they purchase or sell
commodities, commodity contracts (except with
respect to futures contracts where permitted
by a Portfolio's investment objectives and
policies), oil, gas or mineral exploration or
development programs or leases (although
investments by a Portfolio in marketable
securities of companies engaged in such
activities are not precluded to the extent
appropriate to its investment objective). In
addition, the Compass Portfolios may not
purchase or retain securities of any issuer
if the officers or trustees of Compass or the
officers or directors of any of its
investment advisers or sub-advisers owning
beneficially more than one-half of 1% of the
securities of such issuer together own
beneficially more than 5% of such securities.
The Compass Portfolios also will not invest
more than 10% of their total assets in the
securities of issuers that together with any
predecessors have a record of less than three
years of continuous operation. The Compass
III-21
<PAGE> 184
Municipal Money Fund, New Jersey Municipal
Money Fund and Pennsylvania Municipal Money
Fund will not invest in private activity
bonds where the payment of principal and
interest are the responsibility of a company
(including its predecessors) with less than
three years of continuous operations.
b. The Compass Cash Reserve Fund and U.S.
Treasury Fund may not buy common stocks,
voting securities or municipal securities.
c. The Compass U.S. Treasury Fund may not
purchase securities other than bills, notes
and bonds issued by the U.S. Treasury,
certain of which securities may be subject to
repurchase agreements collateralized by the
underlying U.S. Treasury obligations.
d. The Compass Pennsylvania Municipal Money Fund
and Pennsylvania Municipal Bond Fund have a
fundamental policy that their securities may
be varied only (i) to eliminate unsafe
investments and investments not consistent
with the preservation of their capital or the
tax status of their investments; (ii) to
honor redemption orders, meet anticipated
redemption requirements, and negate gains
from discount purchases; (iii) in the case of
the Compass Pennsylvania Municipal Money
Fund, to maintain a constant net asset value
per unit pursuant to, and in compliance with,
an order or rule of the United States
Securities and Exchange Commission; (iv) to
reinvest earnings from securities in like
securities; or (v) to defray normal
administrative expenses.
e. The PNC Portfolios may not purchase
securities for the purpose of exercising
control; nor may they purchase or sell
commodity contracts, or invest in oil, gas or
mineral exploration or development programs,
except that the Portfolios may, to the extent
appropriate to their investment policies,
purchase securities (publicly-traded
securities in the case of a money market
fund) of companies engaging in whole or in
part in such activities and may enter into
futures contracts and related options.
III-22
<PAGE> 185
f. The PNC New Jersey Municipal Money Market and
Pennsylvania Municipal Money Market
Portfolios will invest at least 80% of their
respective net assets in private activity
bonds the interest on which is an item of tax
preference for purposes of the Federal
alternative minimum tax and instruments the
interest on which is exempt from regular
Federal income tax, except during defensive
periods or during periods of unusual market
conditions.
g. The PNC Municipal Money Market Portfolio will
invest at least 80% of its net assets in
instruments the interest on which is exempt
from regular Federal income tax and is not an
item of tax preference for purposes of
Federal alternative minimum tax, except
during defensive periods or during periods of
unusual market conditions.
h. The BIT Portfolios may not make investments
for the purpose of exercising control or
management. The Portfolios will not purchase
securities, other than U.S. Government
securities, mortgage-backed securities or
asset-backed securities, of any issuer having
a record, together with predecessors, of less
than three years of continuous operations if,
immediately after such purchase, more than 5%
of a Portfolio's total assets would be
invested in such securities. The Portfolios
also may not invest in oil, gas or other
mineral exploration or development programs,
except that it may invest in securities of
companies that invest in or sponsor such
programs. The BIT Portfolios may not buy or
sell commodities contracts, except that they
may purchase and sell futures contracts and
options thereon.
III-23
<PAGE> 186
APPENDIX IV
EXPENSE SUMMARIES
OF COMPASS, BIT AND PNC PORTFOLIOS
The following tables (a) compare the fees and expenses of the
respective Compass Portfolios, BIT Portfolios and corresponding PNC Portfolios
for their most recent fiscal years (restated in the case of the Compass
Portfolios to show estimated expenses for the current year) and (b) show
estimated fees and expenses on a pro forma basis giving effect to the
respective Compass and BIT Transactions. The purpose of these tables is to
assist shareholders in understanding the various costs and expenses that
investors in the portfolios bear as shareholders. The tables do not reflect
any charges that may be imposed by Midlantic Bank, N.A., PNC Bank, National
Association or their affiliates or other institutions directly on their
customer accounts in connection with investments in the portfolios.
Schedule of Tables
<TABLE>
<CAPTION>
Name of Compass or BIT Portfolio Page
- -------------------------------- ----
<S> <C>
Compass Municipal Money Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-2
Compass New Jersey Municipal Money Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-4
Compass Pennsylvania Municipal Money Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-6
Compass Cash Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-8
Compass U.S. Treasury Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-10
Compass Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-12
Compass New Jersey Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-14
Compass Pennsylvania Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-16
Compass Equity Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-18
Compass Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-20
Compass Small Company Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-22
Compass International Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-24
Compass Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-26
Compass Short/Intermediate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-28
Compass Fixed Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-30
Compass International Fixed Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-32
BIT Short Duration Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-34
BIT Core Fixed Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-36
BIT Multi-Sector Securities Portfolio III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-38
</TABLE>
IV-1
<PAGE> 187
COMPASS MUNICIPAL MONEY FUND
PNC MUNICIPAL MONEY MARKET PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
PNC MUNICIPAL
COMPASS MUNICIPAL MONEY MARKET POST-CLOSING
MONEY FUND PORTFOLIO PRO FORMA
----------------- ------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Imposed Purchases
(as a percentage of offering price) . . . . . . . . . . . . None None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . None None None
Deferred Sales Load
(as a percentage of redemption proceeds) . . . . . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . None(1) None None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(2):
(as a percentage of average net assets)
Advisory Fees(3) . . . . . . . . . . . . . . . . . . . . . . 0.40% 0.06% 0.06%
Other Operating Expenses(4) . . . . . . . . . . . . . . . . . 0.29% 0.52% 0.52%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(5):. . . . . . . . . . . . . . . . . . . . 0.69% 0.58% 0.58%
===== ===== =====
</TABLE>
- --------------------
1. The Compass Municipal Money Fund imposes a $7 charge for wiring
redemption proceeds.
2. The investment adviser and other service providers for the PNC
Municipal Money Market Portfolio are under no contractual obligation,
after the closing on the Compass Transaction, to waive fees or
reimburse expenses, but have informed the Portfolio that they expect
to waive fees and reimburse expenses during the fiscal year ending
September 30, 1996 as necessary to maintain the Portfolio's total
operating expenses at the pro forma level stated in the table.
3. Advisory fees (before waivers) are 0.40% for the Compass Municipal
Money Fund and 0.45% of the first $1 billion of the average daily net
assets of the PNC Municipal Money Market Portfolio, plus 0.40% of the
next $1 billion of such Portfolio's average daily net assets, plus
0.375% of the next $1 billion of such Portfolio's average daily net
assets, plus 0.35% of such Portfolio's average daily net assets in
excess of $3 billion. PAMG as the investment adviser of the PNC
Municipal Money Market Portfolio is entitled to retain a portion of
this fee equal to the annual rate of .05% of the Portfolio's average
daily net assets, and the Portfolio's sub-adviser is entitled to the
remainder of the fee. The sub-advisory fee is paid by PAMG and has no
effect on the advisory fees paid by the Portfolio.
4. Other expenses (before waivers and reimbursements) would be 0.29%,
0.56% and 0.59%, respectively. Other pro forma expenses, include an
administration fee payable to PFPC and PDI 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, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholder
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-2
<PAGE> 188
5. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.69%, 1.01% and 1.04%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS PNC MUNICIPAL
MUNICIPAL MONEY MARKET PRO
MONEY FUND PORTFOLIO FORMA
------------ ------------- -----
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 7 $ 6 $ 6
3 years . . . . . . . . . . . . . . . . . 22 19 19
5 years . . . . . . . . . . . . . . . . . 38 32 32
10 years . . . . . . . . . . . . . . . . 86 73 73
- -------------------------------
</TABLE>
(0) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-3
<PAGE> 189
COMPASS NEW JERSEY MUNICIPAL MONEY FUND
PNC NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS
NEW JERSEY PNC NEW JERSEY
MUNICIPAL MUNICIPAL MONEY POST-CLOSING
MONEY FUND MARKET PORTFOLIO PRO FORMA
---------- ---------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . None * None
Maximum Sales Load Imposed on Reinvested . . . . . . .
Dividends (as a percentage of offering price) . . . . None None
Deferred Sales Load (as a percentage of
redemption proceeds) . . . . . . . . . . . . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . None(1) None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(2):
(as a percentage of average net assets)
Advisory Fees(3). . . . . . . . . . . . . . . . . . . . 0.40% 0.06%
Other Operating Expenses(4) . . . . . . . . . . . . . . 0.29% 0.52%
----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(5):. . . . . . . . . . . . . . . . . 0.69% 0.58%
===== =====
</TABLE>
- -------------------------
* The PNC New Jersey Municipal Money Market Portfolio is a new
investment portfolio that has nominal assets and liabilities and is
expected to commence investment operations upon completion of the
Compass Transaction.
1. The Compass New Jersey Municipal Money Fund imposes a $7 charge for
wiring redemption proceeds.
2. The investment adviser and other service providers for the PNC New
Jersey Municipal Money Market Portfolio are under no contractual
obligation, after the closing on the Compass Transaction, to waive
fees or reimburse expenses, but have informed the Portfolio that they
expect to waive fees and reimburse expenses during the fiscal year
ending September 30, 1996 as necessary to maintain the Portfolio's
total operating expenses at the pro forma level stated in the table.
3. Advisory fees (before waivers) are 0.40% for the Compass New Jersey
Municipal Money Fund and 0.45% of the first $1 billion of the average
daily net assets of the PNC New Jersey Municipal Money Market
Portfolio, plus 0.40% of the next $1 billion of such Portfolio's
average daily net assets, plus 0.375% of the next $1 billion of such
Portfolio's average daily net assets, plus 0.35% of such Portfolio's
average daily net assets in excess of $3 billion. PAMG as the
investment adviser of the PNC Municipal Money Market Portfolio is
entitled to retain a portion of this fee equal to the annual rate of
.05% of the Portfolio's average daily net assets, and the Portfolio's
sub-adviser is entitled to the remainder of the fee. The sub-advisory
fee is paid by PAMG and has no effect on the advisory fees paid by the
Portfolio.
4. Other expenses (before waivers and reimbursements) would be 0.29% and
0.59%, respectively. Other pro forma expenses, include an
administration fee payable to PFPC and PDI 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, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of
IV-4
<PAGE> 190
.03% of the average net asset value of the Portfolio's outstanding
Service Shares, and (c) shareholder servicing fees as described in the
Combined Proxy Statement/Prospectus under "Comparison of PNC, Compass
and BIT--Share Structure."
5. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.69% and 1.04%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS NEW PNC NEW JERSEY
JERSEY MUNICIPAL MUNICIPAL MONEY
MONEY FUND MARKET PORTFOLIO PRO FORMA
---------------- ---------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . . . . $ 7 * $ 6
3 years . . . . . . . . . . . . . . . . . . . . 22 19
5 years . . . . . . . . . . . . . . . . . . . . 38 32
10 years . . . . . . . . . . . . . . . . . . . 86 73
- ------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
MORE OR LESS THAN THE ASSUMED AMOUNT.
* See first footnote above.
IV-5
<PAGE> 191
COMPASS PENNSYLVANIA MUNICIPAL MONEY FUND
PNC PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
PNC
COMPASS PENNSYLVANIA
PENNSYLVANIA MUNICIPAL
MUNICIPAL MONEY MARKET POST-CLOSING
MONEY FUND PORTFOLIO PRO FORMA
------------- --------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) . . . . . . . None None None
Deferred Sales Load (as a percentage of
redemption proceeds) . . . . . . . . . . . . . . . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . None(1) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(2):
(as a percentage of average net assets)
Advisory Fees(3). . . . . . . . . . . . . . . . . . . . . . . 0.40% 0.06% 0.06%
Other Operating Expenses(4) . . . . . . . . . . . . . . . . . 0.29% 0.52% 0.52%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(5): . . . . . . . . . . . . . . . . . . . 0.69% 0.58% 0.58%
===== ===== =====
</TABLE>
- -------------------
1. The Compass Pennsylvania Municipal Money Fund imposes a $7 charge for
wiring redemption proceeds.
2. The investment adviser and other service providers for the PNC
Pennsylvania Municipal Money Market Portfolio are under no contractual
obligation, after the closing on the Compass Transaction, to waive
fees or reimburse expenses, but have informed the Portfolio that they
expect to waive fees and reimburse expenses during the fiscal year
ending September 30, 1996 as necessary to maintain the Portfolio's
total operating expenses at the pro forma level stated in the table.
3. Advisory fees (before waivers) are 0.40% for the Compass Pennsylvania
Municipal Money Fund and 0.45% of the first $1 billion of the average
daily net assets of the PNC Pennsylvania Municipal Money Market
Portfolio, plus 0.40% of the next $1 billion of such Portfolio's
average daily net assets, plus 0.375% of the next $1 billion of such
Portfolio's average daily net assets, plus 0.35% of such Portfolio's
average daily net assets in excess of $3 billion. PAMG as the
investment adviser of the PNC Municipal Money Market Portfolio is
entitled to retain a portion of this fee equal to the annual rate of
.05% of the Portfolio's average daily net assets, and the Portfolio's
sub-adviser is entitled to the remainder of the fee. The sub-advisory
fee is paid by PAMG and has no effect on the advisory fees paid by the
Portfolio.
4. Other expenses (before waivers and reimbursements) would be 0.29%,
0.55% and 0.59%, respectively. Other pro forma expenses, include an
administration fee payable to PFPC and PDI 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, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholder
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-6
<PAGE> 192
5. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.69%, 1.00% and 1.04%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS
PENNSYLVANIA PNC PENNSYLVANIA
MUNICIPAL MUNICIPAL MONEY
MONEY FUND MARKET PORTFOLIO PRO FORMA
-------------- ---------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 7 $ 6 $ 6
3 years . . . . . . . . . . . . . . . . . 22 19 19
5 years . . . . . . . . . . . . . . . . . 38 32 32
10 years . . . . . . . . . . . . . . . . 86 73 73
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-7
<PAGE> 193
COMPASS CASH RESERVE FUND
PNC MONEY MARKET PORTFOLIO - SERVICE SHARES
<TABLE>
<Caption
COMPASS CASH PNC MONEY MARKET POST-CLOSING
RESERVE FUND PORTFOLIO PRO FORMA
------------ ---------------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) . . . . . . . . . . . . . . . . . . . . None None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage
of offering price) . . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of
redemption proceeds) . . . . . . . . . . . . . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . None(1) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(2):
(as a percentage of average net assets)
Advisory Fees(3). . . . . . . . . . . . . . . . . . . . . 0.35% 0.06% 0.06%
Other Operating Expenses(4) . . . . . . . . . . . . . . . 0.24% 0.52% 0.52%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(5): . . . . . . . . . . . . . . . . . . 0.59% 0.58% 0.58%
===== ===== =====
</TABLE>
- --------------------------
1. The Compass Cash Reserve Fund imposes a $7 charge for wiring
redemption proceeds.
2. The investment adviser and other service providers for the PNC Money
Market Portfolio are under no contractual obligation, after the
closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
3. Advisory fees (before waivers) are 0.35% for the Compass Cash Reserve
Fund and 0.45% of the first $1 billion of the average daily net assets
of the PNC Money Market Portfolio, plus 0.40% of the next $1 billion
of such Portfolio's average daily net assets, plus 0.375% of the next
$1 billion of such Portfolio's average daily net assets, plus 0.35% of
such Portfolio's average daily net assets in excess of $3 billion.
PAMG as the investment adviser of the PNC Municipal Money Market
Portfolio is entitled to retain a portion of this fee equal to the
annual rate of.05% of the Portfolio's average daily net assets, and
the Portfolio's sub-adviser is entitled to the remainder of the fee.
The sub-advisory fee is paid by PAMG and has no effect on the advisory
fees paid by the Portfolio.
4. Other expenses (before waivers and reimbursements) would be 0.24%,
0.53% and 0.56%, respectively. Other pro forma expenses, include an
administration fee payable to PFPC and PDI 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, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholder
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-8
<PAGE> 194
5. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.59%, 0.97% and 1.00%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS CASH PNC MONEY
RESERVE FUND MARKET PORTFOLIO PRO FORMA
------------ ---------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 6 $ 6 $ 6
3 years . . . . . . . . . . . . . . . . . 19 19 19
5 years . . . . . . . . . . . . . . . . . 33 32 32
10 years . . . . . . . . . . . . . . . . 74 73 73
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-9
<PAGE> 195
COMPASS U.S. TREASURY FUND
PNC GOVERNMENT MONEY MARKET PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS PNC GOVERNMENT
U.S. TREASURY MONEY MARKET POST-CLOSING
FUND PORTFOLIO PRO FORMA
------------ --------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) . . . . . . . . . . . . . . . . . . . None None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage
of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of
redemption proceeds) . . . . . . . . . . . . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . None(1) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(2)
(as a percentage of average net assets)
Advisory Fees(3). . . . . . . . . . . . . . . . . . . . 0.35% 0.06% 0.06%
Other Operating Expenses(4) . . . . . . . . . . . . . . 0.24% 0.52% 0.52%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(5): . . . . . . . . . . . . . . . . 0.59% 0.58% 0.58%
===== ===== =====
</TABLE>
- -------------------------
1. The Compass U.S. Treasury Fund imposes a $7 charge for wiring
redemption proceeds.
2. The investment adviser and other service providers for the PNC
Government Money Market Portfolio are under no contractual obligation,
after the closing on the Compass Transaction, to waive fees or
reimburse expenses, but have informed the Portfolio that they expect
to waive fees and reimburse expenses during the fiscal year ending
September 30, 1996 as necessary to maintain the Portfolio's total
operating expenses at the pro forma level stated in the table.
3. Advisory fees (before waivers) are 0.35% for the Compass U.S. Treasury
Fund and 0.45% of the first $1 billion of the average daily net assets
of the PNC Government Money Market Portfolio, plus 0.40% of the next
$1 billion of such Portfolio's average daily net assets, plus 0.375%
of the next $1 billion of such Portfolio's average daily net assets,
plus 0.35% of such Portfolio's average daily net assets in excess of
$3 billion. PAMG as the investment adviser of the PNC Municipal Money
Market Portfolio is entitled to retain a portion of this fee equal to
the annual rate of .05% of the Portfolio's average daily net assets,
and the Portfolio's sub-adviser is entitled to the remainder of the
fee. The sub-advisory fee is paid by PAMG and has no effect on the
advisory fees paid by the Portfolio.
4. Other expenses (before waivers and reimbursements) would be 0.24%,
0.55% and .58%, respectively. Other pro forma expenses, include an
administration fee payable to PFPC and PDI 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, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares,
IV-10
<PAGE> 196
and (c) shareholder servicing fees as described in the Combined Proxy
Statement/Prospectus under "Comparison of PNC, Compass and BIT-- Share
Structure."
5. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.59%, 1.00% and 1.03%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS PNC GOVERNMENT
U.S. TREASURY MONEY MARKET
FUND PORTFOLIO PRO FORMA
-------------- --------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 6 $ 6 $ 6
3 years . . . . . . . . . . . . . . . . . 19 19 19
5 years . . . . . . . . . . . . . . . . . 33 32 32
10 years . . . . . . . . . . . . . . . . 74 73 73
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-11
<PAGE> 197
COMPASS MUNICIPAL BOND FUND
PNC TAX-FREE INCOME PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS MUNICIPAL PNC TAX-FREE POST-CLOSING
BOND FUND INCOME PORTFOLIO PRO FORMA
----------------- ---------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.00%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.00% 0.30%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.33% 0.83% 0.55%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS AND
REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . . . 0.93% 0.83% 0.85%
===== ===== =====
</TABLE>
- -------------------------
1. There is no sales charge on certain purchases of the Compass Municipal
Bond Fund.
2. The Compass Municipal Bond Fund imposes a $7 charge for wiring
redemption proceeds.
3. The investment adviser and other service providers for the PNC
Tax-Free Income Portfolio are under no contractual obligation, after
the closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.60% for the Compass Municipal
Bond Fund and 0.50% of the first $1 billion of the average daily net
assets of the PNC Tax-Free Income Portfolio, plus 0.45% of the next $1
billion of such Portfolio's average daily net assets, plus 0.425% of
the next $1 billion of such Portfolio's average daily net assets, plus
0.40% of such Portfolio's average daily net assets in excess of $3
billion. For its sub-advisory services, the sub-adviser for this PNC
Portfolio is entitled to receive a fee at the annual rate of .35% of
the Portfolio's first $1 billion of average daily net assets, .30% of
its next $1 billion of average daily net assets, .275% of its next $1
billion of average daily net assets, and .25% of its average daily net
assets in excess of $3 billion. This sub- advisory fee is paid by the
PNC Portfolio's investment adviser and has no effect on the advisory
fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.33%,
1.03% and 0.69%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-12
<PAGE> 198
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.93%, 1.53% and 1.19%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
15
COMPASS MUNICIPAL PNC TAX-FREE
BOND FUND INCOME PORTFOLIO - PRO FORMA
----------------- ------------------ ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 49 $ 8 $ 9
3 years . . . . . . . . . . . . . . . . . 68 26 27
5 years . . . . . . . . . . . . . . . . . 89 46 47
10 years . . . . . . . . . . . . . . . . 150 103 105
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-13
<PAGE> 199
COMPASS NEW JERSEY MUNICIPAL BOND FUND
PNC NEW JERSEY TAX-FEE INCOME PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS NEW JERSEY PNC NEW JERSEY
MUNICIPAL TAX-FREE INCOME POST-CLOSING
BOND FUND PORTFOLIO PRO FORMA
------------------ --------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.00%(1) * None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSE AFTER WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.30%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.28% 0.55%
----- -----
TOTAL FUND OPERATING EXPENSES AFTER WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . . 0.88% 0.85%
===== =====
</TABLE>
- -------------------------
* The PNC New Jersey Tax-Free Income Portfolio is a new investment
portfolio with nominal assets and liabilities that is expected to
commence investment operations upon completion of the Compass
Transaction.
1. There is no sales charge on certain purchases of the Compass New
Jersey Municipal Bond Fund.
2. The Compass New Jersey Municipal Bond Fund imposes a $7 charge for
wiring redemption proceeds.
3. The investment adviser and service providers for the PNC New Jersey
Tax-Free Income Portfolio are under no contractual obligation, after
the closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.62% for the Compass New Jersey
Municipal Bond Fund and 0.50% of the first $1 billion of the average
daily net assets of the PNC New Jersey Tax-Free Income Portfolio, plus
0.45% of the next $1 billion of such Portfolio's average daily net
assets, plus 0.425% of the next $1 billion of such Portfolio's average
daily net assets, plus 0.40% of such Portfolio's average daily net
assets in excess of $3 billion. For its sub-advisory services, the
sub-adviser for this PNC Portfolio is entitled to receive a fee at the
annual rate of .35% of the Portfolio's first $1 billion of average
daily net assets, .30% of its next $1 billion of average daily net
assets, .275% of its next $1 billion of average daily net assets, and
.25% of its average daily net assets in excess of $3 billion. The
sub-advisory fee is paid by PNC's investment adviser and has no effect
on the advisory fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.28%, and
0.55%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net
IV-14
<PAGE> 200
assets and .15% of the Portfolio's average daily net assets in excess
of $2 billion, and a separate co-administration fee payable to PNC
Mutual Fund Company at an annual rate of.03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of- pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
6. Total Fund Operating Expenses (before waivers) would be 0.88% and
1.12%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS NEW PNC NEW JERSEY
JERSEY MUNICIPAL TAX-FREE INCOME
BOND FUND PORTFOLIO PRO FORMA
---------------- --------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 49 * $ 9
3 years . . . . . . . . . . . . . . . . . 67 27
5 years . . . . . . . . . . . . . . . . . 87 47
10 years . . . . . . . . . . . . . . . . 144 105
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
* SEE FIRST FOOTNOTE ABOVE.
IV-15
<PAGE> 201
COMPASS PENNSYLVANIA MUNICIPAL BOND FUND
PNC PENNSYLVANIA TAX-FREE INCOME PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS
PENNSYLVANIA PNC PENNSYLVANIA
MUNICIPAL TAX-FREE INCOME POST-CLOSING
BOND FUND PORTFOLIO PRO FORMA
------------- ---------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.00%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.28% 0.30%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.41% 0.55% 0.55%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . . 1.01% 0.83% 0.85%
===== ===== =====
</TABLE>
- -------------------
1. There is no sales charge on certain purchases of the Compass
Pennsylvania Municipal Bond Fund.
2. The Compass Pennsylvania Municipal Bond Fund imposes a $7 charge for
wiring redemption proceeds.
3. The investment adviser and service providers for the PNC Pennsylvania
Tax-Free Income Portfolio are under no contractual obligation, after
the closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.60% for the Compass Pennsylvania
Municipal Bond Fund and 0.50% of the first $1 billion of the average
daily net assets of the PNC Pennsylvania Tax-Free Income Portfolio,
plus 0.45% of the next $1 billion of such Portfolio's average daily
net assets, plus 0.425% of the next $1 billion of such Portfolio's
average daily net assets, plus 0.40% of such Portfolio's average daily
net assets in excess of $3 billion. For its sub-advisory services,
the sub-adviser for this PNC Portfolio is entitled to receive a fee at
the annual rate of .35% of the Portfolio's first $1 billion of average
daily net assets, .30% of its next $1 billion of average daily net
assets, .275% of its next $1 billion of average daily net assets, and
.25% of its average daily net assets in excess of $3 billion. This
sub-advisory fee is paid by the PNC Portfolio's investment adviser and
has no effect on the advisory fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.41%,
0.66% and 0.65%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and
IV-16
<PAGE> 202
certain transaction charges, (b) transfer agency fees payable at the
annual rate of .03% of the average net asset value of the Portfolio's
outstanding Service Shares, and (c) shareholders servicing fees as
described in the Combined Proxy Statement/Prospectus under "Comparison
of PNC, Compass and BIT--Share Structure."
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 1.01%, 1.16% and 1.15%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS
PENNSYLVANIA PNC PENNSYLVANIA
MUNICIPAL TAX-FREE INCOME
BOND FUND PORTFOLIO PRO FORMA
------------ ---------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . $ 50 $ 8 $ 9
3 years . . . . . . . . . . . . . . . 71 26 27
5 years . . . . . . . . . . . . . . . 94 46 47
10 years . . . . . . . . . . . . . . 159 103 105
- -------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-17
<PAGE> 203
COMPASS EQUITY INCOME FUND
PNC VALUE EQUITY PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS
EQUITY PNC VALUE EQUITY POST-CLOSING
CLOSING INCOME FUND PORTFOLIO PRO-FORMA
---------------- ----------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.50%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70% 0.43% 0.50%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.25% 0.55% 0.55%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 0.95% 0.98% 1.05%
- ------------------- ===== ===== =====
</TABLE>
1. There is no sales charge on certain purchases of the Compass Equity
Income Fund.
2. The Compass Equity Income Fund imposes a $7 charge for wiring
redemption proceeds.
3. The investment adviser and service providers for the PNC Value Equity
Portfolio are under no contractual obligation, after the closing on
the Compass Transaction, to waive fees or reimburse expenses, but have
informed the Portfolio that they expect to waive fees and reimburse
expenses during the fiscal year ending September 30, 1996 as necessary
to maintain the Portfolio's total operating expenses at the pro forma
level stated in the table.
4. Advisory fees (before waivers and reimbursements) are 0.70% for the
Compass Equity Income Fund and 0.55% of the first $1 billion of the
average daily net assets of the PNC Value Equity Portfolio, plus 0.50%
of the next $1 billion of such Portfolio's average daily net assets,
plus 0.475% of the next $1 billion of such Portfolio's average daily
net assets, plus 0.45% of such Portfolio's average daily net assets in
excess of $3 billion. For its sub-advisory services, the sub-adviser
for this PNC Portfolio is entitled to receive a fee at the annual rate
of .40% of the Portfolio's first $1 billion of average daily net
assets, .35% of its next $1 billion of average daily net assets, .325%
of its next $1 billion of average daily net assets and .30% of its
average daily net assets in excess of $3 billion. This sub-advisory
fee is paid by the PNC Portfolio's investment adviser and has no
effect on the advisory fees paid by the Portfolio.
5. Other expenses (before waivers) would be 0.25%, 0.56% and 0.55%,
respectively. Other pro forma expenses include an administration fee
payable to PFPC and PDI at an annual rate of .20% of the first $500
million of the Portfolio's average daily net assets, .18% of the next
$500 million of the Portfolio's average daily net assets, .16% of the
next $1 billion of the Portfolio's average daily net assets and .15%
of the Portfolio's average daily net assets in excess of $2 billion,
and a separate co-administration fee payable to PNC Mutual Fund
Company at an annual rate of .03% of the Portfolio's average daily net
assets.. Other pro forma expenses also include (a) custodial fees
paid to PNC Bank based upon the PNC Portfolio's average gross assets,
with a minimum fee of $1,000, plus out-of-pocket expenses and certain
transaction charges, (b) transfer agency fees payable at the annual
rate of .03% of the average net asset value of the Portfolio's
outstanding Service Shares, and (c) shareholders servicing fees as
described in the Combined Proxy Statement/Prospectus under "Comparison
of PNC, Compass and BIT--Share Structure."
IV-18
<PAGE> 204
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.95%, 1.11% and 1.05%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS EQUITY PNC VALUE EQUITY
INCOME FUND PORTFOLIO PRO FORMA
-------------- ---------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . $ 54 $ 10 $ 11
3 years . . . . . . . . 74 31 33
5 years . . . . . . . . 95 54 58
10 years . . . . . . . 156 120 128
</TABLE>
- -------------------------
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-19
<PAGE> 205
COMPASS GROWTH FUND
PNC GROWTH EQUITY PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS GROWTH PNC GROWTH EQUITY POST-CLOSING
FUND PORTFOLIO PRO FORMA
-------------- ----------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.50%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70% 0.43% 0.50%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.26% 0.55% 0.55%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 0.96% 0.98% 1.05%
===== ===== =====
- --------------------
</TABLE>
1. There is no sales charge on certain purchases of the Compass Growth
Fund.
2. The Compass Growth Fund imposes a $7 charge for wiring redemption
proceeds.
3. The investment adviser and service providers for the PNC Growth Equity
Portfolio are under no contractual obligation, after the closing on
the Compass Transaction, to waive fees or reimburse expenses, but have
informed the Portfolio that they expect to waive fees and reimburse
expenses during the fiscal year ending September 30, 1996 as necessary
to maintain the Portfolio's total operating expenses at the pro forma
level stated in the table.
4. Advisory fees (before waivers) are 0.70% for the Compass Growth Fund
and 0.55% of the first $1 billion of the average daily net assets of
the PNC Growth Equity Portfolio, plus 0.50% of the next $1 billion of
such Portfolio's average daily net assets, plus 0.475% of the next $1
billion of such Portfolio's average daily net assets, plus 0.45% of
such Portfolio's average daily net assets in excess of $3 billion.
For its sub-advisory services, the sub-adviser for this PNC Portfolio
is entitled to receive a fee at the annual rate of .40% of the
Portfolio's first $1 billion of average daily net assets, .35% of its
next $1 billion of average daily net assets, .325% of its next $1
billion of average daily net assets and .30% of its average daily net
assets in excess of $3 billion. This sub-advisory fee is paid by the
PNC Portfolio's investment adviser and has no effect on the advisory
fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.26%,
0.59% and 0.62%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-20
<PAGE> 206
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.96%, 1.14% and 1.17%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS PNC GROWTH EQUITY
GROWTH FUND PORTFOLIO PRO FORMA
----------- ----------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 54 $ 10 $ 17
3 years . . . . . . . . . . . . . . . . . 74 31 33
5 years . . . . . . . . . . . . . . . . . 96 54 58
10 years . . . . . . . . . . . . . . . . 158 120 128
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-21
<PAGE> 207
COMPASS SMALL COMPANY FUND
PNC SMALL CAP GROWTH EQUITY PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS SMALL PNC SMALL CAP
COMPANY GROWTH EQUITY POST-CLOSING
FUND PORTFOLIO PRO FORMA
------------ ------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases . . . . . . . . . . . . . . . . . . . . 4.50%(1) None None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.90% 0.48% 0.53%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.40% 0.55% 0.63%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 1.30% 1.03% 1.16%
===== ===== =====
- -------------------
</TABLE>
1. There is no sales charge on certain purchases of the Compass Small
Company Fund.
2. The Compass Small Company Fund imposes a $7 charge for wiring
redemption proceeds.
3. The investment adviser and service providers for the PNC Small Cap
Value Equity Portfolio are under no contractual obligation, after the
closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.90% for the Compass Small Company
Fund and 0.55% of the first $1 billion of the average daily net assets
of the PNC Small Cap Growth Equity Portfolio, plus 0.50% of the next
$1 billion of such Portfolio's average daily net assets, plus 0.475%
of the next $1 billion of such Portfolio's average daily net assets,
plus 0.45% of such Portfolio's average daily net assets in excess of
$3 billion. For its sub-advisory services, the sub-adviser for this
PNC Portfolio is entitled to receive a fee at the annual rate of .40%
of the Portfolio's first $1 billion of average daily net assets, .35%
of its next $1 billion of average daily net assets, .325% of its next
$1 billion of average daily net assets and .30% of its average daily
net assets in excess of $3 billion. This sub-advisory fee is paid by
the PNC Portfolio's and has an effect on the advisory fees paid by the
Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.40%,
0.59% and 0.63%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-22
<PAGE> 208
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 1.30%, 1.14% and 1.18%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PNC SMALL CAP
COMPASS SMALL GROWTH EQUITY
COMPANY FUND PORTFOLIO PRO FORMA
------------- ------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . $ 58 $ 11 $ 12
3 years . . . . . . . . 84 34 37
5 years . . . . . . . . 113 57 64
10 years . . . . . . . 195 126 141
- -------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-23
<PAGE> 209
COMPASS INTERNATIONAL EQUITY FUND
PNC INTERNATIONAL EQUITY PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS PNC
INTERNATIONAL INTERNATIONAL EQUITY POST-CLOSING
EQUITY FUND PORTFOLIO PRO FORMA
------------- -------------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases . . . . . . . . . . . . . . . . . . . . 4.50%(1) None None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND DISBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.90% 0.63% 0.53%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.56% 0.65% 0.73%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND DISBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . . 1.46% 1.28% 1.26%
- ------------------- ===== ===== =====
</TABLE>
1. There is no sales charge on certain purchases of the Compass
International Equity Fund.
2. The Compass International Equity Fund imposes a $7 charge for wiring
redemption proceeds.
3. The investment adviser and service providers for the PNC International
Equity Portfolio are under no contractual obligation, after the
closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.90% for the Compass International
Equity Fund and 0.75% of the first $1 billion of the average daily net
assets of the PNC International Equity Portfolio, plus 0.70% of the
next $1 billion of such Portfolio's average daily net assets, plus
0.675% of the next $1 billion of such Portfolio's average daily net
assets, plus 0.65% of such Portfolio's average daily net assets in
excess of $3 billion. For its sub-advisory fees, the sub-adviser for
this PNC Portfolio entitled to receive a fee at the annual rate of
.60% of the Portfolio's first $1 billion of average daily net assets,
.55% of its next $1 billion of average daily net assets, .525% of its
next $1 billion of average daily net assets and .50% of its average
daily net assets in excess of $3 billion. This sub-advisory fee is
paid by the PNC Portfolio's investment adviser and has no effect on
the advisory fees paid by the Portfolio.
5. Other expenses (before waivers or reimbursements) would be 0.56%,
0.67% and 0.71%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and
IV-24
<PAGE> 210
certain transaction charges, (b) transfer agency fees payable at the
annual rate of .03% of the average net asset value of the Portfolio's
outstanding Service Shares, and (c) shareholders servicing fees as
described in the Combined Proxy Statement/Prospectus under "Comparison
of PNC, Compass and BIT--Share Structure."
6. Total Fund Operating Expenses (before waivers or reimbursements) would
be 1.46%, 1.42% and 1.46%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS
INTERNATIONAL PNC INTERNATIONAL
EQUITY FUND EQUITY PORTFOLIO PRO FORMA
------------- ----------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . $ 59 $ 13 $ 14
3 years . . . . . . . . 89 41 43
5 years . . . . . . . . 121 70 54
10 years . . . . . . . 212 155 164
</TABLE>
- -------------------------
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-25
<PAGE> 211
COMPASS BALANCED FUND
PNC BALANCED PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS BALANCED PNC BALANCED POST-CLOSING
FUND PORTFOLIO PRO-FORMA
---------------- ------------ ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.50%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.70% 0.43% 0.50%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.40% 0.55% 0.60%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 1.10% 0.98% 1.10%
- -------------------- ===== ===== =====
</TABLE>
1. There is no sales charge on certain purchases of the Compass Balanced
Fund.
2. The Compass Balanced Fund imposes a $7 charge for wiring redemption
proceeds.
3. The investment adviser and service providers for the PNC Balanced
Portfolio are under no contractual obligation, after the closing on
the Compass Transaction, to waive fees or reimburse expenses, but have
informed the Portfolio that they expect to waive fees and reimburse
expenses during the fiscal year ending September 30, 1996 as necessary
to maintain the Portfolio's total operating expenses at the pro forma
level stated in the table.
4. Advisory fees (before waivers) are 0.70% for the Compass Balanced Fund
and 0.55% of the first $1 billion of the average daily net assets of
the PNC Balanced Portfolio, plus 0.50% of the next $1 billion of such
Portfolio's average daily net assets, plus 0.475% of the next $1
billion of such Portfolio's average daily net assets, plus 0.45% of
such Portfolio's average daily net assets in excess of $3 billion.
For its sub-advisory services, the sub-adviser for this PNC Portfolio
is entitled to receive a fee at the annual rate of .40% of the
Portfolio's first $1 billion of average daily net assets, .35% of its
next $1 billion of average daily net assets, .325% of its next $1
billion of average daily net assets and .30% of its average daily net
assets in excess of $3 billion. This sub-advisory fee is paid by the
PNC Portfolio's investment adviser and has no effect on the advisory
fees paid by the Portfolio.
5. Other expenses (before waivers or reimbursements) would be 0.40%,
0.64% and 0.65%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-26
<PAGE> 212
6. Total Fund Operating Expenses (before waivers or reimbursements) would
be 1.10%, 1.19% and 1.20%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS
BALANCED PNC BALANCED
FUND PORTFOLIO PRO FORMA
-------- ------------ ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 56 $ 10 $ 11
3 year . . . . . . . . . . . . . . . . . 78 31 35
5 years . . . . . . . . . . . . . . . . . 103 54 61
10 years . . . . . . . . . . . . . . . . 173 120 134
- -------------------------------
</TABLE>
EXAMPLE:(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN;
ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-27
<PAGE> 213
COMPASS SHORT/INTERMEDIATE FUND
PNC SHORT-TERM BOND PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS SHORT/
INTERMEDIATE PNC SHORT-TERM POST-CLOSING
FUND BOND PORTFOLIO PRO FORMA
-------------- -------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.00%(1) None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.23% 0.30%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.25% 0.50% 0.55%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 0.85% 0.73% 0.85%
===== ===== =====
- -------------------------
</TABLE>
1. There is no sales charge on certain purchases of the Compass
Short/Intermediate Fund.
2. The Compass Short/Intermediate Fund imposes a $7 charge for wiring
redemption proceeds.
3. The investment adviser and service providers for the PNC Short-Term
Bond Portfolio are under no contractual obligation, after the closing
on the Compass Transaction, to waive fees or reimburse expenses, but
have informed the Portfolio that they expect to waive fees and
reimburse expenses during the fiscal year ending September 30, 1996 as
necessary to maintain the Portfolio's total operating expenses at the
pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.60% for the Compass
Short/Intermediate Fund and 0.50% of the first $1 billion of the
average daily net assets of the PNC Short-Term Bond Portfolio, plus
0.45% of the next $1 billion of such Portfolio's average daily net
assets, plus 0.425% of the next $1 billion of such Portfolio's average
daily net assets, plus 0.40% of such Portfolio's average daily net
assets in excess of $3 billion. For its sub-advisory services, the
sub-adviser for this PNC Portfolio is entitled to receive a fee at the
annual rate of .35% of the Portfolio's first $1 billion of average
daily net assets, .30% of its next $1 billion of average daily net
assets, .275% of its next $1 billion of average daily net assets, and
.25% of its average daily net assets in excess of $3 billion. This
sub- advisory fee is paid by the PNC Portfolio's investment adviser
and has no effect on the advisory fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.25%,
0.61% and 0.61%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares,
IV-28
<PAGE> 214
and (c) shareholders servicing fees as described in the Combined Proxy
Statement/Prospectus under "Comparison of PNC, Compass and BIT-- Share
Structure."
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.85%, 1.11% and 1.11%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS SHORT/
INTERMEDIATE PNC SHORT-TERM
FUND BOND PORTFOLIO PRO FORMA
-------------- -------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 48 $ 7 $ 9
3 years . . . . . . . . . . . . . . . . . 66 23 27
5 years . . . . . . . . . . . . . . . . . 85 41 47
10 years . . . . . . . . . . . . . . . . 141 91 105
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-29
<PAGE> 215
COMPASS FIXED INCOME FUND
PNC CORE FIXED INCOME PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS PNC
FIXED INCOME CORE FIXED INCOME POST-CLOSING
FUND PORTFOLIO PRO FORMA
------------ ----------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . 4.00%(1) * None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.30%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.25% 0.55%
----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 0.85% 0.85%
- -------------------- ===== =====
</TABLE>
* The PNC Core Fixed Income Portfolio is a new investment portfolio with
nominal assets and liabilities that is expected to commence investment
operations in connection with the Compass and BIT Transactions.
1. There is no sales charge on certain purchases of the Compass Fixed
Income Fund.
2. The Compass Fixed Income Fund imposes a $7 charge for wiring
redemption proceeds.
3. The investment adviser and service providers for the PNC Core Fixed
Income Portfolio are under no contractual obligation, after the
closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.60% for the Compass Fixed Income
Fund and 0.50% of the first $1 billion of the average daily net assets
of the PNC Core Fixed Income Portfolio, plus 0.45% of the next $1
billion of such Portfolio's average daily net assets, plus 0.425% of
the next $1 billion of such Portfolio's average daily net assets, plus
0.40% of such Portfolio's average daily net assets in excess of $3
billion. For its sub-advisory services, the sub-adviser for this PNC
Portfolio is entitled to receive a fee at the annual rate of .35% of
the Portfolio's first $1 billion of average daily net assets, .30% of
its next $1 billion of average daily net assets, .275% of its next $1
billion of average daily net assets, and .25% of its average daily net
assets in excess of $3 billion. This sub-advisory fee is paid by the
PNC Portfolio's investment adviser and has no effect on the advisory
fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.25% and
0.60%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of
IV-30
<PAGE> 216
.03% of the average net asset value of the Portfolio's outstanding
Service Shares, and (c) shareholders servicing fees as described in
the Combined Proxy Statement/Prospectus under "Comparison of PNC,
Compass and BIT--Share Structure."
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.85% and 1.10%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS PNC
FIXED INCOME CORE FIXED INCOME
FUND PORTFOLIO PRO FORMA
------------ ----------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 48 * $ 9
3 years . . . . . . . . . . . . . . . . . 66 27
5 years . . . . . . . . . . . . . . . . . 85 47
10 years . . . . . . . . . . . . . . . . 141 105
- -------------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
* SEE FIRST FOOTNOTE ABOVE.
IV-31
<PAGE> 217
COMPASS INTERNATIONAL FIXED INCOME FUND
PNC INTERNATIONAL FIXED INCOME PORTFOLIO - SERVICE SHARES
<TABLE>
<CAPTION>
COMPASS PNC
INTERNATIONAL INTERNATIONAL
FIXED INCOME FIXED INCOME POST-CLOSING
FUND PORTFOLIO PRO FORMA
------------- ------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases . . . . . . . . . . . . . . . . . . . . 4.00%(1) * None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None(2) None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(3):
(as a percentage of average net assets)
Advisory Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.80% 0.60%
Other Operating Expenses(5) . . . . . . . . . . . . . . . . . . . . . . 0.44% 0.68%
----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(6): . . . . . . . . . . . . . . . . . . . . . . . . 1.24% 1.28%
- -------------------- ===== =====
</TABLE>
* The PNC International Fixed Income Portfolio currently has nominal
assets and liabilities and is expected to commence investment
operations in connection with the Compass Transaction.
1. There is no sales charge on certain purchases of the Compass
International Fixed Income Portfolio.
2. The Compass International Fixed Income Fund imposes a $7 charge for
wiring redemption proceeds.
3. The investment adviser and service providers for the PNC International
Fixed Income Portfolio are under no contractual obligation, after the
closing on the Compass Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the fiscal year ending September
30, 1996 as necessary to maintain the Portfolio's total operating
expenses at the pro forma level stated in the table.
4. Advisory fees (before waivers) are 0.80% for the Compass International
Fixed Income Fund and 0.55% of the first $1 billion of the average
daily net assets of the PNC International Fixed Income Portfolio, plus
0.50% of the next $1 billion of such Portfolio's average daily net
assets, plus 0.475% of the next $1 billion of such Portfolio's average
daily net assets, plus 0.45% of such Portfolio's average daily net
assets in excess of $3 billion. For its sub-advisory services, the
sub-adviser for this PNC Portfolio is entitled to receive a fee at the
annual rate of .40% of the Portfolio's first $1 billion of average
daily net assets, .35% of its next $1 billion of average daily net
assets, .325% of its next $1 billion of average daily net assets, and
.30% of its average daily net assets in excess of $3 billion. This
sub-advisory fee is paid by the PNC Portfolio's investment adviser and
has no effect on the advisory fees paid by the Portfolio.
5. Other expenses (before waivers and reimbursements) would be 0.44% and
0.78%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses
IV-32
<PAGE> 218
also include (a) custodial fees paid to PNC Bank based upon the PNC
Portfolio's average gross assets, with a minimum fee of $1,000, plus
out-of-pocket expenses and certain transaction charges, (b) transfer
agency fees payable at the annual rate of .03% of the average net
asset value of the Portfolio's outstanding Service Shares, and (c)
shareholders servicing fees as described in the Combined Proxy
Statement/Prospectus under "Comparison of PNC, Compass and BIT--Share
Structure."
6. Total Fund Operating Expenses (before waivers and reimbursements)
would be 1.24% and 1.33%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
COMPASS PNC
INTERNATIONAL INTERNATIONAL
FIXED INCOME FIXED INCOME
FUND PORTFOLIO PRO FORMA
------------- ------------ ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 52 * $ 13
3 years . . . . . . . . . . . . . . . . . 78 41
5 years . . . . . . . . . . . . . . . . . 105 70
10 years . . . . . . . . . . . . . . . . 184 155
</TABLE>
_________________________
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
* SEE FIRST FOOTNOTE ABOVE.
IV-33
<PAGE> 219
BIT SHORT DURATION PORTFOLIO
PNC SHORT-TERM BOND PORTFOLIO - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
BIT SHORT DURATION PNC SHORT-TERM POST-CLOSING
PORTFOLIO BOND PORTFOLIO PRO FORMA
------------------ -------------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases . . . . . . . . . . . . . . . . . . . . None None None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(1):
(as a percentage of average net assets):
Advisory Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.30% 0.23% 0.30%
Other Operating Expenses(3) . . . . . . . . . . . . . . . . . . . . . . 0.27% 0.20% 0.25%
----- ----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(4): . . . . . . . . . . . . . . . . . . . . . . . . 0.57% 0.43% 0.55%
- -------------------- ===== ===== =====
</TABLE>
1. The investment adviser and service providers for the PNC Short-Term
Bond Portfolio are under no contractual obligation, after the closing
on the BIT Transaction, to waive fees or reimburse expenses, but have
informed the Portfolio that they expect to waive fees and reimburse
expenses during the fiscal year ending September 30, 1996 as necessary
to maintain the Portfolio's total operating expenses at the pro forma
level stated in the table.
2. Advisory fees (before waivers) are 0.30% for the BIT Short Duration
Portfolio and 0.50% of the first $1 billion of the average daily net
assets of the PNC Short-Term Bond Portfolio, plus 0.45% of the next $1
billion of such Portfolio's average daily net assets, plus 0.425% of
the next $1 billion of such Portfolio's average daily net assets, plus
0.40% of such Portfolio's average daily net assets in excess of $3
billion. For its sub-advisory services, the sub-adviser for this PNC
Portfolio is entitled to receive a fee at the annual rate of .35% of
the Portfolio's first $1 billion of average daily net assets, .30% of
its next $1 billion of average daily net assets, .275% of its next $1
billion of average daily net assets, and .25% of its average daily net
assets in excess of $3 billion. This sub-advisory fee is paid by the
PNC Portfolio's investment adviser and has no effect on the advisory
fees paid by the Portfolio.
3. Other expenses (before waivers and reimbursements) would be 0.27%,
0.31% and 0.31%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
4. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.57%, 0.81% and 0.81%, respectively.
IV-34
<PAGE> 220
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
BIT SHORT
DURATION PNC SHORT-TERM
PORTFOLIO BOND PORTFOLIO PRO FORMA
--------- -------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . . $ 6 $ 4 $ 6
3 years . . . . . . . . . . . . . . . . . 18 14 18
5 years . . . . . . . . . . . . . . . . . 32 24 31
10 years . . . . . . . . . . . . . . . . 72 54 69
- -------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
IV-35
<PAGE> 221
BIT CORE FIXED INCOME PORTFOLIO
PNC CORE FIXED INCOME PORTFOLIO - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
BIT CORE
FIXED INCOME PNC CORE FIXED POST-CLOSING
PORTFOLIO INCOME PORTFOLIO PRO FORMA
--------- ---------------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load on Purchases . . . . . . . . . . . . . . . . . . . . None * None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(1):
(as a percentage of average net assets):
Advisory Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35% 0.35%
Other Operating Expenses(3) . . . . . . . . . . . . . . . . . . . . . . 0.20% 0.20%
----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(4): . . . . . . . . . . . . . . . . . . . . . . . . . 0.55% 0.55%
- -------------------- ===== =====
</TABLE>
* The PNC Core Fixed Income Portfolio is a new investment portfolio with
nominal assets and liabilities that is expected to commence investment
operations in connection with the Compass and BIT Transactions.
1. The investment adviser and service providers for the PNC Core Fixed
Income Portfolio are under no contractual obligation, after the
closing on the BIT Transaction, to waive fees or reimburse expenses,
but have informed the Portfolio that they expect to waive fees and
reimburse expenses during the fiscal year ending September 30, 1996 as
necessary to maintain the Portfolio's total operating expenses at the
pro forma level stated in the table.
2. Advisory fees (before waivers) are 0.35% for the BIT Core Fixed Income
Portfolio and 0.50% of the first $1 billion of the average daily net
assets of the PNC Core Fixed Income Portfolio, plus 0.45% of the next
$1 billion of such Portfolio's average daily net assets, plus 0.425%
of the next $1 billion of such Portfolio's average daily net assets,
plus 0.40% of such Portfolio's average daily net assets in excess of
$3 billion. For its sub-advisory services, the sub-adviser for this
PNC Portfolio is entitled to receive a fee at the annual rate of .35%
of the Portfolio's first $1 billion of average daily net assets, .30%
of its next $1 billion of average daily net assets, .275% of its next
$1 billion of average daily net assets, and .25% of its average daily
net assets in excess of $3 billion. This sub- advisory fee is paid by
the PNC Portfolio's investment adviser and has no effect on the
advisory fees paid by the Portfolio.
3. Other expenses (before waivers and reimbursements) would be 0.20% and
0.35%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
IV-36
<PAGE> 222
4. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.60% and 0.80%, respectively.
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
BIT CORE
FIXED INCOME PNC CORE FIXED
PORTFOLIO INCOME PORTFOLIO PRO FORMA
--------- ---------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . $ 6 * $ 6
3 years . . . . . . . . . . . . . . . . 18 18
5 years . . . . . . . . . . . . . . . . 31 31
10 years . . . . . . . . . . . . . . . 69 69
- -------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
* SEE FIRST FOOTNOTE ABOVE.
IV-37
<PAGE> 223
BIT MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PNC MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
BIT MULTI-SECTOR PNC MULTI-SECTOR
MORTGAGE SECURITIES MORTGAGE SECURITIES POST-CLOSING
PORTFOLIO III PORTFOLIO III PRO FORMA
------------- ------------------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load on Purchases . . . . . . . . . . . . . . . . . . . . None * None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . None None
Deferred Sales Load (as a percentage of redemption proceeds) . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(1):
(as a percentage of average net assets):
Advisory Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35% 0.35%
Other Operating Expenses(3) . . . . . . . . . . . . . . . . . . . . . . 0.25% 0.25%
----- -----
TOTAL FUND OPERATING EXPENSES AFTER FEE WAIVERS
AND REIMBURSEMENTS(4): . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.60%
- -------------------- ===== =====
</TABLE>
* The PNC Multi-Sector Mortgage Securities Portfolio III is a new
investment portfolio with nominal assets and liabilities that is
expected to commence investment operations in connection with the BIT
Transaction.
1. The investment adviser and service providers for the PNC Multi-Sector
Mortgage Securities Portfolio III are under no contractual obligation,
after the closing on the BIT Transaction, to waive fees or reimburse
expenses, but have informed the Portfolio that they expect to waive
fees and reimburse expenses during the current fiscal year ending
September 30, 1996 as necessary to maintain the Portfolio's total
operating expenses at the pro forma level stated in the table.
2. Advisory fees (before waivers) are 0.35% for both the BIT Multi-Sector
Mortgage Securities Portfolio III and PNC Multi-Sector Mortgage
Securities Portfolio III.
3. Other expenses (before waivers and reimbursements) would be 0.25% and
0.25%, respectively. Other pro forma expenses include an
administration fee payable to PFPC and PDI at an annual rate of .20%
of the first $500 million of the Portfolio's average daily net assets,
.18% of the next $500 million of the Portfolio's average daily net
assets, .16% of the next $1 billion of the Portfolio's average daily
net assets and .15% of the Portfolio's average daily net assets in
excess of $2 billion, and a separate co-administration fee payable to
PNC Mutual Fund Company at an annual rate of .03% of the Portfolio's
average daily net assets. Other pro forma expenses also include (a)
custodial fees paid to PNC Bank based upon the PNC Portfolio's average
gross assets, with a minimum fee of $1,000, plus out-of-pocket
expenses and certain transaction charges, (b) transfer agency fees
payable at the annual rate of .03% of the average net asset value of
the Portfolio's outstanding Service Shares, and (c) shareholders
servicing fees as described in the Combined Proxy Statement/Prospectus
under "Comparison of PNC, Compass and BIT--Share Structure."
4. Total Fund Operating Expenses (before waivers and reimbursements)
would be 0.60% and 0.60%, respectively.
IV-38
<PAGE> 224
EXAMPLE:(O)
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PNC MULTI-SECTOR
BIT MORTGAGE MORTGAGE SECURITIES
PORTFOLIO PORTFOLIO III PRO FORMA
--------- ------------- ---------
<S> <C> <C> <C>
1 year . . . . . . . . . . . . . . . . $ 6 * $ 6
3 years . . . . . . . . . . . . . . . . 18 18
5 years . . . . . . . . . . . . . . . . 31 31
10 years . . . . . . . . . . . . . . . 69 69
- -------------------------
</TABLE>
(O) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5%
ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN; ACTUAL RETURN MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
* SEE FIRST FOOTNOTE ABOVE.
IV-39
<PAGE> 225
APPENDIX V
SHAREHOLDER TRANSACTIONS AND SERVICES
This Appendix compares the shareholder transactions and services that
are available in connection with: 1) Service Shares and Institutional Shares
of the PNC Portfolios, 2) the Compass Portfolios and 3) the BIT Portfolios.
I. PNC PORTFOLIOS - SERVICE SHARES AND INSTITUTIONAL SHARES
CORRESPONDING COMPASS PORTFOLIOS* AND BIT PORTFOLIOS**
*(Includes Shares of the Compass Municipal Money Fund, New
Jersey Municipal Money Fund, Pennsylvania Municipal
Money Fund, Cash Reserve Fund, U.S. Treasury Fund, Municipal
Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania
Municipal Bond Fund, Equity Income Fund, Growth Fund, Small
Company Fund, International Equity Fund, Balanced Fund,
Short/Intermediate Fund, Fixed Income Fund and International
Fixed Income Fund.)
**(Includes the BIT Short Duration Portfolio, Core Fixed Income
Portfolio and Multi-Sector Mortgage Securities Portfolio III.)
A. Sales Charges and Exemptions.
PNC Portfolios - Service Shares and Institutional Shares
1. Both Service Shares and Institutional Shares of each PNC Portfolio are
sold without a sales charge.
Corresponding Compass Portfolios
(other than the Compass Municipal Money,
New Jersey Municipal Money, Pennsylvania
Municipal Money, Cash Reserve and U.S. Treasury Funds,
Which Are Offered without a Sales Charge)
2. a) Shares of the Compass Municipal Bond Fund, New Jersey
Municipal Bond Fund, Pennsylvania Municipal Bond Fund,
Short/Intermediate Fund, Fixed Income Fund and International
Fixed Income Fund are offered with maximum front-end sales
charge of 4.00% of the per share public offering price.
b) Shares of the Compass Equity Income Fund, Growth Fund, Small
Company Fund, International Equity Fund and Balanced Fund are
offered with a maximum front-end sales charge of 4.50% of the
per share public offering price.
c) The Compass Portfolios offer exemptions from the sales charge
(a) if a shareholder (or a member of the shareholder's
immediate family) has an existing trust department
relationship with Midlantic; (b) for the Compass Capital Group
Individual Retirement Plan and Custody Account when a
trustee-to-trustee transfer is made from an employer plan
having Midlantic as a fiduciary; (c) for qualified
institutional investors (i.e. retirement plans with over
$250,000 in assets, charities and not-for-profit
organizations); (d) if a shareholder (or a member of the
shareholder's immediate family) is a present or retired
employee of Midlantic; (e) if a shareholder (or a member of
the shareholder's immediate family) is a present employee of
SEI Financial Services Company; (f) for trustees or officers
of Compass; or (g) for clients of Essex National Securities,
Inc. ("Essex") who have enrolled in asset allocation programs
sponsored or operated by Essex, including programs that are
part of an individual retirement plan. Additionally, if a
shareholder previously redeemed shares of any Compass
Portfolio sold with a sales charge
V-1
<PAGE> 226
and re-enters the same Portfolio, the sales charge will be
waived so long as re-entry occurs within 12 months following
redemption and so long as the shareholder notifies the
transfer agent at the time of the investment that the
investment is a re-entry.
d) The Compass Portfolios also offer rights of accumulation and
letter of intent programs that can reduce the sales charge
payable on share purchases.
Corresponding BIT Portfolios
3. Shares of the BIT Short Duration Portfolio, Core Fixed Income
Portfolio and Multi-Sector Mortgage Securities Portfolio III are sold
without a sales charge.
B. Purchase Policies
[NOTE: The chart below shows PNC Portfolios' existing purchase
policies for Service Shares and Institutional Shares. PNC and its
service providers expect to establish special purchase policies for
Compass shareholders who receive Service Shares in connection with the
Compass Transaction that are substantially similar to those currently
offered by Compass.]
<TABLE>
<CAPTION>
PNC Portfolios - Service Shares
and Institutional Shares Compass Portfolios BIT Portfolios
------------------------------- ------------------ --------------
<S> <C> <C> <C>
Minimum Initial $5,000 for initial purchases of $2,500 ($500 for IRAs). $500,000 (although BIT may
Investments Service Shares and Institutional The minimum investment may in its discretion accept
Shares. be waived if share subscriptions for a lesser
purchases are made in amount).
connection with IRAs,
Keoghs, gifts to minors,
payroll deduction
programs, or similar plans
or upon due notice from
SEI Financial Services
Company.
Minimum Subsequent No minimum. $100. (See above for No minimum.
Investments waivers.)
</TABLE>
V-2
<PAGE> 227
<TABLE>
<CAPTION>
PNC Portfolios - Service Shares
and Institutional Shares Compass Portfolios BIT Portfolios
------------------------------- ------------------ --------------
<S> <C> <C> <C>
Automatic Investment No. Yes. Shares may be No.
Plan purchased on a monthly
basis through automatic
deductions from a
shareholder's checking or
savings account with a
$100 minimum and $100,000
maximum per transaction.
The minimum initial
purchase amounts and
minimum maintained balance
requirements may be waived
for purchases under the
Automatic Investment Plan.
Purchase Methods By telephone. Shares are sold by SEI By telephone.
Financial Services Company
directly and through
broker/dealers having a
dealer agreement with SEI,
or through procedures
established by SEI in
connection with the
requirements of accounts
at Midlantic; by mail; by
telephone.
</TABLE>
V-3
<PAGE> 228
<TABLE>
<CAPTION>
PNC Portfolios - Service Shares
and Institutional Shares Compass Portfolios BIT Portfolios
------------------------------- ------------------ --------------
<S> <C> <C> <C>
Payment Methods Only in Federal funds or other By check (or other By wire of Federal funds.
immediately available funds. negotiable bank instrument (The investment adviser may,
or money order), by wire, at its discretion, agree to
by Automated Clearing accept securities rather
House (ACH). than cash to fund the
purchase of shares.)
</TABLE>
The PNC Portfolios, Compass Portfolios and BIT Portfolios each reserve the
right to reject any purchase order.
C. Redemption Policies
[NOTE: The chart below shows PNC Portfolios'
existing redemption policies for Service Shares and
Institutional Shares. PNC and its service providers
expect to establish special redemption policies for
Compass shareholders who receive Service Shares in
connection with the Compass Transaction that are
substantially similar to those currently offered by
Compass.]
<TABLE>
<CAPTION>
PNC Portfolios - Service Shares
and Institutional Shares Compass Portfolios BIT Portfolios
------------------------------- ------------------ --------------
<S> <C> <C> <C>
Redemption Methods By mail or telephone. By mail or telephone. By telephone, by facsimile
or by other wire
communication.
Payment Methods By wire (normally same or next By check, by wire. There For BIT Core Fixed Income
(Note: see discussion business day for money market is a $7 charge for wiring and Short Duration
following chart for portfolios, next business day redemption proceeds. Portfolios: By wire
information concerning for other portfolios, but may Payment made within 7 (normally within two
PNC Multi-Sector take up to 7 days). days, but Compass attempts business days). BIT Core
Mortgage Securities to honor requests for next Fixed Income and Short
Portfolio III and its day payment of redemption Duration Portfolios reserve
corresponding BIT proceeds. the right to pay redemptions
Portfolio.) in kind.
</TABLE>
V-4
<PAGE> 229
<TABLE>
<CAPTION>
PNC Portfolios - Service Shares
and Institutional Shares Compass Portfolios BIT Portfolios
------------------------------- ------------------ --------------
<S> <C> <C> <C>
Check Writing Privilege No. Yes, for Compass Municipal No.
Money Fund, New Jersey
Municipal Money Fund,
Pennsylvania Municipal
Money Fund, Cash Reserve
Fund and U.S. Treasury
Fund only ($250 minimum).
Automatic Cash No Yes ($10,000 minimum No.
Withdrawal Plan balance/$50 minimum per
transaction).
</TABLE>
For both the PNC Multi-Sector Mortgage Securities Portfolio
III and the BIT Multi-Sector Mortgage Securities Portfolio III, at
least 30 days' notice is required for cash redemptions; requests in
excess of $250,000 by a single shareholder in a 3-month period in a
Portfolio may be made in kind unless 30 days' written notice is
received and will be paid in kind if requested and other shareholders
are not adversely affected.
A shareholder of record may be required to redeem Service or
Institutional Shares, as the case may be, in any PNC Portfolio if the
balance in the shareholder's account in that 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. The Compass Portfolios may redeem involuntarily, upon sixty
days' notice, shares of a shareholder whose account decreases to a
value of less than $2,500 ($500 for purchases made in connection with
IRA) because of redemptions. The BIT Portfolios have no such policy
with respect to involuntary redemptions. The PNC Portfolios, the
Compass Portfolios [and the BIT Portfolios] may also redeem shares
involuntarily when appropriate in light of their responsibilities
under the 1940 Act, and may make payment for redemptions in securities
in lieu of cash.
A Compass shareholder who, at the Effective Time of the
Compass Transaction, meets the Compass, but not the PNC, minimum
investment requirement, will not be required to redeem the PNC shares
received in connection with the Compass Transaction, unless the
balance in the shareholder's account drops below the Compass minimum
as a result of redemptions, or unless redemption appears appropriate
in light of PNC's responsibilities under the 1940 Act.
D. Share Exchanges
<TABLE>
<CAPTION>
PNC Portfolios - Service
Shares and
Institutional Shares Compass Portfolios BIT Portfolios
-------------------- ------------------ --------------
<S> <C> <C> <C>
By Mail No. Yes. No.
By Telephone No. Yes. Yes.
Minimum Inapplicable. No minimum. No minimum.
</TABLE>
V-5
<PAGE> 230
Neither Service Shares nor Institutional Shares of the PNC
Portfolios have an exchange privilege. With respect to the Compass
Portfolios, a shareholder may exchange shares of a Compass Portfolio
for shares of any other Compass Portfolio at net asset value plus a
sales charge, if applicable. Shares of a BIT Portfolio may be
exchanged for shares of any other BIT Portfolio based on the
respective net asset values of the shares involved. Exchanges are
only available in states where exchanges can lawfully be made from one
Portfolio to another, and [must satisfy the requirements relating to
the minimum initial investment in a Portfolio.] Compass and BIT
reserve the right to reject any telephone exchange request and to
modify or terminate exchange privileges with 60 days' notice.
E. Responsibility for Telephone Instructions
The PNC Portfolios, Compass Portfolios, BIT Portfolios, their
administrators and their distributors are not 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, procedures are used that are
considered reasonable, which may include recording telephone
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).
II. DIVIDENDS AND DISTRIBUTIONS
ALL PNC PORTFOLIOS, COMPASS PORTFOLIOS AND BIT PORTFOLIOS
DISTRIBUTE THEIR NET CAPITAL GAINS TO SHAREHOLDERS AT
LEAST ANNUALLY. THE FOLLOWING TABLE SHOWS THE PORTFOLIOS'
POLICIES CONCERNING THE DECLARATION AND PAYMENT OF DIVIDENDS
FROM NET INVESTMENT INCOME.
A. Dividends Declared Daily/Paid Monthly
<TABLE>
<CAPTION>
PNC Portfolios Compass Portfolios BIT Portfolios
-------------- ------------------ --------------
<S> <C> <C>
PNC Municipal Money Market Fund Compass Municipal Money Fund N/A
PNC New Jersey Municipal Money Market Compass New Jersey Municipal Money Fund N/A
Portfolio
PNC Pennsylvania Municipal Money Market Compass Pennsylvania Municipal Money N/A
Portfolio Fund
PNC Money Market Portfolio Compass Cash Reserve Fund N/A
PNC Government Money Market Portfolio Compass U.S. Treasury Fund N/A
PNC Pennsylvania Tax-Free Income See below N/A
Portfolio
PNC New Jersey Tax-Free Income See below N/A
Portfolio
PNC Short-Term Bond See below BIT Short Duration Portfolio
Portfolio
PNC Multi-Sector Mortgage Securities N/A BIT Multi-Sector Mortgage
Portfolio III Securities Portfolio III
</TABLE>
V-6
<PAGE> 231
B. Dividends Declared Monthly/Paid Monthly
<TABLE>
<CAPTION>
PNC Portfolios Compass Portfolios BIT Portfolios
-------------- ------------------ --------------
<S> <C> <C>
PNC Tax-Free Income Portfolio Compass Municipal Bond Fund N/A
See above Compass New Jersey Municipal Bond Fund N/A
See above Compass Pennsylvania N/A
Municipal Bond Fund
See above Compass Short/Intermediate Fund See above
PNC Core Fixed Income Portfolio Compass Fixed Income Fund BJT Core Fixed Income Portfolio
See below Compass Equity Income Fund N/A
See below Compass Growth Fund N/A
See below Compass Balanced Fund N/A
PNC International Fixed Income See below N/A
Portfolio
</TABLE>
C. Dividends Declared Quarterly/Paid Quarterly
<TABLE>
<CAPTION>
PNC Portfolios Compass Portfolios BIT Portfolios
-------------- ------------------ --------------
<S> <C> <C>
PNC Value Equity Portfolio See above N/A
PNC Growth Equity Portfolio See above N/A
PNC Small Cap Growth Equity Portfolio Compass Small Company Fund N/A
PNC International Equity Portfolio See above N/A
PNC Balanced Portfolio See above N/A
</TABLE>
D. Dividends Declared Semi-Annually/Paid Semi-Annually
<TABLE>
<CAPTION>
PNC Portfolios Compass Portfolios BIT Portfolios
-------------- ------------------ --------------
<S> <C> <C>
See above Compass International Fixed Income Fund N/A
See above Compass International Equity Fund N/A
</TABLE>
E. The PNC Portfolios, Compass Portfolios and BIT Portfolios all offer
dividend reinvestment programs.
V-7
<PAGE> 232
APPENDIX VI-A
FORM OF INTERIM INVESTMENT ADVISORY AGREEMENT
APPLICABLE TO ALL COMPASS PORTFOLIOS
INTERIM COMPASS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of [January __, 1996] between THE COMPASS CAPITAL GROUP,
a Massachusetts business trust (herein called the "Group"), and [Name of
Investment Adviser] a ________ corporation, having an office at [address]
(herein called the "Investment Adviser").
WHEREAS, the Group is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Group desires to retain the Investment Adviser to furnish
investment advisory and administrative services to certain investment
portfolios of the Group identified on Schedule A hereto ("The Compass Capital
Group Money Market Funds" and "The Compass Capital Group Investment Funds";
collectively, the "Funds") and the Investment Adviser represents that it is
willing and possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Group hereby appoints the Investment Adviser to act
as investment adviser to the Funds for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Group has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:
(a) the Group's Declaration of Trust, as executed on October 1,
1987 and as filed with the Secretary of State of The Commonwealth of
Massachusetts on October 2, 1987, and all amendments thereto or
restatements thereof (such Declaration, as presently in effect and as it
shall from time to time be amended or restated, is herein called the
"Declaration of Trust");
(b) the Group's By-laws and amendments thereto;
VI-A-1
<PAGE> 233
(c) resolutions of the Group's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) the Group's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission on December
31, 1987, and all amendments thereto;
(e) the Group's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), (File No. 33-19416) and
under the 1940 Act as filed with the Securities and Exchange Commission on
December 31, 1987 and all amendments thereto; and
(f) the Funds' most recent prospectuses and Statement of Additional
Information (such prospectuses and Statement of Additional Information, as
presently in effect, and all amendments and supplements thereto are herein
collectively called the "Prospectus").
The Group will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. Management. Subject to the supervision of the Group's Board of
Trustees, the Investment Adviser will provide a continuous investment program
for each Fund, including investment research and management with respect to all
securities and investments and cash equivalents in said Funds. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by the Group with respect to the Funds.
The Investment Adviser will provide the services under this Agreement in
accordance with each Fund's investment objective, policies, and restrictions as
stated in the Prospectus and resolutions of the Group's Board of Trustees. The
Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) will not make loans to any person to purchase or carry units of
beneficial interest in the Group or make loans to the Group;
VI-A-2
<PAGE> 234
(d) will place orders pursuant to its investment determinations for
the Group either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Investment Adviser will
attempt to obtain prompt execution of orders in an effective manner at the
most favorable price. Consistent with this obligation, when the execution
and price offered by two or more brokers or dealers are comparable, the
Investment Adviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Investment
Adviser with research advice and other services. In no instance will
portfolio securities be purchased from or sold to The Winsbury Company,
Midlantic National Bank, or any affiliated person of either the Group, The
Winsbury Company, or Midlantic National Bank;
(e) will maintain all books and records with respect to the Group's
securities transactions and will furnish the Group's Board of Trustees
such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary information of the
Group all records and other information relative to the Group and prior,
present, or potential interest holders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Group, which approval shall not be unreasonably withheld
and may not be withheld where the Investment Adviser may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Group; and
(g) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Group, the Investment Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for purchase
or sale for the Group's account are customers of the Investment Adviser or
of its parent or its subsidiaries or affiliates. In dealing with such
customers, the Investment Adviser and its parent, subsidiaries, and
affiliates will not inquire or take into consideration whether securities
of those customers are held by the Group.
4. Services Not Exclusive. The investment management services furnished
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
VI-A-3
<PAGE> 235
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Group are the property of the Group and further agrees to
surrender promptly to the Group any of such records upon the Group's request.
The Investment Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Group.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, each of the Funds will pay the Investment Adviser
and the Investment Adviser will accept as full compensation therefor a fee
computed daily and paid monthly at the applicable annual rate set forth on
Schedule A hereto. Each Fund's obligation to pay the above-described fee to
the Investment Adviser will begin as of the date of the initial public sale of
shares in that Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Group) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the
Fund to the Investment Adviser hereunder and to The Winsbury Company under the
Administration Agreement between The Winsbury Company and the Group. The
obligation of the Investment Adviser to reimburse the Funds hereunder is
limited in any fiscal year to the amount of its fee hereunder for such fiscal
year, provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Funds for such proportion of such excess expenses
regardless of the amount of fees paid to it during such fiscal year to the
extent that the securities regulations of any state having jurisdiction over
the Group so require. Such expense reimbursement, if any, will be estimated
daily and reconciled and paid on a monthly basis.
8. Limitation of Liability. The Investment Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Adviser in the
VI-A-4
<PAGE> 236
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. Duration and Termination. This Agreement will become effective on
the date hereof, and, unless sooner terminated as provided herein, shall
continue in effect until July 31, 1996 and thereafter shall be renewed
automatically for successive five-year periods; provided that such continuance
is specifically approved at least annually (a) by the vote of a majority of
those members of the Group's Board of Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
vote of a majority of the Group's Board of Trustees or by the vote of a
majority of all votes attributable to the outstanding Shares of such Fund.
This Agreement is terminable, on not less than sixty days' notice, by the
Trust's Board of Trustees, by "vote of a majority of the outstanding Shares"
(as defined below) of the Trust, or by Investment Adviser, and may be
terminable in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons,"
and "assignment" shall have the same meaning of such terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Glass-Steagall Act. The Investment Adviser represents that it
believes that it possesses the legal authority to perform the investment
advisory services for the Funds contemplated by this Agreement without
violating applicable banking laws or regulations.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of The Commonwealth of Massachusetts.
The names "The Compass Capital Group" and "Trustees of The Compass Capital
Group" refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated as of October 1, 1987 to which reference is hereby
made and a copy of
VI-A-5
<PAGE> 237
which is on file at the office of the Secretary of State of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Compass Capital
Group" entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, interest holders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any Fund of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE COMPASS CAPITAL GROUP
By:___________________________
Name:
Title:
[NAME OF INVESTMENT ADVISER]
By:___________________________
Name:
Title:
VI-A-6
<PAGE> 238
SCHEDULE A TO INTERIM INVESTMENT
ADVISORY AGREEMENT BETWEEN
THE COMPASS CAPITAL GROUP
AND
[NAME OF INVESTMENT ADVISER]
DATED AS OF [JANUARY __, 1996]
Pursuant to Article 7, the Group shall pay the Investment Adviser compensation,
computed daily at an annual rate as follows:
<TABLE>
<CAPTION>
Name of Portfolio Compensation Effective Date
- ----------------- ------------ --------------
<S> <C> <C>
Cash Reserve Fund .35% August 1, 1989
U.S. Treasury Fund .35% August 1, 1989
Municipal Money Fund .40% August 1, 1989
Equity Income Fund .70% March 17, 1989
Growth Fund .70% March 17, 1989
Short/Intermediate Fund .60% March 17, 1989
Fixed Income Fund .60% March 17, 1989
Municipal Bond Fund .60% March 17, 1989
NJ Municipal Money Fund .40% July 1, 1991
PA Municipal Money Fund .40% July 1, 1991
NJ Municipal Bond Fund .60% July 1, 1991
PA Municipal Bond Fund .60% July 1, 1991
Small Company Fund .90% July 1, 1991
International Fixed Income Fund .80% July 1, 1991
International Equity Fund .90% July 1, 1991
Balanced Fund .70% July 1, 1994
</TABLE>
THE COMPASS CAPITAL GROUP
By:________________________
Name:
Title:
[NAME OF INVESTMENT ADVISER]
By:_________________________
Name:
Title:
<PAGE> 239
APPENDIX VI-B
FORM OF INTERIM SUB-ADVISORY AGREEMENT
FOR THE COMPASS GROWTH FUND AND EQUITY INCOME FUND
INTERIM COMPASS
SUB-ADVISORY AGREEMENT
(NAME OF FUND)
AGREEMENT made this ____ day of [January, 1996,] by and between PNC
Asset Management Group, Inc., a ______________ corporation, (the
"Adviser") and [Name of Sub-adviser], a _____________ corporation, (the
"Sub-Adviser").
WHEREAS, The Compass Capital Group (the "Trust") is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated
[January __, 1996] (the "Advisory Agreement") with the Trust, pursuant to which
the Adviser will act as investment adviser to the [Name of Fund] (the
"Portfolio"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser as its agent to provide
investment advisory services to the Trust in connection with the management of
the Portfolio, and the Sub-Adviser is willing to render such investment
advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Trust's Board of
Trustees, the Sub-Adviser shall manage the investment operations of
the Portfolio and the composition of the Portfolio's portfolio,
including the purchase, retention and disposition thereof, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's Prospectus (such Prospectus
and Statement of Additional Information, as currently in effect and
as amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash or cash equivalents.
VI-B-1
<PAGE> 240
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Trust's Declaration of Trust and the Prospectus and with the
instructions and directions of the Adviser and of the Board of
Trustees and will conform to and comply with the requirements
of the 1940 Act, the Internal Revenue Code of 1986 and all
other applicable federal and state laws and regulations, as
each is amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) or as the Board of Trustees or
the Adviser may direct from time to time, in conformity with
federal securities laws. In providing the Portfolio with
investment supervision, the Sub-Adviser will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Sub- Adviser may consider the financial responsibility,
research and investment information and other services provided
by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the Sub-Adviser's
other clients may be a party. It is understood that it is
desirable for the Portfolio that the Sub-Adviser have access to
supplemental investment and market research and security and
economic analysis provided by brokers who may execute brokerage
transactions at a higher cost to the Portfolio than may result
when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution.
Therefore, the Sub-Adviser is authorized to place orders for
the purchase and sale of securities for the Portfolio with such
brokers, subject to review by the Trust's Board of Trustees
from time to time with respect to the extent and continuation
of this practice. It is understood that the services provided
by such brokers may be useful to the Sub- Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of
a security to be in the best interest of the Portfolio as well
as other clients of the Sub-Adviser, the Sub-Adviser, to the
extent
VI-B-2
<PAGE> 241
permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be so
purchased or sold in order to obtain the most favorable price
or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold,
as well as the expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to
the Portfolio and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall render
to the Adviser and the Trust's Board of Trustees such periodic
and special reports as the Trust's Board of Trustees may
reasonably request.
(5) The Sub-Adviser shall provide SEI Financial Management
Corporation on each business day with information relating to
all transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub- Adviser shall be free to render similar services to others
so long as such services do not impair Sub-Adviser's services
to the Portfolio.
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
(c) The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser pursuant to paragraph 1(a) of
this Agreement and shall timely furnish to the Adviser all
information relating to the Sub-Adviser's services under this
Agreement needed by the Adviser to keep the other books and records
of the Portfolio required by Rule 31a-1 under the 1940 Act. The Sub-
Adviser agrees that all records that it maintains on behalf of the
Portfolio are property of the Portfolio and the Sub-Adviser will
surrender promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser may
retain a copy of such records. The
VI-B-3
<PAGE> 242
Sub-Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
(d) The Adviser and the Sub-Adviser will each make its officers and
employees available to the other from time to time at reasonable
times to review investment policies of the Portfolio and to consult
with each other regarding the investment affairs of the Portfolio.
The Sub-Adviser shall also make its officers and employees available
to the Trust's Board of Trustees at such times as the Board of
Trustees shall reasonably request.
(e) Sub-Adviser shall have the right to execute and deliver, or cause its
nominee to execute and deliver, all proxies and notices of meetings
and other notices affecting or relating to the securities of the
Trust.
2. The Adviser shall continue to have responsibility for all services to be
provided to the Portfolio pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under this
Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Declaration of Trust, as filed with the Secretary of State of
Massachusetts (such Declaration of Trust, as in effect on the date of
this Agreement and as amended from time to time, is herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Certified resolutions of the Trust's Board of Trustees authorizing
the appointment of the Adviser and the Sub-Adviser and approving the
form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Portfolio and units of beneficial interest of the
Portfolio and all amendments thereto;
VI-B-4
<PAGE> 243
(e) Notification of Registration of the Portfolio under the 1940 Act on
Form N-8A as filed with the Commission, and all amendments thereto;
and
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate based upon the following levels of the
Portfolio's average daily net assets: [FOR THE EQUITY INCOME FUND] .40%
on the first $100 million, .30% on the next $100 million, and .25% on
assets in excess of $200 million [OR FOR THE GROWTH FUND] .325% on the
first $50 million, .225% on the next $100 million, and .20% on the next
$350 million, and .15% on assets in excess of $500 million. This fee will
be computed daily and paid to the Sub-Adviser quarterly.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or a loss resulting from willful misfeasance, bad faith or
gross negligence on the Sub-Adviser's part in the performance of its
duties or from reckless disregard of its obligations and duties under this
Agreement, except as may otherwise be provided under provisions of
applicable state law which cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however that this Agreement may be terminated (a) by the Portfolio at any
time, without the payment of any penalty, by the vote of a majority of
Trustees of the Trust or by the vote of a majority of the outstanding
voting securities of the Portfolio, (b) by the Adviser at any time,
without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other parties, or (c) by the
Sub-Adviser at any time, without the payment of any penalty, on 90 days'
written notice to the other parties. This Agreement shall terminate
automatically and immediately in the event of its assignment. As used in
this Section 6, the terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the respective meanings set
forth in the 1940 Act and the rules and
VI-B-5
<PAGE> 244
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's partners, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, firm, individual or association other than as set forth in
Section 1(a)(6).
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Trust or the public
that refer to the Sub-Adviser or its clients in any way prior to use
thereof and not to use material if the Sub- Adviser reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The Adviser agrees to use its best efforts
to ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser as
referenced in the preceding sentence. Sales literature may be furnished
to the Sub-Adviser by first-class or overnight mail, facsimile
transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Portfolio.
10. This Agreement shall be governed by the laws of the State of New Jersey;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to
be an original, but such counterparts shall, together, constitute only one
instrument.
VI-B-6
<PAGE> 245
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
PNC Asset Management Group, Inc.
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, Delaware 19809
Attention:
To the Sub-Adviser at:
[Name of Sub-Adviser]
[Address]
Attention:
To the Trust or the Portfolio at:
The Compass Capital Group
2 Oliver Street
Boston, Massachusetts 02109
Attention: Robert Nesher
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first
written above.
PNC ASSET MANAGEMENT [NAME OF SUB-ADVISER]
GROUP, INC.
By:_________________________ By:_______________________________
Title:______________________ Title:____________________________
VI-B-7
<PAGE> 246
APPENDIX VI-C
FORM OF INTERIM SUB-ADVISORY AGREEMENT
FOR THE COMPASS SMALL COMPANY FUND,
INTERNATIONAL EQUITY FUND AND INTERNATIONAL FIXED INCOME FUND
INTERIM COMPASS SUB-ADVISORY AGREEMENT
AGREEMENT executed as of [January __, 1996] by and between PNC
Asset Management Group, Inc., a _______________ corporation ("PAMG"),
and [Name of Investment Adviser], a _________________ corporation and
registered investment adviser ("Sub-Adviser").
WHEREAS, PAMG is the investment adviser for The Compass Capital Group (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, PAMG desires to retain the Sub-Adviser as its agent to furnish
investment advisory services for the Compass Small Company Fund, International
Equity Fund and International Fixed Income Fund, each a diversified investment
portfolio of the Trust (each a "Fund" and collectively, the "Funds").
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. PAMG hereby appoints the Sub-Adviser to provide certain
sub-investment advisory services to each Fund for the period and on the terms
set forth in this Agreement. The Sub-Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. Delivery of Documents. PAMG has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following:
(a) The Trust's Amended and Restated Agreement and Declaration of
Trust, as filed with the Secretary of State of The Commonwealth of
Massachusetts on December 31, 1987, and all amendments thereto or
restatements thereof (such Declaration, as presently in effect and as it
shall from time to time be amended or restated, is herein called the
"Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub-Adviser and approving this Agreement;
VI-C-1
<PAGE> 247
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission (the "SEC")
on October 31, 1987 and all amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-19416)
and under the 1940 Act as filed with the SEC and all amendments thereto
insofar as such Registration Statement and such amendments relate to each
Fund; and
(f) The Trust's most recent prospectuses and Statement of
Additional Information for the Funds (such prospectus and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus").
PAMG will furnish the Sub-Adviser from time to time with copies of
all amendments of or supplements to the foregoing.
3. Management. Subject always to the supervision of the Trust's Board
of Trustees and PAMG, the Sub-Adviser will furnish an investment program in
respect of, and make investment decisions for, all assets of each Fund and
place all orders for the purchase and sale of securities, all on behalf of each
Fund. In the performance of its duties, the Sub- Adviser will satisfy its
fiduciary duties to each Fund (as set forth in Section 8, below), and will
monitor each Fund's investments, and will comply with the provisions of the
Trust's Declaration of Trust and By-Laws, as amended from time to time, and the
stated investment objectives, policies and restrictions of each Fund. The
Sub-Adviser and Midlantic will each make its officers and employees available
to the other from time to time at reasonable times to review investment
policies of each Fund and to consult with each other regarding the investment
affairs of each Fund. The Sub- Adviser shall also make itself reasonably
available to the Board of Trustees at such times as the Board of Trustees shall
request.
The Sub-Adviser represents and warrants that it is in compliance with
all applicable rules and regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable rules and regulations of the
SEC pertaining to its investment advisory activities;
VI-C-2
<PAGE> 248
(c) will place orders pursuant to its investment determinations for
each Fund either directly with the issuer or with any broker or dealer.
In placing orders with brokers or dealers, the Sub-Adviser will attempt to
obtain the best combination of prompt execution of orders in an effective
manner and at the most favorable price. Consistent with this obligation,
when the execution and price offered by two or more brokers or dealers are
comparable, the Sub-Adviser may, in its discretion, purchase and sell
portfolio securities to and from brokers and dealers who provide the
Sub-Adviser with research advice and other services. In no instance will
portfolio securities be purchased from or sold to Midlantic, the
Sub-Adviser, SEI Financial Services Company or any affiliated person of
either the Trust, Midlantic, SEI Financial Services Company or the
Sub-Adviser, except as may be permitted under the 1940 Act;
(d) will report regularly to PAMG and will make appropriate persons
available for the purpose of reviewing at reasonable times with
representatives of PAMG and the Board of Trustees the management of each
Fund, including, without limitation, review of the general investment
strategy of each Fund, the performance of each Fund in relation to
standard industry indices, interest rate considerations and general
conditions affecting the marketplace and will provide various other
reports from time to time as reasonably requested by PAMG;
(e) will maintain books and records with respect to the Trust's
securities transactions and will furnish PAMG and the Trust's Board of
Trustees such periodic and special reports as the Board of Trustees or
PAMG may request;
(f) will act upon instructions from PAMG not inconsistent with the
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the Sub-Adviser, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld
and may not be withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
The Sub-Adviser shall have the right to execute and deliver, or cause its
nominee to execute and deliver, all proxies and
VI-C-3
<PAGE> 249
notices of meetings and other notices affecting or relating to the securities
of each Fund.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for each Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act. With respect to the International
Equity Fund, Sub-Adviser may delegate its responsibilities under this Section
to affiliates that perform custody and/or fund accounting services for such
Fund, which delegation shall not, however, relieve the Sub-Adviser of its
responsibilities under this paragraph 4.
5. Expenses. During the term of this Agreement, the Sub-Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions,
if any) purchased for each Fund.
6. Compensation. For the services to be provided by the Sub-Adviser
pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee,
accrued daily and payable quarterly in accordance with Schedule A hereto. With
respect to the International Equity and International Fixed Income Funds, from
time to time, Sub-Adviser may voluntarily agree to waive or reduce some or all
of the compensation to which it is entitled under this Agreement.
7. Services to Others. PAMG understands, and has advised the Trust's
Board of Trustees, that the Sub-Adviser now acts, and may in the future act, as
an investment adviser to fiduciary and other managed accounts, and as
investment adviser, sub-investment adviser, and/or administrator to other
investment companies, provided, however, that the Sub- Adviser shall not
provide advisory or sub-advisory services to any bank-advised investment
company without the express written consent of PAMG which shall not be
unreasonably withheld. With the exception previously noted, PAMG has no
objection to the Sub-Adviser's acts in such capacities, provided that whenever
a Fund and one or more other investment companies advised by the Sub-Adviser
have available funds for investment, investments suitable and appropriate for
each will be allocated in accordance with a formula believed by the Sub-Adviser
to be equitable to each company. PAMG recognizes, and has advised the Trust's
Board of Trustees, that in some cases this procedure may adversely affect the
size of the position that a Fund may obtain in a particular security. In
addition, PAMG understands, and has advised the Trust's Board of
VI-C-4
<PAGE> 250
Trustees, that the persons employed by the Sub-Adviser to assist in the
Sub-Adviser's duties under this Agreement will not devote their full time to
such service and nothing contained in this Agreement will be deemed to limit or
restrict the right of the Sub-Adviser or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
8. Limitation of Liability. PAMG will not take any action against the
Sub-Adviser to hold the Sub-Adviser liable for any error of judgment or mistake
of law or for any loss suffered by a Fund in connection with the performance of
the Sub-Adviser's duties under this Agreement, except a loss resulting from the
Sub-Adviser's willful misfeasance, bad faith, or gross negligence in the
performance of its duties under this Agreement.
9. Indemnification. PAMG and the Sub-Adviser each agree to indemnify
the other against any claim against, loss or liability to such other party
(including reasonable attorneys' fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad faith or
gross negligence.
10. Duration and Termination. This Agreement will become effective as of
the date hereof provided that it has been approved by vote of a majority of the
outstanding voting securities of each Fund in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for two years.
Thereafter, if not terminated, this Agreement will continue in effect
for each Fund for successive periods of 12 months, each ending on the day
preceding the anniversary of the Agreement's effective date of each year,
provided that such continuation is specifically approved at least annually (a)
by the vote of a majority of those members of the Trust's Board of Trustees who
are not interested persons of the Trust, the Sub-Adviser, or PAMG, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the vote of a majority of the Trust's Board of Trustees or by the vote of a
majority of all votes attributable to the outstanding shares of a Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to a Fund at
any time, without the payment of any penalty, on sixty (60) days' written
notice by Midlantic or by the Sub-Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons" and
"assignment" have the same meaning of such terms in the 1940 Act.)
VI-C-5
<PAGE> 251
This Agreement will terminate automatically if the investment
advisory agreement between the Trust and PAMG is terminated.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. Multiple Originals. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same document.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be
affected thereby. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and will be
governed by the laws of the state of New Jersey.
The name "Compass Capital Group" and "Trustees of the Compass Capital
Group" refer respectively to the Trust created by, and the Trustees, as
trustees but not individually or personally, acting from time to time under,
the Declaration of Trust, to which reference is hereby made and a copy of which
is on file at the office of the Secretary of State of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of the "Compass Capital
Group" entered in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually but only in such capacities
and are not binding upon any of the Trustees, shareholders or representatives
of the Trust personally, but bind only the assets of the Trust. Persons
dealing with a Fund must look solely to the assets of the Trust belonging to
such Fund for the enforcement of any claims against the Trust.
VI-C-6
<PAGE> 252
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PNC ASSET MANAGEMENT GROUP, INC.
By:___________________________
Name:_________________________
Title:________________________
[NAME OF INVESTMENT ADVISER]
By:___________________________
Name:_________________________
Title:________________________
VI-C-7
<PAGE> 253
SCHEDULE A TO INTERIM
SUB-ADVISORY AGREEMENT BETWEEN
PNC ASSET MANAGEMENT GROUP, INC.
AND
[NAME OF INVESTMENT ADVISER]
DATED AS OF [JANUARY __, 1996]
Compass Capital Small Company Fund.
Compensation will be paid at an annual rate of .50% of the average daily
net assets.
Compass Capital International Equity Fund.
Compensation will be paid at an annual rate of .45% of the first $100
million and .40% thereafter of average annual daily net assets.
Compass Capital International Fixed Income Fund.
Compensation will be paid at an annual rate of .40% of the first $75
million and .35% thereafter of average annual daily net assets.
PNC ASSET MANAGEMENT GROUP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
[NAME OF INVESTMENT ADVISER]
By:________________________________
Name:______________________________
Title:_____________________________
VI-C-8
<PAGE> 254
APPENDIX VII
PNC PORTFOLIO
SIX-MONTH FINANCIAL HIGHLIGHTS
Below is unaudited financial information about certain of the PNC
Portfolios for the six-month period ended March 31, 1995. It is based on a
single share outstanding through such period. The data should be read in
conjunction with the financial statements, related notes and other financial
information incorporated by reference into the Statement of Additional
Information dated November __, 1995 related to this Combined Proxy
Statement/Prospectus. Similar information for the PNC Municipal Money Market
Portfolio, Pennsylvania Municipal Money Market Portfolio, Money Market
Portfolio and Government Money Portfolio for the six-month period ended March
31, 1995 is included in the prospectuses for these PNC Portfolios. The PNC New
Jersey Municipal Money Market Portfolio, New Jersey Tax-Free Income Portfolio,
Core Fixed Income Portfolio, International Fixed Income Portfolio and
Multi-Sector Mortgage Securities Portfolio III did not conduct investment
operations during this period.
VII-1
<PAGE> 255
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PNC PNC PNC PNC
Tax-Free PA Tax-Free Value Equity Growth Equity
Portfolio Portfolio Portfolio Portfolio
(Service Shares) (Service Shares) (Service Shares) (Service Shares)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period: $ 10.04 $ 9.82 $ 11.62 $ 10.18
------- ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.25 0.14 0.06
Net gain (loss) on investments
(both realized and unrealized) 0.37 0.22 0.78 0.73
---- ---- ---- ----
Total from investment operations 0.62 0.47 0.92 0.79
---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends from net investment income (0.25) (0.25) (0.15) (0.06)
Distributions from net realized
capital gains (0.02) --- (0.25) --
------ ------ ------ -----
Total distributions (0.27) (0.25) (0.40) (0.06)
------ ------ ------ ------
Net asset value at end of period $ 10.39 $ 10.04 $ 12.14 $ 10.91
======= ======= ======= =======
Total return 6.40% 4.86% 8.24% 7.84%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000) $3,090 $12,915 $125,897 $50,177
Ratio of expenses to average net assets
After advisory/administration
fee waivers 0.75%(1) 0.75%(1) 0.90%(1) 0.90%(1)
Before advisory/administration
fee waivers 1.75%(1) 1.10%(1) 1.05%(1) 1.09%(1)
Ratio of net investment income to
average net assets
After advisory/administration
fee waivers 5.13%(1) 5.29%(1) 2.48%(1) 1.20%(1)
Before advisory/administration
fee waivers 4.13%(1) 4.94%(1) 2.33%(1) 1.00%(1)
Portfolio turnover rate 19% 30% 6% 34%
<CAPTION>
PNC PNC
Small Cap International PNC
Growth Equity Equity Balanced
Portfolio Portfolio Portfolio
(Service Shares) (Service Shares) (Service Shares)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value at beginning of period: $ 10.14 $ 13.41 $ 11.98
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income --- (0.03) 0.28
------
Net gain (loss) on investments
(both realized and unrealized) 1.49 (0.62) 0.44
---- ------ ----
Total from investment operations 1.49 (0.65) 0.72
---- ------ ----
LESS DISTRIBUTIONS
Dividends from net investment income --- --- (0.22)
------
Distributions from net realized
capital gains --- (0.36) (0.14)
------
Total distributions --- (0.36) (0.36)
------
Net asset value at end of period $ 11.63 $ 12.40 $ 12.34
======= ======= =======
Total return 14.70% (4.84%) 6.12%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000) $31,794 $84,041 $75,284
Ratio of expenses to average net assets
After advisory/administration
fee waivers 0.98%(1) 1.20%(1) 0.90%(1)
Before advisory/administration
fee waivers 1.12%(1) 1.39%(1) 1.13%(1)
Ratio of net investment income to
average net assets
After advisory/administration
fee waivers 0.07%(1) 0.40%(1) 3.70%(1)
Before advisory/administration
fee waivers (0.08)%(1) 0.21%(1) 3.47%(1)
Portfolio turnover rate 41% 34% 61%
</TABLE>
- -----------------------
(1) Annualized
VII-2
<PAGE> 256
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PNC PNC
Short-Term Bond Short-Term Bond
Portfolio Portfolio
(Service Shares) (Institutional Shares)
---------------- ----------------------
<S> <C> <C>
Net asset value at beginning of period: $ 9.58 $ 9.58
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.26
Net gain (loss) on investments
(both realized and unrealized) (0.02) (0.02)
------ ------
Total from investment operations 0.23 0.24
---- ----
LESS DISTRIBUTIONS
Dividends from net investment income (0.25) (0.26)
Distributions from net realized
capital gains --- ---
------ ------
Total distributions (0.25) (0.26)
------ ------
Net asset value at end of period $ 9.56 $ 9.56
====== ======
Total return 2.40% 2.53%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000) $5,777 $9,972
Ratio of expenses to average net assets
After advisory/administration
fee waivers 0.65%(1) 0.40%(1)
Before advisory/administration
fee waivers 1.25%(1) 1.00%(1)
Ratio of net investment income to
average net assets
After advisory/administration
fee waivers 5.18%(1) 5.39%(1)
Before advisory/administration
fee waivers 4.57%(1) 4.79%(1)
Portfolio turnover rate 40% 40%
- -----------------------
</TABLE>
(1) Annualized
VII-3
<PAGE> 257
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO (A)1995 SPECIAL SHAREHOLDERS MEETING OF
THE COMPASS CAPITAL GROUP OF FUNDS(R) AND
(B) 1995 SPECIAL SHAREHOLDERS MEETING OF THE
BFM INSTITUTIONAL TRUST INC.
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement/Prospectus dated November
__, 1995 for (a) the Special Shareholders Meeting of The Compass Capital Group
of Funds ("Compass") to be held on December 20, 1995, and (b) the Special
Shareholders Meeting of The BFM Institutional Trust Inc. to be held on December
___, 1995. Copies of the Combined Proxy Statement/Prospectus may be obtained
at no charge by calling The PNC Fund at 1-800-422-6538.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
Further information about the Service Shares and Institutional Shares of
the PNC Portfolios (other than the PNC New Jersey Tax-Free Income Portfolio,
PNC Core Fixed Income Portfolio and PNC Multi-Sector Mortgage Securities
Portfolio III) is contained in and incorporated by reference to their Statement
of Additional Information dated July 24, 1995 as supplemental to the date
hereof, a copy of which is included herewith. Information contained in the PNC
Statement of Additional Information under the captions "Investment Policies --
Additional Information on Portfolio Investments," "Trustees and Officers";
"Investment Advisory, Administration, Distribution and Servicing Arrangements";
"Portfolio Transactions"; "Purchase and Redemption Information --
Miscellaneous"; "Performance Information"; "Additional Information Concerning
Shares" and "Appendix A" is substantially the same with regard to the PNC New
Jersey Tax-Free Income Portfolio, Core Fixed Income Portfolio and Multi-Sector
Mortgage Securities Portfolio III.
The audited financial statements contained in the Annual Reports dated
September 30, 1994, and the unaudited financial statements contained in the
Semi-Annual Reports dated March 31, 1995, for the PNC Portfolios, except the
New Jersey Municipal Money Market Portfolio, New Jersey Tax-Free Income
Portfolio, Core Fixed Income Portfolio, International Fixed Income Portfolio
and Multi-Sector Mortgage Securities Portfolio III, are hereby
<PAGE> 258
incorporated herein by reference. The PNC New Jersey Municipal Money Market
Portfolio, New Jersey Tax-Free Income Portfolio, Core Fixed Income Portfolio,
International Fixed Income Portfolio and Multi-Sector Mortgage Securities
Portfolio III were not operational as of March 31, 1995. No other parts of the
Annual Reports and Semi-Annual Reports are incorporated by reference herein.
Further information about the Compass Portfolios is contained in and
incorporated by reference to their Statement of Additional Information dated
July 1, 1995 as supplemented to the date hereof, a copy of which is included
herewith. The audited financial statements for the Compass Portfolios
contained in their Annual Report dated February 28, 1995 and their Semi-Annual
Reports dated August 31, 1995 are incorporated herein by reference. No other
parts of the Annual Report or Semi-Annual Report are incorporated herein by
reference.
Further information about the BIT Portfolios is contained in and
incorporated by reference to their Statement of Additional Information dated
April 3, 1995 as supplemented to the date hereof, a copy of which is included
herewith. The audited financial statements for the BIT Portfolios contained in
their Annual Reports dated June 30, 1995 are incorporated herein by reference.
No other parts of the Annual Reports are incorporated by reference herein.
The date of this Statement of Additional Information is November __, 1995.
-2-
<PAGE> 259
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information . . . . . . . . . . . . . . . . . . . . . 4
Pro Forma Financial Statements . . . . . . . . . . . . . . . 6
</TABLE>
-3-
<PAGE> 260
GENERAL INFORMATION
The shareholders of The Compass Capital Group of Funds ("Compass") are
being asked to approve or disapprove an Asset Purchase Agreement (the "Compass
Agreement") dated as of October __, 1995 between Compass and The PNC Fund
("PNC") and the transactions contemplated thereby. The Compass Agreement
contemplates that all of the assets and liabilities of the respective
investment portfolios of Compass (the "Compass Portfolios") will be transferred
to corresponding PNC Portfolios in exchange for full and fractional "Service
Shares" of the corresponding PNC Portfolio as shown in the following table.
<TABLE>
<CAPTION>
======================================================================================================
CORRESPONDING
COMPASS PORTFOLIO PNC PORTFOLIO
----------------- -------------
- ------------------------------------------------------------------------------------------------------
<S> <C>
Municipal Money Market Fund Municipal Money Market Portfolio
- ------------------------------------------------------------------------------------------------------
New Jersey Municipal Money Fund New Jersey Municipal Money Market Portfolio
- ------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Money Fund Pennsylvania Municipal Money Market Portfolio
- ------------------------------------------------------------------------------------------------------
Cash Reserve Fund Money Market Portfolio
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Fund Government Money Market Portfolio
- ------------------------------------------------------------------------------------------------------
Municipal Bond Fund Tax-Free Income Portfolio
- ------------------------------------------------------------------------------------------------------
New Jersey Municipal Bond Fund New Jersey Tax-Free Income Portfolio
- ------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Bond Fund Pennsylvania Tax-Free Income Portfolio
- ------------------------------------------------------------------------------------------------------
Equity Income Fund Value Equity Portfolio
- ------------------------------------------------------------------------------------------------------
Growth Fund Growth Equity Portfolio
- ------------------------------------------------------------------------------------------------------
Small Company Fund Small Cap Growth Equity Portfolio
- ------------------------------------------------------------------------------------------------------
International Equity Fund International Equity Portfolio
- ------------------------------------------------------------------------------------------------------
Balanced Fund Balanced Portfolio
- ------------------------------------------------------------------------------------------------------
Short/Intermediate Fund Short-Term Bond Portfolio
- ------------------------------------------------------------------------------------------------------
Fixed Income Fund Core Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------
International Fixed Income Fund International Fixed Income Portfolio
======================================================================================================
</TABLE>
The shareholders of The BFM Institutional Trust Inc. ("BIT") are being
asked to approve or disapprove an Asset Purchase Agreement (the "BIT
Agreement") dated as of October __, 1995 between BIT and PNC and the
transactions contemplated thereby. The BIT Agreement contemplates that all of
the assets and liabilities of the respective investment portfolios of BIT (the
"BIT Portfolios") will be transferred to corresponding PNC
-4-
<PAGE> 261
Portfolios in exchange for full and fractional "Institutional" Shares of the
corresponding PNC Portfolio as shown in the following table.
<TABLE>
<CAPTION>
========================================================================================================
BIT Portfolio Corresponding PNC Portfolio
------------- ---------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C>
Short Duration Portfolio Short-Term Bond Portfolio
- --------------------------------------------------------------------------------------------------------
Core Fixed Income Portfolio Core Fixed Income Portfolio
- --------------------------------------------------------------------------------------------------------
Multi-Sector Mortgage Securities Portfolio III Multi-Sector Mortgage Securities Portfolio III
========================================================================================================
</TABLE>
The shares issued by PNC in each Transaction will have an aggregate net
asset value equal to the aggregate net asset value of the shares of the
respective Compass Portfolios and BIT Portfolios that are outstanding
immediately before the Effective Times of the respective Transactions.
After the transfer of their assets and liabilities in exchange for shares
of the corresponding PNC Portfolios, the Compass Portfolios and BIT Portfolios
will distribute the shares of the corresponding PNC Portfolios to their
shareholders in liquidation of the respective Compass Portfolios and BIT
Portfolios. Each shareholder owning shares of a particular Compass Portfolio
or BIT Portfolio at the Effective Time of the particular Transaction will
receive shares of the PNC Portfolio designated in the foregoing table of equal
value, plus the right to receive any unpaid dividends or distributions that
were declared before the Effective Time of the particular Transaction on
Compass Portfolio or BIT Portfolio shares. Upon completion of the respective
Transactions, all outstanding shares of the Compass Portfolios and BIT
Portfolios will be redeemed and cancelled.
The Special Shareholders Meeting of Compass to consider the Compass
Agreement and the related transactions will be held at the offices of SEI
Financial Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087 on December 20, 1995 at _____.m. Eastern Time.
The Special Shareholders Meeting of BIT to consider the BIT Agreement and
the related transactions will be held at the offices of [BlackRock Financial
Management, Inc., 345 Park Avenue, New York, New York 10154] on December __,
1995 at ___ __.m. Eastern Time.
For further information about these transactions, see the Combined Proxy
Statement/Prospectus.
-5-
<PAGE> 262
PNC MUNICIPAL MONEY MARKET PORTFOLIO
COMPASS MUNICIPAL MONEY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC
MUNICIPAL COMPASS
MONEY MARKET MUNICIPAL PRO-FORMA PRO-FORMA
PORTFOLIO MONEY FUND ADJUSTMENTS COMBINED
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $3,959,375 $851,704 $4,811,079
Dividends - - -
-------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 3,959,375 851,704 4,811,079
-------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 469,233 91,356 12,985 (1) 573,574
Administration Fees 156,411 41,110 (6,330)(1) 191,191
Custodian Fees 30,200 3,359 33,559
Transfer Agent Fees 18,712 6,903 25,615
Service Fees 260,837 - 69,418 (1) 330,255
Distribution Fees 84 - 84
Legal and Audit 9,888 1,427 (1,427)(2) 9,888
Printing 6,409 (819) 819 (2) 6,409
Registration Fees 22,483 6,774 29,257
Trustees' Fees and Officers' Salaries 2,011 1,092 (1,092)(2) 2,011
Organization and Other 3,161 20,213 23,374
-------------- ------------- ------------- -----------
979,429 171,415 74,373 1,225,217
Less: Fees waived & Expenses Reimbursed (457,824) - (80,152)(3) (537,976)
-------------- ------------- ------------- -----------
TOTAL EXPENSES 521,605 171,415 (5,779) 687,241
-------------- ------------- ------------- -----------
NET INVESTMENT INCOME 3,437,770 680,289 5,779 4,123,838
-------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (12,356) (817) (13,173)
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (12,356) (817) (13,173)
-------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $3,425,414 $679,472 $5,779 $4,110,665
============== ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of
the combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 263
PNC MUNICIPAL MONEY MARKET PORTFOLIO
COMPASS MUNICIPAL MONEY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC
MUNICIPAL COMPASS
MONEY MARKET MUNICIPAL PRO-FORMA PRO-FORMA
PORTFOLIO MONEY FUND ADJUSTMENTS COMBINED
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $4,632,663 $1,299,013 $5,931,676
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 4,632,663 1,299,013 5,931,676
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 771,325 189,847 23,717 (1) 984,889
Administration Fees 257,109 85,431 (14,244)(1) 328,296
Custodian Fees 49,117 4,795 53,912
Transfer Agent Fees 47,827 13,426 61,253
Service Fees 368,547 - 194,446 (1) 562,993
Distribution Fees 165 - 165
Legal and Audit 23,621 9,686 (9,686)(2) 23,621
Printing 27,724 9,614 (9,614)(2) 27,724
Registration Fees 50,195 10,104 60,299
Trustees' Fees and Officers' Salaries 3,597 801 (801)(2) 3,597
Organization and Other 12,096 (39,806) (27,710)
------------- ------------- ------------- -----------
1,611,323 283,898 183,818 2,079,039
Less: Fees waived & Expenses Reimbursed (814,098) - (88,940)(3) (903,038)
------------- ------------- ------------- -----------
TOTAL EXPENSES 797,225 283,898 94,878 1,176,001
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 3,835,438 1,015,115 (94,878) 4,755,675
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (19,387) 17,746 (1,641)
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (19,387) 17,746 (1,641)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $3,816,051 $1,032,861 ($94,878) $4,754,034
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 264
PNC PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
COMPASS PENNSYLVANIA MUNICIPAL MONEY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
PENNSYLVANIA PENNSYLVANIA
MUNICIPAL MONEY MUNICIPAL PRO-FORMA PRO-FORMA
MARKET PORTFOLIO MONEY FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $6,315,344 $733,582 $7,048,926
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 6,315,344 733,582 7,048,926
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 772,434 80,126 12,381 (1) 864,941
Administration Fees 257,478 36,057 (5,221)(1) 288,314
Custodian Fees 37,701 7,232 44,933
Transfer Agent Fees 10,686 13,143 23,829
Service Fees 170,233 - 60,724 (1) 230,957
Distribution Fees 316 - 316
Legal and Audit 15,394 4,391 (4,391)(2) 15,394
Printing 13,560 1,475 (1,475)(2) 13,560
Registration Fees 13,828 (2,958) 10,870
Trustees' Fees and Officers' Salaries 2,706 1,066 (1,066)(2) 2,706
Organization and Other 5,842 (474) 5,368
------------- ------------- ------------- -----------
1,300,178 140,058 60,952 1,501,188
Less: Fees waived & Expenses Reimbursed (700,499) (19,468) (11,716)(3) (731,683)
------------- ------------- ------------- -----------
TOTAL EXPENSES 599,679 120,590 49,236 769,505
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 5,715,665 612,992 (49,236) 6,279,421
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions - 2 2
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS - 2 2
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $5,715,665 $612,994 ($49,236) $6,279,423
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 265
PNC PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
COMPASS PENNSYLVANIA MUNICIPAL MONEY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
PENNSYLVANIA PENNSYLVANIA
MUNICIPAL MONEY MUNICIPAL PRO-FORMA PRO-FORMA
MARKET PORTFOLIO MONEY FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $2,345,552 $882,759 $3,228,311
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 2,345,552 882,759 3,228,311
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 378,994 128,027 16,359 (1) 523,380
Administration Fees 126,331 57,612 (9,483)(1) 174,460
Custodian Fees 29,877 71 29,948
Transfer Agent Fees 20,043 12,072 32,115
Service Fees 56,294 - 101,958 (1) 158,252
Distribution Fees 193 - 193
Legal and Audit 9,232 421 (421)(2) 9,232
Printing 12,220 139 (139)(2) 12,220
Registration Fees 25,542 7,079 32,621
Trustees' Fees and Officers' Salaries 1,700 12 (12)(2) 1,700
Organization and Other 6,674 16,601 23,275
------------- ------------- ------------- -----------
667,100 222,034 108,262 997,396
Less: Fees waived & Expenses Reimbursed (476,317) (116,679) 79,731 (3) (513,265)
------------- ------------- ------------- -----------
TOTAL EXPENSES 190,783 105,355 187,993 484,131
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 2,154,769 777,404 (187,993) 2,744,180
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 130 (2,459) (2,329)
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 130 (2,459) (2,329)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,154,899 $774,945 ($187,993) $2,741,851
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 266
PNC MONEY MARKET PORTFOLIO
COMPASS CASH RESERVE FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
MONEY MARKET CASH RESERVE PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $36,312,611 $11,944,013 $48,256,624
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 36,312,611 11,944,013 48,256,624
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 2,775,547 733,142 114,608 (1) 3,623,297
Administration Fees 844,302 377,045 (143,690)(1) 1,077,657
Custodian Fees 107,268 7,145 114,413
Transfer Agent Fees 21,219 53,530 74,749
Service Fees 924,049 - 632,632 (1) 1,556,681
Distribution Fees 11,985 - 11,985
Legal and Audit 63,302 34,640 (34,640)(2) 63,302
Printing 44,741 14,014 (14,014)(2) 44,741
Registration Fees 49,196 22,867 72,063
Trustees' Fees and Officers' Salaries 9,963 10,979 (10,979)(2) 9,963
Organization and Other 24,438 (36,915) (12,477)
------------- ------------- ------------- -----------
4,876,010 1,216,447 543,917 6,636,374
Less: Fees waived & Expenses Reimbursed (2,361,082) - (343,602)(3) (2,704,684)
------------- ------------- ------------- -----------
TOTAL EXPENSES 2,514,928 1,216,447 200,315 3,931,690
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 33,797,683 10,727,566 (200,315) 44,324,934
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 19,382 (831,734) (812,352)
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 19,382 (831,734) (812,352)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $33,817,065 $9,895,832 ($200,315) $43,512,582
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 267
PNC MONEY MARKET PORTFOLIO
COMPASS CASH RESERVE FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
MONEY MARKET CASH RESERVE PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $37,214,883 $17,024,578 $54,239,461
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 37,214,883 17,024,578 54,239,461
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 4,311,077 1,545,338 249,439 (1) 6,105,854
Administration Fees 1,344,415 794,746 (297,551)(1) 1,841,610
Custodian Fees 177,983 35,519 213,502
Transfer Agent Fees 67,179 21,595 88,774
Service Fees 1,382,350 - 1,515,538 (1) 2,897,888
Distribution Fees 10,092 - 10,092
Legal and Audit 127,847 66,568 (66,568)(2) 127,847
Printing 125,866 66,029 (66,029)(2) 125,866
Registration Fees 48,658 208 48,866
Trustees' Fees and Officers' Salaries 30,138 5,597 (5,597)(2) 30,138
Organization and Other 67,641 110,344 177,985
------------- ------------- ------------- -----------
7,693,246 2,645,944 1,329,232 11,668,422
Less: Fees waived & Expenses Reimbursed (3,900,913) - (934,009)(3) (4,834,922)
------------- ------------- ------------- -----------
TOTAL EXPENSES 3,792,333 2,645,944 395,223 6,833,500
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 33,422,550 14,378,634 (395,223) 47,405,961
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (16,921) (205,218) (222,139)
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (16,921) (205,218) (222,139)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $33,405,629 $14,173,416 ($395,223) $47,183,822
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 268
PNC GOVERNMENT MONEY MARKET PORTFOLIO
COMPASS U.S. TREASURY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC
GOVERNMENT COMPASS
MONEY MARKET U.S. TREASURY PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $16,188,882 $9,318,717 $25,507,599
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 16,188,882 9,318,717 25,507,599
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 1,278,894 597,256 176,155 (1) 2,052,305
Administration Fees 417,822 307,161 (82,095)(1) 642,888
Custodian Fees 51,225 5,887 57,112
Transfer Agent Fees 24,932 41,235 66,167
Service Fees 761,644 - 515,358 (1) 1,277,002
Distribution Fees 4,673 - 4,673
Legal and Audit 26,706 26,308 (26,308)(2) 26,706
Printing 17,241 11,055 (11,055)(2) 17,241
Registration Fees 51,719 2,854 54,573
Trustees' Fees and Officers' Salaries 4,151 10,646 (10,646)(2) 4,151
Organization and Other 10,612 46,621 57,233
------------- ------------- ------------- -----------
2,649,619 1,049,023 561,409 4,260,051
Less: Fees waived & Expenses Reimbursed (1,172,805) - (527,912)(3) (1,700,717)
------------- ------------- ------------- -----------
TOTAL EXPENSES 1,476,814 1,049,023 33,497 2,559,334
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 14,712,068 8,269,694 (33,497) 22,948,265
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 6,023 - 6,023
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 6,023 - 6,023
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $14,718,091 $8,269,694 ($33,497) $22,954,288
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 269
PNC GOVERNMENT MONEY MARKET PORTFOLIO
COMPASS U.S. TREASURY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC
GOVERNMENT COMPASS
MONEY MARKET U.S. TREASURY PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $11,105,336 $13,756,120 $24,861,456
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 11,105,336 13,756,120 24,861,456
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 1,267,972 1,314,577 375,489 (1) 2,958,038
Administration Fees 422,657 676,069 (144,182)(1) 954,544
Custodian Fees 64,479 26,446 90,925
Transfer Agent Fees 75,877 19,610 95,487
Service Fees 677,020 - 1,212,037 (1) 1,889,057
Distribution Fees 427 - 427
Legal and Audit 38,606 53,428 (53,428)(2) 38,606
Printing 35,755 52,994 (52,994)(2) 35,755
Registration Fees 50,116 15,780 65,896
Trustees' Fees and Officers' Salaries 5,864 4,416 (4,416)(2) 5,864
Organization and Other 19,060 (15,249) 3,811
------------- ------------- ------------- -----------
2,657,833 2,148,071 1,332,506 6,138,410
Less: Fees waived & Expenses Reimbursed (1,275,957) - (1,132,352)(3) (2,408,309)
------------- ------------- ------------- -----------
TOTAL EXPENSES 1,381,876 2,148,071 200,154 3,730,101
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 9,723,460 11,608,049 (200,154) 21,131,355
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 13,624 5,285 18,909
Change in unrealized appreciation
(depreciation) - - -
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 13,624 5,285 18,909
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $9,737,084 $11,613,334 ($200,154) $21,150,264
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 270
PNC TAX-FREE INCOME PORTFOLIO
COMPASS MUNICIPAL BOND FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
TAX-FREE MUNICIPAL BOND PRO-FORMA PRO-FORMA
INCOME PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $276,312 $825,422 $1,101,734
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 276,312 825,422 1,101,734
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 23,479 88,588 (14,169)(1) 97,898
Administration Fees 9,391 26,716 3,053 (1) 39,160
Custodian Fees 6,090 4,771 10,861
Transfer Agent Fees 10,645 22,799 33,444
Service Fees 3,308 - 50,288 (1) 53,596
Distribution Fees 14,965 - (6,628)(1) 8,337
Legal and Audit 464 2,969 (2,969)(2) 464
Printing 308 988 (988)(2) 308
Registration Fees 12,465 (2,862) 9,603
Trustees' Fees and Officers' Salaries 75 904 (904)(2) 75
Organization and Other 7,650 2,857 10,507
------------- ------------- ------------- -----------
88,840 147,730 27,683 264,253
Less: Fees waived & Expenses Reimbursed (47,089) (19,754) (25,454)(3) (92,297)
------------- ------------- ------------- -----------
TOTAL EXPENSES 41,751 127,976 2,229 171,956
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 234,561 697,446 (2,229) 929,778
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 11,979 (339,113) (327,134)
Change in unrealized appreciation
(depreciation) 325,886 858,207 1,184,093
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 337,865 519,094 856,959
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $572,426 $1,216,540 ($2,229) $1,786,737
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 271
PNC TAX-FREE INCOME PORTFOLIO
COMPASS MUNICIPAL BOND FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
TAX-FREE MUNICIPAL BOND PRO-FORMA PRO-FORMA
INCOME PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $522,665 $1,871,898 $2,394,563
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 522,665 1,871,898 2,394,563
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 47,655 209,230 (35,307)(1) 221,578
Administration Fees 19,062 62,629 6,940 (1) 88,631
Custodian Fees 12,380 2,269 14,649
Transfer Agent Fees 47,988 12,656 60,644
Service Fees 3,523 - 116,354 (1) 119,877
Distribution Fees 33,891 - (15,062)(1) 18,829
Legal and Audit 1,367 4,583 (4,583)(2) 1,367
Printing 1,788 4,547 (4,547)(2) 1,788
Registration Fees 15,055 7,843 22,898
Trustees' Fees and Officers' Salaries 191 379 (379)(2) 191
Organization and Other 19,143 242 19,385
------------- ------------- ------------- -----------
202,043 304,378 63,416 569,837
Less: Fees waived & Expenses Reimbursed (116,974) (77,072) 11,923 (3) (182,123)
------------- ------------- ------------- -----------
TOTAL EXPENSES 85,069 227,306 75,339 387,714
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 437,596 1,644,592 (75,339) 2,006,849
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 21,842 (373,828) (351,986)
Change in unrealized appreciation
(depreciation) (924,036) (2,387,922) (3,311,958)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (902,194) (2,761,750) (3,663,944)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($464,598) ($1,117,158) ($75,339) ($1,657,095)
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 272
PNC PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
COMPASS PENNSYLVANIA MUNICIPAL BOND FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
PENNSYLVANIA PENNSYLVANIA
TAX-FREE MUNICIPAL BOND PRO-FORMA PRO-FORMA
INCOME PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $1,714,147 $488,756 $2,202,903
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 1,714,147 488,756 2,202,903
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 141,528 55,338 (11,138)(1) 185,728
Administration Fees 56,611 15,744 1,936 (1) 74,291
Custodian Fees 7,520 1,767 9,287
Transfer Agent Fees 19,548 17,226 36,774
Service Fees 15,293 - 61,474 (1) 76,767
Distribution Fees 101,583 - (45,774)(1) 55,809
Legal and Audit 3,058 1,953 (1,953)(2) 3,058
Printing 2,416 1,122 (1,122)(2) 2,416
Registration Fees 2,493 (1,900) 593
Trustees' Fees and Officers' Salaries 601 673 (673)(2) 601
Organization and Other 6,946 2,704 9,650
------------- ------------- ------------- -----------
357,597 94,627 2,750 454,974
Less: Fees waived & Expenses Reimbursed (99,195) (17,839) 18,084 (3) (98,950)
------------- ------------- ------------- -----------
TOTAL EXPENSES 258,402 76,788 20,834 356,024
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 1,455,745 411,968 (20,834) 1,846,879
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (1,076,333) (473,487) (1,549,820)
Change in unrealized appreciation
(depreciation) 2,252,735 790,543 3,043,278
Net Realized and Unrealized
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 1,176,402 317,056 1,493,458
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,632,147 $729,024 ($20,834) $3,340,337
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 273
PNC PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
COMPASS PENNSYLVANIA MUNICIPAL BOND FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
PENNSYLVANIA PENNSYLVANIA
TAX-FREE MUNICIPAL BOND PRO-FORMA PRO-FORMA
INCOME PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $3,032,628 $912,969 $3,945,597
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 3,032,628 912,969 3,945,597
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 276,649 109,844 (17,084)(1) 369,409
Administration Fees 109,878 31,234 6,652 (1) 147,764
Custodian Fees 14,992 742 15,734
Transfer Agent Fees 40,804 15,738 56,542
Service Fees 24,652 - 128,333 (1) 152,985
Distribution Fees 53,423 - 59,495 (1) 112,918
Legal and Audit 7,498 1,541 (1,541)(2) 7,498
Printing 7,393 1,151 (1,151)(2) 7,393
Registration Fees 16,808 7,758 24,566
Trustees' Fees and Officers' Salaries 1,128 95 (95)(2) 1,128
Organization and Other 17,191 2,492 19,683
------------- ------------- ------------- -----------
570,416 170,595 174,609 915,620
Less: Fees waived & Expenses Reimbursed (330,526) (94,769) 213,545 (3) (211,750)
------------- ------------- ------------- -----------
TOTAL EXPENSES 239,890 75,826 388,154 703,870
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 2,792,738 837,143 (388,154) 3,241,727
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (285,131) (69,366) (354,497)
Change in unrealized appreciation
(depreciation) (4,507,643) (1,166,394) (5,674,037)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (4,792,774) (1,235,760) (6,028,534)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($2,000,036) ($398,617) ($388,154) ($2,786,807)
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 274
PNC VALUE EQUITY PORTFOLIO
COMPASS EQUITY/INCOME FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
VALUE EQUITY EQUITY/INCOME PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $287,963 $633,462 $921,425
Dividends 10,499,938 4,227,725 14,727,663
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 10,787,901 4,861,187 15,649,088
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 1,759,164 994,379 (206,221)(1) 2,547,322
Administration Fees 625,594 255,697 2,378 (1) 883,669
Custodian Fees 54,399 27,619 82,018
Transfer Agent Fees 14,714 44,349 59,063
Service Fees 137,771 - 463,868 (1) 601,639
Distribution Fees 22,847 - (8,528)(1) 14,319
Legal and Audit 33,374 24,644 (24,644)(2) 33,374
Printing 21,667 5,459 (5,459)(2) 21,667
Registration Fees 12,465 (2,098) 10,367
Trustees' Fees and Officers' Salaries 5,320 7,151 (7,151)(2) 5,320
Organization and Other 18,147 34,920 53,067
------------- ------------- ------------- -----------
2,705,462 1,392,120 214,243 4,311,825
Less: Fees waived & Expenses Reimbursed (465,831) - 247,594 (3) (218,237)
------------- ------------- ------------- -----------
TOTAL EXPENSES 2,239,631 1,392,120 461,837 4,093,588
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 8,548,270 3,469,067 (461,837) 11,555,500
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 15,118,074 440,194 15,558,268
Change in unrealized appreciation
(depreciation) 24,669,433 3,299,842 27,969,275
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 39,787,507 3,740,036 43,527,543
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $48,335,777 $7,209,103 ($461,837) $55,083,043
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 275
PNC VALUE EQUITY PORTFOLIO
COMPASS EQUITY/INCOME FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
VALUE EQUITY EQUITY/INCOME PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $1,180,667 $2,730,992 $3,911,659
Dividends 16,692,818 7,484,385 24,177,203
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 17,873,485 10,215,377 28,088,862
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 3,171,674 1,946,120 (416,614)(1) 4,701,180
Administration Fees 1,137,117 500,430 1,021 (1) 1,638,568
Custodian Fees 99,231 18,236 117,467
Transfer Agent Fees 37,911 23,262 61,173
Service Fees 177,459 - 881,384 (1) 1,058,843
Distribution Fees 31,135 - (11,675)(1) 19,460
Legal and Audit 77,839 36,842 (36,842)(2) 77,839
Printing 61,094 36,540 (36,540)(2) 61,094
Registration Fees 32,504 24,187 56,691
Trustees' Fees and Officers' Salaries 11,904 3,046 (3,046)(2) 11,904
Organization and Other 45,979 (15,030) 30,949
------------- ------------- ------------- -----------
4,883,847 2,573,633 377,688 7,835,168
Less: Fees waived & Expenses Reimbursed (926,910) - 586,043 (3) (340,867)
------------- ------------- ------------- -----------
TOTAL EXPENSES 3,956,937 2,573,633 963,731 7,494,301
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 13,916,548 7,641,744 (963,731) 20,594,561
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 15,933,683 24,080,833 40,014,516
Change in unrealized appreciation
(depreciation) (8,855,288) (374,450) (9,229,738)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 7,078,395 23,706,383 30,784,778
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $20,994,943 $31,348,127 ($963,731) $51,379,339
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 276
PNC GROWTH EQUITY PORTFOLIO
COMPASS GROWTH FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
GROWTH EQUITY GROWTH PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $586,644 $162,905 $749,549
Dividends 1,207,746 967,261 2,175,007
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 1,794,390 1,130,166 2,924,556
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 469,375 472,518 (98,870)(1) 843,023
Administration Fees 170,682 121,504 14,367 (1) 306,553
Custodian Fees 23,033 14,067 37,100
Transfer Agent Fees 12,282 25,174 37,456
Service Fees 51,412 - 218,116 (1) 269,528
Distribution Fees 12,125 - (4,526)(1) 7,599
Legal and Audit 8,497 8,711 (8,711)(2) 8,497
Printing 10,008 (807) 807 (2) 10,008
Registration Fees 17,106 1,951 19,057
Trustees' Fees and Officers' Salaries 1,326 1,214 (1,214)(2) 1,326
Organization and Other 8,500 2,387 10,887
------------- ------------- ------------- -----------
784,346 646,719 119,969 1,551,034
Less: Fees waived & Expenses Reimbursed (166,241) - 44,037 (122,204)
------------- ------------- ------------- -----------
TOTAL EXPENSES 618,105 646,719 164,006 1,428,830
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 1,176,285 483,447 (164,006) 1,495,726
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 1,227,325 650,554 1,877,879
Change in unrealized appreciation
(depreciation) 13,986,348 6,524,122 20,510,470
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 15,213,673 7,174,676 22,388,349
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $16,389,958 $7,658,123 ($164,006) $23,884,075
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 277
PNC GROWTH EQUITY PORTFOLIO
COMPASS GROWTH FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
GROWTH EQUITY GROWTH PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $421,145 $102,124 $523,269
Dividends 1,101,071 1,904,823 3,005,894
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 1,522,216 2,006,947 3,529,163
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 643,001 996,016 (213,649)(1) 1,425,368
Administration Fees 233,819 256,119 28,378 (1) 518,316
Custodian Fees 42,216 12,965 55,181
Transfer Agent Fees 42,454 21,311 63,765
Service Fees 58,828 - 444,576 (1) 503,404
Distribution Fees 16,155 - (6,058)(1) 10,097
Legal and Audit 16,348 23,060 (23,060)(2) 16,348
Printing 20,250 22,877 (22,877)(2) 20,250
Registration Fees 26,041 3,024 29,065
Trustees' Fees and Officers' Salaries 2,476 1,906 (1,906)(2) 2,476
Organization and Other 14,227 20,653 0 34,880
------------- ------------- ------------- -----------
1,115,815 1,357,931 205,404 2,679,150
Less: Fees waived & Expenses Reimbursed (280,921) - 61,784 (3) (219,137)
------------- ------------- ------------- -----------
TOTAL EXPENSES 834,894 1,357,931 267,188 2,460,013
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 687,322 649,016 (267,188) 1,069,150
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 3,202,620 4,345,299 7,547,919
Change in unrealized appreciation
(depreciation) (16,170,202) (1,396,905) (17,567,107)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (12,967,582) 2,948,394 (10,019,188)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($12,280,260) $3,597,410 ($267,188) ($8,950,038)
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 278
PNC SMALL CAP GROWTH EQUITY PORTFOLIO
COMPASS SMALL COMPANY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC
SMALL CAP COMPASS
GROWTH EQUITY SMALL COMPANY PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $472,519 $21,370 $493,889
Dividends 80,651 273,448 354,099
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 553,170 294,818 847,988
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 289,259 118,610 (45,155)(1) 362,714
Administration Fees 105,185 23,722 2,989 (1) 131,896
Custodian Fees 23,150 14,447 37,597
Transfer Agent Fees 12,001 18,382 30,383
Service Fees 31,520 - 125,301 (1) 156,821
Distribution Fees 4,524 - (1,689)(1) 2,835
Legal and Audit 5,123 1,750 (1,750)(2) 5,123
Printing 3,326 452 (452)(2) 3,326
Registration Fees 15,944 (3,141) 12,803
Trustees' Fees and Officers' Salaries 802 715 (715)(2) 802
Organization and Other 5,099 4,804 9,903
------------- ------------- ------------- -----------
495,933 179,741 78,529 754,203
Less: Fees waived & Expenses Reimbursed (15,592) - (161,111)(3) (176,703)
------------- ------------- ------------- -----------
TOTAL EXPENSES 480,341 179,741 (82,582) 577,500
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 72,829 115,077 82,582 270,488
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (1,407,028) 658,347 (748,681)
Change in unrealized appreciation
(depreciation) 16,205,644 (1,658,000) 14,547,644
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 14,798,616 (999,653) 13,798,963
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $14,871,445 ($884,576) $82,582 $14,069,451
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 279
PNC SMALL CAP GROWTH EQUITY PORTFOLIO
COMPASS SMALL COMPANY FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC
SMALL CAP COMPASS
GROWTH EQUITY SMALL COMPANY PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $260,147 $29,128 $289,275
Dividends 107,364 411,514 518,878
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 367,511 440,642 808,153
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 216,145 198,934 (77,295)(1) 337,784
Administration Fees 78,598 39,787 4,446 (1) 122,831
Custodian Fees 39,042 1,529 40,571
Transfer Agent Fees 26,039 18,444 44,483
Service Fees 28,347 - 120,646 (1) 148,993
Distribution Fees 3,297 - (1,236)(1) 2,061
Legal and Audit 4,605 3,086 (3,086)(2) 4,605
Printing 8,930 3,061 (3,061)(2) 8,930
Registration Fees 23,905 8,314 32,219
Trustees' Fees and Officers' Salaries 800 255 (255)(2) 800
Organization and Other 8,344 155 8,499
------------- ------------- ------------- -----------
438,052 273,565 40,159 751,776
Less: Fees waived & Expenses Reimbursed (75,964) - (63,566)(3) (139,530)
------------- ------------- ------------- -----------
TOTAL EXPENSES 362,088 273,565 (23,407) 612,246
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 5,423 167,077 23,407 195,907
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 3,202,620 1,542,906 4,745,526
Change in unrealized appreciation
(depreciation) (16,170,202) (657,540) (16,827,742)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (12,967,582) 885,366 (12,082,216)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($12,962,159) $1,052,443 $23,407 ($11,886,309)
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 280
PNC BALANCED PORTFOLIO
COMPASS BALANCED FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
BALANCED BALNCED PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $2,299,628 $310,514 $2,610,142
Dividends 1,126,053 151,894 1,277,947
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 3,425,681 462,408 3,888,089
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 409,649 65,188 (12,508)(1) 462,329
Administration Fees 148,963 16,763 2,394 (1) 168,120
Custodian Fees 21,533 7,865 29,398
Transfer Agent Fees 39,458 11,215 50,673
Service Fees 84,823 - 220,683 (1) 305,506
Distribution Fees 127,340 - (45,926)(1) 81,414
Legal and Audit 7,343 1,846 (1,846)(2) 7,343
Printing 4,868 1,458 (1,458)(2) 4,868
Registration Fees 13,211 2,575 15,786
Trustees' Fees and Officers' Salaries 1,193 227 (227)(2) 1,193
Organization and Other 9,242 1,508 10,750
------------- ------------- ------------- -----------
867,623 108,645 161,112 1,137,380
Less: Fees waived & Expenses Reimbursed (171,330) (25,752) 1,071 (3) (196,011)
------------- ------------- ------------- -----------
TOTAL EXPENSES 696,293 82,893 162,183 941,369
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 2,729,388 379,515 (162,183) 2,946,720
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (5,399,745) 188,165 (5,211,580)
Change in unrealized appreciation
(depreciation) 11,766,008 871,185 12,637,193
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 6,366,263 1,059,350 7,425,613
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $9,095,651 $1,438,865 ($162,183) $10,372,333
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 281
PNC BALANCED PORTFOLIO
COMPASS BALANCED FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PNC COMPASS
BALANCED BALNCED PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $2,893,951 $95,698 $2,989,649
Dividends 1,800,352 48,229 1,848,581
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 4,694,303 143,927 4,838,230
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 672,745 22,117 (4,546)(1) 690,316
Administration Fees 244,634 5,687 704 (1) 251,025
Custodian Fees 33,978 2,246 36,224
Transfer Agent Fees 74,659 1,390 76,049
Service Fees 123,661 - 118,463 (1) 242,124
Distribution Fees 222,954 - (83,607)(1) 139,347
Legal and Audit 16,533 411 (411)(2) 16,533
Printing 9,767 411 (411)(2) 9,767
Registration Fees 43,773 1,430 45,203
Trustees' Fees and Officers' Salaries 2,557 63 (63)(2) 2,557
Organization and Other 18,551 700 19,251
------------- ------------- ------------- -----------
1,463,812 34,455 30,129 1,528,396
Less: Fees waived & Expenses Reimbursed (321,688) (21,180) 239,057 (3) (103,811)
------------- ------------- ------------- -----------
TOTAL EXPENSES 1,142,124 13,275 269,186 1,424,585
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 3,552,179 130,652 (269,186) 3,413,645
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions 1,771,608 27,498 1,799,106
Change in unrealized appreciation
(depreciation) (7,289,079) (85,020) (7,374,099)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (5,517,471) (57,522) (5,574,993)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($1,965,292) $73,130 ($269,186) ($2,161,348)
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 282
PNC SHORT-TERM BOND PORTFOLIO
BMF SHORT DURATION FUND
COMPASS SHORT/INTERMEDIATE FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMPASS
PNC BFM SHORT
SHORT TERM BOND SHORT TERM INTERMEDIATE PRO-FORMA PRO-FORMA
PORTFOLIO DURATION FUND FUND ADJUSTMENTS COMBINED
---------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $611,287 $1,005,855 $6,824,747 $7,830,602
Dividends - - - -
------------- ------------- ------------- ----------- -------------
TOTAL INVESTMENT INCOME 611,287 1,005,855 6,824,747 7,830,602
------------- ------------- ------------- ----------- -------------
EXPENSES
Investment Advisory Fees 52,691 45,649 616,897 (70,863)(1) 644,374
Administration Fees 21,076 31,914 185,068 19,691 (1) 257,749
Custodian Fees 8,083 29,952 2,919 40,954
Transfer Agent Fees 8,097 17,012 37,604 62,713
Service Fees 6,298 - - 310,642 (1) 316,940
Distribution Fees 354 - - 356 (1) 710
Legal and Audit 1,460 12,384 16,966 (18,426)(2) 12,384
Printing 1,143 - 2,279 3,422
Registration Fees 11,628 14,062 (8,844) 16,846
Trustees' Fees and Officers' Salaries 294 3,028 6,863 (7,157)(2) 3,028
Organization and Other 3,784 19,694 10,099 33,577
------------- ------------- ------------- ----------- -------------
114,908 173,695 869,851 234,243 1,392,697
Less: Fees waived & Expenses Reimbursed (66,103) (86,960) - (213,429)(3) (366,492)
------------- ------------- ------------- ----------- -------------
TOTAL EXPENSES 48,805 86,735 869,851 20,814 1,026,205
------------- ------------- ------------- ----------- -------------
NET INVESTMENT INCOME 562,482 919,120 5,954,896 (20,814) 7,415,684
------------- ------------- ------------- ----------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (273,282) (141,008) (1,156,902) (1,571,192)
Change in unrealized appreciation
(depreciation) 203,056 587,673 1,543,020 2,333,749
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (70,226) 446,665 386,118 762,557
------------- ------------- ------------- ----------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $492,256 $1,365,785 $6,341,014 ($20,814) $8,178,241
============= ============= ============= =========== =============
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 283
PNC SHORT-TERM BOND PORTFOLIO
BMF SHORT DURATION FUND
COMPASS SHORT/INTERMEDIATE FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMPASS
PNC BFM SHORT
SHORT TERM BOND SHORT TERM INTERMEDIATE PRO-FORMA PRO-FORMA
PORTFOLIO DURATION FUND FUND ADJUSTMENTS COMBINED
----------------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $1,634,723 $1,845,377 $14,600,807 $16,446,184
Dividends - - - -
------------- ------------- ------------- ----------- -------------
TOTAL INVESTMENT INCOME 1,634,723 1,845,377 14,600,807 16,446,184
------------- ------------- ------------- ----------- -------------
EXPENSES
Investment Advisory Fees 174,589 100,349 1,516,089 (186,800)(1) 1,604,227
Administration Fees 69,836 64,818 454,826 52,211 (1) 641,691
Custodian Fees 17,095 40,694 19,366 77,155
Transfer Agent Fees 27,286 31,265 23,420 81,971
Service Fees 13,458 - - 760,151 (1) 773,609
Distribution Fees 316 - - 316
Legal and Audit 4,893 38,048 37,809 (42,702)(2) 38,048
Printing 5,759 37,597 43,356
Registration Fees 25,996 28,982 23,210 78,188
Trustees' Fees and Officers' Salaries 715 5,810 3,124 (3,839)(2) 5,810
Organization and Other 6,277 40,003 23,768 70,048
------------- ------------- ------------- ----------- -------------
346,220 349,969 2,139,209 579,021 3,414,419
Less: Fees waived & Expenses Reimbursed (192,774) (159,363) - (523,618)(3) (875,755)
------------- ------------- ------------- ----------- -------------
TOTAL EXPENSES 153,446 190,606 2,139,209 55,403 2,538,664
------------- ------------- ------------- ----------- -------------
NET INVESTMENT INCOME 1,481,277 1,654,771 12,461,598 (55,403) 15,542,243
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (1,064,511) (410,499) (1,501,590) (2,976,600)
Change in unrealized appreciation
(depreciation) (557,603) (590,015) (12,267,631) (13,415,249)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (1,622,114) (1,000,514) (13,769,221) (16,391,849)
------------- ------------- ------------- ----------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($140,837) $654,257 ($1,307,623) ($55,403) ($849,606)
============= ============= ============= =========== =============
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 284
BFM CORE FIXED INCOME PORTFOLIO
COMPASS FIXED INCOME FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
BFM
CORE FIXED COMPASS
INCOME FIXED INCOME PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $511,349 $8,576,940 $9,088,289
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 511,349 8,576,940 9,088,289
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 23,911 725,554 (108,388)(1) 641,077
Administration Fees 25,648 217,665 13,118 (1) 256,431
Custodian Fees 36,337 11,047 47,384
Transfer Agent Fees 18,346 34,512 52,858
Service Fees - - 384,646 (1) 384,646
Distribution Fees - - 0
Legal and Audit 5,710 25,591 (25,591)(2) 5,710
Printing - 4,412 (4,412)(2) 0
Registration Fees 14,061 (4,275) 9,786
Trustees' Fees and Officers' Salaries 1,210 0 1,210
Organization and Other 9,825 (9,636) 189
------------- ------------- ------------- -----------
135,048 1,004,870 259,373 1,399,291
Less: Fees waived & Expenses Reimbursed (97,530) - (193,992)(3) (291,522)
------------- ------------- ------------- -----------
TOTAL EXPENSES 37,518 1,004,870 65,381 1,107,769
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 473,831 7,572,070 (65,381) 7,980,520
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (87,921) (1,098,532) (1,186,453)
Change in unrealized appreciation
(depreciation) 350,690 5,050,394 5,401,084
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS 262,769 3,951,862 4,214,631
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $736,600 $11,523,932 ($65,381) $12,195,151
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 285
BFM CORE FIXED INCOME PORTFOLIO
COMPASS FIXED INCOME FUND
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
BFM
CORE FIXED COMPASS
INCOME FIXED INCOME PRO-FORMA PRO-FORMA
PORTFOLIO FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $700,743 $17,236,014 $17,936,757
Dividends - - -
------------- ------------- ------------- -----------
TOTAL INVESTMENT INCOME 700,743 17,236,014 17,936,757
------------- ------------- ------------- -----------
EXPENSES
Investment Advisory Fees 38,435 1,581,531 (247,646)(1) 1,372,320
Administration Fees 78,265 474,452 (3,789)(1) 548,928
Custodian Fees 51,615 19,381 70,996
Transfer Agent Fees 38,807 23,417 62,224
Service Fees - - 823,392 (1) 823,392
Distribution Fees - -
Legal and Audit 11,621 37,840 (37,840)(2) 11,621
Printing - 37,531 (37,531)(2)
Registration Fees 28,182 20,761 48,943
Trustees' Fees and Officers' Salaries 1,995 3,126 (3,126)(2) 1,995
Organization and Other 17,809 54,415 72,224
------------- ------------- ------------- -----------
266,729 2,252,454 493,460 3,012,643
Less: Fees waived & Expenses Reimbursed (206,424) - (424,145)(3) (630,569)
------------- ------------- ------------- -----------
TOTAL EXPENSES 60,305 2,252,454 69,315 2,382,074
------------- ------------- ------------- -----------
NET INVESTMENT INCOME 640,438 14,983,560 (69,315) 15,554,683
------------- ------------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS TRANSACTIONS
Net realized gain (loss) on investment
transactions (539,866) (736,958) (1,276,824)
Change in unrealized appreciation
(depreciation) (499,395) (26,464,814) (26,964,209)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT TRANSACTIONS (1,039,261) (27,201,772) (28,241,033)
------------- ------------- ------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($398,823) ($12,218,212) ($69,315) ($12,686,350)
============= ============= ============= ===========
</TABLE>
(1) Based on fee structure of new regristrant and the total assets of the
combined funds.
(2) Adjustments reflect expected savings when the two funds combine.
(3) Reflects the anticipated change in the waiver of the investment advisory
and administration fees based on expense ratios of new registrant and
combined assets of the merged funds.
See Accompanying Notes to Proforma Financial Statements.
<PAGE> 286
FORM N-14
PART C. OTHER INFORMATION
Item 15. Indemnification
Indemnification of Registrant's principal underwriter against
certain losses is provided for in Section 7 of the Distribution Agreement
incorporated herein by reference as Exhibit (7)(a). Indemnification of PFPC
Inc. and Provident Distributors, Inc. in their capacity as co-administrators
is provided for in Section 7 of the Administration Agreement incorporated
herein by reference as Exhibit 13(a). Indemnification of Registrant's
Custodian and Transfer Agent is provided for, respectively, in Section 22 of
the Custodian Agreement incorporated herein by reference as Exhibit 9(a) and
Section 17 of the Transfer Agency Agreement incorporated herein by reference as
Exhibit 13(e). Registrant has obtained from a major insurance carrier a
trustees' and officers' liability policy covering certain types of errors and
omissions. In addition, Section 9.3 of the Registrant's Declaration of Trust
incorporated herein by reference herein as Exhibit 1(a) provides as follows:
Indemnification of Trustees, Officers, Representatives and
Employees. The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, in which he may be involved or with which he may be
threatened, while as a Trustee or thereafter, by reason of his being
or having been such a Trusteeexcept with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of his
duties, provided that as to any matter disposed of by a compromise
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses
shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross
negligence or reckless disregard of duty, or the matter of bad faith
had been adjudicated, it would in the opinion of such counsel have
been adjudicated in favor of such person. The rights accruing to any
person under these provisions shall not exclude any other right to
which he may be lawfully entitled,provided that no person may satisfy
any right of indemnity or reimbursement hereunder except out of the
<PAGE> 287
property of the Trust. The Trustees may make advance payments in
connection with the indemnification under this Section 9.3, provided
that the indemnified person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he
is not entitled to such indemnification.
The Trustee shall indemnify officers, representatives and
employees of the Trust to the same extent that Trustees are entitled
to indemnification pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Section 9.6 of the Registrant's Declaration of Trust,
incorporated herein by reference as Exhibit 1(a), also provides for the
indemnification of shareholders of the Registrant. Section 9.6 states as
follows:
Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by
reason of his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his heirs, executors, administrators or other
legal representatives or, in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled
out of the assets belonging to the classes of Shares with the same
alphabetical designation as that of the Shares owned by such
Shareholder to be held harmless from and indemnified against all loss
and expense arising from such liability. The Trust shall, upon
request by the Shareholder, assume the defense of any claim made
against any Shareholder for any act or obligations of the Trust and
satisfy any judgment thereon from such assets.
-2-
<PAGE> 288
Item 16. Exhibits
(1) (a) Declaration of Trust of the Registrant dated December
22, 1988 is incorporated by reference to Exhibit (1)
of Registrant's Registration Statement on Form N-1A
filed on December 23, 1988.
(b) Amendment No. 1 to Declaration of Trust is
incorporated by reference to Exhibit (1)(b) of Pre-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1989.
(c) Amendment No. 2 to the Declaration of Trust dated
December 23, 1993 is herein incorporated by reference
to Exhibit (1)(c) of Post-Effective Amendment No. 12
to Registrant's Registration Statement on Form N-1A
filed on July 8, 1994.
(2) Registrant's Code of Regulations is incorporated by
reference to Exhibit (2) of Form N-1A, filed on
December 23, 1988.
(3) Not applicable.
(4) Asset Purchase Agreements, filed herewith as Appendices I and
II to the Combined Proxy Statement/Prospectus.
(5) (a) Specimen Copies of Share Certificates for Shares of
beneficial interest in Class A-1, Class A- 2, Class
A-3, Class B-1, Class B-2, Class B-3, Class C-1,
Class C-2, Class C-3, Class D-1, Class D-2, Class
D-3, Class E-1, Class E-2, Class E-3, Class F-1,
Class F-2, Class F-3, Class G-1, Class G-2, Class
G-3, Class H-1, Class H-2, Class H-3, Class I-1,
Class I-2, Class I-3, Class J-1, Class J-2, Class
J-3, Class K-1, Class K-2, Class K-3, Class L-1,
Class L-2, Class L-3, Class M-1, Class M-2, Class
M-3, Class N-1, Class N-2, Class N-3, Class O-1,
Class O-2, Class O-3, Class P-1, Class P-2, Class P-3
of the Registrant are herein incorporated by
reference to Exhibit 4 of Post-Effective Amendment
No. 6 to Registrant's Registration Statement on Form
N-1A filed on May 8, 1992.
(b) Form of Share Certificates for Shares of beneficial
interest in Class Q-1, Class Q-2, Class Q- 3, Class
R-1, Class R-2, Class R-3, Class S-1, Class S-2,
Class S-3, Class T-1, Class T-2, Class T-3, Class
U-1, Class U-2, Class U-3 of the
-3-
<PAGE> 289
Registrant are herein incorporated by reference to
Exhibit 4(b) of Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A
filed on January 22, 1993.
(c) Form of Share Certificates for Shares of beneficial
interest in Class V-1, Class V-2, Class V- 3, Class
W-1, Class W-2, Class W-3, Class X-1, Class X-2,
Class X-3, Class Y-1, Class Y-2 and Class Y-3 of the
Registrant is incorporated herein by reference to
Exhibit (4)(c) of Post- Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
filed on November 10, 1993.
(d) Form of Share Certificates for Shares of beneficial
interest in Class Z-1, Class Z-2 and Class Z-3 of the
Registrant is incorporated herein by reference to
Exhibit (4)(d) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(e) Form of Share Certificates for shares of beneficial
interest in Class AA-1, Class AA-2 and Class AA-3,
Class BB-1, Class BB-2 and Class BB-3 and Class CC-1,
Class CC-2 and Class CC-3.
(6) (a) Investment Advisory Agreement between Registrant and
PNC Institutional Management Corporation with respect
to the Money Market, Government Money Market,
Municipal Money Market, Managed Income, Growth
Equity, International Equity and Balanced Portfolios
is incorporated by reference to Exhibit 5(a) of
Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on December
29, 1989.
(b) Letter Agreement between Registrant and PNC
Institutional Management Corporation relating to
advisory services for the Tax-Free Income Portfolio
is incorporated herein by reference to Exhibit 5(b)
of Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A filed on April
30, 1990.
(c) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Bank, National
Association with respect to the Money Market
Portfolio and Government Money Market Portfolio is
incorporated by reference to Exhibit 5(c) of
Post-Effective Amendment No. 1 to Registrant's
-4-
<PAGE> 290
Registration Statement on Form N-1A filed on December
29, 1989.
(d) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Bank, National
Association with respect to the Balanced and Tax-Free
Income Portfolios is incorporated herein by reference
to Exhibit 5(d) of Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A
filed on April 30, 1990.
(e) Sub-Advisory Agreement dated April 20, 1992 between
PNC Institutional Management Corporation and
Provident Capital Management, Inc. with respect to
the International Equity Portfolio is incorporated
herein by reference to Exhibit (5)(f) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(f) Investment Advisory Agreement dated February 3, 1992
between Registrant and PNC Institutional Management
Corporation relating to the Intermediate Government,
Value Equity, Index Equity, Small Cap Value Equity,
Pennsylvania Tax-Free Income, Ohio Tax-Free Income,
Pennsylvania Municipal Money Market and Ohio
Municipal Money Market Portfolios is incorporated
herein by reference to Exhibit (5)(g) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(g) Investment Advisory Agreement dated December 17, 1993
between the Registrant and PNC Institutional
Management Corporation relating to the Virginia
Municipal Money Market, Government Income,
International Fixed Income and International Emerging
Markets Portfolios is incorporated herein by
reference to Exhibit (5)(h) of Post-Effective
Amendment No. 12 to Registrant's Registration
Statement on Form N-1A filed on July 8, 1994.
(h) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and PNC
Bank, National Association with respect to the Ohio
Municipal Money Market Portfolio is incorporated
herein by reference to Exhibit (5)(h) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
-5-
<PAGE> 291
(i) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and PNC
Bank, National Association with respect to the
Pennsylvania Municipal Money Market Portfolio is
incorporated herein by reference to Exhibit (5)(i) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(j) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and
Provident Capital Management, Inc. with respect to
the Value Equity Portfolio is incorporated herein by
reference to Exhibit (5)(m) of Post-Effective
Amendment No. 10 to Registrant's Registration
Statement on Form N-1A filed on November 10, 1993.
(k) Sub-Advisory Agreement dated February 3, 1992 between
PNC Institutional Management Corporation and
Provident Capital Management, Inc. with respect to
the Small Cap Value Equity Portfolio is incorporated
herein by reference to Exhibit (5)(n) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(l) Investment Advisory Agreement dated March 1, 1993
between Registrant and PNC Institutional Management
Corporation relating to the Short-Term Bond,
Intermediate-Term Bond, Core Equity, Small Cap Growth
Equity and North Carolina Municipal Money Market
Portfolios is incorporated herein by reference to
Exhibit (5)(p) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
filed on November 10, 1993.
(m) Sub-Advisory Agreement dated March 1, 1993 between
PNC Institutional Management Corporation and PNC
Bank, National Association relating to the North
Carolina Municipal Money Market Portfolio is
incorporated herein by reference to Exhibit (5)(r) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(n) Sub-Advisory Agreement dated September 10, 1993
between PNC Institutional Management Corporation and
PNC Bank, National Association relating to the
Municipal Money Market Portfolio is incorporated
herein by reference to Exhibit
-6-
<PAGE> 292
(5)(s) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
filed on November 10, 1993.
(o) Sub-Advisory Agreement dated December 17, 1993
between PNC Institutional Management Corporation and
PNC Bank, National Association with respect to the
Virginia Municipal Money Market Portfolio is
incorporated herein by reference to Exhibit (5)(x) of
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(p) Sub-Advisory Agreement dated December 17, 1993
between PNC Institutional Management Corporation and
Provident Capital Management, Inc. with respect to
the International Fixed Income Portfolio is
incorporated herein by reference to Exhibit (5)(z) of
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(q) Sub-Advisory Agreement dated December 17, 1993
between PNC Institutional Management Corporation and
Provident Capital Management, Inc. with respect to
the International Emerging Markets Portfolio is
incorporated herein by reference to Exhibit (5)(aa)
of Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(r) Investment Advisory Agreement between the Registrant
and PNC Institutional Management Corporation relating
to the New Jersey Municipal Money Market Portfolio is
incorporated herein by reference to Exhibit (5)(r) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(s) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Bank, National
Association with respect to the New Jersey Municipal
Money Market Portfolio is incorporated herein by
reference to Exhibit (5)(s) of Post-Effective
Amendment No. 15 to Registrant's Registration
Statement on Form N-1A filed on May 11, 1995.
(t) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Equity Advisors
Company with respect to the Core Equity Portfolio is
incorporated herein by reference to Exhibit
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<PAGE> 293
(5)(t) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(u) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Equity Advisors
Company with respect to the Growth Equity Portfolio
is incorporated herein by reference to Exhibit (5)(u)
of Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(v) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Equity Advisors
Company with respect to the Small Cap Growth Equity
Portfolio is incorporated herein by reference to
Exhibit (5)(v) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(w) Sub-Advisory Agreement between PNC Institutional
Management Corporation and PNC Equity Advisors
Company with respect to the Index Equity Portfolio is
incorporated herein by reference to Exhibit (5)(w) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(x) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Managed Income
Portfolio is incorporated herein by reference to
Exhibit (5)(x) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(y) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Intermediate
Government Portfolio is incorporated herein by
reference to Exhibit (5)(y) of Post-Effective
Amendment No. 15 to Registrant's Registration
Statement on Form N-1A filed on May 11, 1995.
(z) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Ohio Tax-Free
Income Portfolio is incorporated herein by reference
to Exhibit (5)(z) of Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
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(aa) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Pennsylvania
Tax-Free Income Portfolio is incorporated herein by
reference to Exhibit (5)(aa) of Post-Effective
Amendment No. 15 to Registrant's Registration
Statement on Form N-1A filed on May 11, 1995.
(bb) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Short-Term Bond
Portfolio is incorporated herein by reference to
Exhibit (5)(bb) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(cc) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the
Intermediate-Term Bond Portfolio is incorporated
herein by reference to Exhibit (5)(cc) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(dd) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Government
Income Portfolio is incorporated herein by reference
to Exhibit (5)(dd) of Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(ee) Sub-Advisory Agreement between PNC Institutional
Management Corporation and BlackRock Financial
Management, Inc. with respect to the Tax-Free Income
Portfolio.
(ff) Form of Advisory Agreement between PNC Asset
Management Group, Inc. and Registrant with respect to
all investment portfolios except the PNC Multi-Sector
Mortgage Securities Portfolio III.
(gg) Form of Investment Advisory Agreement between
BlackRock Financial Management, Inc. and Registrant
with respect to the PNC Multi-Sector Mortgage
Securities Portfolio III.
(hh) Form of Sub-Advisory Agreement between PNC Asset
Management Group, Inc., Provident Capital Management
Inc., PNC Equity Advisors Company and
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<PAGE> 295
PNC Institutional Management Corporation and
BlackRock Financial Management, Inc. with respect to
all investment portfolios except the PNC Multi-Sector
Mortgage Securities Portfolio III and PNC
International Fixed Income Portfolio.
(ii) Form of Sub-Advisory Agreement between PNC Asset
Management Group, Inc. and Morgan Grenfell Investment
Series Limited with respect to the PNC International
Fixed Income Portfolio.
(7) (a) Distribution Agreement between Registrant and
Provident Distributors, Inc. dated January 31, 1994
is incorporated herein by reference to Exhibit (6)(a)
of Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on July 8,
1994.
(b) Appendix A to the Distribution Agreement dated
January 31, 1994 between Registrant and Provident
Distributors, Inc is incorporated herein by reference
to Exhibit (6)(b) of Post- Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(c) Amendment No. 2 to the Distribution Agreement between
Registrant and Provident Distributors, Inc. dated
October 18, 1994 is incorporated herein by reference
to Exhibit 6(c) of Post- Effective Amendment No. 14
to Registrant's Registration Statement on Form N-1A
filed on January 18, 1995.
(d) Form of Appendix A to the Distribution Agreement
between Registrant and Provident Distributors, Inc.
(8) Fund Office Retirement Profit Sharing Plan and Related
Adoption Agreement is incorporated herein by reference to
Exhibit (7) of Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11, 1995.
(9) (a) Custodian Agreement dated October 4, 1989 between
Registrant and PNC Bank, National Association is
incorporated herein by reference to Exhibit 8(a) of
Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on December
29, 1989.
(b) Amendment No. 1 to Custodian Agreement between
Registrant and PNC Bank, National Association is
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<PAGE> 296
incorporated herein by reference to Exhibit 8(b) of
Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A filed on December
13, 1991.
(c) Amendment No. 2 dated March 1, 1993 to Custodian
Agreement between Registrant and PNC Bank, National
Association with respect to the Short-Term Bond,
Intermediate-Term Bond, Core Equity, Small Cap Growth
Equity and North Carolina Municipal Money Market
Portfolios is incorporated herein by reference to
Exhibit (8)(c) of Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A
filed on November 10, 1993.
(d) Appendix B to Custodian Agreement dated October 4,
1989 between Registrant and PNC Bank, National
Association is incorporated herein by reference to
Exhibit (8)(d) of Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A
filed on May 11, 1995.
(e) Sub-Custodian Agreement dated April 27, 1992 among
the Registrant, PNC Bank, National Association and
The Chase Manhattan Bank is incorporated herein by
reference to Exhibit (8)(e) of Post-Effective
Amendment No. 10 to Registrant's Registration
Statement on Form N-1A filed on November 10, 1993.
(f) Global Sub-Custody Agreement between Barclays Bank
PLC and PNC Bank, National Association dated October
28, 1992 is incorporated herein by reference to
Exhibit (8)(e) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A
filed on January 18, 1995.
(g) Custodian Agreement between State Street Bank and
Trust Company and PNC Bank, National Association
dated June 13, 1983 is incorporated herein by
reference to Exhibit (8)(f) of Post- Effective
Amendment No. 14 to Registrant's Registration
Statement on Form N-1A filed on January 18, 1995.
(h) Amendment No. 1 to Custodian Agreement between State
Street Bank and Trust Company and PNC Bank dated
November 21, 1989 is incorporated herein by reference
to Exhibit (8)(g) of Post-Effective Amendment No. 14
to Registrant's Registration Statement on Form N-1A
filed on January 18, 1995.
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<PAGE> 297
(i) Letter Agreement between Registrant and PNC Bank,
National Association relating to custodian services
with respect to the Tax-Free Income Portfolio is
incorporated herein by reference to Exhibit 8(d) of
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A filed on December
1, 1992.
(j) Letter Agreement between Registrant and PNC Bank,
National Association relating to custodian services
with respect to the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Value Equity, Index Equity and Small
Cap Value Equity Portfolios is incorporated herein by
reference to Exhibit (8)(e) of Post-Effective
Amendment No. 7 to Registrant's Registration
Statement on Form N-1A filed on December 1, 1992.
(k) Letter Agreement dated March 1, 1993 between
Registrant and PNC Bank, National Association
relating to custodian services with respect to the
North Carolina Municipal Money Market, Short-Term
Bond, Intermediate-Term Bond, Small Cap Growth Equity
and Core Equity Portfolios is incorporated herein by
reference to Exhibit (8)(h) of Post-Effective
Amendment No. 10 to Registrant's Registration
Statement on Form N-1A filed on November 10, 1993.
(l) Form of Appendix B to Custodian Agreement between
Registrant and PNC Bank, National Association.
(10) (a) Amended and Restated Series A Distribution and
Service Plan dated January 21, 1993 and Form of
Series A Distribution and Servicing Agreement is
incorporated herein by reference to Exhibit 15(a) of
Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A filed on January
22, 1993.
(b) Series B Distribution Plan dated September 23, 1994
is incorporated herein by reference to Exhibit
(15)(b) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A
filed on January 18, 1995.
(c) Amended and Restated Distribution and Service Plan
for Service, Institutional, Series A Investor, Series
B Investor, and Series C Investor dated September 29,
1995.
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(d) Series B Distribution Plan dated September 23, 1994
is incorporated herein by reference to Exhibit
(15)(b) of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A
filed on January 18, 1995.
(e) Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class Distribution System.
*(11) Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(12) Opinion of Drinker Biddle & Reath as to tax matters
and consequences (including consent of such firm).
(13) (a) Administration Agreement dated January 18, 1993 among
Registrant, PFPC Inc. and Provident Distributors,
Inc. is incorporated herein by reference to Exhibit
9(a) of Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A
filed on January 22, 1993.
(b) Amendment No. 1 to the Administration Agreement dated
January 18, 1993 among Registrant, PFPC Inc. and
Provident Distributors, Inc. dated September 23, 1994
is incorporated herein by reference to Exhibit (9)(b)
of Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A filed on January
18, 1995.
(c) Appendix A to the Administration Agreement dated
January 18, 1993 among Registrant, PFPC Inc. and
Provident Distributors, Inc is incorporated herein by
reference to Exhibit (9)(c) of Post- Effective
Amendment No. 15 to Registrant's Registration
Statement on Form N-1A filed on May 11, 1995.
(d) Amendment No. 2 to the Administration Agreement dated
January 18, 1993 among Registrant, PFPC Inc. and
Provident Distributors, Inc. is incorporated herein
by reference to Exhibit (9)(d) of Post-Effective
Amendment No. 14 to Registrant's Registration
Statement on Form N-1A filed on January 18, 1995.
(e) Form of Co-Administration Agreement between the
Registrant and PNC Mutual Fund Company.
__________________________________
* Filed with the Securities and Exchange Commission under Rule
24f-2 as part of the Registrant's Rule 24f-2 Notice.
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<PAGE> 299
(f) Transfer Agency Agreement dated October 4, 1989
between Registrant and PFPC Inc. is incorporated by
reference to Exhibit 9(e) of Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A filed on December 29, 1989.
(g) Amendment No. 1 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to the Tax-Free Income Portfolio is
incorporated by reference to Exhibit 9(h) of
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A filed on February
5, 1992.
(h) Amendment No. 2 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to the Pennsylvania Municipal Money Market,
Ohio Municipal Money Market, Intermediate Government,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Value Equity, Index Equity and Small Cap Value Equity
Portfolios is incorporated herein by reference to
Exhibit 9(h) of Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A
filed on December 13, 1991.
(i) Amendment No. 3 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to the Short-Term Bond, Intermediate-Term
Bond, Core Equity, Small Cap Growth Equity and North
Carolina Municipal Money Market Portfolios is
incorporated herein by reference to Exhibit (9)(e) of
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on November
10, 1993.
(j) Amendment No. 4 to Transfer Agency Agreement dated
October 4, 1989 between Registrant and PFPC Inc.
relating to Series B Investor Shares of the Money
Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Value Equity, Growth Equity, Index
Equity, Small Cap Value Equity, Intermediate-Term
Bond, Small Cap Growth Equity, Core Equity,
International Fixed Income, Government Income,
International Emerging Markets, International Equity
and Balanced Portfolios is incorporated herein by
reference to Exhibit (9)(i) of Post-Effective
Amendment No. 14
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<PAGE> 300
to Registrant's Registration Statement on Form N-1A
filed on January 18, 1995.
(k) Appendix C to Transfer Agency Agreement dated October
4, 1989 between Registrant and PFPC Inc. is
incorporated herein by reference to Exhibit (9)(j) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(l) Amended and Restated Service Plan dated January 21,
1993 for Service Shares and Form of Servicing
Agreement for Service Shares is incorporated herein
by reference to Exhibit 9(f) of Post-Effective
Amendment No. 8 to Registrant's Registration
Statement on Form N-1A filed on January 22, 1993.
(m) Series B Service Plan dated September 23, 1994 is
incorporated herein by reference to Exhibit (9)(l) of
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A filed on May 11,
1995.
(n) Trademark License Agreement between Registrant and
PNC Bank Corp. is incorporated by reference to
Exhibit 9(h) of Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
filed on December 29, 1989.
(o) Form of Appendix A to the Administration Agreement
between Registrant and PFPC, Inc.
(p) Form of Appendix C to Transfer Agency Agreement
between Registrant and PFPC, Inc.
(14) (a) Consent of Coopers & Lybrand, L.L.P.
(b) Consent of Deloitte & Touche LLP
(c) Consent of Drinker Biddle & Reath.
(15) Not applicable.
(16) Powers of Attorney for G. Willing Pepper, David R. Wilmerding,
Jr., Edward J. Roach, Robert R. Fortune, Philip E. Coldwell,
Rodney D. Johnson and Anthony M. Santomero.
(17) (a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 of the Registrant.
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<PAGE> 301
(b) Forms of Proxy.
(c) Prospectus dated July 24, 1995 for The PNC(R) Fund
Money Market Portfolio, Municipal Money Market
Portfolio, Government Money Market Portfolio, Ohio
Municipal Money Market Portfolio, Pennsylvania
Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal
Money Market Portfolio, New Jersey Municipal Money
Market Portfolio. (Service Class).
(d) Prospectus dated January 30, 1995 for The PNC(R) Fund
Managed Income Portfolio, Tax-Free Income Portfolio,
Intermediate Government Portfolio, Ohio Tax-Free
Income Portfolio, Pennsylvania Tax- Free Income
Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed
Income Portfolio, Government Income Portfolio as
supplemented April 12, 1995 and August 22, 1995
(Service Class).
(e) Prospectus dated January 30, 1995 for The PNC(R) Fund
Managed Income Portfolio, Tax-Free Income Portfolio,
Intermediate Government Portfolio, Ohio Tax-Free
Income Portfolio, Pennsylvania Tax- Free Income
Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed
Income Portfolio and Government Income Portfolio as
supplemented April 12, 1995 and August 22, 1995
(Institutional Shares).
(f) Prospectus dated January 30, 1995 for The PNC(R) Fund
Value Equity Portfolio, Growth Equity Portfolio,
Small Cap Growth Equity Portfolio, Core Equity
Portfolio, Index Equity Portfolio, Small Cap Value
Equity Portfolio, International Equity Portfolio,
International Emerging Markets Portfolio and Balanced
Portfolio as supplemented April 12, 1995 and July 31,
1995. (Service Class).
(g) Statement of Additional Information dated July 24,
1995 for The PNC(R) Fund Money Market Portfolio,
Municipal Money Market Portfolio, Government Money
Market Portfolio, Ohio Municipal Money Market
Portfolio, Pennsylvania Municipal Money Market
Portfolio, North Carolina Municipal Money Market
Portfolio, Virginia Municipal Money Market Portfolio,
New Jersey Municipal Money Market Portfolio, Value
Equity Portfolio, Growth Equity Portfolio, Index
Equity Portfolio, Small
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Cap Value Equity Portfolio, International Equity
Portfolio, International Emerging Markets Portfolio,
Balanced Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Managed Income
Portfolio, Tax-Free Income Portfolio, Intermediate
Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term
Bond Portfolio, Intermediate-Term Bond Portfolio,
Government Income Portfolio and International Fixed
Income Portfolio.
(h) Prospectus dated July 1, 1995 for the Compass
Municipal Money Fund, New Jersey Municipal Money Fund
and Pennsylvania Municipal Money Fund.
(i) Prospectus dated July 1, 1995 for the Compass Cash
Reserve Fund and U.S. Treasury Fund.
(j) Prospectus dated July 1, 1995 for the Compass
Municipal Bond Fund, New Jersey Municipal Bond Fund
and Pennsylvania Municipal Bond Fund.
(k) Prospectus dated July 1, 1995 for the Compass
Short/Intermediate Fund, Fixed Income Fund and
International Fixed Income Fund.
(l) Prospectus dated July 1, 1995 for the Compass Equity
Income Fund, Growth Fund, Small Company Fund,
International Equity Fund and Balanced Fund.
(m) Statement of Additional Information dated July 1,
1995 for the Compass Municipal Money Fund, New Jersey
Municipal Money Fund, Pennsylvania Municipal Money
Fund, Cash Reserve Fund, U.S. Treasury Fund,
Municipal Bond Fund, New Jersey Municipal Bond Fund,
Pennsylvania Municipal Bond Fund, Short/Intermediate
Fund, Fixed Income Fund, International Fixed Income
Fund, Equity Income Fund, Growth Fund, Small Company
Fund, International Equity Fund and Balanced Fund.
(n) Prospectus dated April 3, 1995 for The BFM
Institutional Trust Short Duration Portfolio,
Intermediate Duration Portfolio, Core Fixed Income
Portfolio, Mortgage Portfolio, Government Portfolio,
Long Duration Portfolio, Global Fixed Income
Portfolio and Money Market Portfolio as supplemented
July 10, 1995.
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(o) Statement of Additional Information dated April 3,
1995 for The BFM Institutional Trust Short Duration
Portfolio, Intermediate Duration Portfolio, Core
Fixed Income Portfolio, Mortgage Portfolio,
Government Portfolio, Long Duration Portfolio, Global
Fixed Income Portfolio and Money Market Portfolio.
(p) Prospectus dated April 3, 1995 for The BFM
Institutional Trust Investment Grade Multi-Sector
Mortgage Securities Portfolio, the Multi-Sector
Mortgage Securities Portfolio II, and the
Multi-Sector Mortgage Securities Portfolios III-VIII.
(q) Statement of Additional Information dated April 3,
1995 for The BFM Institutional Trust Investment Grade
Multi-Sector Securities Portfolio, the Multi-Sector
Mortgage Securities Portfolio II and the Multi-Sector
Mortgage Securities Portfolios III-VIII.
(r) Semi-Annual Report to Shareholders for The PNC(R)
Fund Money Market Portfolio, Municipal Money Market
Portfolio, Government Money Market Portfolio, Ohio
Municipal Money Market Portfolio, Pennsylvania
Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio and Virginia
Municipal Money Market Portfolio, dated March 31,
1995.
(s) Semi-Annual Report to Shareholders for The PNC(R)
Fund Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio
Tax-Free Income Portfolio, Pennsylvania Tax-Free
Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio and Government
Income Portfolio, dated March 31, 1995.
(t) Semi-Annual Report to Shareholders for The PNC(R)
Fund Value Equity Portfolio, Growth Equity Portfolio,
Small Cap Growth Equity Portfolio, Core Equity
Portfolio, Index Equity Portfolio, Small Cap Value
Equity Portfolio, International Equity Portfolio,
International Emerging Markets Portfolio and Balanced
Portfolio, dated March 31, 1995.
(u) Annual Report to Shareholders for the Compass
Municipal Money Fund, New Jersey Municipal Money
Fund, Pennsylvania Municipal Money Fund, Cash Reserve
Fund, U.S. Treasury Fund, Municipal Bond Fund, New
Jersey Municipal Bond Fund,
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Pennsylvania Municipal Bond Fund, Short/Intermediate
Fund, Fixed Income Fund, International Fixed Income
Fund, Equity Income Fund, Growth Fund, Small Company
Fund, International Equity Fund and Balanced Fund,
dated February 28, 1995.
(v) Semi-Annual Report to Shareholders for the Compass
Capital Group of Funds dated August 31, 1995.
(w) Annual Report to Shareholders for The BFM
Institutional Trust Inc. dated June 30, 1995.
(x) Annual Report to Shareholders for The PNC(R) Fund
Money Market Portfolio, Municipal Money Market
Portfolio, Government Money Market Portfolio, Ohio
Municipal Money Market Portfolio, Pennsylvania
Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio and Virginia
Municipal Money Market Portfolio, dated September 30,
1994.
(y) Annual Report to Shareholders for The PNC(R) Fund
Managed Income Portfolio, Tax-Free Income Portfolio,
Intermediate Government Portfolio, Ohio Tax-Free
Income Portfolio, Pennsylvania Tax- Free Income
Portfolio, Short-Term Bond Portfolio and
Intermediate-Term Bond Portfolio, dated September 30,
1994.
(z) Annual Report to Shareholders for The PNC(R) Fund
Value Equity Portfolio, Growth Equity Portfolio,
Small Cap Growth Equity Portfolio, Core Equity
Portfolio, Index Equity Portfolio, Small Cap Value
Equity Portfolio, International Equity Portfolio,
International Emerging Markets Portfolio and Balanced
Portfolio, dated September 30, 1994.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, as
amended (the "1933 Act"), the reoffering prospectus will
contain the information called for by the applicable
registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed
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as a part of an amendment to the registration statement and
will not be used until the amendment is effective, and
that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
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SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Philadelphia and
Commonwealth of Pennsylvania, on this 10th day of October, 1995.
THE PNC(R) FUND
Registrant
By: /s/ G. Willing Pepper
G. Willing Pepper, Chairman of
the Board and President
(Principal Executive Officer)
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the
/s/ G. Willing Pepper Board and President October 10, 1995
(G. Willing Pepper) (Principal Executive
Officer)
*David R. Wilmerding, Jr. Vice-Chairman of October 10, 1995
(David R. Wilmerding, Jr.) the Board
Vice-President
and Treasurer
(Principal
Financial and
/s/ Edward J. Roach Accounting Officer) October 10, 1995
(Edward J. Roach)
*Robert R. Fortune Trustee October 10, 1995
(Robert R. Fortune)
*Philip E. Coldwell Trustee October 10, 1995
(Philip E. Coldwell)
*Rodney D. Johnson Trustee October 10, 1995
(Rodney D. Johnson)
*Anthony M. Santomero Trustee October 10, 1995
(Anthony M. Santomero)
*By:/s/ Edward J. Roach
Edward J. Roach, Attorney-in-Fact
</TABLE>
<PAGE> 307
FORM N-14
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
(4) Asset Purchase Agreements filed herewith as Appendices I and II to the
Combined Proxy Statement/Prospectus.
(5) (e) Form of Share Certificates for shares of beneficial interest in Class AA-1,
Class AA-2 and Class AA-3, Class BB-1, Class BB-2 and Class BB-3 and Class CC-
1, Class CC-2 and Class CC-3.
(6) (ee) Sub-Advisory Agreement between PNC Institutional Management Corporation and
BlackRock Financial Management, Inc. with respect to the Tax-Free Income
Portfolio.
(ff) Form of Advisory Agreement between PNC Asset Management Group, Inc. and
Registrant with respect to all investment portfolios except the PNC Multi-
Sector Mortgage Securities Portfolio III.
(gg) Form of Investment Advisory Agreement between BlackRock Financial Management,
Inc. and Registrant with respect to the PNC Multi-Sector Mortgage Securities
Portfolio III.
(hh) Form of Sub-Advisory Agreement between PNC Asset Management Group, Inc.,
Provident Capital Management Inc., PNC Equity Advisors Company and PNC
Institutional Management Corporation and BlackRock Financial Management, Inc.
with respect to all investment portfolios except the PNC Multi-Sector Mortgage
Securities Portfolio III and PNC International Fixed Income Portfolio.
(ii) Form of Sub-Advisory Agreement between PNC Asset Management Group, Inc. and
Morgan Grenfell Investment Series Limited with respect to the PNC
International Fixed Income Portfolio.
(7) (d) Form of Appendix A to the Distribution Agreement between Registrant and
Provident Distributors, Inc.
(9) (l) Form of Appendix B to Custodian Agreement between Registrant and PNC Bank,
National Association.
</TABLE>
<PAGE> 308
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
(10) (c) Amended and Restated Distribution and Service Plan for Service, Institutional,
Series A Investor, Series B Investor, and Series C Investor dated September
29, 1995.
(e) Plan Pursuant to Rule 18f-3 for Operation of a Mutli-Class Distribution
System.
(12) Opinion of Drinker Biddle & Reath as to tax matters and consequences
(including consent of such firm).
(13) (e) Form of Co-Administration Agreement between the Registrant and PNC Mutual Fund
Company.
(o) Form of Appendix A to the Administration Agreement between Registrant and
PFPC, Inc.
(p) Form of Appendix C to Transfer Agency Agreement between Registrant and PFPC,
Inc.
(14) (a) Consent of Coopers & Lybrand, L.L.P.
(b) Consent of Deloitte & Touche LLP
(c) Consent of Drinker Biddle & Reath.
(16) Powers of Attorney for G. Willing Pepper, David R. Wilmerding, Jr., Edward J.
Roach, Robert R. Fortune, Philip E. Coldwell, Rodney D. Johnson and Anthony M.
Santomero.
(17) (a) Declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 of
the Registrant.
(b) Forms of Proxy.
(c) Prospectus dated July 24, 1995 for The PNC(R) Fund Money Market Portfolio,
Municipal Money Market Portfolio, Government Money Market Portfolio, Ohio
Municipal Money Market Portfolio, Pennsylvania Municipal Money Market
Portfolio, North Carolina Municipal Money Market Portfolio, Virginia Municipal
Money Market Portfolio, New Jersey Municipal Money Market Portfolio. (Service
Class).
(d) Prospectus dated January 30, 1995 for The PNC(R) Fund Managed Income
Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio, Ohio
Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio, Short-Term
Bond Portfolio, Intermediate-Term Bond Portfolio, International Fixed Income
Portfolio, Government Income Portfolio as supplemented April 12, 1995 and
August 22, 1995 (Service Class).
</TABLE>
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<PAGE> 309
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C>
(e) Prospectus dated January 30, 1995 for The PNC(R) Fund Managed Income
Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio, Ohio
Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio, Short-Term
Bond Portfolio, Intermediate-Term Bond Portfolio, International Fixed Income
Portfolio and Government Income Portfolio as supplemented April 12, 1995 and
August 22, 1995 (Institutional Shares).
(f) Prospectus dated January 30, 1995 for The PNC(R) Fund Value Equity Portfolio,
Growth Equity Portfolio, Small Cap Growth Equity Portfolio, Core Equity
Portfolio, Index Equity Portfolio, Small Cap Value Equity Portfolio,
International Equity Portfolio, International Emerging Markets Portfolio and
Balanced Portfolio as supplemented April 12, 1995 and July 31, 1995. (Service
Class).
(g) Statement of Additional Information dated July 24, 1995 for The PNC(R) Fund
Money Market Portfolio, Municipal Money Market Portfolio, Government Money
Market Portfolio, Ohio Municipal Money Market Portfolio, Pennsylvania
Municipal Money Market Portfolio, North Carolina Municipal Money Market
Portfolio, Virginia Municipal Money Market Portfolio, New Jersey Municipal
Money Market Portfolio, Value Equity Portfolio, Growth Equity Portfolio, Index
Equity Portfolio, Small Cap Value Equity Portfolio, International Equity
Portfolio, International Emerging Markets Portfolio, Balanced Portfolio, Small
Cap Growth Equity Portfolio, Core Equity Portfolio, Managed Income Portfolio,
Tax-Free Income Portfolio, Intermediate Government Portfolio, Ohio Tax-Free
Income Portfolio, Pennsylvania Tax-Free Income Portfolio, Short-Term Bond
Portfolio, Intermediate-Term Bond Portfolio, Government Income Portfolio and
International Fixed Income Portfolio.
(h) Prospectus dated July 1, 1995 for the Compass Municipal Money Fund, New Jersey
Municipal Money Fund and Pennsylvania Municipal Money Fund.
(i) Prospectus dated July 1, 1995 for the Compass Cash Reserve Fund and U.S.
Treasury Fund.
</TABLE>
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<PAGE> 310
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C>
(j) Prospectus dated July 1, 1995 for the Compass Municipal Bond Fund, New Jersey
Municipal Bond Fund and Pennsylvania Municipal Bond Fund.
(k) Prospectus dated July 1, 1995 for the Compass Short/Intermediate Fund, Fixed
Income Fund and International Fixed Income Fund.
(l) Prospectus dated July 1, 1995 for the Compass Equity Income Fund, Growth Fund,
Small Company Fund, International Equity Fund and Balanced Fund.
(m) Statement of Additional Information dated July 1, 1995 for the Compass
Municipal Money Fund, New Jersey Municipal Money Fund, Pennsylvania Municipal
Money Fund, Cash Reserve Fund, U.S. Treasury Fund, Municipal Bond Fund, New
Jersey Municipal Bond Fund, Pennsylvania Municipal Bond Fund,
Short/Intermediate Fund, Fixed Income Fund, International Fixed Income Fund,
Equity Income Fund, Growth Fund, Small Company Fund, International Equity Fund
and Balanced Fund.
(n) Prospectus dated April 3, 1995 for The BFM Institutional Trust Short Duration
Portfolio, Intermediate Duration Portfolio, Core Fixed Income Portfolio,
Mortgage Portfolio, Government Portfolio, Long Duration Portfolio, Global
Fixed Income Portfolio and Money Market Portfolio as supplemented July 10,
1995.
(o) Statement of Additional Information dated April 3, 1995 for The BFM
Institutional Trust Short Duration Portfolio, Intermediate Duration Portfolio,
Core Fixed Income Portfolio, Mortgage Portfolio, Government Portfolio, Long
Duration Portfolio, Global Fixed Income Portfolio and Money Market Portfolio.
(p) Prospectus dated April 3, 1995 for The BFM Institutional Trust Investment
Grade Multi-Sector Mortgage Securities Portfolio, the Multi-Sector Mortgage
Securities Portfolio II, and the Multi-Sector Mortgage Securities Portfolios
III-VIII.
</TABLE>
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<PAGE> 311
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C>
(q) Statement of Additional Information dated April 3, 1995 for The BFM
Institutional Trust Investment Grade Multi-Sector Securities Portfolio, the
Multi-Sector Mortgage Securities Portfolio II and the Multi-Sector Mortgage
Securities Portfolios III-VIII.
(r) Semi-Annual Report to Shareholders for The PNC(R) Fund Money Market Portfolio,
Municipal Money Market Portfolio, Government Money Market Portfolio, Ohio
Municipal Money Market Portfolio, Pennsylvania Municipal Money Market
Portfolio, North Carolina Municipal Money Market Portfolio and Virginia
Municipal Money Market Portfolio, dated March 31, 1995.
(s) Semi-Annual Report to Shareholders for The PNC(R) Fund Managed Income
Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio, Ohio
Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio, Short-Term
Bond Portfolio, Intermediate-Term Bond Portfolio and Government Income
Portfolio, dated March 31, 1995.
(t) Semi-Annual Report to Shareholders for The PNC(R) Fund Value Equity Portfolio,
Growth Equity Portfolio, Small Cap Growth Equity Portfolio, Core Equity
Portfolio, Index Equity Portfolio, Small Cap Value Equity Portfolio,
International Equity Portfolio, International Emerging Markets Portfolio and
Balanced Portfolio, dated March 31, 1995.
(u) Annual Report to Shareholders for the Compass Municipal Money Fund, New Jersey
Municipal Money Fund, Pennsylvania Municipal Money Fund, Cash Reserve Fund,
U.S. Treasury Fund, Municipal Bond Fund, New Jersey Municipal Bond Fund,
Pennsylvania Municipal Bond Fund, Short/Intermediate Fund, Fixed Income Fund,
International Fixed Income Fund, Equity Income Fund, Growth Fund, Small
Company Fund, International Equity Fund and Balanced Fund, dated February 28,
1995.
(v) Semi-Annual Report to Shareholders for the Compass Capital Group of Funds,
dated August 31, 1995.
(w) Annual Report to Shareholders for The BFM Institutional Trust Inc. dated June
30, 1995.
</TABLE>
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<PAGE> 312
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C>
(x) Annual Report to Shareholders for The PNC(R) Fund Money Market Portfolio,
Municipal Money Market Portfolio, Government Money Market Portfolio, Ohio
Municipal Money Market Portfolio, Pennsylvania Municipal Money Market
Portfolio, North Carolina Municipal Money Market Portfolio and Virginia
Municipal Money Market Portfolio, dated September 30, 1994.
(y) Annual Report to Shareholders for The PNC(R) Fund Managed Income Portfolio,
Tax-Free Income Portfolio, Intermediate Government Portfolio, Ohio Tax-Free
Income Portfolio, Pennsylvania Tax-Free Income Portfolio, Short-Term Bond
Portfolio and Intermediate-Term Bond Portfolio, dated September 30, 1994.
(z) Annual Report to Shareholders for The PNC(R) Fund Value Equity Portfolio,
Growth Equity Portfolio, Small Cap Growth Equity Portfolio, Core Equity
Portfolio, Index Equity Portfolio, Small Cap Value Equity Portfolio,
International Equity Portfolio, International Emerging Markets Portfolio and
Balanced Portfolio, dated September 30, 1994.
</TABLE>
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<PAGE> 1
EXHIBIT (6)(ee)
SUB-ADVISORY AGREEMENT
(Tax-Free Income Portfolio)
AGREEMENT dated as of July 1, 1995 between PNC Institutional
Management Corporation, a Delaware corporation ("Advisor"), and BlackRock
Financial Management, Inc., a Delaware corporation ("Sub-Advisor").
WHEREAS, Advisor has agreed to furnish investment advisory
services to the Tax-Free Income Portfolio (the "Portfolio") of The PNC(R) Fund
(the "Fund"), an open-end, management investment company registered under the
Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, Advisor wishes to retain the Sub-Advisor to provide
it with investment research and statistical services in connection with
Advisor's advisory activities on behalf of the Portfolio;
WHEREAS, the advisory agreement between Advisor and the Fund
dated as of October 4, 1989 (such Agreement or the most recent successor
agreement between such parties relating to advisory services to the Portfolio
is referred to herein as the "Advisory Agreement") specifically provides that
Advisor will sub-contract investment advisory services with respect to the
Portfolio to Sub-Advisor pursuant to a sub-advisory agreement agreeable to the
Fund and approved in accordance with the provisions of the 1940 Act;
WHEREAS, the Board of Trustees of the Fund and the Fund's
shareholders have approved this Agreement, and Sub-Advisor is willing to
furnish such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Advisor hereby appoints Sub-Advisor to
act as sub-advisor with respect to the Portfolio as provided in Section 2 of
the Advisory Agreement. Sub-Advisor accepts such appointment and agrees to
render the services herein set forth for the compensation herein provided.
2. Services of Sub-Advisor. Subject to the oversight
and supervision of Advisor and the Fund's Board of Trustees, Sub-Advisor will
supervise the day-to-day operations of the Portfolio and perform the following
services: (i) provide investment research and credit analysis concerning the
Portfolio's investments, (ii) conduct a continual program of investment of
<PAGE> 2
the Portfolio's assets, (iii) determine what portion of the Portfolio's assets
will be invested in cash, cash equivalents and money market instruments, (iv)
place orders for all purchases and sales of the investments made for the
Portfolio, and (v) maintain the books and records as are required to support
Fund operations (in conjunction with record-keeping and accounting functions
performed by Advisor). In addition, Sub-Advisor will keep the Fund and Advisor
informed of developments materially affecting the Fund and shall, on its own
initiative, furnish to the Fund from time to time whatever information
Sub-Advisor believes appropriate for this purpose. Sub-Advisor will
communicate to Advisor on each day that a purchase or sale of an instrument is
effected for the Portfolio (i) the name of the issuer, (ii) the amount of the
purchase or sale, (iii) the name of the broker or dealer, if any, through which
the purchase or sale will be effected, (iv) the CUSIP number of the instrument,
if any, and (v) such other information as Advisor may reasonably require for
purposes of fulfilling its obligations to the Fund under the Advisory
Agreement. Sub-Advisor will provide the services rendered by it under this
Agreement in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Portfolio's Prospectus and Statement of
Additional Information (as currently in effect and as they may be amended or
supplemented from time to time), and the resolutions of the Fund's Board of
Trustees.
3. Other Sub-Advisor Covenants. Sub-Advisor further
agrees that it:
(a) will comply with all applicable Rules and
Regulations of the Securities and Exchange Commission (the "SEC") and will in
addition conduct its activities under this Agreement in accordance with other
applicable law;
(b) will place orders either directly with the
issuer or with any broker or dealer. Subject to the other provisions of this
paragraph, in placing orders with brokers and dealers, Sub-Advisor will attempt
to obtain the best price and the most favorable execution of its orders. In
placing orders, Sub-Advisor will consider the experience and skill of the
firm's securities traders as well as the firm's financial responsibility and
administrative efficiency. Consistent with this obligation, Sub-Advisor may,
subject to the approval of the Fund's Board of Trustees, select brokers on the
basis of the research, statistical and pricing services they provide to the
Portfolio and other clients of Advisor or Sub-Advisor. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by Sub-Advisor hereunder. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that
Sub-Advisor determines in good faith that such commission is
-2-
<PAGE> 3
reasonable in terms either of the transaction or the overall responsibility of
Advisor and Sub-Advisor to the Portfolio and their other clients and that the
total commissions paid by the Portfolio will be reasonable in relation to the
benefits to the Portfolio over the long-term. In addition, Sub-Advisor is
authorized to take into account the sale of shares of the Fund in allocating
purchase and sale orders for portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with Advisor, Sub-Advisor or
the Fund's distributor), provided that Sub-Advisor believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will the Portfolio's
securities be purchased from or sold to the Advisor, Sub-Advisor, the Fund's
distributor or any affiliated person thereof, except to the extent permitted by
the SEC or by applicable law;
(c) will maintain or cause Advisor to maintain
books and records with respect to the Portfolio's securities transactions and
will render to Advisor and the Fund's Board of Trustees such periodic and
special reports as they may request;
(d) will maintain a policy and practice of
conducting its investment advisory services hereunder independently of the
commercial banking operations of its affiliates. When Sub-Advisor makes
investment recommendations for the Portfolio, its investment advisory personnel
will not inquire or take into consideration whether the issuer of securities
proposed for purchase or sale for the Portfolio's account are customers of the
commercial department of its affiliates; and
(e) will treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund,
the Portfolio and the Fund's prior, current or potential shareholders, and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where Sub-Advisor may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Fund.
4. Services Not Exclusive. Sub-Advisor's services
hereunder are not deemed to be exclusive, and Sub-Advisor shall be free to
render similar services to others so long as its services under this Agreement
are not impaired thereby.
-3-
<PAGE> 4
5. Books and Records. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, Sub-Advisor hereby agrees that
all records which it maintains for the Portfolio are the property of the Fund
and further agrees to surrender promptly to the Fund any such records upon the
Fund's request. Sub-Advisor further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement,
Sub-Advisor will pay all expenses incurred by it in connection with its
activities under this Agreement other than the cost of securities, commodities,
and other investments (including brokerage commissions and other transaction
charges, if any) purchased or sold for the Portfolio.
7. Compensation. For the services which the Sub-Advisor
will render to Advisor under this Agreement, Advisor will pay to Sub-Advisor a
fee, computed daily and payable monthly, at the following annual rates for the
Portfolio: .35% of its first $1 billion of average daily net assets; .30% of
its next $1 billion of average daily net assets; .275% of its next $1 billion
of average daily net assets; and .25% of its average daily net assets in excess
of $3 billion.
If the Advisor waives any or all of its advisory fee payable
under the Advisory Agreement, or reimburses the Fund pursuant to Section 8(b)
of that Agreement, with respect to the Portfolio, the Sub-Advisor will bear its
share of the amount of such waiver or reimbursement by waiving fees otherwise
payable to it hereunder on a proportionate basis to be determined by comparing
the aggregate fees otherwise payable to it hereunder with respect to the
Portfolio to the aggregate fees otherwise payable by the Fund to the Advisor
under the Advisory Agreement with respect to the Portfolio. Advisor shall
inform Sub-Advisor prior to waiving any advisory fees.
8. Limitation on Liability. Sub-Advisor will not be
liable for any error of judgment or mistake of law or for any loss suffered by
Advisor or by the Portfolio in connection with the performance of this
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations or duties under
this Agreement.
9. Duration and Termination. This Agreement will become
effective as of the date hereof and, unless sooner terminated with respect to
the Portfolio as provided herein, shall continue in effect with respect to the
Portfolio until March 31, 1996. Thereafter, if not terminated, this Agreement
-4-
<PAGE> 5
shall continue in effect with respect to the Portfolio for successive annual
periods ending on March 31, provided such continuance is specifically approved
at least annually (a) by the vote of a majority of those members of the Fund's
Board of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Fund's Board of Trustees or by a vote of a majority of
the outstanding voting securities of the Portfolio. Notwithstanding the
foregoing, this Agreement may be terminated with respect to the Portfolio at
any time, without the payment of any penalty, by the Fund (by vote of the
Fund's Board of Trustees or by vote of a majority of the outstanding voting
securities of the Portfolio), or by Advisor or Sub-Advisor, on 60 days' written
notice and will terminate automatically upon any termination of the Advisory
Agreement between the Fund and Advisor. This Agreement will also immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested person" and
"assignment" shall have the same meanings of such terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. Any amendment of this
Agreement shall be subject to the 1940 Act.
11. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding on, and shall inure to
the benefit of the parties hereto and their respective successors and shall be
governed by Delaware law.
12. Counterparts. This Agreement may be executed in
counterparts by the parties hereto, each of which shall constitute an original
counterpart, and all of which, together, shall constitute one Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PNC INSTITUTIONAL
MANAGEMENT CORPORATION
By:
-----------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
By:
------------------------------
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<PAGE> 1
EXHIBIT (6)(ff)
[FORM]
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of _____________, 1995 between THE PNC(R)
FUND, a Massachusetts business trust (the "Fund"), and PNC ASSET MANAGEMENT
GROUP, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Fund desires to retain Adviser to furnish
investment advisory services to the Fund and the Adviser is willing to so
furnish such services;
NOW THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
a. The Fund hereby appoints Adviser to act as
investment adviser to the Fund's Money Market Portfolio; Government Money
Market Portfolio; Municipal Money Market Portfolio; Pennsylvania Municipal
Money Market Portfolio; North Carolina Municipal Money Market Portfolio;
Virgina Municipal Money Market Portfolio; Ohio Municipal Money Market
Portfolio; New Jersey Municipal Money Market Portfolio; Tax-Free Income
Portfolio; Managed Income Portfolio; Intermediate Government Portfolio;
Intermediate-Term Bond Portfolio; Short-Term Bond Portfolio; Government Income
Portfolio; Pennsylvania Tax-Free Income Portfolio; Ohio Tax-Free Income
Portfolio; New Jersey Tax-Free Income Portfolio; Core Fixed Income Portfolio;
International Fixed Income Portfolio; Balanced Portfolio; International Equity
Portfolio; International Emerging Markets Portfolio; Core Equity Portfolio;
Growth Equity Portfolio; Small Cap Growth Equity Portfolio; Value Equity
Portfolio; and Small Cap Value Equity Portfolio (the "Portfolios") for the
period and on the terms set forth in this Agreement. Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
b. In the event that the Fund establishes one or
more portfolios other than the Portfolios with respect to which it desires to
retain Adviser to act as investment adviser hereunder, the Fund shall notify
Adviser in writing. If Adviser is willing to render such services under this
Agreement it shall notify the Fund in writing whereupon, subject to such
shareholder approval as may be required pursuant to Paragraph 10 hereof, such
portfolio shall become a Portfolio hereunder and shall be subject
1
<PAGE> 2
to the provisions of this Agreement to the same extent as the Portfolios named
above in subparagraph (a) except to the extent that said provisions (including
those relating to the compensation payable by the Fund to Adviser) are modified
with respect to such portfolio in writing by the Fund and Adviser at the time.
2. Sub-Contractors. It is understood that Adviser will
from time to time employ or associate with such person or persons as Adviser
may believe to be particularly fitted to assist it in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by Adviser and that Adviser shall be as fully responsible to the
Fund for the acts and omissions of any subcontractor as it is for its own acts
and omissions. Such person or persons shall be employed pursuant to
sub-advisory agreements agreeable to the Fund and approved in accordance with
the provisions of the 1940 Act.
3. Delivery of Documents. The Fund has furnished
Adviser with copies, properly certified or authenticated, of each of the
following:
a. Resolutions of the Fund's Board of Trustees
authorizing the appointment of Adviser as the Portfolio's
adviser and approving this Agreement;
b. The Fund's Declaration of Trust as filed with
the State Secretary of the Commonwealth of Massachusetts and
the Boston City Clerk on December 22, 1988;
c. The Fund's Code of Regulations;
d. The Fund's Notification of Registration on
Form N-8A under the 1940 Act as filed with the Securities and
Exchange Commission ("SEC") on December 23, 1988;
e. The Fund's Registration Statement on Form
N-1A under the Securities Act of 1933 and the 1940 Act, as
filed with the SEC on December 23, 1988, and all amendments
thereto (the "Registration Statement"); and
f. The Fund's most recent prospectuses for the
Portfolios (such prospectuses together with the related
statements of additional information, as currently in effect
and all amendments and supplements thereto, are herein called
"Prospectuses").
2
<PAGE> 3
The Fund will furnish Adviser from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
4. Services. Subject to the supervision of the Fund's
Board of Trustees, Adviser will (either directly or through the sub-advisers
and other sub-contractors employed by it in accordance with Section 2 hereof)
provide a continuous investment program for the Portfolio, including investment
research and management with respect to all securities, investments, cash and
cash equivalents in the Portfolios. Adviser will (either directly or through
the sub-advisers and other sub-contractors employed by it in accordance with
Paragraph 2 hereof) determine from time to time what securities and other
investments will be purchased, retained or sold by the Portfolios and will
place the daily orders for the purchase or sale of securities. Adviser will
provide the services rendered by it under this Agreement in accordance with
each Portfolio's investment objective, policies and restrictions as stated in
such Portfolio's Prospectus (as currently in effect and as it may be amended or
supplemented from time to time) and the resolutions of the Fund's Board of
Trustees. Adviser further agrees that it:
a. will comply with all applicable rules and
regulations of the SEC and will in addition conduct its
activities under this Agreement in accordance with other
applicable law;
b. will place orders either directly with the
issuer or with any broker or dealer. Subject to the other
provisions of this paragraph, in placing orders with brokers
and dealers, Adviser will attempt to obtain the best price and
the most favorable execution of its orders. In placing
orders, Adviser will consider the experience and skill of the
firm's securities traders as well as the firm's financial
responsibility and administrative efficiency. Consistent with
this obligation, Adviser may, subject to the approval of the
Fund's Board of Trustees, select brokers on the basis of the
research, statistical and pricing services they provide to a
Portfolio and other clients of Adviser or a sub-adviser.
Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be
performed by Adviser hereunder. A commission paid to such
brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction,
provided that Adviser determines in good faith that such
commission is reasonable in terms of either the transaction or
the overall responsibility of Adviser and sub-advisers to the
Portfolios and their other clients and that the total
commissions paid by a
3
<PAGE> 4
Portfolio will be reasonable in relation to the benefits to
the Portfolio over the long-term. In addition, Adviser is
authorized to take into account the sale of shares of the Fund
in allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers and
dealers that are affiliated with Adviser, the sub-advisers or
the Fund's distributor) in compliance with applicable law. In
no instance, however, will a Portfolio's securities be
purchased from or sold to Adviser, the sub-advisers, the
Fund's distributor or any affiliated person thereof, except to
the extent permitted by the SEC or by applicable law;
c. will maintain books and records with respect
to each Portfolio's securities transactions and will furnish
the Fund's Board of Trustees such periodic and special reports
as the Board may request;
d. will maintain a policy and practice of
conducting its investment advisory services hereunder
independently of the commercial banking operations of its
affiliates. When Adviser makes investment recommendations for
a Portfolio, its investment advisory personnel will not
inquire or take into consideration whether the issuer of
securities proposed for purchase or sale for the Portfolio's
account are customers of the commercial departments of its
affiliates. In dealing with commercial customers, Adviser and
the sub-advisers will not inquire or take into consideration
whether securities of those customers are held by the Fund;
and
e. will treat confidentially and as proprietary
information of the Fund all records and other information
relative to the Fund, any of the Portfolio's and the Fund's
prior, current or potential shareholders, and will not use
such records and information for any purpose other than
performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld
and may not be withheld where Adviser may be exposed to civil
or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Fund.
5. Services Not Exclusive. Adviser's services hereunder
are not deemed to be exclusive, and Adviser shall be free to render similar
services to others so long as its services under this Agreement are not
impaired thereby.
4
<PAGE> 5
6. Books and Records. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, Adviser hereby agrees that all
records which it maintains for each Portfolio are the property of the Fund and
further agrees to surrender promptly to the Fund any of such records upon the
Fund's request. Adviser further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities, commodities and other
investments (including brokerage commissions and other transaction charges, if
any) purchased or sold for the Portfolios.
8. Compensation.
a. For the services provided and the expenses
assumed pursuant to this Agreement, the Fund will pay Adviser and Adviser will
accept as full compensation therefor a fee, computed daily and paid monthly, at
the following annual rates: for the Money Market, Municipal Money Market,
Government Money Market, Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market, Virginia Municipal Money
Market and New Jersey Municipal Money Market Portfolios: .45% of the first $1
billion of each Portfolio's average daily net assets, .40% of the next $1
billion of each Portfolio's average daily net assets, .375% of the next $1
billion of each Portfolio's average daily net assets and .35% of the average
daily net assets of the Portfolio in excess of $3 billion; for the Value
Equity, Growth Equity, Small Cap Value Equity, Balanced, Small Cap Growth
Equity, Core Equity and International Fixed Income Portfolios: .55% of the
first $1 billion of each Portfolio's average daily net assets, .50% of the next
$1 billion of each Portfolio's average daily net assets, .475% of the next $1
billion of each Portfolio's average daily net assets and .45% of the average
daily net assets of the Portfolio in excess of $3 billion; for the Core Fixed
Income, Managed Income, Tax-Free Income, Intermediate Government, New Jersey
Tax-Free Income, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond and Government Income Portfolios: .50% of the
first $1 billion of each Portfolio's average daily net assets, .45% of the next
$1 billion of each Portfolio's average daily net assets, .425% of the next $1
billion of each Portfolio's average daily net assets and .40% of the average
daily net assets of the Portfolio in excess of $3 billion; for the
International Equity Portfolio: .75% of the first $1 billion of the Portfolio's
average daily net assets, .70% of the next $1 billion of the Portfolio's
average daily net assets, .675% of the next $1 billion of the Portfolio's
average daily net assets and .65% of the average daily net assets of the
Portfolio in excess
5
<PAGE> 6
of $3 billion; and for the International Emerging Markets Portfolio: 1.25% of
the first $1 billion of the Portfolio's average daily net assets, 1.20% of the
next $1 billion of the Portfolio's average daily net assets, 1.155% of the next
$1 billion of the Portfolio's average daily net assets and 1.10% of the average
daily net assets of the Portfolio in excess of $3 billion. Such fee as is
attributable to each Portfolio shall be a separate charge to such Portfolio and
shall be the several (and not joint or joint and several) obligation of such
Portfolio.
b. If in any fiscal year the aggregate expenses
of the Portfolios (as defined under the securities regulations of any state
having jurisdiction over the Fund) exceeds the expense limitations of any such
state, Adviser will bear its share of the amount of such excess in proportion
to the aggregate fees otherwise payable to it hereunder and to the Fund's
co-administrators under their administration agreements with the Fund. The
obligation of the Adviser to reimburse the Fund under this Paragraph 8(b) is
limited in any fiscal year to the amount of its fees otherwise payable
hereunder attributable to the Portfolio for such fiscal year, provided,
however, that notwithstanding the foregoing, Adviser shall reimburse the Fund
for the full amount of its share of any such excess expenses regardless of the
amount of fees otherwise payable to it during such fiscal year to the extent
that the securities regulations of any state having jurisdiction over the Fund
so require. Such expense reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis.
9. Limitation of Liability. Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties under this Agreement.
10. Duration and Termination. This Agreement will become
effective as of the date hereof with respect to each Portfolio listed in
Section 1(a) hereof and, with respect to any additional Portfolio, on the date
of receipt by the Fund of notice from the Adviser in accordance with Section
1(b) hereof that the Adviser is willing to serve as investment adviser with
respect to such portfolio, provided that this Agreement (as supplemented by the
terms specified in any notice and agreement pursuant to Section 1(b) hereof)
shall have been approved by the shareholders of the Portfolio in accordance
with the requirements of the 1940 Act, and, unless sooner terminated as
provided herein, shall continue in effect with respect to each such Portfolio
until March 31, 1997. Thereafter, if not terminated,
6
<PAGE> 7
this Agreement shall continue in effect with respect to the particular
Portfolio for successive annual periods ending on March 31, provided such
continuance is specifically approved at least annually (a) by vote of a
majority of those members of the Fund's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Fund's Board
of Trustees or by vote of a majority of the outstanding voting securities of
such Portfolio. Notwithstanding the foregoing, this Agreement may be
terminated with respect to the Portfolio at any time, without the payment of
any penalty, by the Fund (by vote of the Fund's Board of Trustees or by vote of
a majority of the outstanding voting securities of the Portfolio), or by
Adviser on sixty days' written notice. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the same meanings as such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. Any amendment of this
Agreement shall be subject to the 1940 Act.
12. Release. "The PNC Fund" and "Trustees of The PNC
Fund" refer respectively to the trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated December 22, 1988 which is hereby referred to and a copy of which
is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Fund. The obligations of "The
PNC Fund" entered into in the name or on behalf thereof by any of the Trustees,
officers, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders,
officers, representatives or agents of the Fund personally, but bind only the
Trust Property (as defined in the Declaration of Trust), and all persons
dealing with any class of shares of the Fund must look solely to the Trust
Property belonging to such class for the enforcement of any claims against the
Fund.
13. Miscellaneous. The captions in this Agreement are
included for convenience or reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding on, and shall inure to
the benefit of, the parties hereto and their respective successors and shall be
governed by Delaware law.
7
<PAGE> 8
14. Counterparts. This Agreement may be executed in
counterparts by the parties hereto, each of which shall constitute an original
counterpart, and all of which, together, shall constitute one Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
<TABLE>
<S> <C>
Attest: THE PNC FUND
[SEAL] By:
------------------
PNC ASSET MANAGEMENT
GROUP, INC.
[SEAL] By:
-------------------------
its:
</TABLE>
8
<PAGE> 1
EXHIBIT (6)(gg)
[FORM]
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of ___________, 1995 between THE PNC(R) FUND, a
Massachusetts business trust (the "Fund"), and BLACKROCK FINANCIAL MANAGEMENT,
INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund desires to retain Adviser to furnish investment
advisory services to the Fund and the Adviser is willing to so furnish such
services.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
(a) The Fund hereby appoints Adviser to act as
investment advisor to the Fund's Multi-Sector Mortgage Securities Portfolio III
(the "Portfolio") for the period and on the terms set forth in this Agreement.
Adviser accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
(b) In the event that the Fund establishes one or
more portfolios other than the Portfolio named above with respect to which it
desires to retain Adviser to act as investment adviser hereunder, the Fund
shall notify the Adviser in writing. If Adviser is willing to render such
services under this Agreement it shall notify the Fund in writing whereupon,
subject to such approval as may be required pursuant to Paragraph 10 hereof,
such portfolio shall become a "Portfolio" hereunder and shall be subject to the
provisions of this Agreement to the same extent as the Portfolio named above in
subparagraph (a) except to the extent that said provisions (including those
relating to the compensation payable by the Fund to Adviser) are modified with
respect to such portfolio in writing by the Fund and Adviser at the time.
2. Sub-Contractors. It is understood that from time to
time Adviser may, but is not required to, employ or associate with such person
or persons as Adviser may believe to be particularly fitted to assist it in the
performance of this Agreement; provided, however, that the compensation of such
person or persons shall be paid by Adviser and that Adviser shall be as fully
responsible to the Fund for the acts and omissions of
<PAGE> 2
any subcontractor as it is for its own acts and omissions. Such person or
persons shall be employed pursuant to sub-advisory agreements agreeable to the
Fund and approved in accordance with the provisions of the 1940 Act.
3. Delivery of Documents. The Fund has furnished the
Adviser with copies, properly certified or authenticated, of each of the
following:
(a) Resolutions of the Fund's Board of Trustees
authorizing the appointment of Adviser as the
Portfolio's advisor and approving this
Agreement;
(b) The Fund's Declaration of Trust as filed with
the State Secretary of the Commonwealth of
Massachusetts and the Boston City Clerk on
December 22, 1988:
(c) The Fund's Code of Regulations;
(d) The Fund's Notification of Registration on
Form N-8A under the 1940 Act as filed with
the Securities and Exchange Commission
("SEC") on December 23, 1988;
(e) The Fund's Registration Statement on Form
N-1A (the "Registration Statement") under the
Securities Act of 1933 and 1940 Act, as filed
with the SEC on December 23, 1988, and all
amendments thereto; and
(f) The Fund's most recent prospectus for the
Portfolio (such prospectus together with the
related statement of additional information,
as currently in effect and all amendments and
supplements thereto, are herein called
"Prospectus").
The Fund will furnish Adviser from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
4. Services. Subject to the supervision of the Fund's
Board of Trustees, Adviser will (either directly or through the sub-advisors
and other sub-contractors employed by it in accordance with Section 2 hereof)
provide a continuous investment program for the Portfolio, including investment
research and management with respect to all securities, investments, cash and
cash equivalents in the Portfolio. Adviser will (either directly or through a
sub-advisor and/or other sub-contractors employed by it in accordance with
Paragraph 2 hereof)
-2-
<PAGE> 3
determine from time to time what securities and other investments will be
purchased, retained or sold by the Portfolio and will place the daily orders
for the purchase or sale of securities. Adviser will provide the services
rendered by it under this Agreement in accordance with the Portfolio's
investment objective, policies and restrictions as stated in the Portfolio's
Prospectus (as currently in effect and as it may be amended or supplemented
from time to time) and the resolutions of the Fund's Board of Trustees.
Adviser further agrees that it:
(a) will comply with all applicable rules and
regulations of the SEC and will in addition
conduct its activities under this Agreement
in accordance with other applicable law;
(b) will place orders either directly with the
issuer or with any broker or dealer. Subject
to the other provisions of this paragraph, in
placing orders with brokers and dealers,
Adviser will attempt to obtain the best price
and the most favorable execution of its
orders. In placing orders, Adviser will
consider the experience and skill of the
firm's securities traders as well as the
firm's financial responsibility and
administrative efficiency. Consistent with
this obligation, Adviser may, subject to the
approval of the Fund's Board of Trustees,
select brokers on the basis of the research,
statistical and pricing services they provide
to the Portfolio and other clients of Adviser
or a sub-advisor. Information and research
received from such brokers will be in
addition to, and not in lieu of, the services
required to be performed by Adviser
hereunder. A commission paid to such brokers
may be higher than that which another
qualified broker would have charged for
effecting the same transaction, provided that
Adviser determines in good faith that such
commission is reasonable in terms of either
the transaction or the overall responsibility
of Adviser and sub-advisor to the Portfolio
and their other clients and that the total
commissions paid by the Portfolio will be
reasonable in relation to the benefits to the
Portfolio over the long-term. In addition,
Adviser is authorized to take into account
the sale of shares of the Fund in allocating
purchase and sale orders for portfolio
securities to brokers or dealers (including
brokers and dealers that are affiliated with
-3-
<PAGE> 4
Adviser, the sub-advisor or the Fund's
distributor) in compliance with applicable
law. In no instance, however, will the
Portfolio's securities be purchased from or
sold to Adviser, the sub-advisor, the Fund's
distributor or any affiliated person thereof,
except to the extent permitted by the SEC or
by applicable law;
(c) will maintain books and records with respect
to each Portfolio's securities transactions
and will furnish the Fund's Board of Trustees
such periodic and special reports as the
Board may request;
(d) will maintain a policy and practice of
conducting its investment advisory services
hereunder independently of the commercial
banking operations of its affiliates. When
Adviser makes investment recommendations for
the Portfolio, its investment advisory
personnel will not inquire or take into
consideration whether the issuer of
securities proposed for purchase or sale for
the Portfolio's account are customers of the
commercial departments of its affiliates. In
dealing with commercial customers, Adviser
and the sub-advisors will not inquire or take
into consideration whether securities of
those customers are held by the Fund; and
(e) will treat confidentially and as proprietary
information of the Fund all records and other
information relative to the Fund, the
Portfolio and the Fund's prior, current or
potential shareholders, and will not use such
records and information for any purpose other
than performance of its responsibilities and
duties hereunder, except after prior
notification to and approval in writing by
the Fund, which approval shall not be
unreasonably withheld and may not be withheld
where Adviser may be exposed to civil or
criminal contempt proceedings for failure to
comply, when requested to divulge such
information by duly constituted authorities,
or when so requested by the Fund.
5. Services Not Exclusive. Adviser's services hereunder
are not deemed to be exclusive, and Adviser shall be free to render similar
services to others so long as its services under this Agreement are not
impaired thereby.
-4-
<PAGE> 5
6. Books and Records. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, Adviser hereby agrees that all
records which it maintains for the Portfolio are the property of the Fund and
further agrees to surrender promptly to the Fund any of such records upon the
Fund's request. Adviser further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities, commodities and other
investments (including brokerage commissions and other transaction changes, if
any) purchased or sold for the Portfolio.
8. Compensation.
(a) For the services provided and the expenses
assumed pursuant to this Agreement the Fund will pay Adviser and Adviser will
accept as full compensation therefor a fee, computed daily and payable monthly,
at .25% of the Portfolio's average daily net assets.
(b) If in any fiscal year the aggregate expenses
of the Portfolio (as defined under the securities regulations of any state
having jurisdiction over the Fund) exceed the expense limitations of any such
state, Adviser will bear its share of the amount of such excess in proportion
to the aggregate fees otherwise payable to it hereunder and to the Fund's
co-administrators under their administration agreements with the Fund. The
obligation of the Adviser to reimburse the Fund under this Paragraph 8(b) is
limited in any fiscal year to the amount of its fees otherwise payable
hereunder attributable to the Portfolio for such fiscal year, provided,
however, that notwithstanding the foregoing, Adviser shall reimburse the Fund
for the full amount of its share of any such excess expenses regardless of the
amount of fees otherwise payable to it during such fiscal year to the extent
that the securities regulations of any state having jurisdiction over the Fund
so require. Such expense reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis.
9. Limitation of Liability. Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties under this Agreement.
-5-
<PAGE> 6
10. Duration and Termination. This Agreement will become
effective as of the date hereof with respect to the Portfolio listed in Section
1(a) hereof and, with respect to any additional portfolio, on the date of
receipt by the Fund of notice from the Adviser in accordance with Section 1(b)
hereof that the Adviser is willing to serve as investment adviser with respect
to such portfolio, provided that this Agreement (as supplemented by the terms
specified in any notice and agreement pursuant to Section 1(b) hereof) shall
have been approved by the shareholders of the Portfolio in accordance with the
requirements of the 1940 Act, and, unless sooner terminated as provided herein,
shall continue in effect with respect to each such Portfolio until March 31,
1997. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Portfolio for successive annual periods ending on March 31,
provided such continuance is specifically approved at least annually (a) by
vote of a majority of those members of the Fund's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Fund's Board
of Trustees or by vote of a majority of the outstanding voting securities of
the Portfolio. Notwithstanding the foregoing, this Agreement may be terminated
with respect to the Portfolio at any time, without the payment of any penalty,
by the Fund (by vote of the Fund's Board of Trustees or by vote of a majority
of the outstanding voting securities of the Portfolio), or by Adviser on sixty
days' written notice. This Agreement will immediately terminate in the event
of its assignment (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall
have the same meaning as such terms in the 1940 Act.)
11. Amendment to this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. Any amendment of this
Agreement shall be subject to the 1940 Act.
12. Release. "The PNC(R) Fund" and "Trustees of The
PNC(R) Fund" refer respectively to the trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated December 22, 1988 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Fund. The
obligations of "The PNC Fund" entered into in the name or on behalf thereof by
any of the Trustees, officers, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, officers, representatives or agents of the Fund
personally, but bind only the Trust Property (as defined in the Declaration of
Trust), and
-6-
<PAGE> 7
all persons dealing with any class of shares of the Fund must look solely to
the Trust Property belonging to such class for the enforcement of any claims
against the Fund.
13. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding on, and shall inure to
the benefit of, the parties hereto and their respective successors and shall be
governed by Delaware law.
14. Counterparts. This Agreement may be executed in
counterparts by the parties hereto, each of which shall constitute an original
counterpart, and all of which, together, shall constitute one Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE PNC FUND
By: ______________________________
BLACKROCK FINANCIAL MANAGEMENT, INC.
By: ______________________________
-7-
<PAGE> 1
EXHIBIT (6)(hh)
[FORM]
SUB-ADVISORY AGREEMENT
(_________________ Portfolio)
AGREEMENT dated as of ______________, 199_ between PNC Asset Managment
Group, Inc., a Delaware corporation ("Advisor"), and
____________________________________, a ________ corporation ("Sub-Advisor").
WHEREAS, Advisor has agreed to furnish investment advisory
services to the _________________ Portfolio (the "Portfolio") of The PNC(R)
Fund (the "Fund"), an open-end, management investment company registered under
the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, Advisor wishes to retain the Sub-Advisor to provide it
with sub-advisory services as described below in connection with Advisor's
advisory activities on behalf of the Portfolio;
WHEREAS, the advisory agreement between Advisor and the Fund of
even date herewith (such Agreement or the most recent successor agreement
between such parties relating to advisory services to the Portfolio is referred
to herein as the "Advisory Agreement") contemplates that Advisor may
sub-contract investment advisory services with respect to the Portfolio to a
sub-advisor pursuant to a sub-advisory agreement agreeable to the Fund and
approved in accordance with the provisions of the 1940 Act;
WHEREAS, this Agreement has been approved in accordance with the
provisions of the 1940 Act, and Sub-Advisor is willing to furnish such services
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Advisor hereby appoints Sub-Advisor to act
as sub-advisor with respect to the Portfolio as provided in Section 2 of the
Advisory Agreement. Sub-Advisor accepts such appointment and agrees to render
the services herein set forth for the compensation herein provided.
2. Services of Sub-Advisor. Subject to the oversight and
supervision of Advisor and the Fund's Board of Trustees, Sub-Advisor will
supervise the day-to-day operations of the Portfolio and perform the following
services: (i) provide investment research and credit analysis concerning the
Portfolio's investments, (ii) conduct a continual program of investment of the
Portfolio's assets, (iii) determine what portion of the
<PAGE> 2
Portfolio's assets will be invested in cash, cash equivalents and money market
instruments, (iv) place orders for all purchases and sales of the investments
made for the Portfolio, and (v) maintain the books and records as are required
to support Fund operations (in conjunction with record-keeping and accounting
functions performed by Advisor). In addition, Sub-Advisor will keep the Fund
and Advisor informed of developments materially affecting the Fund and shall,
on its own initiative, furnish to the Fund from time to time whatever
information Sub-Advisor believes appropriate for this purpose. Sub-Advisor
will communicate to Advisor on each day that a purchase or sale of an
instrument is effected for the Portfolio (i) the name of the issuer, (ii) the
amount of the purchase or sale, (iii) the name of the broker or dealer, if any,
through which the purchase or sale will be effected, (iv) the CUSIP number of
the instrument, if any, and (v) such other information as Advisor may
reasonably require for purposes of fulfilling its obligations to the Fund under
the Advisory Agreement. Sub-Advisor will provide the services rendered by it
under this Agreement in accordance with the Portfolio's investment objective,
policies and restrictions as stated in the Portfolio's Prospectus and Statement
of Additional Information (as currently in effect and as they may be amended or
supplemented from time to time), and the resolutions of the Fund's Board of
Trustees.
3. Other Sub-Advisor Covenants. Sub-Advisor further agrees
that it:
(a) will comply with all applicable Rules and
Regulations of the Securities and Exchange Commission (the "SEC") and will in
addition conduct its activities under this Agreement in accordance with other
applicable law;
(b) will place orders either directly with the issuer
or with any broker or dealer. Subject to the other provisions of this
paragraph, in placing orders with brokers and dealers, Sub-Advisor will attempt
to obtain the best price and the most favorable execution of its orders. In
placing orders, Sub-Advisor will consider the experience and skill of the
firm's securities traders as well as the firm's financial responsibility and
administrative efficiency. Consistent with this obligation, Sub-Advisor may,
subject to the approval of the Fund's Board of Trustees, select brokers on the
basis of the research, statistical and pricing services they provide to the
Portfolio and other clients of Advisor or Sub-Advisor. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by Sub-Advisor hereunder. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that
Sub-Advisor determines in good faith that such commission is reasonable in
terms either of the transaction or the overall
-2-
<PAGE> 3
responsibility of Advisor and Sub-Advisor to the Portfolio and their other
clients and that the total commissions paid by the Portfolio will be reasonable
in relation to the benefits to the Portfolio over the long-term. In addition,
Sub-Advisor is authorized to take into account the sale of shares of the Fund
in allocating purchase and sale orders for portfolio securities to brokers or
dealers (including brokers and dealers that are affiliated with Advisor,
Sub-Advisor or the Fund's distributor), provided that Sub-Advisor believes that
the quality of the transaction and the commission are comparable to what they
would be with other qualified firms. In no instance, however, will the
Portfolio's securities be purchased from or sold to the Advisor, Sub-Advisor,
the Fund's distributor or any affiliated person thereof, except to the extent
permitted by the SEC or by applicable law;
(c) will maintain or cause Advisor to maintain books
and records with respect to the Portfolio's securities transactions and will
render to Advisor and the Fund's Board of Trustees such periodic and special
reports as they may request;
(d) will maintain a policy and practice of conducting
its investment advisory services hereunder independently of the commercial
banking operations of its affiliates. When Sub-Advisor makes investment
recommendations for the Portfolio, its investment advisory personnel will not
inquire or take into consideration whether the issuer of securities proposed
for purchase or sale for the Portfolio's account are customers of the
commercial department of its affiliates; and
(e) will treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund,
the Portfolio and the Fund's prior, current or potential shareholders, and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where Sub-Advisor may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Fund.
4. Services Not Exclusive. Sub-Advisor's services hereunder
are not deemed to be exclusive, and Sub-Advisor shall be free to render similar
services to others so long as its services under this Agreement are not
impaired thereby.
5. Books and Records. In compliance with the requirements
of Rule 31a-3 under the 1940 Act, Sub-Advisor hereby
-3-
<PAGE> 4
agrees that all records which it maintains for the Portfolio are the property
of the Fund and further agrees to surrender promptly to the Fund any such
records upon the Fund's request. Sub-Advisor further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, Sub-Advisor
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities, commodities, and other
investments (including brokerage commissions and other transaction charges, if
any) purchased or sold for the Portfolio.
7. Compensation. For the services which the Sub-Advisor
will render to Advisor under this Agreement, Advisor will pay to Sub-Advisor a
fee, computed daily and payable monthly, at the following annual rates for the
Portfolio: [to be provided].
If the Advisor waives any or all of its advisory fee payable
under the Advisory Agreement, or reimburses the Fund pursuant to Section 8(b)
of that Agreement, with respect to the Portfolio, the Sub-Advisor will bear its
share of the amount of such waiver or reimbursement by waiving fees otherwise
payable to it hereunder on a proportionate basis to be determined by comparing
the aggregate fees that would otherwise be paid to it hereunder with respect to
the Portfolio to the aggregate fees that would otherwise be paid by the Fund to
the Advisor under the Advisory Agreement with respect to the Portfolio.
Advisor shall inform Sub-Advisor prior to waiving any advisory fees.
8. Limitation on Liability. Sub-Advisor will not be liable
for any error of judgment or mistake of law or for any loss suffered by Advisor
or by the Portfolio in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations or duties under
this Agreement.
9. Duration and Termination. This Agreement will become
effective as of the date hereof and, unless sooner terminated with respect to
the Portfolio as provided herein, shall continue in effect with respect to the
Portfolio until March 31, 1997. Thereafter, if not terminated, this Agreement
shall continue in effect with respect to the Portfolio for successive annual
periods ending on March 31, provided such continuance is specifically approved
at least annually (a) by the vote of a majority of those members of the Fund's
Board of Trustees who are not interested persons of any party to this
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<PAGE> 5
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Fund's Board of Trustees or by a vote of a majority of
the outstanding voting securities of the Portfolio. Notwithstanding the
foregoing, this Agreement may be terminated with respect to the Portfolio at
any time, without the payment of any penalty, by the Fund (by vote of the
Fund's Board of Trustees or by vote of a majority of the outstanding voting
securities of the Portfolio), or by Advisor or Sub-Advisor, on 60 days' written
notice and will terminate automatically upon any termination of the Advisory
Agreement between the Fund and Advisor. This Agreement will also immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested person" and
"assignment" shall have the same meanings of such terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. Any amendment of this
Agreement shall be subject to the 1940 Act.
11. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding on, and shall inure to
the benefit of the parties hereto and their respective successors and shall be
governed by Delaware law.
12. Counterparts. This Agreement may be executed in
counterparts by the parties hereto, each of which shall constitute an original
counterpart, and all of which, together, shall constitute one Agreement.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PNC INSTITUTIONAL
MANAGEMENT CORPORATION
By:_____________________________
BLACKROCK FINANCIAL MANAGEMENT, INC.
By:______________________________
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<PAGE> 1
EXHIBIT (6)(ii)
[FORM]
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT executed as of _____________, 1995 by and between PNC Asset
Management Group, Inc., a Delaware corporation, and Morgan Grenfell Investment
Services, Ltd. a London based company and registered investment adviser
("Sub-Adviser").
WHEREAS, PNC Asset Management Group, Inc. is the investment manager for
The PNC Fund ("Trust"), an open-end management investment company registered
under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, PNC Asset Management Group, Inc. desires to retain Sub-Adviser
as its agent to furnish investment advisory services for the International
Fixed Income Fund, a diversified investment portfolio of the Trust (the
"Fund").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment. PNC Asset Management Group, Inc. hereby appoints
Sub-Adviser to provide certain sub-investment advisory services to the Fund for
the period and on the terms set forth in this Agreement. Sub-Adviser accepts
such appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. Delivery of Document. PNC Asset Management Group, Inc. has
furnished Sub-Adviser with copies properly certified or authenticated of each
of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of Advisor as the Portfolios' advisor and approving
this Agreement;
(b) The Fund's Declaration of Trust as filed with the State Secretary
of the Commonwealth of Massachusetts and the Boston City Clerk on
December 22, 1988:
(c) The Fund's Code of Regulations;
(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission
("SEC") on December 23, 1988;
<PAGE> 2
(e) The Fund's Registration Statement on Form N-1A (the "Registration
Statement") under the Securities Act of 1933 and 1940 Act, as
filed with the SEC on December 23, 1988, and all amendments
thereto;
(f) The Fund's most recent prospectus for the Portfolios (such
prospectus together with the related statement of additional
information, as currently in effect and all amendments and
supplements thereto, are herein called "Prospectus"); and
(g) Any other information reasonably needed by Sub-Adviser to satisfy
its obligations under this Agreement.
PNC Asset Management Group, Inc. will furnish Sub-Adviser from
time to time with copies of all amendments of or supplements to the foregoing.
3. Management. Subject always to the supervision of Trust's Board
of Trustees and PNC Asset Management Group, Inc., Sub-Adviser will furnish an
investment program in respect of, and make investment decisions for, all assets
of the Fund and place all orders for the purchase and sale of securities, all
on behalf of the Fund. In the performance of its duties, Sub-Adviser will
satisfy its fiduciary duties to the Fund (as set forth in Section 8, below),
and will monitor the Fund's investments, and will comply with the provisions of
Trust's Declaration of Trust and By-Laws, as amended from time to time, and the
stated investment objectives, policies and restrictions of the Fund.
Sub-Adviser and PNC Asset Management Group, Inc. will each make its officers
and employees available to the other from time to time at reasonable times to
review investment policies of the Fund and to consult with each other regarding
the investment affairs of the Fund. Sub-Adviser shall also make itself
reasonably available to the Board of Trustees at such times as the Board of
Trustees shall request.
Sub-Adviser represents and warrants that it is in compliance with all
applicable Rules and Regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services
as it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of
the SEC pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations
for the Fund either directly with the issuer or with any broker or
dealer. In placing orders with
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<PAGE> 3
brokers or dealers, Sub-Adviser will attempt to obtain the best
combination of prompt execution of orders in an effective manner and at
the most favorable price. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are
comparable Sub-Adviser may, in its discretion, purchase and sell
portfolio securities to and from brokers and dealers who provide Sub-
Adviser with research advice and other services. In no instance will
portfolio securities be purchased from or sold to PNC Asset Management
Group, Inc., Sub-Adviser or any affiliated person of either the Trust,
PNC Asset Management Group, Inc. or Sub-Adviser, except as may be
permitted under the 1940 Act;
(d) will report regularly to PNC Asset Management Group, Inc.
and will make appropriate persons available for the purpose of reviewing
at reasonable times with representatives of PNC Asset Management Group,
Inc. and the Board of Trustees the management of the Fund, including,
without limitation, review of the general investment strategy of the
Fund, the performance of the Fund in relation to standard industry
indices, interest rate considerations and general conditions affecting
the marketplace and will provide various other reports from time to time
as reasonably requested by PNC Asset Management Group, Inc.;
(e) will maintain books and records with respect to Trust's
securities transactions and will furnish PNC Asset Management Group,
Inc. and the Trust's Board of Trustees such periodic and special reports
as the Board or PNC Asset Management Group, Inc. may request;
(f) will act upon instructions from PNC Asset Management Group,
Inc. not inconsistent with the fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of
Trust all such records and other information relative to Trust
maintained by the Sub-Adviser, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by Trust, which approval shall not be
unreasonably withheld and may not be withheld where Sub-Adviser may be
exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted
authorities, or when so requested by Trust.
Sub-Adviser shall have the right to execute and deliver, or cause its
nominee to execute and deliver, all proxies and notices
-3-
<PAGE> 4
of meetings and other notices affecting or relating to the securities of the
Fund.
4. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for Trust are the property of Trust and further agrees to surrender
promptly to Trust any of such records upon Trust's request. Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31 a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under the 1940
Act.
5. Expenses. During the term of this Agreement, Sub-Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions,
if any) purchased for Trust.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, PNC Asset Management Group, Inc. will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee, accrued daily and payable quarterly, in
accordance with Schedule A hereto. From time to time, Sub-Adviser may
voluntarily agree to waive or reduce some or all of the compensation to which
it is entitled under this Agreement.
7. Services to Others. PNC Asset Management Group, Inc.
understands, and has advised Trust's Board of Trustees, that Sub-Adviser now
acts, and may in the future act, as an investment adviser to fiduciary and
other managed accounts, and as investment adviser, sub-investment adviser,
and/or administrator to other investment companies, provided, however, that the
Sub-Adviser shall not provide advisory or sub-advisory services to any
bank-advised investment company without the express written consent of PNC
Asset Management Group, Inc. which will not be unreasonably withheld. With the
exception previously noted, PNC Asset Management Group, Inc. has no objection
to Sub-Adviser's acts in such capacities, provided that whenever the Fund and
one or more other investment companies advised by Sub-Adviser have available
funds for investment, investments suitable and appropriate for each will be
allocated in accordance with a formula believed by Sub-Adviser to be equitable
to each company. PNC Asset Management Group, Inc. recognizes, and has advised
the Trust's Board of Trustees, that in some cases this procedure may adversely
affect the size of the position that the Fund may obtain in a particular
security. In addition, PNC Asset Management Group, Inc. understands, and has
advised Trust's Board of Trustees, that the persons employed by Sub-Adviser to
assist in Sub-Adviser's duties under this Agreement will not devote their full
time to such service and nothing contained in this Agreement will be deemed to
limit or restrict the right of Sub-
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<PAGE> 5
Adviser or any of its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
8. Limitation of Liability. PNC Asset Management Group, Inc. will
not take any action against Sub-Adviser to hold Sub-Adviser liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of Sub-Adviser's duties under this Agreement,
except a loss resulting from Sub-Adviser's willful misfeasance, bad faith, or
gross negligence in the performance of its duties under this Agreement.
9. Indemnification. PNC Asset Management Group, Inc. and
Sub-Adviser each agree to indemnify the other against any claim against, loss
or liability to such other party (including reasonable attorneys' fees) arising
out of any action on the part of the indemnifying party which constitutes
willful misfeasance, bad faith or gross negligence.
10. Duration and Termination. This Agreement will become effective
as to the Fund on the first day the Fund's shares are offered to the public
provided that it has been approved by vote of a majority of the outstanding
voting securities of the Fund in accordance with the requirements under the
1940 Act, and, unless sooner terminated as provided herein, will continue in
effect until March 31, 1997.
Thereafter, if not terminated, this Agreement will continue in
effect for the Fund for successive periods of 12 months, each ending on March
31, provided that such continuation is specifically approved at least annually
(a) by the vote of a majority of those members of Trust's Board of Trustees who
are not interested persons of Trust, Sub-Adviser, or PNC Asset Management
Group, Inc., cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of a majority of Trust's Board of Trustees
or by the vote of a majority of all votes attributable to the outstanding
Shares of the Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to the Fund at any time, without the payment of any penalty, on
sixty (60) days' written notice by PNC Asset Management Group, Inc. or by Sub-
Adviser. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities, "interested persons" and "assignment" have the same meaning
of such terms in the 1940 Act.)
This Agreement will terminate automatically if the advisory
agreement between the Fund and PNC Asset Management Group, Inc. is terminated.
-5-
<PAGE> 6
11. Amendment of this Agreement. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be
affected thereby. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and will be
governed by the laws of the State of New Jersey.
"The PNC Fund" and "Trustees of the The PNC Fund" refer
respectively to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated December 22, 1988 which is hereby referred to and a copy of which
is on file at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of the Fund. The obligations of "The
PNC Fund" entered into in the name or on behalf thereof by any of the Trustees,
officers, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders,
officers, representatives or agents of the Fund personally, but bind only the
Trust Property (as defined in the Declaration of Trust), and all persons
dealing with any class of shares of the Fund must look solely to the
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<PAGE> 7
Trust Property belonging to such class for the enforcement of any claims
against the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PNC ASSET MANAGEMENT GROUP, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
MORGAN GRENFELL INVESTMENT SERVICES, LTD.
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 8
SCHEDULE A
_______________, 1995
The International Fixed Income Fund.
Compensation will be paid at an annual rate of average annual daily net
assets.
PNC ASSET MANAGEMENT GROUP, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
MORGAN GRENFELL INVESTMENT SERVICES, LTD.
By:_______________________________
Name:_____________________________
Title:____________________________
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<PAGE> 1
EXHIBIT (7)(d)
APPENDIX A
to the
DISTRIBUTION AGREEMENT
BETWEEN
THE PNC(R) FUND
and
Provident Distributors, Inc.
- ------------------------------------------------------------------------------
Money Market Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Municipal Money Market Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares and Series C Investor Shares)
Government Money Market Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares and Series C Investor Shares)
Ohio Municipal Money Market Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares and Series Investor C Shares)
New Jersey Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
Pennsylvania Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
North Carolina Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
Virginia Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
Managed Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Tax-Free Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Intermediate Government Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
<PAGE> 2
New Jersey Tax-Free Income Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Ohio Tax-Free Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Pennsylvania Tax-Free Income Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Core Fixed Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Short-Term Bond Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Intermediate-Term Bond Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
Government Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
International Fixed Income Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Multi-Sector Mortgage Securities Portfolio III (Institutional Shares)
Value Equity Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Growth Equity Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Index Equity Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Small Cap Value Equity Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
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<PAGE> 3
International Equity Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Balanced Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Small-Cap Growth Equity Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
Core Equity Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
International Emerging Markets Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Agreed to and accepted as of ________________, 1996.
THE PNC(R) FUND
By:
-------------------------------
PROVIDENT DISTRIBUTORS, INC.
By:
-------------------------------
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<PAGE> 1
EXHIBIT (9)(l)
The PNC(R) Fund
Appendix B to Custodian
Agreement dated as of October 4, 1989
The Fund hereby appoints Bank to act as custodian of the
securities, cash and other property belonging to the additional Portfolios
listed below ("Additional Portfolios") for the period and on the terms set
forth in this Agreement. Bank accepts such appointment and agrees to furnish
the services herein set forth in return for the compensation as provided in
Paragraph 21 of this Agreement. Bank agrees to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder.
The additional Portfolios are as follows:
- Government Income Portfolio
- International Emerging Markets Portfolio
- International Fixed Income Portfolio
- Virginia Municipal Money Market Portfolio
- New Jersey Municipal Money Market Portfolio
- New Jersey Tax-Free Income Portfolio
- Core Fixed Income Portfolio
- Multi-Sector Mortage Securities Portfolio III
Agreed to and accepted as of
_____________________, 1996
The PNC(R) Fund
By:
-------------------------------
PNC Bank, National Association
By:
-------------------------------
<PAGE> 1
EXHIBIT (10(c)
DRAFT - 10/05/95
THE PNC(R) FUND
AMENDED AND RESTATED
DISTRIBUTION AND SERVICE PLAN
____________, 1995
This Distribution and Service Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by The PNC(R) Fund, a Massachusetts business
trust (the "Fund"), with respect to the various classes of shares (each, a
"Class") of the portfolios of the Fund (each, a "Portfolio") listed on Appendix
A hereto, as amended from time to time, subject to the terms and conditions set
forth herein. The Service Fees and Shareholder Processing Fees (each as
defined herein) payable pursuant to the Plan are intended to be fees payable
for the administration and servicing of shareholder accounts, as more fully
described in Section 2 below, and not costs which are primarily intended to
result in the sale of the Fund's shares and which would require approval
pursuant to the Rule.
Section 1. Distribution Fees
(a) Pursuant to the Plan, the Fund may pay to (i) the
Distributor of its shares, Provident Distributors, Inc., or any entity that may
in the future act as a distributor for its shares (collectively, the
"Distributor"), and/or (ii) PNC Mutual Fund Company or any other affiliate of
PNC Bank, National Association (collectively, "PMFCo"), with respect to and at
the expense of each Class of each Portfolio listed on Appendix A hereto, a fee
for distribution and sales support services, as applicable, and as more fully
described in Section 1(b) hereof (the "Distribution Fee"), such fee in the
aggregate to be at the annual rate specified with respect to such Class of such
Portfolio under the column "Distribution Fee" on Appendix A hereto.
(b) Payments of the Distribution Fee under the Plan shall be
used primarily to compensate the Distributor for distribution services and
sales support services provided, and/or to PMFCo for sales support services
provided, respectively, in connection with the offering and sale of shares of
the applicable Class of the applicable Portfolio, and to reimburse the
Distributor and/or PMFCo for related expenses incurred, including payments by
the Distributor and/or PMFCo to compensate or reimburse brokers, dealers, other
financial institutions or other industry professionals (collectively, "Selling
Agents"), for sales support services provided and related expenses incurred by
<PAGE> 2
such Selling Agents. The services and expenses described in this Section 1(b)
may include, but are not limited to, the following: (i) the development,
formulation and implementation of marketing and promotional activities,
including direct mail promotions and television, radio, magazine, newspaper,
electronic and other mass media advertising, (ii) the preparation, printing and
distribution of prospectuses and reports (other than prospectuses or reports
used for regulatory purposes or for distribution to existing shareholders);
(iii) the preparation, printing and distribution of sales literature; (iv)
expenditures for sales or distribution support services such as for telephone
facilities and in- house telemarketing; (v) preparation of information,
analyses and opinions with respect to marketing and promotional activities;
(vi) commissions, incentive compensation or other compensation to, and expenses
of, account executives or other employees of the Distributor, PMFCo or Selling
Agents, attributable to distribution or sales support activities, as
applicable, including interest expenses and other costs associated with
financing of such commissions, compensation and expenses; (vii) travel,
equipment, printing, delivery and mailing costs, overhead and other office
expenses of the Distributor, PMFCo or Selling Agents, attributable to
distribution or sales support activities, as applicable, (viii) the costs of
administering the Plan; (ix) expenses of organizing and conducting sales
seminars; and (x) any other costs and expenses relating to distribution or
sales support activities.
(c) Payments of the Distribution Fee on behalf of a particular
Portfolio must be in consideration of services rendered for or on behalf of
such Portfolio. However, joint distribution or sales support financing with
respect to the shares of the Portfolios (which financing may also involve other
investment portfolios or companies that are affiliated persons of such a
person, or affiliated persons of the Distributor or PMFCo, shall be permitted
in accordance with applicable law. Payments of the Distribution Fee under
Section 1 of the Plan may be made without regard to expenses actually incurred.
(d) The Distributor, PMFCo and other affiliates of PNC Bank,
National Association and other parties that receive fees from the Fund may each
make payments without limitation as to amount relating to distribution or sales
support activities, as applicable, in connection with each Class of each
Portfolio out of any portion of any fees other than the Distribution Fee paid
by the Fund to it or its affiliate, its past profits or any other sources
available to it.
Section 2. Service Fees and Shareholder Processing Fees
(a) Pursuant to the Plan, the Fund shall pay to PMFCo, with
respect to and at the expense of each Class of each
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<PAGE> 3
Portfolio listed on Appendix A hereto, (i) a fee in respect of the provision of
personal services to shareholders of such Class of such Portfolio, as more
fully described in Section 2(b) hereof (the "Service Fee"), such fee to be at
the annual rate specified with respect to such Class of such Portfolio under
the column "Service Fee" on Appendix A hereto, and (ii) a fee in respect of the
provision of certain activities relating to the processing and administration
of shareholder accounts in such Class of such Portfolio, as more fully
described in Section 2(c) hereof (the "Shareholder Processing Fee"), such fee
to be at the annual rate specified with respect to such Class of such Portfolio
under the column "Shareholder Processing Fee" on Appendix A hereto. PMFCo
shall determine the amount of the Service Fee and the Shareholder Processing
Fee to be paid to one or more brokers, dealers, other financial institutions or
other industry professionals (collectively, "Service Agents") and the basis on
which such payments will be made. Payments to a Service Agent will be subject
to compliance by the Service Agent with the terms of any related Plan agreement
entered into by the Service Agent.
(b) Payments of the Service Fee shall be used to compensate
PMFCo and Service Agents for general shareholder liaison services provided with
respect to shareholders in the related Class of the related Portfolio,
including, but not limited to, (i) answering shareholder inquiries regarding
account status and history, the manner in which purchases, exchanges and
redemptions of shares may be effected and certain other matters pertaining to
the shareholders' investments; and (ii) assisting shareholders in designating
and changing dividend options, account designations and addresses.
(c) Payments of the Shareholder Processing Fee shall be used to
compensate PMFCo and Service Agents for certain services relating to the
processing and administration of shareholder accounts with respect to
shareholders in the related Class of the related Portfolio, which may include
some or all of the following: (i) providing necessary personnel and facilities
to establish and maintain shareholder accounts and records; (ii) assisting in
aggregating and processing purchase, exchange and redemption transactions;
(iii) placing net purchase and redemption orders with the Distributor; (iv)
arranging for wiring of funds; (v) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (vi) processing
dividend payments; (vii) verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder-designated accounts, as necessary; (viii) providing periodic
statements showing a customer's account balance and, to the extent practicable,
integrating such information with other customer transactions otherwise
effected through or with a Service Agent; (ix) furnishing (either separately or
on an integrated basis with other reports sent to a shareholder by a Service
Agent) monthly and year-end statements
-3-
<PAGE> 4
and confirmations of purchases, exchanges and redemptions; (x) transmitting on
behalf of the Fund, proxy statements, annual reports, updating prospectuses and
other communications from the Fund to the shareholders; (xi) receiving,
tabulating and transmitting to the Fund proxies executed by shareholders with
respect to shareholder meetings; (xii) providing subaccounting with respect to
shares beneficially owned by customers or the information to the Fund necessary
for subaccounting; (xiii) sub-transfer agency services; and (xiv) providing
such other similar services as the Fund or a shareholder may request. It is
intended that none of the services provided in consideration of the Shareholder
Processing Fee be of a nature so as to render the Shareholder Processing Fee a
"service fee" as defined in Article III, Section 26, of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
(d) Payments of the Service Fee and the Shareholder Processing
Fee under Section 2 of the Plan may be made without regard to expenses actually
incurred.
Section 3. Calculation and Payment of Fees
The amount of the Distribution Fee, Service Fee and Shareholder
Processing Fee payable with respect to each Class of each Portfolio listed on
Appendix A hereto shall be calculated daily and paid monthly, at the applicable
annual rates indicated on Appendix A. The Distribution Fee, Service Fee and
Shareholder Processing Fee shall be calculated and paid separately for each
Class of each Portfolio.
Section 4. Approval of Plan
The Plan will become effective immediately, as to any Class of any
Portfolio, upon its approval by (a) a majority of the outstanding shares of
such Class of such Portfolio, and (b) a majority of the Board of Trustees,
including a majority of the trustees who are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements entered into in
connection with the Plan, pursuant to a vote cast in person at a meeting called
for the purpose of voting on the approval of the Plan.
Section 5. Continuance of the Plan
The Plan will continue in effect for so long as its continuance is
specifically approved at least annually by the Fund's Board of Trustees in the
manner described in Section 4 above.
-4-
<PAGE> 5
Section 6. Additional Classes and Portfolios
The Plan shall become effective with respect to Classes of Portfolios
not currently listed on Appendix A hereto upon obtaining the requisite
approvals with respect to such Classes of Portfolios in accordance with Section
4 above.
Section 7. Termination
The Plan may be terminated at any time with respect to any Class of
any Portfolio without penalty at any time by (a) a vote of a majority of the
Trustees who are not "interested persons" (as defined in the Act) of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements entered into in connection with the Plan, or (b) a
vote of a majority of the outstanding shares of such Class of such Portfolio.
The termination of the Plan with respect to any Class of any Portfolio shall
not result in the termination of the Plan with respect to any other Class of
that Portfolio or any other Portfolio.
Section 8. Amendments
The Plan may not be amended with respect to any Class of any
Portfolio so as to increase materially the amount of the Distribution Fee
described in Section 1 above with respect to such Class of such Portfolio
unless the amendment is approved by a vote of at least a majority of the
outstanding shares of such Class of such Portfolio. In addition, no material
amendment to the Plan may be made unless approved by the Fund's Board of
Trustees in the manner described in Section 4 above.
Section 9. Selection of Certain Trustees
While the Plan is in effect, the selection and nomination of the
Fund's Trustees who are not "interested persons" of the Fund (as defined in the
Act) will be committed to the discretion of the Trustees then in office who are
not "interested persons" (as so defined) of the Fund.
Section 10. Written Reports
While the Plan is in effect, the Fund's Board of Trustees shall
receive, and the Trustees shall review, at least quarterly, written reports
complying with the requirements of the Rule, which set out the amounts expended
under the Plan and the purposes for which those expenditures were made.
Section 11. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to
-5-
<PAGE> 6
Section 10 above, for a period of not less than six years (the first two years
in an easily accessible place) from the date of the Plan, agreement or report.
Section 12. Limitation of Liability
The names "The PNC Fund" and "Trustees of The PNC Fund" refer
respectively to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated December 22, 1988 which is hereby referred to and a copy of which
is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Fund. The obligations of "The
PNC Fund" entered into in the name or on behalf thereof by any of the Trustees,
officers, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders,
officers, representatives or agents of the Fund personally, but bind only the
Trust Property (as defined in the Declaration of Trust), and all persons
dealing with any class of shares of the Fund must look solely to the Trust
Property belonging to such class for the enforcement of any claims against the
Fund.
Section 13. Miscellaneous
The captions in the Plan are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the Fund has executed the Plan as of
____________, 1995 on behalf of each Class of each Portfolio listed on Appendix
A hereto.
THE PNC FUND
By:____________________________
Vice President and Treasurer
-6-
<PAGE> 7
APPENDIX A
<TABLE>
<CAPTION>
SHAREHOLDER
DISTRIBUTION FEE SERVICE FEE PROCESSING FEE
(EXPRESSED AS (EXPRESSED AS (EXPRESSED AS
A PERCENTAGE A PERCENTAGE A PERCENTAGE
OF AVERAGE DAILY OF AVERAGE DAILY OF AVERAGE DAILY
NET ASSETS OF NET ASSETS OF NET ASSETS OF
THE PORTFOLIO THE PORTFOLIO THE PORTFOLIO
ATTRIBUTABLE TO ATTRIBUTABLE TO ATTRIBUTABLE TO
NAME OF PORTFOLIO CLASS OF SHARES THE SPECIFIED CLASS) THE SPECIFIED CLASS) THE SPECIFIED CLASS)
- ----------------- --------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Small Cap Value Institutional 0% 0% 0%
Equity Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Small Cap Growth Institutional 0% 0% 0%
Equity Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Growth Equity Institutional 0% 0% 0%
Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Value Equity Institutional 0% 0% 0%
Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Core Equity Institutional 0% 0% 0%
Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Index Equity Institutional ___% ___% ___%
Portfolio Service ___% ___% ___%
Investor A ___% ___% ___%
Investor B ___% ___% ___%
Investor C ___% ___% ___%
International Institutional 0% 0% 0%
Equity Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
International Institutional 0% 0% 0%
Emerging Service 0% .15% .15%
Markets Portfolio Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
</TABLE>
A-1
<PAGE> 8
<TABLE>
<CAPTION>
SHAREHOLDER
DISTRIBUTION FEE SERVICE FEE PROCESSING FEE
(EXPRESSED AS (EXPRESSED AS (EXPRESSED AS
A PERCENTAGE A PERCENTAGE A PERCENTAGE
OF AVERAGE DAILY OF AVERAGE DAILY OF AVERAGE DAILY
NET ASSETS OF NET ASSETS OF NET ASSETS OF
THE PORTFOLIO THE PORTFOLIO THE PORTFOLIO
ATTRIBUTABLE TO ATTRIBUTABLE TO ATTRIBUTABLE TO
NAME OF PORTFOLIO CLASS OF SHARES THE SPECIFIED CLASS) THE SPECIFIED CLASS) THE SPECIFIED CLASS)
- ----------------- --------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Balanced Institutional 0% 0% 0%
Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Short-Term Bond Institutional 0% 0% 0%
Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Intermediate-Term Institutional 0% 0% 0%
Bond Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Intermediate Institutional 0% 0% 0%
Government Service 0% .15% .15%
Portfolio Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Government Income Institutional 0% 0% 0%
Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Core Fixed-Income Institutional 0% 0% 0%
Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Managed Income Institutional 0% 0% 0%
Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
International Fixed- Institutional 0% 0% 0%
Income Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
</TABLE>
A-2
<PAGE> 9
<TABLE>
<CAPTION>
SHAREHOLDER
DISTRIBUTION FEE SERVICE FEE PROCESSING FEE
(EXPRESSED AS (EXPRESSED AS (EXPRESSED AS
A PERCENTAGE A PERCENTAGE A PERCENTAGE
OF AVERAGE DAILY OF AVERAGE DAILY OF AVERAGE DAILY
NET ASSETS OF NET ASSETS OF NET ASSETS OF
THE PORTFOLIO THE PORTFOLIO THE PORTFOLIO
ATTRIBUTABLE TO ATTRIBUTABLE TO ATTRIBUTABLE TO
NAME OF PORTFOLIO CLASS OF SHARES THE SPECIFIED CLASS) THE SPECIFIED CLASS) THE SPECIFIED CLASS)
- ----------------- --------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Tax-Free Income Institutional 0% 0% 0%
Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Pennsylvania Institutional 0% 0% 0%
Tax-Free Service 0% .15% .15%
Income Fund Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
New Jersey Tax- Institutional 0% 0% 0%
Free Income Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Ohio Tax-Free Institutional 0% 0% 0%
Income Fund Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Money Market Institutional 0% 0% 0%
Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Municipal Money Institutional 0% 0% 0%
Market Portfolio Service 0% .15% .15%
Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Government Institutional 0% 0% 0%
Money Market Service 0% .15% .15%
Portfolio Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
Ohio Municipal Institutional 0% 0% 0%
Money Market Service 0% .15% .15%
Portfolio Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
</TABLE>
A-3
<PAGE> 10
<TABLE>
<CAPTION>
SHAREHOLDER
DISTRIBUTION FEE SERVICE FEE PROCESSING FEE
(EXPRESSED AS (EXPRESSED AS (EXPRESSED AS
A PERCENTAGE A PERCENTAGE A PERCENTAGE
OF AVERAGE DAILY OF AVERAGE DAILY OF AVERAGE DAILY
NET ASSETS OF NET ASSETS OF NET ASSETS OF
THE PORTFOLIO THE PORTFOLIO THE PORTFOLIO
ATTRIBUTABLE TO ATTRIBUTABLE TO ATTRIBUTABLE TO
NAME OF PORTFOLIO CLASS OF SHARES THE SPECIFIED CLASS) THE SPECIFIED CLASS) THE SPECIFIED CLASS)
- ----------------- --------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Pennsylvania Institutional 0% 0% 0%
Municipal Money Service 0% .15% .15%
Market Portfolio Investor A .10% .25% .15%
Investor B .75% .25% .15%
Investor C .75% .25% .15%
North Carolina Institutional 0% 0% 0%
Municipal Service 0% .15% .15%
Money Market Investor A .10% .25% .15%
Portfolio Investor B .75% .25% .15%
Investor C .75% .25% .15%
New Jersey Institutional 0% 0% 0%
Municipal Service 0% .15% .15%
Money Market Investor A .10% .25% .15%
Portfolio Investor B .75% .25% .15%
Investor C .75% .25% .15%
Virginia Institutional 0% 0% 0%
Municipal Service 0% .15% .15%
Money Market Investor A .10% .25% .15%
Portfolio Investor B .75% .25% .15%
Investor C .75% .25% .15%
Multi-Sector Institutional 0% 0% 0%
Mortgage Service 0% .15% .15%
Securities Investor A .10% .25% .15%
Portfolio III Investor B .75% .25% .15%
Investor C .75% .25% .15%
</TABLE>
A-4
<PAGE> 1
EXHIBIT (18)
THE PNC(R) FUND
(THE "FUND")
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS DISTRIBUTION SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution system without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April
3, 1995, requires an investment company to file with the Commission a written
plan specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. Currently, the Fund
operates a multi-class distribution system pursuant to an exemptive order
granted by the Commission on August 9, 1994. On September 29, 1995, the Board
of Trustees of the Fund authorized the Fund to operate its current multi-class
distribution system in compliance with Rule 18f-3. This Plan pursuant to Rule
18f-3 shall become effective immediately when it is filed with the Commission.
II. ATTRIBUTES OF CLASSES
A. Generally
Each investment portfolio of the Fund (each a "Portfolio" and,
collectively, the "Portfolios") may initially offer five classes of shares: i)
Service Shares, ii) Series A Investor Shares; iii) Series B Investor Shares;
iv) Series C Investor Shares; and v) Institutional Shares.
In general, shares of each class shall be identical except for
different expense variables (which will result in different yields or total
returns for each class), certain related rights and certain shareholder
services. More particularly, Series A Investor, Series B Investor, Series C
Investor, Service and Institutional Shares of each Portfolio shall represent
equal pro rata interests in the same portfolio of investments of the particular
Portfolio, and shall be identical
<PAGE> 2
in all respects, except for: (a) the impact of (i) distribution, shareholder
servicing and shareholder processing expenses assessed to each particular share
class; and (ii) any incremental expenses identified from time to time that
should be properly allocated to each particular share class so long as any
changes in expense allocations are reviewed and approved by a vote of the Board
of Trustees, including a majority of the non-interested trustees; (b) the fact
that each class shall vote separately on any matter submitted to shareholders
that pertains to (i) the distribution and/or shareholder servicing plan
applicable to such class and (ii) the class expenses borne by such class; (c)
the exchange privileges and/or conversion features of each class of shares; (d)
the designation of each class of shares of a Portfolio; and (e) the different
shareholder services relating to each class of shares.
B. Distribution Arrangements, Expenses and Sales Charges
SERIES A INVESTOR SHARES
Series A Investor Shares shall be available for purchase through PNC
Bank, National Association ("PNC Bank") and its banking affiliates,
institutional investors and registered broker-dealers.
Series A Investor Shares of the Fund's equity portfolios (the "Equity
Portfolios") and fixed income portfolios (the "Fixed Income Portfolios")
generally shall be subject to a front-end sales charge at the rates (and
subject to the reductions and exemptions) described in the prospectus. Series
A Investor Shares of the Fund's money market portfolios (the "Money Market
Portfolios") shall not be subject to a sales load.
Series A Investor Shares of a Portfolio shall be subject to
distribution, shareholder servicing and shareholder processing fees payable to
service organizations. Services provided by service organizations with respect
to the Series A Investor Shares may include: (a) providing reasonable
assistance in connection with the distribution of Series A Investor Shares to
their clients as requested from time to time by the Fund's distributor (the
"Distributor"), which assistance may include forwarding sales literature and
advertising provided by the Distributor; and (b) the following support services
to their clients who may from time to time acquire and beneficially own Series
A Investor Shares: (i) establishing and maintaining accounts and records
relating to clients that invest in Series A Investor Shares; (ii) processing
dividend and distribution payments from the Fund on behalf of clients; (iii)
providing information periodically to clients showing their positions in Series
A Investor Shares; (iv) arranging for bank wires; (v) responding to client
inquiries relating to the services performed by the service organization; (vi)
responding to routine
<PAGE> 3
inquiries from clients concerning their investments in Series A Investor
Shares; (vii) providing subaccounting with respect to Series A Investor Shares
beneficially owned by clients or the information to the Fund necessary for
subaccounting; (viii) if required by law, forwarding shareholder communications
from the Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to clients;
(ix) assisting in processing purchase, exchange and redemption requests from
clients and in placing such orders with the Fund's service contractors; (x)
assisting clients in changing dividend options, account designations and
addresses; (xi) providing clients with a service that invests the assets of
their accounts in Series A Investor Shares pursuant to specific or
pre-authorized instructions; and (xii) providing such other similar services as
the Distributor may reasonably request to the extent the service organization
is permitted to do so under applicable statutes, rules and regulations.
SERIES B AND SERIES C INVESTOR SHARES
Series B and Series C Investor Shares of the Equity and Fixed Income
Portfolios shall be available for purchase through PNC Bank and its banking
affiliates, institutional investors and registered broker-dealers. Series B
and Series C Investor Shares of the Equity and Fixed Income Portfolios
generally shall be subject to a contingent deferred sales charge at the rates
(and subject to the reductions and exemptions) described in the prospectus.
Series B Investor Shares of the Money Market Portfolios shall be
available only to holders of Series B Investor Shares in the Equity Portfolios
and the Fixed Income Portfolios who exchange their Series B investor Shares in
such Portfolios for Series B Investor Shares in the Money Market Portfolios.
Series C Investor Shares of the Money Market Portfolios shall be
available only to holders of Series C Investor Shares in the Equity or Fixed
income Portfolios who exchange their Series C Investor Shares in such
Portfolios for Series C Investor Shares in the Money Market Portfolios.
Series B and Series C Investor Shares of a Portfolio shall be subject
to a distribution fee payable to the Distributor and/or to PNC Mutual Fund
Company ("PMFC") pursuant to a distribution plan. Series B and Series C
Investor Shares of a Portfolio shall also be subject to shareholder servicing
and shareholder processing fees payable to service organizations, the
Distributor and PMFC pursuant to a shareholder servicing and processing plan.
Services provided by service organizations, the Distributor and PMFC to their
customers beneficially owning
<PAGE> 4
Series B and Series C Investor Shares may include: (i) establishing
and maintaining accounts and records relating to their customers that invest in
Series B or Series C Investor Shares; (ii) processing dividend and distribution
payments from the Fund on behalf of customers; (iii) arranging for bank wires;
(iv) providing sub-accounting with respect to Series B or Series C Investor
Shares beneficially owned by customers or the information necessary for
sub-accounting; (v) forwarding shareholder communications from the Fund (such
as proxies, shareholder reports, annual and semi-annual financial statements
and dividend, distribution and tax notices) to customers; (vi) assisting in
processing purchase, exchange and redemption requests from customers and
placing such orders with the Fund's service contractors; (vii) assisting
customers in changing dividend options, account designations and addresses;
(viii) providing customers with a service that invests the assets of their
account in Series B or Series C Investor Shares pursuant to specific or
pre-authorized instructions; (ix) providing information periodically to
customers showing their positions in Series B or Series C Investor Shares and
integrating such statements with those of other transactions and balances in
customers' other accounts; (x) responding to customer inquiries relating to the
services performed by the service organization or the Distributor; and (xi)
responding to customer inquiries concerning their investments in Series B or
Series C Investor Shares.
SERVICE SHARES
Service Shares shall be available for purchase by institutions which
act on behalf of their customers maintaining accounts with such institutions
and which provide their customers with certain shareholder services. Service
Shares shall also be available to investors acquiring Service Shares in
connection with certain business combinations and holding such shares
exclusively for their own account and for whom PFPC Inc. provides certain
shareholder services.
Service Shares of a Portfolio shall not be subject to a sales load,
but shall be subject to shareholder servicing and shareholder processing fees
payable to institutions (including PMFC). In consideration of such shareholder
servicing and shareholder processing fees, institutions shall provide services
to their customers which may include: (i) processing purchase and redemption
requests from customers and placing orders with the Fund's transfer agent or
Distributor; (ii) processing dividend payments from the Fund on behalf of
customers; (iii) providing sub-accounting with respect to Service Shares
beneficially owned by customers or the information necessary for
sub-accounting; (iv) responding to customer inquiries relating to the services
performed by the institution and to customer inquiries concerning their
investments in Service
<PAGE> 5
Shares; (v) providing information periodically to customers showing their
positions in Service Shares; and (vi) other similar shareholder liaison
services.
INSTITUTIONAL SHARES
Institutional Shares shall be available from the Distributor for
purchase by institutional investors. Institutional Shares shall not be subject
to a sales load or a separate fee payable pursuant to any distribution plan or
service plan.
C. Exchange Privileges
SERIES A INVESTOR SHARES
A holder of Series A Investor Shares in an Equity or a Fixed Income
Portfolio generally shall be permitted to exchange his shares for Series A
Investor Shares of any other Portfolio of the Fund at the net asset value of
such shares next determined after the transfer agent's receipt of a request for
an exchange. A holder of Series A Investor Shares in a Money Market Portfolio
generally shall be permitted to exchange his shares for Series A Investor
Shares of another Money Market Portfolio, or for Series A Investor Shares or
Series B Investor Shares or Series C Investor Shares of any Equity or Fixed
Income Portfolio of the Fund at the net asset value of such shares next
determined after the transfer agent's receipt of a request for an exchange,
plus any applicable sales charge.
SERIES B INVESTOR SHARES
A holder of Series B Investor Shares of a Portfolio generally shall
be permitted to exchange his shares for Series B Investor Shares of any other
Portfolio of the Fund at the net asset value of such shares next determined
after the transfer agent's receipt of a request for an exchange.
SERIES C INVESTOR SHARES
A holder of Series C Investor Shares of a Portfolio generally shall
be permitted to exchange his shares for Series C Investor Shares of any other
Portfolio of the Fund at the net asset value of such shares next determined
after the transfer agent's receipt of a request for an exchange.
SERVICE SHARES
A holder of Service Shares in a Portfolio generally shall be
permitted to exchange his shares for Service Shares of any other Portfolio of
the Fund at the net asset value
<PAGE> 6
of such shares next determined after the transfer agent's receipt of a request
for an exchange.
INSTITUTIONAL SHARES
A holder of Institutional Shares in a Portfolio generally shall be
permitted to exchange his shares for Institutional Shares of any other
Portfolio of the Fund at the net asset value of such shares next determined
after the transfer agent's receipt of a request for an exchange.
D. Conversion Features
SERIES A INVESTOR SHARES
The Fund initially shall not offer Series A Investor Shares with a
conversion feature.
SERIES B INVESTOR SHARES
Six years after the date of purchase, Series B Investor Shares of a
Portfolio shall automatically convert to Series A Investor Shares of the same
Portfolio at the net asset value of each class of shares at the time of
conversion. Upon each conversion of Series B Investor Shares of a Portfolio
that were not acquired through reinvestment of dividends or distributions, a
proportionate amount of Series B Investor Shares of such Portfolio that were
acquired through reinvestments of dividends or distributions will likewise
automatically convert to Series A Investor Shares of the same Portfolio.
SERIES C INVESTOR SHARES
The Fund initially shall not offer Series C Investor Shares with a
conversion feature.
SERVICE SHARES
At the election of the holders of Service Shares who desire
additional shareholder services, Service Shares of a Portfolio on the basis of
the net asset values of such shares next determined after the transfer agent's
receipt of a conversion request.
INSTITUTIONAL SHARES
The Fund initially shall not offer Institutional Shares with a
conversion feature.
<PAGE> 7
E. Shareholder Services
1. Redemption by Check
Holders of Series A Investor Shares in the Fund's Money Market
Portfolios shall be able to redeem such shares by check. The checkwriting
option shall not be available in connection with the redemption of Series B or
Series C Investor Shares of the Money Market Portfolios, Service Shares or
Institutional Shares of the Money Market Portfolios or shares of any class of
the Equity and Fixed Income Portfolios.
2. Systematic Withdrawal Program
The Fund initially shall offer a systematic withdrawal program
whereby, in general, investors may arrange to have Series A Investor Shares,
Series B Investor Shares or Series C Investor Shares redeemed automatically.
The Fund initially shall not offer a systematic withdrawal
program to investors in Service Shares or Institutional Shares.
3. Automatic Investing
The Fund shall initially offer an automatic investing program
whereby, in general, an investor may arrange to have Series A Investor Shares,
Series B Investor Shares or Series C Investor Shares purchased automatically by
authorizing the Fund's transfer agent to withdraw funds from the investor's
bank account.
The Fund initially shall not offer the automatic investment
program to investors in Service Shares or Institutional Shares.
F. Methodology for Allocating Expenses Among Classes
Class-specific expenses of a Portfolio shall be allocated to the
specific class of shares of that Portfolio. Non-class-specific expenses of a
Portfolio shall be allocated in accordance with Rule 18f-3(c).
<PAGE> 1
EXHIBIT (12)
October 6, 1995
The PNC Fund
c/o Karen Sabath
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
The Compass Capital Group of Funds
680 E. Swedesford Road
Wayne, PA 19087
The BFM Institutional Trust Inc.
345 Park Avenue
New York, NY 10154
Re: Asset Purchase Agreement by and between The PNC Fund
and The Compass Capital Group of Funds
Asset Purchase Agreement by and between The PNC Fund
and The BFM Institutional Trust Inc.
Dear Sirs and Mesdames:
We have been asked to give our opinion, in accordance with the
above Asset Purchase Agreement between The PNC Fund and The Compass Capital
Group of Funds (the "Compass Agreement") and the above Asset Purchase Agreement
by and between The PNC Fund and The BFM Institutional Trust Inc. (the "BIT
Agreement" and together with the Compass Agreement, the "Agreements"), as to
certain Federal income tax consequences of the transactions contemplated in
those agreements.
Background
The PNC Fund ("PNC") is a Massachusetts business trust
consisting of multiple investment portfolios, including the Municipal Money
Market Portfolio, New Jersey Municipal Money Market Portfolio, Pennsylvania
Municipal Money Market Portfolio, Money Market Portfolio, Government Money
Market Portfolio, Tax-Free Income Portfolio, New Jersey Tax-Free Income
Portfolio, Pennsylvania Tax-Free Income Portfolio, Value Equity Portfolio,
Growth Equity Portfolio, Small Cap Value Equity Portfolio, International Equity
Portfolio, Balanced Portfolio, Short-Term
<PAGE> 2
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 2
Bond Portfolio, Core Fixed Income Portfolio, International Fixed Income
Portfolio and Multi-Sector Mortgage Securities Portfolio III (individually, an
"Acquiring Fund" and collectively, the "Acquiring Funds"). The Compass Capital
Group of Funds ("Compass") is a Massachusetts business trust consisting of
sixteen investment portfolios named the Municipal Money Fund, New Jersey
Municipal Money Fund, Pennsylvania Municipal Money Fund, Cash Reserve Fund,
U.S. Treasury Fund, Municipal Bond Fund, New Jersey Municipal Bond Fund,
Pennsylvania Municipal Bond Fund, Equity Income Fund, Growth Fund, Small
Company Fund, International Equity Fund, Balanced Fund, Short/Intermediate
Fund, Fixed Income Fund and International Fixed Income Fund (individually, a
"Compass Fund" and collectively, the "Compass Funds"). The BFM Institutional
Trust Inc. ("BIT") is a Maryland corporation consisting of three operating
investment portfolios named the Short Duration Portfolio, Core Fixed Income
Portfolio and Multi-Sector Mortgage Securities Portfolio III (individually, a
"BIT Fund" and collectively, the "BIT Funds"). Hereinafter, the Compass Funds
and the BIT Funds may be referred to individually as an "Acquired Fund" or
collectively as the "Acquired Funds." PNC, Compass and BIT are all open-end
management investment companies registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended
(the "1940 Act").
At the Effective Time of the Compass Transaction (as defined
in the Compass Agreement), it is contemplated that each Compass Fund will
transfer all of its assets and liabilities to a corresponding Acquiring Fund in
exchange for shares of the Acquiring Fund. Compass will then distribute the
shares of each Acquiring Fund to the shareholders of the corresponding Compass
Fund in cancellation of all outstanding shares of the Compass Fund, and the
existence of Compass will be terminated. Similarly, at the Effective Time of
the BIT Transaction (as defined in the BIT Agreement), it is contemplated that
each BIT Fund will transfer all of its assets and liabilities to a
corresponding Acquiring Fund in exchange for shares of the Acquiring Fund. BIT
will then distribute the shares of each Acquiring Fund to the shareholders of
the corresponding BIT Fund, and the existence of BIT will be terminated. All
of the above steps constitute the "Transactions." After the Transactions,
<PAGE> 3
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 3
each Acquiring Fund will continue the investment operations of the
corresponding Acquired Fund or Acquired Funds.
Assumptions
For purposes of this opinion, we have made certain
assumptions. Please advise us if you are aware of any facts inconsistent with
any of these assumptions:
First, each of the Acquired Funds and each of the pre-existing
Acquiring Funds qualified as a "regulated investment company" under Part I of
Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue Code of 1986, as
amended (the "Code"), for its most recently ended fiscal year and all of the
Acquired Funds and Acquiring Funds will so qualify for their current fiscal
years.
Second, each Acquired Fund will tender for acquisition by the
corresponding Acquiring Fund assets consisting of at least 90% of the fair
market value of the net assets of the Acquired Fund and at least 70% of the
fair market value of its gross assets immediately prior to the Transactions.
For purposes of this assumption, all of the following shall be considered as
assets of such Acquired Fund held immediately prior to the Transactions: (a)
amounts used by the Acquired Fund to pay its expenses in connection with the
transactions contemplated hereby and (b) all amounts used to make redemptions
of or distributions on such Acquired Fund's shares (except for redemptions in
the ordinary course of its business as required by section 22(e) of the 1940
Act pursuant to a demand for redemption by a shareholder of the Acquired Fund,
and distributions of net investment income and net capital gains other than net
capital gains resulting from sales of assets for the purpose of satisfying
investment objectives of the Acquiring Fund, if any, that differ from the
existing investment objectives of the Acquired Fund).
Third, each Acquired Fund will distribute to its shareholders
in complete liquidation of the Acquired Fund the corresponding Acquiring Fund
shares that it will receive in the Transactions as promptly as practicable and
having made such distributions will take all necessary steps to terminate its
existence.
<PAGE> 4
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 4
Fourth, prior to the Transactions, each Acquired Fund will
continue its historic business within the meaning of Treasury Regulations
section 1.368-1(d) and will not dispose of more than fifty percent (50%) of the
fair market value of its assets for the purpose of satisfying investment
objectives of the corresponding Acquiring Fund, if any, that differ from the
existing investment objectives of the Acquired Fund.
Fifth, following the Transactions, each Acquiring Fund will
continue the historic business of the corresponding Acquired Fund or Acquired
Funds or will use a significant portion of the Acquired Fund's or Acquired
Funds' historic business assets in a business.
Sixth, at the time of the Transactions, the adjusted income
tax basis and the fair market value of the assets to be transferred by each
Acquired Fund to the corresponding Acquiring Fund will each equal or exceed the
sum of the liabilities to be assumed by such Acquiring Fund or to which such
transferred assets are subject.
Seventh, at the time of the Transactions, there will be no
plan or intention by the shareholders of any Acquired Fund who own five percent
(5%) or more of the Acquired Fund's stock and, to the best of the knowledge of
the management of Compass or BIT, no current plan or intention on the part of
the remaining shareholders of the Acquired Fund, to sell, exchange or otherwise
dispose of a number of shares of the corresponding Acquiring Fund's stock to be
received in the Transactions that would reduce the Acquired Fund shareholders'
ownership of Acquiring Fund stock to a number of shares having a value, as of
the time of the Transactions, of less than fifty percent (50%) of the value of
all of the formerly outstanding stock of the Acquired Fund immediately prior to
the Transactions. For purposes of this assumption, (a) shares of the Acquired
Fund surrendered by dissenters will be treated as outstanding Acquired Fund
stock immediately prior to the Transactions, and (b) shares of the Acquired
Fund and the Acquiring Fund held by Acquired Fund shareholders and otherwise
sold, redeemed or disposed of in anticipation of the Transactions, or
subsequent to the Transactions pursuant to a plan or intention that existed at
the time of the Transactions, also will be taken into account.
<PAGE> 5
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 5
Eighth, at the time of the Transactions, no Acquiring Fund
will have any plan or intention to reacquire any of its shares issued in the
Transactions, except in the ordinary course of business.
Ninth, at the time of the Transactions, no Acquiring Fund will
have any plan or intention to sell or otherwise to dispose of any of the assets
of the corresponding Acquired Fund acquired in the Transactions, except for
dispositions made in the ordinary course of business.
Tenth, there is and will be no intercorporate indebtedness
between any Acquiring Fund and its corresponding Acquired Fund or Acquired
Funds that was issued, acquired or will be settled at a discount.
Eleventh, no Acquiring Fund owns or will own, directly or
indirectly, nor has it owned during the past five years, directly or
indirectly, any stock of the corresponding Acquired Fund or Acquired Funds.
Twelfth, no Acquired Fund is or will be under the jurisdiction
of a court in a case under Title 11 of the United States Code or a
receivership, foreclosure or similar proceeding in any Federal or State court.
Thirteenth, the liabilities of each Acquired Fund that will be
assumed by the corresponding Acquiring Fund and the liabilities, if any, to
which the transferred assets will be subject were incurred by the Acquired Fund
in the ordinary course of its business.
Fourteenth, the Transactions will be accomplished for the
purposes set forth in the Combined Proxy Statement/Prospectus (the "Proxy
Statement"), a draft of which is part of the Registration Statement (the
"Registration Statement") being filed this day with the SEC.
Fifteenth, the Agreements substantially in the form included
as exhibits in the Proxy Statement will be duly authorized by the parties and
approved by the shareholders of
<PAGE> 6
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 6
each Acquired Fund, and the appropriate documents will be filed with the
appropriate government agencies.
Conclusions
Based upon the Code, applicable Treasury Department
regulations in effect as of the date hereof, current published administrative
positions of the Internal Revenue Service contained in revenue rulings and
procedures, and judicial decisions, and upon the information, representations
and assumptions contained herein and in the documents provided to us by you
(including the Proxy Statement and the Agreements), it is our opinion for
Federal income tax purposes that:
(i) the transfer by each Acquired Fund of all of its
assets and liabilities to the corresponding Acquiring Fund in exchange for
shares of the corresponding Acquiring Fund, and the distribution of said shares
to the shareholders of the Acquired Fund, as provided in the Agreements, will
constitute a reorganization within the meaning of section 368(a)(1)(C),
368(a)(1)(D) or 368(a)(1)(F) of the Code;
(ii) in accordance with sections 361(a), 361(c)(1) and
357(a) of the Code, no gain or loss will be recognized by any Acquired Fund as
a result of the Transactions;
(iii) in accordance with section 1032(a) of the Code, no gain
or loss will be recognized by any Acquiring Fund as a result of the
Transactions;
(iv) in accordance with section 354(a)(1) of the Code, no
gain or loss will be recognized by the shareholders of any Acquired Fund on the
distribution to them by the Acquired Fund of shares of the corresponding
Acquiring Fund in exchange for their shares of the Acquired Fund;
(v) in accordance with section 358(a)(1) of the Code, the
aggregate basis of the Acquiring Fund shares received by each shareholder of an
Acquired Fund will be the same as the aggregate basis of the shareholder's
Acquired Fund shares exchanged therefor in the Transactions;
<PAGE> 7
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 7
(vi) in accordance with section 362(b) of the Code, the
basis of the assets received by each Acquiring Fund in the Transactions will be
the same as the basis of such assets in the hands of the corresponding Acquired
Fund immediately before the Transactions;
(vii) in accordance with section 1223(1) of the Code, a
shareholder's holding period for Acquiring Fund shares will be determined by
including the period for which the shareholder held the shares of the Acquired
Fund exchanged therefor, provided that the shareholder held such shares of the
Acquired Fund as a capital asset;
(viii) in accordance with section 1223(2) of the Code, the
holding period of each Acquiring Fund with respect to the assets acquired in
the Transactions will include the period for which such assets were held by the
corresponding Acquired Fund; and
(ix) in accordance with section 381(a) of the Code, each
Acquiring Fund will succeed to the tax attributes of the corresponding Acquired
Fund described in section 381(c) of the Code.
We express no opinion relating to any Federal income tax
matter except on the basis of the documents and assumptions described above.
In issuing our opinion, we have relied solely upon existing provisions of the
Code, existing and proposed regulations thereunder, and current administrative
positions and judicial decisions. Such laws, regulations, administrative
positions and judicial decisions are subject to change at any time. Any such
change could affect the validity of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to our firm under the
caption "Information Relating to the Proposed Transactions -- Federal Income
Tax Consequences" in the Proxy Statement. This does not constitute a consent
under section 7 of the Securities Act of 1933, and in consenting to such
references to our firm we have not certified any part of the Registration
<PAGE> 8
The PNC Fund
The Compass Capital Group of Funds
The BFM Institutional Trust Inc.
October 6, 1995
Page 8
Statement and do not otherwise come within the categories of persons whose
consent is required under section 7 or under the rules and regulations of the
SEC issued thereunder.
Very truly yours,
/s/ DRINKER BIDDLE & REATH
DRINKER BIDDLE & REATH
<PAGE> 1
EXHIBIT (13)(e)
DRAFT - 9/27/95
THE PNC(R) FUND
CO-ADMINISTRATION AGREEMENT
AGREEMENT dated as of __________________, 1995 between THE PNC(R) FUND,
a Massachusetts business trust (the "Company"), and PNC MUTUAL FUND COMPANY, a
Delaware corporation (the "Co-Administrator").
WHEREAS, the Company is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company desires to retain the Co-Administrator certain
administration services and the Co-Administrator is willing to furnish such
administration services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and intending to be legally bound, it is agreed between the
parties hereto as follows:
1. Appointment of Co-Administrator. The Company hereby appoints the
Co-Administrator to provide certain administration services, as more fully
described herein, for each class and series of shares in each of the Company's
Funds on the terms and for the period set forth in this Agreement. The
Co-Administrator accepts such appointment and agrees to perform the services and
duties set forth in Section 3 below in return for the compensation provided in
Section 5 below. In the event that the Company establishes additional class or
investment portfolios other than the Funds listed on Appendix A with respect to
which it desires to retain the Co-Administrator to act as an administrator
hereunder, the Company shall notify the Co-Administrators, whereupon such
Appendix A shall be supplemented (or amended) and such portfolio shall become a
Fund hereunder and shall be subject to the provisions of this Agreement to the
same extent as the Funds (except to the extent that said provisions, including
the compensation payable on behalf of such new Fund, may be modified in writing
by the Company and the Co-Administrator at the time).
2. Delivery of Documents. The Company has furnished the
Co-Administrator with copies, properly certified or authenticated, of each of
the following documents and will deliver to it all future amendments and
supplements, if any:
a. The Company's Declaration of Trust, filed with the Secretary
of State of the Commonwealth of Massachusetts on December 22, 1988, as amended
(the "Charter");
<PAGE> 2
b. The Company's Code of Regulations, as amended ("Code");
c. Resolutions of the Company's Board of Trustees authorizing
the execution and delivery of this Agreement;
d. The Company's most recent amendment to its Registration
Statement under the Securities Act of 1933, as amended, and under the 1940 Act
on Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") on ______________, 1995 relating to its Funds (the Registration
Statement, as presently in effect and as amended or supplemented from time to
time, is herein called the "Registration Statement"); and
e. The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, are
herein called the "Prospectuses").
3. Services and Duties.
a. Subject to the supervision and control of the Company's
Board of Trustees, the Co-Administrator shall be responsible for the
performance of the following services:
(1) The oversight and coordination of the
performance of each of the service providers to the Company,
including without limitation, its investment advisers,
sub-investment advisers, other administrators, transfer agent,
custodian, distributor, shareholder servicing agents, legal
counsel and independent auditors.
(2) The negotiation of service contracts and
arrangements between the Company and each of its service
providers;
(3) Acting as liaison between the Company's Board of
Trustees and its service providers;
(4) Assisting in the preparation of materials for
meetings of the Company's Board of Trustees and shareholders;
and
(5) Providing general ongoing business management and
support services in connection with the Company's operations.
-2-
<PAGE> 3
b. In performing all of its services and duties hereunder, the
Co-Administrator will act in conformity with the Charter, Code, Prospectuses
and resolutions and other instructions of the Company's Board of Trustees and
will comply with the requirements of the 1940 Act and other applicable federal
or state law.
4. Expenses Assumed as Co-Administrator. The Co-Administrator
will bear all expenses incurred by it in performing its services and duties
hereunder, except as otherwise expressly provided herein. Other expenses to be
incurred in the operation of the Funds, including taxes, interest, brokerage
fees and commissions, if any, salaries and fm of officers and trustees who are
not officers, directors, shareholders or employees of the Company's
administrators, or the Company's investment adviser, other administration or
distributor for the Funds, Commission fees and state Blue Sky qualification
fees, advisory and administration fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, outside auditing
and legal expenses, costs of maintaining corporate existence, typesetting and
printing of prospectuses for regulatory purposes and for distribution to
current shareholders of the Funds, costs of shareholders' reports and corporate
meetings and any extraordinary expenses, will be borne by the Company,
provided, however, that the Company will not bear, directly or indirectly, the
cost of any activity which is primarily intended to result in the sale of shares
of the Funds otherwise than pursuant to its Amended and Restated Distribution
and Service Plan.
5. Compensation.
a. For the services provided and the expenses assumed as
Co-Administrator pursuant to Section 4 above, the Company will pay to the Co-
Administrator a monthly fee at an annual rate equal to 0.03% of the average
daily net assets of each Fund, as modified by agreement of the Co-
Administrator and the Company from time to time. The fee attributable to each
Fund shall be the several (and not joint or joint and several) obligation of
each portfolio.
b. For the purpose of determining fees payable to the
Co-Administrator for the services provided hereunder, the value of each Fund's
net assets shall be computed as required by its Prospectuses, generally
accepted accounting principles and resolutions of the Company's Board of
Trustees. The fee attributable to each Fund shall be the several (and not
joint or joint and several) obligation of each such Fund.
c. The Co-Administrator will from time to time employ or
associate with itself such person or persons as it may believe to be fitted
to assist them in the performance of this
-3-
<PAGE> 4
Agreement. Such person or persons may be officers and employees who are
employed by both the Company and the Co-Administrator. The compensation of
such person or shall be paid by the Co-Administrator, and no obligation shall
be incurred on behalf of the Company in such respect.
d. If the expenses borne by any Fund in any fiscal year exceed the
applicable expense limitations imposed by the securities regulations of any
state in which the Fund's shares are registered or qualified for sale to the
public, the Co-Administrator agrees to reimburse such Fund for a portion of any
such excess expense in an amount equal to the portion that the fees otherwise
payable by the fund to the Co-Administrator hereunder bears to the total amount
of the investment advisory and administration fees otherwise payable by the
Fund. The expense reimbursement obligation of the Co-Administrator is limited
to the amount of its fees hereunder for such fiscal year, provided, however,
that notwithstanding the foregoing, the Co-Administrator shall reimburse such
Fund for a portion of any such excess expenses in an amount equal to the
proportion that the fees otherwise payable to the Co-Administrator bear to the
total amount of investment advisory and administration fees otherwise payable
by the fund regardless of the amount of fees paid to the Co-Administrator
during such fiscal year to the extent that the securities regulations of any
state having jurisdiction over the fund so require. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis.
6. Proprietary and Influential Information. The Co-Administrator agrees
behalf of itself and its employees to treat confidentially and as proprietary
information of Company all records and other information relative to the
Company and its Funds and present or potential shareholders, and not to use
such records and information for any purpose other than performance of their
responsibilities and duties hereunder, except after or notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Co-Administrator may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
7. Limitations of Liability. The Co-Administrator shall not be liable
for error of judgment or mistake of law or for any loss suffered by the Company
in on with the matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties from reckless disregard by it of its obligations and
duties under this Agreement. Any person, even though also an officer,
director, employee or agent of the Co-Administrator, who may be or become an
officer, employee or agent of the Company, shall be deemed when services to the
-4-
<PAGE> 5
Company or acting on any business of the Company (other than services or
business in connection with the Co-Administrator's duties hereunder) to be
rendering such services to or acting solely for the Company and not as an
officer, director, employee or agent or one under the control or direction of
the Co-Administrator even though paid by the Co-Administrator.
8. Duration and Termination. This Agreement shall become effective
upon execution as of the date first written above and, unless sooner terminated
as provided herein, shall continue until ____________, 199_. Thereafter, if
not terminated, this Agreement shall continue automatically for successive
terms of one year, provided that such continuance is specifically approved at
least annually (a) by a vote of a majority of those of the Company's Board of
Trustees who are not parties to this Agreement or "interested persons" of any
such party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Company's Board of Trustees or by vote of a
"majority of the outstanding voting securities" of the Company; provided,
however, that this Agreement may be terminated by the Company at any time,
without the payment of any penalty, by vote of a majority of the entire Board
of Trustees or a vote of a "majority of the outstanding voting securities" of
the Company, on 60-days' written notice to the Co-Administrator, or by the
Co-Administrator at any time, without the payment of any penalty, on 90-days'
written notice to the Company. (As used in this Agreement, the terms "majority
of the outstanding voting securities" and "interested person" shall have the
same meaning as such terms have in the 1940 Act.)
9. Amendment of this Agreement. No provision of this
Agreement may be changed, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
10. Notices. Notices of any kind to be given to the Company
hereunder by the Co-Administrator shall be in writing and shall be duly given
if mailed or delivered to the Company any at Bellevue Park Corporate Center,
Suite 152, 103 Bellevue Parkway, Wilmington, Delaware 19809, Attention: Mr.
Edward J. Roach, Treasurer, with a copy to Drinker Biddle & Reath,
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496, Attention: Morgan R. Jones, Secretary, or at such
other address or to such individual as shall be so specified by the Company to
the Co-Administrator. Notices of any kind to be given to the Co-Administrator
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to PNC Mutual Fund Company, 345 Park Avenue, 30th Floor, New York,
New York 10154, Attention: Karen H. Sabath, or at such other address or to
such other individual as shall be so specified by the Co-Administrator to the
Company.
-5-
<PAGE> 6
11. Miscellaneous.
a. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
b. The Names "The PNC(R) Fund" and "Trustees of The PNC(R)
Fund" refer specifically to the sent created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated December 22, 1988, which is hereby referred to and a copy of which
is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Company. The obligations of
"The PNC(R) Fund" entered into in the name or on behalf thereof by any of the
Trustees, officers, representatives or agents are not made individually, but in
such capacities, and are not binding upon any of the Trustees, shareholders,
representatives or agents of the Company personally, but bind only the Trust
property (as defined in the Declaration of Trust), and all persons dealing with
any Fund or class of shares of the Company must look solely to the Trust
property belonging to such Fund or class for the enforcement of any claims
against the Company.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of ___________________.
13. Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE PNC(R) FUND
By:_______________________________
PNC MUTUAL FUND COMPANY
By:_______________________________
-6-
<PAGE> 1
EXHIBIT (13)(o)
APPENDIX A
to the
ADMINISTRATION AGREEMENT
between
The PNC(R) Fund
and
PFPC Inc.
and
Provident Distributors, Inc.
- -----------------------------------------------------------------------------
Money Market Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Municipal Money Market Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares and Series C Investor Shares)
Government Money Market Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares and Series C Investor Shares)
New Jersey Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
Ohio Municipal Money Market Portfolio (Institutional Shares, Services Shares,
Series A Investor Shares and Series C Investor Shares)
Pennsylvania Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
North Carolina Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
Virginia Municipal Money Market Portfolio (Institutional Shares, Service
Shares, Series A Investor Shares and Series C Investor Shares)
Managed Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Tax-Free Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Intermediate Government Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
<PAGE> 2
New Jersey Tax-Free Income Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Ohio Tax-Free Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Pennsylvania Tax-Free Income Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Government Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Core Fixed Income Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Short-Term Bond Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Intermediate-Term Bond Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
International Fixed Income Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Multi-Sector Mortgage Securities Portfolio III (Institutional Shares)
Value Equity Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Growth Equity Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Index Equity Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
Small Cap Value Equity Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
International Equity Portfolio (Institutional Shares, Service Shares, Series A
Investor Shares, Series B Investor Shares and Series C Investor Shares)
Balanced Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
<PAGE> 3
Small Cap Growth Equity Portfolio (Institutional Shares, Service Shares, Series
A Investor Shares, Series B Investor Shares and Series C Investor Shares)
Core Equity Portfolio (Institutional Shares, Service Shares, Series A Investor
Shares, Series B Investor Shares and Series C Investor Shares)
International Emerging Markets Portfolio (Institutional Shares, Service Shares,
Series A Investor Shares, Series B Investor Shares and Series C Investor
Shares)
Agreed to and accepted as of ________________, 1996
THE PNC(R) FUND
By:
---------------------------------------
PFPC INC.
By:
---------------------------------------
PROVIDENT DISTRIBUTORS, INC.
By:
---------------------------------------
<PAGE> 4
APPENDIX B
Administration Fees Payable
With Respect to the PNC(R) Fund
<TABLE>
<CAPTION>
Portfolios Administration Fees
---------- -------------------
<S> <C>
Managed Income, Core Fixed Income, Intermediate Administrators are entitled to receive a combined
Government, Tax-Free Income, New Jersey Tax-Free fee, computed daily and payable monthly, at an
Income, Ohio Tax-Free Income, Pennsylvania Tax- annual rate of .20% of the first $500 million of
Free Income, Short-Term Bond, Intermediate-Term each Portfolio's average daily net assets; .18% of
Bond, International Fixed Income and Government the next $500 million of each Portfolio's average
Income Portfolios. daily net assets; .16% of the next $1 billion of
each Portfolio's average daily net assets; and
.15% of each Portfolio's average daily net assets
in excess of $2 billion.
Money Market, Municipal Money Market, Government Administrators are entitled to receive a combined
Money Market, Ohio Municipal Money Market, New fee, computed daily and payable monthly, at an
Jersey Municipal Money Market, Pennsylvania annual rate of .15% of the first $500 million of
Municipal Money Market, North Carolina Municipal each Portfolio's average daily net assets; .13% of
Money Market and Virginia Municipal Money Market the next $500 million of each Portfolio's average
Portfolios. daily net assets; .11% of the next $1 billion of
each Portfolio's average daily net assets and .10%
of each Portfolio's average daily net assets in
excess of $2 billion.
Value Equity, Growth Equity, Small Cap Value Administrators are entitled to receive a combined
Equity, International Equity, Balanced, Small Cap fee, computed daily and payable monthly, at an
Growth Equity, Core Equity and International annual rate of .20% of the first $500 million of
Emerging Markets Portfolios. each Portfolio's average daily net assets; .18% of
the next $500 million of each Portfolio's average
daily net assets; .16% of the next $1 billion of
each Portfolio's average daily net assets; and
.15% of each Portfolio's average daily net assets
in excess of $2 billion.
Multi-Sector Mortgage Securities Portfolio III. [Fees to be determined.]
Index Equity Portfolio [Fees to be determined.]
</TABLE>
Agreed to and accepted as of ______________, 1996
THE PNC(R) Fund
By:
-------------------------
PFPC INC.
By:
-------------------------
PROVIDENT DISTRIBUTORS, INC.
By:
-------------------------
<PAGE> 1
EXHIBIT (13)(p)
The PNC(R) Fund
Appendix C to the
Transfer Agency Agreement dated
as of October 4, 1989
The Fund desires to retain the Transfer Agent to serve as the
Fund's transfer agent, registrar and dividend disbursing agent with respect to
Shares, par value $.001 per Share, of the additional Portfolios listed below
("Additional Portfolios") and the Transfer Agent is willing to furnish such
services.
The Additional Portfolios are as follows:
- Government Income Portfolio
- International Emerging Markets Portfolio
- International Fixed Income Portfolio
- Virginia Municipal Money Market Portfolio
- New Jersey Municipal Money Market Portfolio
- New Jersey Tax-Free Income Portfolio
- Core Fixed Income Portfolio
- Multi-Sector Mortgage Securities Portfolio III
Agreed to and accepted as of
____________________________, 1996
The PNC(R) Fund
By:
----------------------------------
PFPC Inc.
By:
----------------------------------
<PAGE> 1
EXHIBIT (14)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to the Registration Statement on Form
N-14 under the Securities Act of 1933 of The PNC(R) Fund with respect to the
transfer of all assets and liabilities of the Municipal Money, New Jersey
Municipal Money, Pennsylvania Municipal Money, Cash Reserve, U.S. Treasury,
Municipal Bond, New Jersey Municipal Bond, Pennsylvania Municipal Bond, Equity
Income, Growth, Small Company, International Equity, Balanced,
Short/Intermediate, Fixed Income and International Fixed Income Funds of the
Compass Capital Group of Funds to the Municipal Money Market, New Jersey
Municipal Money Market, Pennsylvania Municipal Money Market, Money Market,
Government Money Market, Tax-Free Income, New Jersey Tax-Free Income,
Pennsylvania Tax-Free Income, Value Equity, Growth Equity, Small Cap Growth
Equity, International Equity, Balanced, Short-Term Bond, Core Fixed Income, and
International Fixed Income Portfolios, respectively, of the PNC(R) Fund:
1. The incorporation by reference of our report dated November 23, 1994
accompanying the financial statements of the PNC(R) Fund into its
Statement of Additional Information dated July 24, 1995, which is
included in the Registration Statement.
2. The inclusion of our report dated April 14, 1995 accompanying the
financial statements of the Compass Capital Group of Funds, which is
included in its Statement of Additional Information dated July 1, 1995,
which is included in the Registration Statement.
3. The incorporation by reference of our reports dated November 23, 1994
and April 14, 1995, accompanying the financial statements of The PNC(R)
Fund and the Compass Capital Group Funds, respectively, into the
Statement of Additional Information related to the Combined Proxy
Statement/Prospectus.
4. The reference to our Firm under the headings "Financial Statements and
Experts" and "Other Service Providers for Compass Portfolios, BIT
Portfolios and PNC(R) Portfolios" in the aforementioned Combined Proxy
Statement/Prospectus and reference to our Firm under the heading
"Financial Highlights" in The PNC(R) Fund Prospectuses and
"Miscellaneous-Independent Accountants" and "Financial Statements" in
the Statement of Additional Information of The PNC(R) Fund.
5. The reference to our Firm under the heading "Financial Highlights" and
"Counsel and Independent Accountants" in the Compass Capital Group of
Funds Prospectuses and "Auditors" and in the Statement of Additional
Information of the Compass Capital Group of Funds.
/s/ COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 6, 1995
<PAGE> 1
Exhibit (14)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
The PNC Fund on Form N-14 of our reports dated August 7, 1995 on the financial
statements of The Short Duration Portfolio, The Core Fixed Income Portfolio and
The Multi-Sector Mortgage Securities Portfolio III of The BFM Institutional
Trust Inc. appearing in the Annual Reports of The BFM Institutional Trust Inc.
and of the Multi-Sector Mortgage Securities Portfolio III for the year ended
June 30, 1995, and to the references to us under the headings "Other Service
Providers for Compass Portfolios, BIT Portfolios and PNC Portfolios" and
"Financial Statements and Experts" in the Combined Proxy Statement/Prospectus,
which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
October 9, 1995
<PAGE> 1
EXHIBIT (14)(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm included in the Registration Statement on Form N-14 under the Securities
Act of 1933 and the Investment Company Act of 1940, respectively. However,
this action does not constitute a consent under Section 7 of the Securities Act
of 1933, because we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under Section 7 or under the rules and regulations of the Securities
and Exchange Commission thereunder.
DRINKER BIDDLE & REATH
----------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
October 6, 1995
<PAGE> 1
EXHIBIT (16)
THE PNC(R) FUND
POWER OF ATTORNEY
Philip E. Coldwell, whose signature appears below, does hereby
constitute and appoint G. Willing Pepper and Edward J. Roach, and each of them,
his true and lawful attorney to execute in his name, place and stead, in his
capacity as trustee or officer, or both, of The PNC Fund (the "Fund"), the
Registration Statement of the Fund on Form N-14, any amendments thereto, and
all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and either of said
attorneys shall have power to act with or without the other of said attorneys
and shall have full power of substitution and re-substitution; and either of
said attorneys shall have full power and authority to do and perform in the
name and on the behalf of the undersigned trustee and/or officer of the Fund,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned trustee and/or officer of the Fund might or could do in person,
said acts of said attorney being hereby ratified and approved.
/S/ Philip E. Coldwell
-----------------------
Philip E. Coldwell
Date: October 6, 1995
<PAGE> 2
THE PNC(R) FUND
POWER OF ATTORNEY
Robert R. Fortune, whose signature appears below, does hereby
constitute and appoint G. Willing Pepper and Edward J. Roach, and each of them,
his true and lawful attorney to execute in his name, place and stead, in his
capacity as trustee or officer, or both, of The PNC Fund (the "Fund"), the
Registration Statement of the Fund on Form N-14, any amendments thereto, and
all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorney shall
have full power of substitution and re-substitution; and said attorney shall
have full power and authority to do and perform in the name and on the behalf
of the undersigned trustee and/or officer of the Fund, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as the undersigned trustee
and/or officer of the Fund might or could do in person, said acts of said
attorney being hereby ratified and approved.
/s/ Robert R. Fortune
---------------------
Robert R. Fortune
Date: October 6, 1995
<PAGE> 3
THE PNC(R) FUND
POWER OF ATTORNEY
Rodney D. Johnson, whose signature appears below, does hereby
constitute and appoint G. Willing Pepper and Edward J. Roach, and each of them,
his true and lawful attorney to execute in his name, place and stead, in his
capacity as trustee or officer, or both, of The PNC Fund (the "Fund"), the
Registration Statement of the Fund on Form N-14, any amendments thereto, and
all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and either of said
attorneys shall have power to act thereunder with or without the other of said
attorneys and shall have full power of substitution and re-substitution; and
either of said attorneys shall have full power and authority to do and perform
in the name and on the behalf of the undersigned trustee and/or officer of the
Fund, in any and all capacities, every act whatsoever requisite or necessary to
be done in the premises, as fully and to all intents and purposes as the
undersigned trustee and/or officer of the Fund might or could do in person,
said acts of said attorney being hereby ratified and approved.
/s/ Rodney D. Johnson
---------------------
Rodney D. Johnson
Date: October 6, 1995
<PAGE> 4
THE PNC(R) FUND
POWER OF ATTORNEY
Anthony M. Santomero, whose signature appears below, does hereby
constitute and appoint G. Willing Pepper and Edward J. Roach, and each of them,
his true and lawful attorney to execute in his name, place and stead, in his
capacity as trustee or officer, or both, of The PNC Fund (the "Fund"), the
Registration Statement of the Fund on Form N-14, any amendments thereto, and
all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and either of said
attorneys shall have power to act thereunder with or without the other of said
attorneys and shall have full power of substitution and re-substitution; and
either of said attorneys shall have full power and authority to do and perform
in the name and on the behalf of the undersigned trustee and/or officer of the
Fund, in any and all capacities, every act whatsoever requisite or necessary to
be done in the premises, as fully and to all intents and purposes as the
undersigned trustee and/or officer of the Fund might or could do in person,
said acts of said attorney being hereby ratified and approved.
/s/ Anthony M. Santomero
------------------------
Anthony M. Santomero
Date: October 6, 1995
<PAGE> 5
THE PNC(R) FUND
POWER OF ATTORNEY
David R. Wilmerding, Jr., whose signature appears below, does hereby
constitute and appoint G. Willing Pepper and Edward J. Roach, and each of them,
his true and lawful attorney to execute in his name, place and stead, in his
capacity as trustee or officer, or both, of The PNC Fund (the "Fund"), the
Registration Statement of the Fund on Form N-14, any amendments thereto, and
all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and either of said
attorneys shall have power to act with or without the other of said attorneys
and shall have full power of substitution and re-substitution; and either of
said attorneys shall have full power and authority to do and perform in the
name and on the behalf of the undersigned trustee and/or officer of the Fund,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned trustee and/or officer of the Fund might or could do in person,
said acts of said attorney being hereby ratified and approved.
/s/ David R. Wilmerding
-----------------------
David R. Wilmerding
Date: October 6, 1995
<PAGE> 1
EXHIBIT (17)(a)
As filed with the Securities and Exchange Commission on December 23, 1988
Registration No. 33-26305
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. __ / /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. __ / /
------------------------------
THE NCP FUNDS
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
Suite 204, Webster Building Edward J. Roach
Concord Plaza Suite 204
3411 Silverside Road Webster Building
Wilmington, Delaware 19810 3411 Silverside Road
(Address of Principal Executive Wilmington, Delaware 19809
Offices) (Name and Address of Agent
Registrant's Telephone Number: for Service)
(302) 478-1630
</TABLE>
Copies to:
Morgan R. Jones, Esq.
DRINKER BIDDLE & REATH
1100 PNB Building
Philadelphia, PA 19107
Approximate Date of Proposed Public Offering: As soon
as practicable after the effective date of the registration statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Title of Maximum
Securities Amount Offering Amount of
Being Being Price Per Registration
Registered Registered Unit Fee
- ---------- ---------- --------- ------------
<S> <C> <C> <C>
Shares of Indefinite Net Asset $500*
beneficial Value
interest (plus
($.001 par sales load,
value per share) if any)
</TABLE>
<PAGE> 2
----------------------------------------
* Pursuant to the provisions of Rule 24f-2 under the
Investment Company Act of 1940, Registrant hereby elects to register an
indefinite number of its shares of beneficial interest, including shares of
beneficial interest in its Money Market Portfolio, Tax-Free Money Market
Portfolio, Government Obligations Money Market Portfolio, Balanced Portfolio,
Equity Portfolio, Fixed Income Portfolio and International Portfolio.
----------------------------------------
Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date
until Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 3
As filed with the Securities and Exchange Commission on May 11, 1995
Registration No. 33-26305
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 15 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 17 /x/
------------------------------
THE PNC(R) FUND
(Formerly, NCP Funds)
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
Bellevue Corporate Center Edward J. Roach
400 Bellevue Parkway Bellevue Corporate Center
Suite 100 400 Bellevue Parkway
Wilmington, Delaware 19809 Suite 100
(Address of Principal Executive Wilmington, Delaware 19809
Offices) (Name and Address of Agent
Registrant's Telephone Number: for Service)
(302) 792-2555
</TABLE>
Copies to:
Morgan R. Jones, Esq.
DRINKER BIDDLE & REATH
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on ____________ pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/x/ 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 4
Registrant has previously registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933, as amended, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant's
initial 24f-2 Notice for its fiscal year ended September 30, 1994 was filed on
October 7, 1994.
<PAGE> 1
EXHIBIT (17)(b)
[PRELIMINARY COPY]
THE COMPASS CAPITAL GROUP OF FUNDS(R)
[MUNICIPAL MONEY FUND]
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE COMPASS
CAPITAL GROUP OF FUNDS(R) ("COMPASS") FOR USE AT A SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD AT THE OFFICES OF SEI FINANCIAL MANAGEMENT CORPORATION,
680 EAST SWEDESFORD ROAD, WAYNE, PA 19087 ON DECEMBER __,1995 AT _____ A.M.
EASTERN TIME.
THE UNDERSIGNED HEREBY APPOINTS ____________ AND ___________, AND EACH
OF THEM, WITH FULL POWER OF SUBSTITUTION, AS PROXIES OF THE UNDERSIGNED TO VOTE
AT THE ABOVE-STATED MEETING, AND AT ANY ADJOURNMENT THEREOF, ALL SHARES OF THE
COMPASS _______________ FUND (THE "FUND") HELD OF RECORD BY THE UNDERSIGNED ON
____________, 1995, THE RECORD DATE FOR THE MEETING, UPON THE FOLLOWING MATTER
AND, IN THEIR DISCRETION, UPON ANY OTHER MATTER THAT MAY COME BEFORE THE
MEETING.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON, AND IN THE ABSENCE OF SPECIFICATION WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" PROPOSAL 1.
TO VOTE MARK AN X IN BLUE OR BLACK INK ON THE PROXY CARD BELOW. KEEP THIS
PORTION FOR YOUR RECORDS.
- -----------------------------------------------------------------
(DETACH HERE AND RETURN THIS PORTION ONLY)
COMPASS [MUNICIPAL MONEY FUND]
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN
/ / / / / /
1. PROPOSAL TO APPROVE AN ASSET
PURCHASE AGREEMENT PROVIDING
FOR (A) THE TRANSFER OF THE
ASSETS AND LIABILITIES OF THE
FUND TO A CORRESPONDING
PORTFOLIO OF THE PNC(R) FUND,
(THE "COMPASS TRANSACTION"),
AND (B) THE APPROVAL OF AN INTERIM
INVESTMENT ADVISORY AGREEMENT
[AND SUB-ADVISORY AGREEMENT] FOR
THE FUND IF THE
<PAGE> 2
MERGER OF MIDLANTIC CORPORATION AND
PNC BANK CORP. OCCURS BEFORE THE
CLOSING ON THE COMPASS TRANSACTION.
2. IN THEIR DISCRETION, THE PROXIES
ARE AUTHORIZED TO TRANSACT SUCH
OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE SPECIAL MEETING
OR ANY ADJOURNMENT THEREOF.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS
ATTORNEY OR EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
------------------------ --------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNERS) (DATE)
<PAGE> 3
[PRELIMINARY COPY]
THE BFM INSTITUTIONAL TRUST INC.
[SHORT DURATION PORTFOLIO]
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE BFM
INSTITUTIONAL TRUST INC. ("BIT") FOR USE AT A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT THE OFFICES OF BLACKROCK FINANCIAL MANAGEMENT INC., 345 PARK
AVENUE, NEW YORK, NEW YORK 10154 ON DECEMBER __,1995 AT _____ A.M. EASTERN
TIME.
THE UNDERSIGNED HEREBY APPOINTS ____________ AND ___________, AND EACH
OF THEM, WITH FULL POWER OF SUBSTITUTION, AS PROXIES OF THE UNDERSIGNED TO VOTE
AT THE ABOVE-STATED MEETING, AND AT ANY ADJOURNMENT THEREOF, ALL SHARES OF THE
BIT _____________ PORTFOLIO (THE "FUND") HELD OF RECORD BY THE UNDERSIGNED ON
____________, 1995, THE RECORD DATE FOR THE MEETING, UPON THE FOLLOWING MATTER
AND, IN THEIR DISCRETION, UPON ANY OTHER MATTER THAT MAY COME BEFORE THE
MEETING.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON, AND IN THE ABSENCE OF SPECIFICATION WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" PROPOSAL 1.
TO VOTE MARK AN X IN BLUE OR BLACK INK ON THE PROXY CARD BELOW. KEEP THIS
PORTION FOR YOUR RECORDS.
- ----------------------------------------------------------------------
(DETACH HERE AND RETURN THIS PORTION ONLY)
BIT SHORT DURATION PORTFOLIO
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN
/ / / / / / 1. PROPOSAL TO APPROVE AN ASSET PURCHASE
AGREEMENT PROVIDING FOR THE TRANSFER
OF THE ASSETS AND LIABILITIES OF
THE FUND TO A CORRESPONDING PORTFOLIO
OF THE PNC(R) FUND.
<PAGE> 4
2. IN THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO TRANSACT SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE
THE SPECIAL MEETING OR ANY ADJOURNMENT
THEREOF.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS
ATTORNEY OR EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
------------------------ --------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNERS) (DATE)
<PAGE> 1
EXHIBIT (17)(c)
THE MONEY MARKET PORTFOLIOS
SERVICE CLASS
The PNC(R) Fund (the "Fund") consists of twenty-six investment portfolios.
This Prospectus relates to eight classes of shares ("Service Shares" or
"Shares") representing interests in eight of those portfolios (collectively, the
"Portfolios") with the following objectives:
MONEY MARKET PORTFOLIO--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It pursues this objective by investing primarily in short-term,
high quality, U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It pursues this objective
by investing substantially all of its assets in a diversified portfolio of
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").
GOVERNMENT MONEY MARKET PORTFOLIO--to provide as high a level of current
interest income as is consistent with maintaining liquidity and stability of
principal. It pursues this objective by investing primarily in short-term
U.S. Treasury bills, notes and other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities and repurchase
agreements relating to such obligations.
OHIO MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from Ohio
income tax as is consistent with maintaining liquidity and stability of
principal. It pursues this objective by investing primarily in short-term
municipal obligations issued by the State of Ohio and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("Ohio Municipal Obligations").
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level
of current income exempt from Federal and, to the extent possible, from
Pennsylvania income tax as is consistent with maintaining liquidity and
stability of principal. It pursues this objective by investing primarily in
short-term municipal obligations issued by the Commonwealth of Pennsylvania
and its political subdivisions, agencies, instrumentalities and authorities
and tax-exempt derivative securities relating thereto ("Pennsylvania
Municipal Obligations").
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level
of current interest income exempt from Federal and, to the extent possible,
from North Carolina income tax as is consistent with maintaining liquidity
and stability of principal. It pursues this objective by investing primarily
in short-term municipal obligations issued by the State of North Carolina
and its political subdivisions, agencies, instrumentalities and authorities
and tax-exempt derivative securities relating thereto ("North Carolina
Municipal Obligations").
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from
Virginia income tax as is consistent with maintaining liquidity and
stability of principal. It pursues this objective by investing primarily in
short-term municipal obligations issued by the Commonwealth of Virginia and
its political sub-divisions, agencies, instrumentalities and authorities and
tax-exempt derivative securities relating thereto ("Virginia Municipal
Obligations").
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from New
Jersey income tax as is consistent with maintaining liquidity and stability
of principal. It pursues this objective by investing primarily in short-term
municipal obligations issued by the State of New Jersey and its political
subdivisions, agencies, instrumentalities and authorities and tax-exempt
derivative securities relating thereto ("New Jersey Municipal Obligations").
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 Ohio Municipal Money Market, Pennsylvania Municipal Money
Market, North Carolina Municipal Money Market, Virginia Municipal Money Market
and New Jersey Municipal Money Market Portfolios are intended for residents of
Ohio, Pennsylvania, North Carolina, Virginia and New Jersey, respectively.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENTS RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated July 24, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 422-6538. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS July 24, 1995
<PAGE> 2
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
NORTH NEW
OHIO PENNSYLVANIA CAROLINA VIRGINIA JERSEY
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory
fees(1)...... .06% .06% .06% .06% .06% .06% .05% .05%
Other operating
expenses..... .52 .52 .52 .52 .52 .52 .53 .53
--- --- --- --- --- --- --- ---
Administration
fees(1).... .13 .11 .12 .10 .12 .05 .02 .02
Shareholder
servicing
fee........ .15 .15 .15 .15 .15 .15 .15 .15
Other
expenses
(1)(2)....... .24 .26 .25 .27 .25 .32 .36 .36
--- --- --- --- --- --- --- ---
Total fund
operating
expenses..... .58% .58% .58% .58% .58% .58% .58% .58%
=== === === === === === === ===
</TABLE>
- ------------------
(1) Advisory fees are net of fee waivers of .38%, .39%, .39%, .39%, .39%, .39%,
.40% and .40% and administration fees are net of waivers of .01%, .04%,
.03%, .05%, .03%, .10%, .13% and .13% for the Money Market, Municipal Money
Market, Government Money Market, Ohio Municipal Money Market, Pennsylvania
Municipal Money Market, North Carolina Municipal Money Market, Virginia
Municipal Money Market and New Jersey Municipal Money Market Portfolios,
respectively. The investment adviser and the administrators are under no
obligation to waive or continue waiving such fees, but have informed the
Fund that they expect to waive or continue waiving such fees as necessary to
maintain the Portfolios' total operating expenses during the current fiscal
year at the levels set forth in the table. The expenses noted above under
"Other expenses" are estimated based on the level of such expenses for the
Fund's most recent fiscal year.
(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>
Money Market Portfolio................................. $6 $19 $ 32 $73
Municipal Money Market Portfolio....................... 6 19 32 73
Government Money Market Portfolio...................... 6 19 32 73
Ohio Municipal Money Market Portfolio.................. 6 19 32 73
Pennsylvania Municipal Money Market Portfolio.......... 6 19 32 73
North Carolina Municipal Money Market Portfolio........ 6 19 32 73
Virginia Municipal Money Market Portfolio.............. 6 19 32 73
New Jersey Municipal Money Market Portfolio............ 6 19 N/A N/A
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the expenses the Portfolios will pay. Investors bear these
expenses since they reduce the amount of income paid by the Portfolios to
investors as dividends. The information in the table for the Money Market,
Municipal Money Market, Government Money Market, Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market and
Virginia Municipal Money Market Portfolios is based on the advisory fees,
administration fees and other expenses payable after fee waivers by the
particular Portfolio for the fiscal year ended September 30, 1994, as restated
to reflect fees relating to the Service Plan and fees for other shareholder
support activities borne by Service Shares and revised fee waivers. The table
estimates fees, expenses, waivers and assets for the New Jersey Municipal Money
Market Portfolio for the current fiscal year. Total operating expenses would
have been .97%, 1.01%, 1.00%, 1.02%, 1.00%, 1.07%, 1.11% and 1.11%, for Service
Shares of the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal
Money Market Portfolios, respectively, 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
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers three classes of shares in each
Portfolio--Service, Series A Investor and Institutional Shares--and a fourth
class of shares in the Money Market Portfolio--Series B Investor Shares. The
shares of each class in a Portfolio represent equal pro rata interests in such
Portfolio, except that they bear different expenses which reflect the difference
in the range of services provided to them. Under the Fund's Service Plan,
Service Shares bear the expense of fees at an annual rate not to exceed .15% of
the average daily net asset value of each Portfolio's outstanding Service
Shares. Service Shares also bear the expense of a service fee at an annual rate
not to exceed .15% of the average daily net asset value of each Portfolio's
outstanding Service Shares for other shareholder support activities provided by
service organizations. See "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 each Portfolio's
outstanding Series A Investor Shares. Series B Investor Shares bear the expense
of the Fund's Series B Distribution Plan and Series B Service Plan at annual
rates not to exceed .75% and .25%, respectively, of the average daily net asset
value of each Portfolio's outstanding Series B Investor Shares. See "Description
of Shares" for a description of the Distribution and Service Plan, the Series B
Distribution Plan and the Series B Service Plan. Institutional Shares bear no
shareholder servicing or distribution fees.
During periods in which fees relating to the Service Plan and shareholder
support activities and to the Distribution and Service Plan were not charged to
a Portfolio's Service Shares or Series A Investor Shares, respectively, the
financial data in the tables below pertaining to Service Shares or Series A
Investor Shares of such Portfolio are identical to the financial data relating
to Institutional Shares of the Portfolio for such periods or to what such
financial data would have been had Institutional Shares in the Portfolio been
outstanding for such periods (except, in each case, for the number of Service
and Series A Investor Shares outstanding).
The SEC requires that this Prospectus contain Financial Highlights for each
class of each Portfolio described herein. Because the public offering of Series
A Investor Shares of the Virginia Municipal Money Market Portfolio and of Series
B Investor Shares of the Money Market Portfolio had not commenced during the six
month period ended March 31, 1995, the tables below present only information
pertaining to Service Shares and Institutional Shares of the Virginia Municipal
Money Market Portfolio and to Service Shares, Series A Investor Shares and
Institutional Shares of the Money Market Portfolio. No shares of the New Jersey
Municipal Money Market Portfolio were issued prior to the date of this
Prospectus.
Except for the financial data relating to the six month period ended March
31, 1995, the financial data included in the tables below has been derived from
the financial statements incorporated by reference in the Statement of
Additional Information and has been audited by Coopers & Lybrand, L.L.P., the
Fund's independent accountants. This financial data should be read in
conjunction with such financial statements. Further information about the
performance of the Portfolios is available in the annual report to shareholders.
Both the Statement of Additional Information and the annual report to
shareholders may be obtained from the Fund free of charge by calling the number
on the front cover of this Prospectus.
3
<PAGE> 4
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------
INSTITUTIONAL
CLASS SERVICE CLASS
----------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 8/2/93(1) ENDED YEAR YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................... 0.0274 0.0359 0.0054 0.0259 0.0333 0.0274
Net realized gain (loss) on
investments............................ -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total from investment operations..... 0.0274 0.0359 0.0054 0.0259 0.0333 0.0274
----------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment
income................................. (0.0274) (0.0359) (0.0054) (0.0259) (0.0333) (0.0274)
Distributions from net realized capital
gains.................................. -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total distributions.................. (0.0274) (0.0359) (0.0054) (0.0259) (0.0333) (0.0274)
----------- -------- -------- ----------- -------- --------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ========= ======== ========
Total return............................... 2.77% 3.64% 0.54% 2.61% 3.37% 2.77%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................. $ 593,948 $502,972 $435,586 $ 605,220 $575,948 $415,328
Ratios of expenses to average net assets
After advisory/administration fee
waivers.............................. 0.25%(2) 0.25% 0.27%(2) 0.55%(2) 0.51% 0.59%
Before advisory/administration fee
waivers.............................. 0.62%(2) 0.66% 0.38%(2) 0.92(2) 0.92% 0.70%
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers.............................. 5.51%(2) 3.64% 3.01%(2) 5.19%(2) 3.35% 2.73%
Before advisory/administration fee
waivers.............................. 5.13%(2) 3.23% 2.90%(2) 4.82%(2) 2.95% 2.62%
<CAPTION>
MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------
SERIES A
SERVICE CLASS INVESTOR CLASS
------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
YEAR YEAR 10/4/89(1) ENDED YEAR 1/13/93(1)
ENDED ENDED THROUGH 3/31/95 ENDED THROUGH
9/30/92 9/30/91 9/30/90 (UNAUDITED) 9/30/94 9/30/93
-------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................... 0.0391 0.0645 0.0778 0.0249 0.0308 0.0188
Net realized gain (loss) on
investments............................ -- -- -- -- -- --
-------- -------- -------- ----------- -------- --------
Total from investment operations..... 0.0391 0.0645 0.0778 0.0249 0.0308 0.0188
-------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment
income................................. (0.0391) (0.0645) (0.0778) (0.0249) (0.0308) (0.0188)
Distributions from net realized capital
gains.................................. -- -- -- -- -- --
-------- -------- -------- ----------- -------- --------
Total distributions.................. (0.0391) (0.0645) (0.0778) (0.0249) (0.0308) (0.0188)
-------- -------- -------- ----------- -------- --------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========= ======== ========
Total return............................... 4.05% 6.64% 8.07% 2.51% 3.12% 1.89%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................. $838,012 $637,076 $628,075 $ 7,302 $ 4,342 $ 49
Ratios of expenses to average net assets
After advisory/administration fee
waivers.............................. 0.61% 0.62% 0.62%(2) 0.75%(2) 0.75% 0.67%(2)
Before advisory/administration fee
waivers.............................. 0.66% 0.67% 0.70%(2) 1.12%(2) 1.16% 0.78%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers.............................. 3.86% 6.45% 7.83%(2) 5.04%(2) 3.39% 2.62%(2)
Before advisory/administration fee
waivers.............................. 3.81% 6.40% 7.75%(2) 4.67%(2) 2.98% 2.51%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------
INSTITUTIONAL
CLASS SERVICE CLASS
----------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 8/2/93(1) ENDED YEAR YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................... 0.0176 0.0246 0.0040 0.0161 0.0219 0.0205
Net realized gain (loss) on
investments............................ -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total from investment operations..... 0.0176 0.0246 0.0040 0.0161 0.0219 0.0205
----------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment
income................................. (0.0176) (0.0246) (0.0040) (0.0161) (0.0219) (0.0205)
Distributions from net realized capital
gains.................................. -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total distributions.................. (0.0176) (0.0246) (0.0040) (0.0161) (0.0219) (0.0205)
----------- -------- -------- ----------- -------- --------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ========= ======== ========
Total return............................... 1.78% 2.48% 0.40% 1.62% 2.20% 2.10%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................. $ 34,747 $ 30,608 $ 39,148 $ 190,789 $133,358 $ 93,937
Ratios of expenses to average net assets
After advisory/administration fee
waivers.............................. 0.25%(2) 0.25% 0.25%(2) 0.55%(2) 0.51% 0.61%
Before advisory/administration fee
waivers.............................. 0.69%(2) 0.73% 0.36%(2) 0.99%(2) 0.99% 0.72%
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers.............................. 3.51%(2) 2.48% 2.45%(2) 3.25%(2) 2.18% 2.02%
Before advisory/administration fee
waivers.............................. 3.07%(2) 2.01% 2.34%(2) 2.81%(2) 1.71% 1.91%
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------
SERIES A
SERVICE CLASS INVESTOR CLASS
------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
YEAR YEAR 11/1/89(1) ENDED YEAR 11/2/92(1)
ENDED ENDED THROUGH 3/31/95 ENDED THROUGH
9/30/92 9/30/91 9/30/90 (UNAUDITED) 9/30/94 9/30/93
-------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................... 0.0281 0.0438 0.0486 0.0151 0.0193 0.0181
Net realized gain (loss) on
investments............................ -- -- -- -- -- --
-------- -------- -------- ----------- -------- --------
Total from investment operations..... 0.0281 0.0438 0.0486 0.0151 0.0193 0.0181
-------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment
income................................. (0.0281) (0.0438) (0.0486) (0.0151) (0.0193) (0.0181)
Distributions from net realized capital
gains.................................. -- -- -- -- -- --
-------- -------- -------- ----------- -------- --------
Total distributions.................. (0.0281) (0.0438) (0.0486) (0.0151) (0.0193) (0.0181)
-------- -------- -------- ----------- -------- --------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========= ======== ========
Total return............................... 2.85% 4.47% 4.97% 1.52% 1.95% 1.83%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................. $125,152 $ 89,312 $112,108 $ 29 $ 41 $ 15
Ratios of expenses to average net assets
After advisory/administration fee
waivers.............................. 0.63% 0.65% 0.65%(2) 0.75%(2) 0.75% 0.72%(2)
Before advisory/administration fee
waivers.............................. 0.68% 0.70% 0.70%(2) 1.19%(2) 1.23% 0.83%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers.............................. 2.78% 4.40% 5.31%(2) 3.00%(2) 2.05% 2.23%(2)
Before advisory/administration fee
waivers.............................. 2.73% 4.35% 5.26%(2) 2.56%(2) 1.58% 2.12%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
5
<PAGE> 6
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------
INSTITUTIONAL
CLASS SERVICE CLASS
----------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 8/2/93(1) ENDED YEAR YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................... 0.0269 0.0357 0.0049 0.0254 0.0331 0.0269
Net realized gain (loss) on
investments............................ -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total from investment operations..... 0.0269 0.0357 0.0049 0.0254 0.0331 0.0269
----------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment
income................................. (0.0269) (0.0357) (0.0049) (0.0254) (0.0331) (0.0269)
Distributions from net realized capital
gains.................................. -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total distributions.................. (0.0269) (0.0357) (0.0049) (0.0254) (0.0331) (0.0269)
----------- -------- -------- ----------- -------- --------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ========= ======== ========
Total return............................... 2.72% 3.63% 0.49% 2.57% 3.36% 2.72%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................. $ 113,707 $ 37,519 $ 13,513 $ 505,356 $372,883 $185,400
Ratios of expenses to average net assets
After advisory/administration fee
waivers.............................. 0.25%(2) 0.25% 0.25%(2) 0.55%(2) 0.52% 0.60%
Before advisory/administration fee
waivers.............................. 0.66%(2) 0.70% 0.38%(2) 0.96%(2) 0.97% 0.73%
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers.............................. 5.53%(2) 3.69% 3.01%(2) 5.14%(2) 3.42% 2.68%
Before advisory/administration fee
waivers.............................. 5.12%(2) 3.24% 2.88%(2) 4.72%(2) 2.97% 2.55%
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------
SERIES A
SERVICE CLASS INVESTOR CLASS
-------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
YEAR YEAR 11/1/89(1) ENDED YEAR 1/14/93(1)
ENDED ENDED THROUGH 3/31/95 ENDED THROUGH
9/30/92 9/30/91 9/30/90 (UNAUDITED) 9/30/94 9/30/93
-------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................... 0.0394 0.0627 0.0697 0.0245 0.0309 0.0183
Net realized gain (loss) on
investments............................ -- -- -- -- -- --
-------- -------- -------- ----------- -------- --------
Total from investment operations..... 0.0394 0.0627 0.0697 0.0245 0.0309 0.0183
-------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment
income................................. (0.0394) (0.0627) (0.0697) (0.0245) (0.0309) (0.0183)
Distributions from net realized capital
gains.................................. -- -- -- -- -- --
-------- -------- -------- ----------- -------- --------
Total distributions.................. (0.0394) (0.0627) (0.0697) (0.0245) (0.0309) (0.0183)
-------- -------- -------- ----------- -------- --------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========== ======== ========
Total return............................... 4.01% 6.46% 7.29% 2.47% 3.11% 1.85%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................. $160,269 $180,776 $146,148 $ 2,400 $ 1,656 $ 50
Ratios of expenses to average net assets
After advisory/administration fee
waivers.............................. 0.62% 0.65% 0.65%(2) 0.75%(2) 0.75% 0.65%(2)
Before advisory/administration fee
waivers.............................. 0.67% 0.70% 0.70%(2) 1.16%(2) 1.20% 0.78%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers.............................. 3.91% 6.27% 7.62%(2) 4.93%(2) 3.60% 2.57%(2)
Before advisory/administration fee
waivers.............................. 3.86% 6.22% 7.57%(2) 4.51%(2) 3.14% 2.44%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
6
<PAGE> 7
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
------------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED YEAR 6/10/93(1) ENDED YEAR 6/1/93(1)
3/31/95 ENDED THROUGH 3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income......................... 0.0174 0.0252 0.0073 0.0159 0.0225 0.0074
Net realized gain (loss) on investments....... -- -- -- -- -- --
----------- -------- -------- ---------- -------- --------
Total from investment operations.......... 0.0174 0.0252 0.0073 0.0159 0.0225 0.0074
----------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment income...... (0.0174) (0.0252) (0.0073) (0.0159) (0.0225 (0.0074)
Distributions from net realized capital
gains....................................... -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total distributions....................... (0.0174) (0.0252) (0.0073) (0.0159) (0.0225 (0.0074)
----------- -------- -------- ----------- -------- --------
Net asset value at end of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ======== ========
Total return..................................... 1.76% 2.55% 0.73% 1.60% 2.27 0.75%
Ratios/Supplemental data
Net assets at end of period (in thousands).... $ 12,191 $ 10,521 $ 12,026 $ 47,993 $ 44,066 $ 15,239
Ratios of expenses to average net assets
After advisory/administration fee waivers... 0.25%(2) 0.13% 0.10%(2) 0.55%(2) 0.40 0.23%(2)
Before advisory/administration fee waivers.. 0.73%(2) 0.77% 0.83%(2) 1.03%(2) 1.04 0.96%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers... 3.54%(2) 2.56% 2.45%(2) 3.21%(2) 2.29 2.23%(2)
Before advisory/administration fee waivers.. 3.06%(2) 1.93% 1.72%(2) 2.74%(2) 1.65% 1.50%(2)
<CAPTION>
SERIES A
INVESTOR
CLASS
------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED 10/5/93(1)
3/31/95 THROUGH
(UNAUDITED) 9/30/94
----------- --------
<S> <C> <C>
Net asset value at beginning of period.................. $ 1.00 $ 1.00
----------- --------
Income from investment operations
Net investment income................................ 0.0150 0.0199
Net realized gain (loss) on investments.............. -- --
----------- --------
Total from investment operations................. 0.0150 0.0199
----------- --------
Less distributions
Distributions from net investment income............. (0.0150) (0.0199)
Distributions from net realized capital gains........ -- --
----------- --------
Total distributions.............................. (0.0150) (0.0199)
----------- --------
Net asset value at end of period........................ $ 1.00 $ 1.00
========= ========
Total return............................................ 1.50% 2.01%
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $ 5 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 0.75%(2) 0.62%(2)
Before advisory/administration fee waivers......... 1.22%(2) 1.26%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers.......... 2.94%(2) 1.94%(2)
Before advisory/administration fee waivers......... 2.47%(2) 1.30%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
7
<PAGE> 8
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
------------------------------------- ------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 6/1/93(1) ENDED YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94
----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- --------
Income from investment operations
Net investment income............................... 0.0170 0.0247 0.0078 0.0156 0.0221
Net realized gain (loss) on investments............. -- -- -- -- --
----------- -------- -------- ----------- --------
Total from investment operations................ 0.0170 0.0247 0.0078 0.0156 0.0221
----------- -------- -------- ----------- --------
Less distributions
Distributions from net investment income............ (0.0170) (0.0247) (0.0078) (0.0156) (0.0221)
Distributions from net realized capital gains....... -- -- -- -- --
----------- -------- -------- ----------- --------
Total distributions............................. (0.0170) (0.0247) (0.0078) (0.0156) (0.0221)
----------- -------- -------- ----------- --------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========== =========
Total return........................................... 1.72% 2.49% 0.78% 1.57% 2.24%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 187,858 $158,102 $ 2,242 $ 137,297 $ 60,560
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.25%(2) 0.16% 0.09%(2) 0.55%(2) 0.42%
Before advisory/administration fee waivers........ 0.66%(2) 0.73% 0.97%(2) 0.96%(2) 0.99%
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 3.41%(2) 2.64% 2.15%(2) 3.17%(2) 2.31%
Before advisory/administration fee waivers........ 3.00%(2) 2.07% 1.27%(2) 2.76%(2) 1.75%
<CAPTION>
PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO
----------------------------------------
SERIES A
SERVICE INVESTOR
CLASS CLASS
------- -------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
6/11/93(1) ENDED 12/28/93(1)
THROUGH 3/31/95 THROUGH
9/30/93 (UNAUDITED) 9/30/94
-------- ----------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00
-------- ----------- ---------
Income from investment operations
Net investment income............................... 0.0074 0.0146 0.0153
Net realized gain (loss) on investments............. -- -- --
-------- ----------- ---------
Total from investment operations................ 0.0074 0.0146 0.0153
-------- ----------- ---------
Less distributions
Distributions from net investment income............ (0.0074) (0.0146) (0.0153)
Distributions from net realized capital gains....... -- -- --
-------- ----------- ---------
Total distributions............................. (0.0074) (0.0146) (0.0153)
-------- ----------- ---------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00
========= ========== =========
Total return........................................... 0.74% 1.47% 1.58%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 8,919 $ 105 $ 139
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.32%(2) 0.75%(2) 0.65%(2)
Before advisory/administration fee waivers........ 1.20%(2) 1.16%(2) 1.22%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 2.42%(2) 2.91%(2) 2.11%(2)
Before advisory/administration fee waivers........ 1.54%(2) 2.50%(2) 1.54%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
8
<PAGE> 9
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
----------------------------------- ----------------------- -------------
FOR THE FOR THE
FOR THE FOR THE PERIOD FOR THE PERIOD
SIX MONTHS PERIOD 11/01/94(4) PERIOD 2/14/95(1)
ENDED YEAR 5/4/93(1) THROUGH 4/29/94(1) THROUGH
3/31/95 ENDED THROUGH 3/31/95 THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 (UNAUDITED)
----------- -------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- ------
Income from investment operations
Net investment income......................... 0.0174 0.0249 0.0097 0.0135 0.0099 0.0041
Net realized gain (loss) on investments....... -- -- -- -- -- --
----------- -------- -------- ----------- -------- ------
Total from investment operations........... 0.0174 0.0249 0.0097 0.0135 0.0099 0.0041
----------- -------- -------- ----------- -------- ------
Less distributions
Distributions from net investment income...... (0.0174) (0.0249) (0.0097) (0.0135) (0.0099) (0.0041)
Distributions from net realized capital
gains........................................ -- -- -- -- -- --
----------- -------- -------- ----------- -------- ------
Total distributions........................ (0.0174) (0.0249) (0.0097) (0.0135) (0.0099) (0.0041)
----------- -------- -------- ----------- -------- ------
Net asset value at end of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ========= ======== ========
Total return..................................... 1.75% 2.52% 0.97% 1.35% 0.99% 0.41%
Ratios/Supplemental data
Net assets at end of period (in thousands).... $ 118,224 $ 69,673 $ 34,135 $ 406 $ --(3) $ 3
Ratios of expenses to average net assets
After advisory/administration fee waivers.... 0.16%(2) 0.10% 0.10%(2) 0.53%(2) 0.36% 0.66%(2)
Before advisory/administration fee waivers... 0.71%(2) 0.76% 0.81%(2) 1.19%(2) 1.02% 2.99%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers.... 3.52%(2) 2.53% 2.35%(2) 3.30%(2) 2.54% 3.32%(2)
Before advisory/administration fee waivers... 2.97%(2) 1.87% 1.64%(2) 2.64%(2) 1.87% 1.00%(2)
<CAPTION>
VIRGINIA
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
-------------------------- -----------
FOR THE
FOR THE FOR THE PERIOD
SIX MONTHS PERIOD 10/11/94(1)
ENDED 7/25/94(1) THROUGH
3/31/95 THROUGH 3/31/95
(UNAUDITED) 9/30/94 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value at beginning of period................. $ 1.00 $ 1.00 $ 1.00
----------- ----------- -----------
Income from investment operations
Net investment income............................... 0.0171 0.0053 0.0149
Net realized gain (loss) on investments............. -- -- --
----------- ----------- -----------
Total from investment operations................. 0.0171 0.0053 0.0149
----------- ----------- -----------
Less distributions
Distributions from net investment income............ (0.0171) (0.0053) (0.0149)
Distributions from net realized capital gains....... -- -- --
----------- ----------- -----------
Total distributions.............................. (0.0171) (0.0053) (0.0149)
----------- ----------- -----------
Net asset value at end of period....................... $ 1.00 $ 1.00 $ 1.00
========= ========== ==========
Total return........................................... 1.72% 0.53% 1.50%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 18,634 $ 13,831 $ 400
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 0.10%(2) 0.10%(2) 0.40%(2)
Before advisory/administration fee waivers......... 0.70%(2) 1.02%(2) 1.00%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers.......... 3.44%(2) 2.89%(2) 3.23%(2)
Before advisory/administration fee waivers......... 2.84%(2) 1.97%(2) 2.63%(2)_
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
(4) Reissuance of shares.
9
<PAGE> 10
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
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
Portfolio invests in a broad range of short-term, high quality, U.S.
dollar-denominated instruments, such as government, bank, commercial and other
obligations, that may be available in the money markets ("Money Market
Instruments"). The following descriptions illustrate types of Money Market
Instruments in which the Portfolio may invest.
BANK OBLIGATIONS. The Portfolio may purchase bank obligations, such as
certificates of deposit, bankers' acceptances and demand and time deposits,
including U.S. dollar-denominated instruments issued or supported by the credit
of U.S. or foreign banks or savings institutions having total assets at the time
of purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the adviser
deems the instrument to present minimal credit risks. Such investments may
include Eurodollar Certificates of Deposit ("ECDs") which are U.S.
dollar-denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Eurodollar Time Deposits
("ETDs") which are U.S. dollar-denominated deposits in a foreign branch of a
U.S. bank or a foreign bank; Canadian Time Deposits ("CTDs") which are
essentially the same as ETDs except they are issued by Canadian offices of major
Canadian banks; and Yankee Certificates of Deposit ("Yankee Cds") which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the United States. The Portfolio may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of its total assets.
Investments in obligations issued by foreign banks and foreign branches of
U.S. banks may involve risks that are different from investments in obligations
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held by the Portfolio.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks.
Under normal conditions, at least 25% of the Portfolio's total assets will
be invested in the obligations of issuers in the banking industry and
securities, such as repurchase agreements, secured by such obligations.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (at the
time of purchase) in the two highest rating categories of a nationally
recognized statistical rating organization ("NRSRO"). The Portfolio may also
purchase unrated commercial paper determined to be of comparable quality at the
time of purchase by the adviser. Commercial paper issues in which the Portfolio
may invest include securities issued by corporations without registration under
the Securities Act of 1933 (the "1933 Act") in reliance on the exemption from
such registration afforded by Section 3(a)(3) thereof, and commercial paper
issued in reliance on the so-called "private placement" exemption from
registration which is afforded by Section 4(2) of the 1933 Act ("Section 4(2)
paper"). Section 4(2) paper is restricted as to disposition under the Federal
securities laws in that any resale must similarly be made in an exempt
transaction. Section 4(2) paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) paper, thus providing liquidity.
The Portfolio may also invest in Canadian Commercial Paper ("CCP"), which
is U.S. dollar-denominated commercial paper issued by a Canadian corporation or
a Canadian counterpart of a U.S. corporation, and in Europaper,
10
<PAGE> 11
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States. Others are backed by
the right of the issuer to borrow from the U.S. Treasury or are backed only by
the credit of the agency or instrumentality issuing the obligation. See
"Investment Policies--Government Money Market Portfolio" for examples of the
types of U.S. Government obligations that the Portfolio may purchase.
MUNICIPAL OBLIGATIONS. The Portfolio may, when deemed appropriate by the
adviser, invest without limitation in high quality Municipal Obligations (other
than tax-exempt derivative securities) issued by state and local governmental
issuers, the interest on which may be taxable or tax-exempt for Federal income
tax purposes, provided that such obligations carry yields that are competitive
with those of other types of Money Market Instruments of comparable quality. See
"Investment Policies--Municipal Money Market Portfolio" for a more complete
discussion of Municipal Obligations.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may invest up to 5% of its
total assets in guaranteed investment contracts ("GICs") issued by highly-rated
U.S. insurance companies. Pursuant to such contracts, the Portfolio makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Portfolio on a monthly basis guaranteed
interest which is based on an index (in most cases this index is expected to be
the Salomon Brothers CD Index). GICs provide that this guaranteed interest will
not be less than a certain minimum rate. A GIC is a general obligation of the
issuing insurance company and not a separate account. The purchase price paid
for a GIC becomes part of the general assets of the insurance company, and the
contract is paid from the general assets of the insurance company. The Portfolio
will only purchase GICs from insurance companies which, at the time of purchase,
are rated "A+" by A.M. Best Company, have assets of $1 billion or more and meet
quality and credit standards established by the adviser pursuant to guidelines
approved by the Board of Trustees. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist.
SECURITIES LENDING. To increase income on its investments, the Portfolio
may lend its portfolio securities with an aggregate value up to 30% of its total
assets to broker/dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government or
its agencies or instrumentalities or an irrevocable letter of credit issued by a
bank which meets the Portfolio's investment standards. There may be risks of
delay in receiving additional collateral or in recovering the securities loaned
or even a loss of rights in the collateral should the borrower of the securities
fail financially. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio invests substantially all of its assets in a diversified
portfolio of 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. Under normal conditions, at
least 80% of the Portfolio's net assets will be invested in such securities.
Purchasable
11
<PAGE> 12
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 one of the two highest rating categories by an
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. Under normal conditions,
the Portfolio may only invest less than 25% of its total assets in Municipal
Obligations of issuers from the District of Columbia or from any individual
state, territory or possession of the United States.
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.
------------------------------------
GOVERNMENT MONEY MARKET PORTFOLIO
During normal market periods, at least 65% of the Portfolio's assets will
be invested in U.S. Government obligations (or repurchase agreements relating to
such obligations). Instruments held by the Portfolio will have maturities of 13
months or less as determined in accordance with the rules of the SEC. Treasury
obligations differ only in their interest rates, maturities, and times of
issuance. 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 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
instrumentality. 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.
To increase income on its investments, the Portfolio may lend its portfolio
securities with an aggregate value up to 30% of its total assets to
broker/dealers and other institutional investors pursuant to agreements
requiring that the
12
<PAGE> 13
loans be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government or its agencies or
instrumentalities or an irrevocable letter of credit issued by a bank which
meets the Portfolio's investment standards. There may be risks of delay in
receiving additional collateral or in recovering the securities loaned or even a
loss of rights in the collateral should the borrower of the securities fail
financially. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
------------------------------------
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Ohio Municipal Obligations. The
Portfolio may also invest in Municipal Obligations (including related tax-exempt
derivative securities) in which the Municipal Money Market Portfolio may invest.
See "Investment Policies--Municipal Money Market Portfolio" for a description of
Municipal Obligations. Portfolio obligations held by the Portfolio will have
maturities of 13 months or less as determined in accordance with the rules of
the SEC.
The concentration of investments in Ohio Municipal Obligations raises
special investment considerations. While diversifying more into the service and
other non-manufacturing areas, the economy of Ohio continues to rely in part on
durable goods manufacturing largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. As a result, general
economic activity in Ohio, as in many other industrially developed states, tends
to be more cyclical than in some other states and in the nation as a whole.
Agriculture is an important segment of the Ohio economy, with over half the
State's area devoted to farming and approximately 15% of total employment in
agribusiness. In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the national figure of 5.5%. However,
for the last four years the State rates were below the national rates (5.5%
versus 6.1% in 1994). The unemployment rate and its effects vary among
particular geographic areas of the State. There can be no assurance that future
national, regional or state-wide economic difficulties and the resulting impact
on State or local government finances generally will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of particular obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "Investment Policies--Common Investment
Policies" for a description of other securities in which the Portfolio may
invest.
------------------------------------
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Pennsylvania Municipal Obligations.
The Portfolio may also invest in Municipal Obligations (including related
tax-exempt derivative securities) in which the Municipal Money Market Portfolio
may invest. See "Investment Policies--Municipal Money Market Portfolio" 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
13
<PAGE> 14
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 "Investment Policies--Common Investment Policies" for a
description of other investment policies.
------------------------------------
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in North Carolina Municipal
Obligations. The Portfolio may also invest in Municipal Obligations (including
related tax-exempt derivative securities) in which the Municipal Money Market
Portfolio may invest. See "Investment Policies--Municipal Money Market
Portfolio" for a description of Municipal Obligations. Portfolio obligations
held by the Portfolio will have maturities of 13 months or less as determined in
accordance with the rules of the SEC.
The concentration of investments in North Carolina Municipal Obligations
raises special investment considerations. In particular, changes in the economic
condition and governmental policies of North Carolina and its political
subdivisions, agencies, instrumentalities and authorities could adversely affect
the value of the Portfolio and its portfolio securities. Growth of North
Carolina tax revenues slowed considerably during fiscal 1990-92 requiring tax
increases and budget adjustments, including hiring freezes and restrictions,
spending constraints, changes in the timing of certain collections and payments,
and other short-term budget adjustments, that were needed to comply with North
Carolina's constitutional mandate for a balanced budget. Fiscal years 1993 and
1994, however, ended with a positive General Fund balance of approximately $500
million each year on a budgetary basis. By law, 25% of such positive fund
balance was required to be reserved in the General Fund of North Carolina as
part of a "Savings Reserve" (subject to a maximum reserve of 5% of the preceding
fiscal year's operating appropriation). An additional portion of such positive
fund balance was reserved in the General Fund as part of a "Reserve for Repair
and Renovation of State Facilities," leaving the remaining unrestricted fund
balance at the end of each such year available for future appropriations. See
the Statement of Additional Information for further discussion of investment
considerations associated with North Carolina Municipal Obligations and see
"Investment Policies--Common Investment Policies" for a description of other
investment policies of the Portfolio.
------------------------------------
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in Virginia Municipal Obligations. The
Portfolio may also invest in Municipal Obligations (including related tax-exempt
derivative securities) in which the Municipal Money Market Portfolio may invest.
See "Investment Policies--Municipal Money Market Portfolio" 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.
14
<PAGE> 15
The Portfolio may also purchase obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government are backed by the full
faith and credit of the United States. Others are backed by the right of the
issuer to borrow from the U.S. Treasury or are backed only by the credit of the
agency or instrumentality issuing the obligation. See "Investment Policies--
Government Money Market Portfolio" for examples of the types of U.S. Government
obligations that the Portfolio may purchase.
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. Due to Virginia's
proximity to Washington, D.C. and the concentration of military installations in
Northern Virginia and the Tidewater area, Federal government spending is an
important factor in Virginia's economy. The Federal government has a greater
impact on Virginia relative to its size than any other state except Alaska and
Hawaii. While Federal employment in 1992 accounted for 10.0% of Virginia's
personal income (compared with a national average of 3.3% in that year), it
ranked behind services (19.7%), wholesale and retail trade (10.6%) and
manufacturing (10.5%). The Commonwealth experienced a decrease in its General
Fund balances from fiscal 1989 to fiscal 1990 and again from fiscal 1990 to
fiscal 1991, reflecting the effects of a nationwide recession and increasing
expenditures. General Fund balances have increased since fiscal 1991. In fiscal
1994, revenues increased 6.0% from the previous year, while total expenditures
increased by 4.5%. Revenues exceeded expenditures by $731.2 million, an increase
of 20% over fiscal 1993. See "Special Considerations Regarding Investment in
Virginia Municipal Obligations" in the Statement of Additional Information. See
also "Investment Policies--Common Investment Policies" for a description of
other investment policies.
------------------------------------
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
The Portfolio will invest primarily in New Jersey Municipal Obligations.
The Portfolio may also invest in Municipal Obligations (including related
tax-exempt derivative securities) in which the Municipal Money Market Portfolio
may invest. See "Investment Policies--Municipal Money Market Portfolio" for a
description of Municipal Obligations. Portfolio obligations held by the
Portfolio will have maturities of 13 months or less as determined in accordance
with the rules of the SEC.
The concentration of investments by the New Jersey Municipal Money Market
Portfolio in New Jersey Municipal Obligations raises special investment
considerations. The State of New Jersey generally has a diversified economic
base consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is major recipient of Federal
assistance and, of all the states, is among the highest in the amount of Federal
aid received. Therefore, a decrease in Federal financial assistance may
adversely affect the financial condition of New Jersey and its political
subdivisions and instrumentalities. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and the ability of New Jersey and
its political subdivisions and instrumentalities to meet their financial
obligations. In addition, because New Jersey maintains a balanced budget which
restricts total appropriation increases to only 5% annually with respect to any
municipality or county, the balanced budget plan may actually adversely affect a
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particular municipality's or county's ability to repay its obligations. See the
Statement of Additional Information for further discussion of investment
considerations associated with New Jersey Municipal Obligations and see
"Investment Policies--Common Investment Policies" for a description of other
securities in which the Portfolio may invest.
------------------------------------
COMMON INVESTMENT POLICIES
This section describes certain investment policies that are common to
Portfolios. Each Portfolio's investment objective and policies may be changed by
the Board of Trustees without shareholder approval.
MORTGAGE-RELATED SECURITIES. Each Portfolio other than the Municipal Money
Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Virginia Municipal Money Market and New Jersey
Municipal Money Market Portfolios (collectively, the "Municipal Portfolios") may
invest in mortgage-related securities issued by the U.S. Government or its
agencies or instrumentalities or issued by private companies. Such
mortgage-related securities may include collateralized mortgage obligations
("CMOs") issued by the Federal National Mortgage Association, the Federal Home
Loan Mortgage Corporation or other U.S. Government agencies or instrumentalities
or issued by private companies. The average life of mortgage-related securities
is likely to be less than the original maturity of the mortgage pools underlying
the securities as a result of mortgage prepayments. For this and other reasons,
a mortgage-related security's stated maturity may be shortened and, therefore,
it may be difficult to predict precisely the security's total return to the
particular Portfolio. In addition, in periods of falling interest rates, the
rate of mortgage prepayments tends to increase. During such periods, the
reinvestment of prepayment proceeds by the particular Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REPURCHASE AGREEMENTS. Each Portfolio other than the Municipal Portfolios
may agree to purchase securities from financial institutions subject to the
seller's agreement to repurchase them at an agreed-upon time and price
("repurchase agreements"). The securities held subject to a repurchase agreement
may have stated maturities exceeding 13 months, provided the repurchase
agreement itself matures in less than 13 months. Default by or bankruptcy of the
seller would, however, expose the Portfolio to possible loss because of adverse
market action or delays in connection with the disposition of the underlying
obligations.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit a
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the delivery takes place. Each Portfolio's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Portfolios
do not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of their investment objectives.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio other than the Municipal
Portfolios may enter into reverse repurchase agreements with respect to
portfolio securities for temporary purposes (such as to obtain cash to meet
redemption requests when the liquidation of portfolio securities is deemed
disadvantageous or inconvenient by the adviser or sub-adviser). A reverse
repurchase agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase the same
securities at an agreed-upon price and date.
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Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Portfolio may decline below the price of the securities
the Portfolio is obligated to repurchase. Reverse repurchase agreements are
considered to be borrowings by a Portfolio under the Investment Company Act of
1940 (the "1940 Act").
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, each Portfolio may invest in securities issued by other investment
companies which invest in short-term, high quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. Securities of other investment companies
will be acquired by a Portfolio within the limits prescribed by the 1940 Act.
Each Portfolio currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio or by the Fund as a whole. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory fees and other expenses the Portfolio bears directly in connection with
its own operations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase rated
and unrated variable and floating rate instruments, which may have a stated
maturity in excess of 13 months but will, in any event, permit a Portfolio to
demand payment of the principal of the instrument at least once every 13 months
upon not more than thirty days' notice (unless the instrument is guaranteed by
the U.S. Government or an agency or instrumentality thereof). Such instruments
may include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Issuers of unrated variable and floating rate instruments must
satisfy the same criteria as set forth above for the particular Portfolio, and
will be determined to present minimal credit risks by the adviser. The absence
of an active secondary market with respect to particular variable and floating
rate instruments, however, could make it difficult for a Portfolio to dispose of
a variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods when a Portfolio is not entitled to exercise its
demand rights, and a Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Municipal
Portfolios may invest in tax-exempt derivative securities relating to Municipal
Obligations, including tender option bonds, participations, beneficial interests
in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolios from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
UNINVESTED CASH RESERVES. Each Portfolio may hold uninvested cash reserves
pending investment during temporary defensive periods. Each Municipal Portfolio
may also hold uninvested cash reserves if, in the opinion of its sub-adviser,
suitable obligations bearing tax-free interest are unavailable. During normal
market periods, no more than 20% of a Portfolio's assets will be held
uninvested. Uninvested cash reserves will not earn income.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 10% of
the value of its net assets in securities that are illiquid. Variable and
floating rate instruments that cannot be disposed of within seven days, GICs,
and repurchase agreements and time deposits that do not provide for payment
within seven days after notice, without taking
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<PAGE> 18
a reduced price, are subject to this 10% limit. Each Portfolio may purchase
securities which are not registered under the 1933 Act but which can be sold to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act. Any such security will not be considered illiquid so long as it is
determined by the adviser or sub-adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that
particular security. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio during any period that
qualified institutional buyers become uninterested in purchasing these
restricted securities.
MUNICIPAL MONEY MARKET, OHIO MUNICIPAL MONEY MARKET, PENNSYLVANIA MUNICIPAL
MONEY MARKET, NORTH CAROLINA MUNICIPAL MONEY MARKET, VIRGINIA MUNICIPAL MONEY
MARKET AND NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIOS. During normal market
conditions, up to 20% of each Municipal Portfolio's net assets may be invested
in securities which are not Municipal Obligations and at least 65% of the total
net assets of each of Ohio Municipal Money Market, Pennsylvania Municipal Money
Market, North Carolina Municipal Money Market, Virginia Municipal Money Market
and New Jersey Municipal Money Market Portfolios will be invested in Ohio,
Pennsylvania, North Carolina, Virginia and New Jersey Municipal Obligations,
respectively. During temporary defensive periods, each Municipal Portfolio may
invest without limitation in obligations which are not Municipal Obligations and
may hold without limitation uninvested cash reserves. Such securities may
include, without limitation, bonds, notes, variable rate demand notes and
commercial paper, provided such securities are rated within the relevant
categories applicable to Municipal Obligations set forth above, or if unrated,
are of comparable quality as determined by the adviser or sub-adviser, and may
also include, without limitation, other debt obligations, such as bank
obligations. Each Municipal Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held by it. Under a stand-by commitment, a
dealer agrees to purchase at the Portfolio's option specified Municipal
Obligations at a specified price. The acquisition of a stand-by commitment may
increase the cost, and thereby reduce the yield, of the Municipal Obligation to
which such commitment relates. Each Municipal Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
The Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Virginia Municipal Money Market and New Jersey
Municipal Money Market Portfolios 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"). The Municipal Money Market
Portfolio may invest up to 20% of its total assets in AMT Paper when added
together with any taxable investments held by the Portfolio. Interest on AMT
Paper that is received by taxpayers subject to the Federal alternative minimum
tax is taxable. Investors should also be aware of the possibility of state and
local alternative minimum or minimum income tax liability on interest from AMT
Paper. To the extent a Portfolio's assets are invested in Municipal Obligations
payable from the revenues of similar projects or are invested in private
activity bonds, the Portfolio will be subject to the peculiar risks presented by
the laws and economic conditions relating to such projects and bonds to a
greater extent than it would be if its assets were not so invested. Each
Municipal Portfolio may invest 25% or more of its net assets in Municipal
Obligations the interest on which is paid solely from revenues of similar
projects. The amount of information regarding the financial condition of issuers
of Municipal Obligations may not be as extensive as that which is made available
by public corporations, and the secondary market for Municipal Obligations may
be less liquid than that for taxable obligations. Accordingly, the ability of a
Municipal Portfolio to buy and sell tax-exempt securities may, at any particular
time and with respect to any particular securities, be limited.
The Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Virginia Municipal Money Market and New Jersey
Municipal Money Market Portfolios are 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
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<PAGE> 19
diversified portfolio. Additionally, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified portfolio with similar objectives.
ADDITIONAL QUALITY AND DIVERSIFICATION REQUIREMENTS. The Portfolios may
only invest in: (i) securities in the two highest rating categories of an NRSRO,
provided that if they are rated by more than one NRSRO, at least one other NRSRO
rates them in one of its two highest categories; and (ii) unrated securities
determined to be of comparable quality at the time of purchase (collectively,
"Eligible Securities"). Except for the Municipal Portfolios, a Portfolio may not
invest more than 5% of its assets in Eligible Securities that are not "First
Tier Securities" (as defined below). The rating symbols of the NRSROs which the
Portfolios may use are described in an Appendix to the Statement of Additional
Information. Each Portfolio other than the Municipal Portfolios will limit its
purchases of any one issuer's securities (other than U.S. Government obligations
and customary demand deposits) to 5% of the Portfolio's total assets, except
that it may invest more than 5% (but no more than 25%) of its total assets in
"First Tier Securities" of one issuer for a period of up to three business days.
First Tier Securities include: (i) securities in the highest rating category by
the only NRSRO rating them, (ii) securities in the highest rating category of at
least two NRSROs, if more than one NRSRO has rated them, (iii) securities that
have no short-term rating, but have been issued by an issuer that has other
outstanding short-term obligations that have been rated in accordance with (i)
or (ii) above and are comparable in priority and security to such securities,
and (iv) certain unrated securities that have been determined to be of
comparable quality to such securities. In addition, each Portfolio other than
the Municipal Portfolios will limit its purchases of "Second Tier Securities"
(Eligible Securities that are not First Tier Securities) of one issuer to the
greater of 1% of its total assets or $1 million.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
Each Portfolio is subject to the fundamental investment limitations stated
in this section, which may not be changed as to a Portfolio except upon the
affirmative vote of the holders of a majority of the Portfolio's outstanding
shares.
1. Each of the Money Market, Municipal Money Market and Government
Money Market Portfolios may not purchase securities of any one issuer
(other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or certificates of deposit for any such
securities) if more than 5% of the value of the Portfolio's total assets
(taken at current value) would be invested in the securities of such
issuer, or more than 10% of the issuer's outstanding voting securities
would be owned by the Portfolio or the Fund, except that up to 25% of the
value of the Portfolio's total assets (taken at current value) may be
invested without regard to these limitations. For purposes of this
limitation, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security is not deemed to be a security issued by the guarantor when the
value of all securities issued and guaranteed by the guarantor, and owned
by the Portfolio, does not exceed 10% of the value of the Portfolio's total
assets.
2. No Portfolio may borrow money or issue senior securities, except
that each Portfolio may borrow from banks and (other than a Municipal
Portfolio) enter into reverse repurchase agreements for temporary purposes
in amounts up to one-third of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of such
borrowing. No Portfolio will purchase securities while its aggregate
borrowings (including reverse repurchase agreements and borrowings from
banks) in excess of 5% of its total assets are outstanding. Securities held
in escrow or separate accounts in connection with a Portfolio's investment
practices are not deemed to be pledged for purposes of this limitation.
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3. In addition, each of the Municipal Money Market, Government Money
Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market,
North Carolina Municipal Money Market, Virginia Municipal Money Market and
New Jersey Municipal Money Market Portfolios 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. The
Money Market Portfolio, on the other hand, may not purchase any securities
which would cause, at the time of purchase, less than 25% of the value of
its total assets to be invested in the obligations of issuers in the
banking industry, or in obligations, such as repurchase agreements, secured
by such obligations (unless the Portfolio is in a temporary defensive
position) or which would cause, at the time of purchase, more than 25% of
the value of its total assets to be invested in the obligations of issuers
in any other industry. In applying the investment limitations stated in
this paragraph, (i) there is no limitation with respect to the purchase of
(a) instruments issued (as defined in investment limitation number 1 above)
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, (b) instruments
issued by domestic banks (which may include U.S. branches of foreign banks)
and (c) repurchase agreements secured by the instruments described in
clauses (a) and (b); (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.
4. Each of the Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market, Virginia Municipal
Money Market and New Jersey Municipal Money Market Portfolios 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.
5. Finally, the Municipal Money Market Portfolio will invest at least
80% of its net assets in instruments the interest on which is exempt from
regular Federal income tax and is not an item of tax preference for
purposes of Federal alternative minimum tax, except during defensive
periods or during periods of unusual market conditions.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Portfolio's investments will not constitute a violation of such limitation,
except that any borrowing by a Portfolio that exceeds the fundamental investment
restrictions stated above must be reduced to meet such restrictions within the
period required by the 1940 Act (currently three days).
In order to permit the sale of its shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolios, see the Fund's Statement of Additional Information.
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<PAGE> 21
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of each 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 for Shares of each Portfolio except the Government Money
Market Portfolio may be transmitted by telephoning PFPC at (800) 441-7379 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.
Purchase orders for Shares of the Government Money Market Portfolio may be
transmitted by telephoning PFPC at (800) 441-7379 no later than 4:00 p.m.
(Eastern Time) on any Business Day. Orders received before noon will be executed
at noon; orders received after noon but before 4:00 p.m. will be executed at
4:00 p.m. 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 will not be accepted after 4:00 p.m. Under certain
circumstances, the Fund may reject large individual purchase orders received
after 12:00 noon. 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
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<PAGE> 22
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)
441-7379. 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 each
Portfolio's net asset value per share at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending 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 a 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 any Portfolio
if the balance in such shareholder's account in that 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 Portfolios 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.
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NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Service Share of each Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. Each Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of each Portfolio is determined
independently of the other Portfolios.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values their
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under "Valuation of
Shares." There can be no assurance that net asset value per share will not vary.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
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BOARD OF TRUSTEES
The business and affairs of the Fund and each Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), an indirect wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC Bank
serves as the sub-adviser for each of the Portfolios. PNC Bank, whose principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19107, is a subsidiary of PNC Bank Corp. PNC Bank Corp. is a multi-bank holding
company.
As adviser, PIMC is responsible for the overall investment management of
each Portfolio. In addition, PIMC is responsible for all purchases and sales of
portfolio securities for the Portfolios. PNC Bank, as sub-adviser for each of
the Portfolios, provides research and credit analysis and certain other
services. In entering into portfolio transactions for a Portfolio with a
broker/dealer, the investment adviser and sub-adviser may take into account the
sale by such broker/dealer of shares of the Fund, subject to the requirements of
best execution.
For the services provided and expenses assumed by it for the benefit of the
Portfolios, PIMC is entitled to receive from each Portfolio a fee, computed
daily and payable monthly, at an annual rate of .45% of the first $1 billion of
each Portfolio's average daily net assets, .40% of the next $1 billion of each
Portfolio's average daily net assets, .375% of the next $1 billion of each
Portfolio's average daily net assets and .35% of the average daily net assets of
each Portfolio in excess of $3 billion. The Fund paid PIMC advisory fees at
annual rates of .35%, .35%, .35%, .44% and .40% of the average daily net assets
of the Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market and Pennsylvania Municipal Money Market Portfolios,
respectively, for the year ended September 30, 1994, and PIMC waived advisory
fees at the annual rates of .10%, .10%, .10%, .01% and .05% of the average daily
net assets of such respective Portfolios for that year. For the year ended
September 30, 1994, PIMC waived all advisory
23
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fees with respect to the North Carolina Municipal Money Market Portfolio. For
the period ended September 30, 1994, PIMC waived all advisory fees with respect
to the Virginia Municipal Money Market Portfolio. During the same periods, PIMC
reimbursed expenses at the annual rates of .04%, .02%, .05% and .24% of the
average daily net assets of the Pennsylvania Municipal Money Market, Ohio
Municipal Money Market, North Carolina Municipal Money Market and Virginia
Municipal Money Market Portfolios, respectively. See "Management--Expenses" for
a discussion of PIMC's voluntary fee waiver.
For its sub-advisory services, PNC Bank is entitled to receive from PIMC a
fee, computed daily and payable monthly, at an annual rate of .05% of the
average daily net assets of each Portfolio. Such sub-advisory fees have no
effect on the advisory fees payable by each Portfolio to PIMC. For the year
ended September 30, 1994, PNC Bank waived all sub-advisory fees with respect to
the Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market and North Carolina
Municipal Money Market Portfolios. For the period ended September 30, 1994, PNC
Bank waived all sub-advisory fees for the Virginia Municipal Money Market
Portfolio. See "Management--Expenses" for a discussion of the sub-adviser's fee
waivers.
------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware, 19809, and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of each
Portfolio's average daily net assets, .13% of the next $500 million of each
Portfolio's average daily net assets, .11% of the next $1 billion of each
Portfolio's average daily net assets and .10% of each Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at the annual rates of .08%, .03%, .05%, .01% and .01% of
the average daily net assets of the Money Market, Municipal Money Market,
Government Money Market, Ohio Municipal Money Market and Pennsylvania Municipal
Money Market Portfolios, respectively, for the year ended September 30, 1994,
and the Administrators waived combined administration fees at annual rates of
.06%, .12%, .10%, .14% and .14% of the average daily net assets of such
respective Portfolios for that year. The Administrators waived all combined
administration fees with respect to the North Carolina Municipal Money Market
Portfolio for the year ended September 30, 1994. The Administrators waived all
combined administration fees with respect to the Virginia Municipal Money Market
Portfolio for the period ended September 30, 1994. During the same periods, the
Administrators reimbursed expenses at the annual rates of .01%, .01%, .02%, and
.08% of the average daily net assets of the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market and
Virginia Municipal Money Market Portfolios, respectively. See
"Management--Expenses" for a discussion of the Administrators' voluntary fee
waiver.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent.
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------------------------------------
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 Portfolios ("Series
A Investor Shares," "Series B Investor Shares" and "Institutional Shares"). See
"Description of Shares."
------------------------------------
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio (such
as 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 any
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
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<PAGE> 26
------------------------------------
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 a
Portfolio's net asset value per share or result in a financial loss to any
Customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders of each Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the particular Portfolio involved. Each Portfolio's net income is
declared daily as a dividend (i) to shareholders of record immediately prior to
the determination of net asset value made as of the close of regular trading
hours on the NYSE on days on which net asset value is determined, or (ii) to
shareholders of record immediately prior to 4:00 p.m. (Eastern Time) on days on
which there is no determination of net asset value. Consequently, shareholders
whose purchase orders are executed at 12:00 noon (Eastern Time) receive
dividends for that day. On the other hand, shareholders whose redemption orders
have been received by 12:00 noon (Eastern Time) do not receive dividends for
that day, while shareholders of each Portfolio whose redemption orders are
received after 12:00 noon (Eastern Time) do receive dividends for that day.
Because purchase and redemption orders with respect to Shares of the Government
Money Market Portfolio are executed at 12:00 noon and at 4:00 p.m., shareholders
whose purchase orders have been received by 4:00 p.m. will receive a dividend
for that day. For dividend purposes, a Portfolio's investment income available
for distribution to holders of Service Shares is reduced by accrued expenses
directly attributable to that Portfolio and the general expenses of the Fund
prorated to that Portfolio on the basis of its relative net assets. A
Portfolio's net investment income available for distribution to the holders of
Service Shares will be reduced by the amount of other expenses allocated to that
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
Portfolios do not expect to realize net long-term capital gains.
All dividends paid with respect to a Portfolio are reinvested in the form
of additional full and fractional Service Shares of such 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.
26
<PAGE> 27
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as a Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
Each Municipal Portfolio intends to pay substantially all of its dividends
as "exempt interest dividends." Investors in these Portfolios should note,
however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" on their Federal income tax returns for
informational purposes and that in two circumstances such amounts, while exempt
from regular Federal income tax, are taxable to persons subject to alternative
minimum and environmental taxes. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986 generally will constitute an item of tax preference for corporate and
noncorporate taxpayers in determining alternative minimum tax liability and for
corporate taxpayers in determining environmental tax liability. Each of the
Ohio, Pennsylvania, North Carolina, Virginia and New Jersey Municipal Money
Market Portfolios may invest without limitation, and the Municipal Money Market
Portfolio up to 20% of its net assets, in such private activity bonds. Second,
tax-exempt interest and "exempt interest dividends" derived from all other
Municipal Obligations must be taken into account by corporate taxpayers in
determining certain adjustments for alternative minimum and environmental tax
purposes. In addition, investors should be aware of the possibility of state and
local alternative minimum or minimum income tax liability on interest from such
private activity bonds. Shareholders who are recipients of Social Security Act
or Railroad Retirement Act benefits should further note that tax-exempt interest
and "exempt interest dividends" derived from all types of Municipal Obligations
will be taken into account in determining the taxability of their benefit
payments.
Each Municipal Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable. Such percentages will apply uniformly
to all distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record as
of a specified date in those months will be deemed to have been received by the
shareholders on December 31, if the dividends are paid during the following
January.
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<PAGE> 28
Any loss upon the sale or exchange of shares of a Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Ohio
Municipal Money Market, North Carolina Municipal Money Market and Virginia
Municipal Money Market Portfolios, the loss will be disallowed for state tax
purposes to the same extent, even though, for state income tax purposes, some
portion of such dividends actually may have been subject to state income tax.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders also are urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Portfolios
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by each Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio
personal income tax or municipal or school district income taxes in Ohio will
not be subject to such taxes on distributions from the Ohio Municipal Money
Market Portfolio to the extent that such distributions consist of interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States) ("U.S.
Obligations"), provided that the Portfolio continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Ohio Municipal Money Market
Portfolio consists of Ohio Municipal Obligations or similar obligations of other
states or their subdivisions. (It is assumed for purposes of this discussion of
Ohio tax considerations that these requirements are satisfied.) Corporations
that are subject to the Ohio corporation franchise tax will not have to include
distributions from the Ohio Municipal Money Market Portfolio in their net income
base for purposes of calculating their Ohio corporation franchise tax liability
to the extent that such distributions either constitute exempt-interest
dividends or consist of interest on Ohio Municipal Obligations or U.S.
Obligations. However, shares of the Ohio Municipal Money Market Portfolio will
be included in a corporation's net worth base for purposes of calculating the
Ohio corporation franchise tax. Distributions consisting of gain on the sale,
exchange or other disposition of Ohio Municipal Obligations will not be subject
to the Ohio personal income tax, or municipal or school district income taxes in
Ohio and will not be included in the net income base of the Ohio corporation
franchise tax. Distributions attributable to other sources will be subject to
the Ohio personal income tax and the Ohio corporation franchise tax. For
additional Ohio tax considerations, see "Taxes" above.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder
attributable to interest realized by the Pennsylvania Municipal Money Market
Portfolio from Pennsylvania Municipal Obligations or attributable to insurance
proceeds on account of such interest is not taxable to individuals, estates or
trusts under the Personal Income Tax imposed by Article III of the Tax Reform
Code of 1971 (in the case of insurance proceeds, to the extent they are exempt
for Federal Income Tax purposes); to corporations under the Corporate Net Income
tax imposed by Article IV of the Tax Reform Code of 1971 (in the case of
insurance proceeds, to the extent they are exempt for Federal Income Tax
purposes); nor to individuals under the Philadelphia School District New Income
Tax ("School District Tax") imposed on Philadelphia resident individuals under
authority of the Act of August 9, 1963, P.L. 640.
Income received by a shareholder attributable to gain on the sale or other
disposition by the Pennsylvania Municipal Money Market Portfolio of Pennsylvania
Municipal Obligations is taxable under the Personal Income Tax, the Corporate
Net Income Tax, and, unless these assets were held by the Pennsylvania Municipal
Money Market Portfolio for more than six months, the School District Tax.
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<PAGE> 29
No opinion is expressed regarding the extent, if any, to which shares, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Municipal Money Market Portfolio are not
subject to any of the personal property taxes currently in effect in
Pennsylvania to the extent that the Portfolio is comprised of Pennsylvania
Municipal Obligations. The taxes referred to include the County Personal
Property Tax imposed on residents of Pennsylvania by the Act of June 17, 1913,
P.L. 507, as amended.
NORTH CAROLINA TAX CONSIDERATIONS. Interest received in the form of
dividends from the North Carolina Municipal Money Market Portfolio is exempt
from North Carolina state income tax to the extent the distributions represent
interest on direct obligations of the U.S. Government or North Carolina
Municipal Obligations. Distributions derived from interest earned on obligations
of political subdivisions of Puerto Rico, Guam and the U.S. Virgin Islands,
including the governments thereof and their agencies, instrumentalities and
authorities, are also exempt from North Carolina state income tax. Distributions
paid out of interest earned on obligations that are merely backed or guaranteed
by the U.S. Government (e.g., GNMAs, FNMAs), on repurchase agreements
collateralized by U.S. Government securities or on obligations of other states
(which the Portfolio may acquire and hold for temporary or defensive purposes)
are not exempt from North Carolina state income tax.
Any distributions of net realized gain earned by the North Carolina
Municipal Money Market Portfolio on the sale or exchange of certain obligations
of the State of North Carolina or its subdivisions that were issued before July
1, 1995 will also be exempt from North Carolina income tax to the Portfolio's
shareholders. Distributions of gains earned by the North Carolina Municipal
Money Market Portfolio on the sale or exchange of all other obligations will be
subject to North Carolina income tax.
VIRGINIA TAX CONSIDERATIONS. Subject to the provisions discussed below,
dividends paid to shareholders by the Virginia Municipal Money Market Portfolio
and derived from interest on obligations of the Commonwealth of Virginia or of
any political subdivision or instrumentality of the Commonwealth or derived from
interest or dividends on obligations of the United States excludable from
Virginia taxable income under the laws of the United States, which obligations
are issued in the exercise of the borrowing power of the Commonwealth or the
United States and are backed by the full faith and credit of the Commonwealth or
the United States ("Virginia or U.S. Obligations"), will be exempt from the
Virginia income tax. Dividends paid to shareholders by the Portfolio and derived
from interest on debt obligations of certain territories and possessions of the
United States (those issued by Puerto Rico, the Virgin Islands and Guam) will be
exempt from the Virginia income tax. To the extent a portion of the dividends
are derived from interest on debt obligations other than those described above,
such portion will be subject to the Virginia income tax even though it may be
excludable from gross income for Federal income tax purposes.
Generally, dividends distributed to shareholders by the Portfolio and
derived from capital gains from the disposition of Virginia or U.S. Obligations
will be taxable to the shareholders. To the extent any portion of the dividends
are derived from taxable interest for Virginia purposes or from net short-term
capital gains, such portion will be taxable to the shareholders as ordinary
income. The character of long-term capital gains realized and distributed by the
Portfolio will flow through to its shareholders regardless of how long the
shareholders have held their shares. Capital gains distributed to shareholders
derived from Virginia obligations issued pursuant to special Virginia enabling
legislation which provides a specific exemption for such gains will be exempt
from Virginia income tax. Generally, interest on indebtedness incurred by
shareholders to purchase or carry shares of the Portfolio will not be deductible
for Virginia income tax purposes.
29
<PAGE> 30
As a regulated investment company, the Portfolio may distribute dividends
that are exempt from the Virginia income tax to its shareholders if the
Portfolio satisfies all requirements for conduit treatment under Federal law
and, at the close of each quarter of its taxable year, at least 50% of the value
of its total assets consists of obligations the interest on which is exempt from
taxation under Federal law. The Portfolio intends to qualify under the above
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
NEW JERSEY TAX CONSIDERATIONS. It is anticipated that substantially all
dividends paid by the New Jersey Municipal Money Market Portfolio will not be
subject to New Jersey personal income tax. In accordance with the provisions of
New Jersey law as currently in effect, distributions paid by a "qualified
investment fund" will not be subject to the New Jersey personal income tax to
the extent that the distributions are attributable to income received as
interest or gain from New Jersey Municipal Obligations, or as interest or gain
from direct U.S. Government obligations. Distributions by a qualified investment
fund that are attributable to most other sources will be subject to the New
Jersey personal income tax. If the New Jersey Municipal Money Market Portfolio
qualifies as a qualified investment fund under New Jersey law, any gain on the
redemption or sale of the Portfolio's shares will not be subject to the New
Jersey personal income tax. To be classified as a qualified investment fund, at
least 80% of the Portfolio's investments must consist of New Jersey Municipal
Obligations or direct U.S. Government obligations; it must have no investments
other than interest-bearing obligations, obligations issued at a discount, and
cash and cash items (including receivables); and it must satisfy certain
reporting obligations and provide certain information to its shareholders.
Shares of the Portfolio are not subject to property taxation by New Jersey or
its political subdivisions. To the extent that a shareholder is subject to state
or local taxes outside New Jersey, dividends earned by an investment in the New
Jersey Municipal Money Market Portfolio may represent taxable income.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
The foregoing is only a summary of certain New Jersey tax considerations
generally affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with specific reference to their own tax situations.
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<PAGE> 31
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 97 classes (19 classes of "Series B
Investor Shares" and 26 classes each of "Service Shares," "Series A Investor
Shares" and "Institutional Shares") representing interests in each of the Fund's
investment portfolios. This Prospectus describes eight Portfolios of the Fund
which, except for the Ohio, Pennsylvania, North Carolina, Virginia and New
Jersey Municipal Money Market Portfolios, are classified as diversified
companies under the 1940 Act. The Money Market, Municipal Money Market and
Government Money Market Portfolios were each established with only one class of
shares. In each case, the original class of shares was available to all
investors until the subsequent establishment of multiple classes in the
Portfolio. In addition, 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 a Portfolio's Series A Investor
Shares and Series B Investor Shares (collectively, "Investor Shares") will bear
the payments described in the prospectus for such shares that are paid under the
Fund's Distribution and Service Plan and Series B Distribution Plan,
respectively (collectively, the "Distribution Plans"). Under the Distribution
Plans, the Distributor is entitled to payments by each Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing 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 Investor Shares. In addition,
payments under the Series B Distribution Plan will be used to pay for or finance
sales commissions and other fees payable to Service Organizations and other
broker/dealers who sell Series B Investor Shares. Service Organizations may also
provide support services such as establishing and maintaining accounts and
records relating to shareholders of 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
and Service Plan provides for payments to the Distributor at an annual rate not
to exceed .55% of the average daily net asset value of each Portfolio's
outstanding Series A Investor Shares. The Series B Distribution Plan provides
for payments to the Distributor at an annual rate not to exceed .75% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
Shares. In addition, holders of Series B Investor Shares bear the expense of
fees described in the prospectus for such shares that are paid under the Fund's
Series B Service Plan. Payments under the Series B Service Plan will cover
expenses relating to the support services provided to
31
<PAGE> 32
the beneficial owners of Series B Investor Shares by certain Service
Organizations and sometimes by the Distributor. Such services are intended to
supplement the services provided by the Fund's Administrators and transfer
agent. In consideration for payments aggregating up to .25% (on an annualized
basis) of the average daily net asset value of Series B Investor Shares owned
beneficially by their customers, Service Organizations and the Distributor may
provide one or more of the following services to such customers: establishing
and maintaining accounts and records relating to customers that invest in Series
B Shares; processing dividend and distribution payments from the Fund on behalf
of customers; arranging for bank wires; providing sub-accounting with respect to
Series B Shares beneficially owned by customers or the information necessary for
sub-accounting; forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to customers; assisting in processing
purchase, exchange and redemption requests from customers and in placing such
orders with the Fund's service contractors; assisting customers in changing
dividend options, account designations and addresses; providing customers with a
service that invests the assets of their accounts in Series B Shares pursuant to
specific or preauthorized instructions; providing information periodically to
customers showing their positions in Series B Shares and integrating such
statements with those of other transactions and balances in customers' other
accounts with the Service Organization; responding to customer inquiries
relating to the services performed by the Service Organization or the
Distributor; responding to customer inquiries concerning their investments in
Series B Shares; and providing other similar shareholder liaison services.
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, the net
yields on the Fund's Service Shares will generally be higher than those on the
Fund's Series A Investor Shares, and the net yields on the Fund's Series A
Investor Shares will generally be higher than those on the Fund's Series B
Investor Shares if payments by the Portfolios under the Service Plan, the
Distribution and Service Plan, the Series B Distribution Plan and the Series B
Service Plan are made at the maximum rates. Standardized yield quotations will
be computed separately for each class of Shares. Series A Investor Shares of the
Portfolios are exchangeable at the option of the holder for Series A Investor
Shares in another money market Portfolio and for Series A or Series B Investor
Shares in the Fund's non-money market investment portfolios. Series B Investor
Shares of the Money Market Portfolio may only be exchanged for Series B Investor
Shares of the Fund's non-money market portfolios.
On April 30, 1995, PNC Bank held of record approximately 76% 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 each 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 a 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 a
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. A Municipal Portfolio's "tax-equivalent yield" may
32
<PAGE> 33
also be quoted from time to time for Service Shares of a Municipal Portfolio,
which shows the level of taxable yield needed to produce an after-tax equivalent
to such Portfolio's tax-free yield for Service Shares. This is done by
increasing such Portfolio's yield for Service Shares (calculated as above) by
the amount necessary to reflect the payment of Federal (and state and local for
the Ohio, Pennsylvania, North Carolina, Virginia and New Jersey Municipal Money
Market Portfolios) income tax at a stated tax rate.
Performance data for Service Shares of a Portfolio may be compared to that
of other mutual funds with similar investment objectives and to other relevant
indexes or to ratings or rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
In addition, certain indexes may be used to illustrate historic performance of
select asset classes. For example, the yield of Service Shares of a Portfolio
may be compared to data prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc. and Weisenberger Investment Company Service.
Performance information may also include evaluations of the Portfolios published
by nationally recognized ranking services and information as reported by
financial publications such as Business Week, Fortune, Institutional Investor,
Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of Service Shares of a Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on 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).
* * *
33
<PAGE> 34
- -----------------------------------------------------
- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Table.................................... 2
Financial Highlights............................. 3
Investment Policies.............................. 10
Investment Limitations........................... 19
Purchase and Redemption of Shares................ 21
Net Asset Value.................................. 23
Management....................................... 23
Dividends and Distributions...................... 26
Taxes............................................ 27
Description of Shares............................ 31
Performance Information.......................... 32
Reports and Inquiries............................ 33
</TABLE>
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER AND CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
CO-ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR
Provident Distributors, Inc.
Radnor, Pennsylvania
DISTRIBUTOR
Provident Distributors, Inc.
Radnor, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
PNCS-P-001
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
THE MONEY
MARKET
PORTFOLIOS
SERVICE CLASS
PROSPECTUS
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
GOVERNMENT
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
OHIO MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
NORTH CAROLINA MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------------------------------
NEW JERSEY
MUNICIPAL MONEY MARKET PORTFOLIO
- -----------------------------------------------------
JULY 24, 1995
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 1
EXHIBIT (17)(d)
THE FIXED INCOME PORTFOLIOS
SERVICE CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to nine classes of shares (the "Service Shares" or
"Shares") representing interests in nine of those portfolios (collectively, the
"Portfolios") which offer investors a range of investment opportunities with the
following objectives:
MANAGED INCOME PORTFOLIO--to provide current income consistent with
prudent investment management and preservation of capital. It pursues this
objective by investing primarily in high and medium grade fixed-income
securities.
TAX-FREE INCOME PORTFOLIO--to seek as high a level of current income
exempt from Federal income tax as is consistent with preservation of
capital. It pursues this objective by investing primarily in 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").
INTERMEDIATE GOVERNMENT PORTFOLIO--to provide current income consistent
with preservation of capital. It pursues this objective by investing
primarily in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements and collateralized
mortgage obligations ("CMOs") relating to such obligations.
OHIO TAX-FREE INCOME PORTFOLIO--to seek as high a level of current
income exempt from Federal and, to the extent possible, from Ohio income tax
as is consistent with preservation of capital. It pursues this objective by
investing primarily in municipal obligations issued by the State of Ohio and
its political subdivisions, agencies, instrumentalities and authorities and
tax-exempt derivative securities relating thereto ("Ohio Municipal
Obligations").
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from
Pennsylvania income tax as is consistent with preservation of capital. It
pursues this objective by investing primarily in 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").
SHORT-TERM BOND PORTFOLIO--to seek a high level of current income
consistent with prudent investment risk. It pursues this objective by
investing primarily in investment grade debt securities. The Portfolio will
generally have a dollar-weighted average portfolio maturity of five years or
less.
INTERMEDIATE-TERM BOND PORTFOLIO--to seek a high level or current income
consistent with prudent investment risk. It pursues this objective by
investing primarily in investment grade debt securities. The Portfolio will
generally have a dollar-weighted average portfolio maturity of five to ten
years.
GOVERNMENT INCOME PORTFOLIO--to seek as high a level of current income
as is consistent with a reasonable concern for safety of principal. It
pursues this objective by investing primarily in debt securities issued,
guaranteed or otherwise backed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements relating to such obligations.
INTERNATIONAL FIXED INCOME PORTFOLIO--to achieve as high a level of
current income as is consistent with prudent investment risk. It pursues
this objective by investing primarily in an internationally diversified
portfolio of high quality government and corporate 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 Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios are intended for residents of Ohio and Pennsylvania, respectively.
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 free of charge from the Fund by calling
(800) 422-6538. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 2
INTRODUCTION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company which has registered
shares in 25 investment portfolios, nine of which are included in this
Prospectus.
PORTFOLIO MANAGEMENT
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. PNC Bank, Ohio, National Association ("PNC Bank Ohio")
serves as sub-adviser to the Ohio Tax-Free Income Portfolio, PNC Bank, National
Association ("PNC Bank") serves as sub-adviser to the Managed Income,
Intermediate Government, Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios and
Provident Capital Management, Inc. ("PCM") serves as sub-adviser to the
International Fixed Income Portfolio. The investment adviser and sub-advisers
are indirect wholly-owned subsidiaries of PNC Bank Corp.
THE ADMINISTRATORS
PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve as the
Fund's administrators (collectively, the "Administrators").
THE DISTRIBUTOR
Provident Distributors, Inc. (the "Distributor") serves as the Fund's
distributor.
2
<PAGE> 3
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION> INTER- INTER-
INTER- OHIO PENNSYLVANIA SHORT- MEDIATE GOVERN- NATIONAL
MANAGED TAX-FREE MEDIATE TAX-FREE TAX-FREE TERM TERM MENT FIXED
INCOME INCOME GOVERNMENT INCOME INCOME BOND BOND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------- --------- ---------- --------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory
fees(1)...... .38% 0% .23% 0% .28% .23% .28% .38% .43%
Other
operating
expenses...... .50 .83 .50 .83 .55 .50 .50 .50 .65
--- --- --- --- --- --- --- --- ---
Administration
fees(1)... .15 0 .13 0 .09 .09 .10 .10 .10
Shareholder
Servicing
Fee....... .15 .15 .15 .15 .15 .15 .15 .15 .15
Other
expenses(1). .20 .68 .22 .68 .31 .26 .25 .25 .40
--- --- --- --- --- --- --- --- ---
Total fund
operating
expenses...... .88% .83% .73% .83% .83% .73% .78% .88% 1.08%
=== === === === === === === === ====
</TABLE>
- ------------------
(1) Advisory fees are net of waivers of .12%, .50%, .27%, .50%, .22%, .27%,
.22%, .12% and .12% and administration fees are net of waivers of .05%,
.20%, .07%, .20%, .11%, .11%, .10%, .10% and .10% for the Managed Income,
Tax-Free Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Short-Term Bond, Intermediate-Term Bond, Government Income
and International Fixed Income Portfolios, respectively. In addition, the
Expense Table reflects reimbursements made to the Tax-Free Income Portfolio
by the adviser. PIMC and the Administrators are under no obligation to waive
or continue waiving such fees or reimbursing such expenses, but have
informed the Fund that they expect to waive or continue waiving such fees
and reimbursing such expenses during the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth in
the table. The expenses noted above under "Other expenses" are estimated
based on the level of such expenses for the Fund's most recent fiscal year.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000
investment in Shares of each of the Portfolios, assuming (1) 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>
Managed Income............................... $ 9 $28 $ 49 $ 108
Tax-Free Income.............................. 8 26 46 103
Intermediate Government...................... 7 23 41 91
Ohio Tax-Free Income......................... 8 26 46 103
Pennsylvania Tax-Free Income................. 8 26 46 103
Short-Term Bond.............................. 7 23 41 91
Intermediate-Term Bond....................... 8 25 43 97
Government Income............................ 9 28
International Fixed Income................... 11 34
</TABLE>
The foregoing Expense Table and Example are intended to assist investors
in understanding the Portfolios' estimated operating expenses. Investors bear
these expenses either directly or indirectly. The information in the table for
the Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond and Intermediate-Term
Bond Portfolios is based on the advisory and administration fees and other
expenses payable after fee waivers 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. The table estimates fees, expenses, waivers and assets for the other
Portfolios for the current fiscal year. Total operating expenses would have
been 1.05%, 1.53%, 1.07%, 1.53%, 1.16%, 1.11%, 1.10%, 1.10% and 1.30% for
Service Shares of the Managed Income, Tax-Free Income, Intermediate Government,
Ohio Tax-Free Income,
3
<PAGE> 4
Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term Bond,
Government Income and International Fixed Income Portfolios, respectively,
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," "Distribution of Shares,"
"Management--Shareholder Servicing," "How to Purchase Shares" and "Description
of Shares" for a further description of shareholder transaction expenses and
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.
CERTAIN RISK FACTORS TO CONSIDER
An investment in any of the Portfolios is subject to certain investment
considerations, as set forth in detail under "Investment Policies." As with
other mutual funds, there can be no assurance that any Portfolio will achieve
its investment objective. Some or all of the Portfolios may: purchase
mortgage-related securities, foreign securities and illiquid securities; enter
into repurchase and reverse repurchase agreements; lend portfolio securities to
third parties; and enter into futures contracts and options. The Ohio Tax-Free
Income and Pennsylvania Tax-Free Income Portfolios are classified as
non-diversified under the Investment Company Act of 1940 (the "1940 Act"). These
and the other investment practices set forth below and their associated risks
deserve careful consideration by investors. See "Investment Policies."
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers four classes of shares in each
Portfolio--Service, Series A Investor, Series B Investor and Institutional
Shares. Service, Series A Investor, Series B Investor and Institutional Shares
in a Portfolio represent equal pro rata interests in such Portfolio, except that
they bear different expenses which reflect the difference in the range of
services provided to them. Under the Fund's Service Plan, Service Shares bear
the expense of fees at an annual rate not to exceed .15% of the average daily
net asset value of each Portfolio's outstanding Service Shares. Service Shares
also bear the expense of a service fee at an annual rate not to exceed .15% of
the average daily net asset value of each Portfolio's outstanding Service Shares
for other shareholder support activities provided by service organizations. See
"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 each Portfolio's outstanding Series A Investor
Shares. Series B Investor Shares bear the expense of the Fund's Series B
Distribution Plan and Series B Service Plan at annual rates not to exceed .75%
and .25%, respectively, of the average daily net asset value of each Portfolio's
outstanding Series B Investor Shares. See "Description of Shares" for a
description of the Distribution and Service Plan, the Series B Distribution Plan
and the Series B Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
During periods in which fees relating to the Service Plan and shareholder
support activities and to the Distribution and Service Plan were not charged to
a Portfolio's Service Shares or Series A Investor Shares, respectively, the
financial data in the tables below pertaining to Service Shares or Series A
Investor Shares of such Portfolio are identical to the financial data relating
to Institutional Shares of the Portfolio for such periods or to what such
financial data would have been had Institutional Shares in the Portfolio been
outstanding for such periods (except, in each case, for the number of Service
and Series A Investor Shares outstanding).
The SEC requires that this Prospectus contain Financial Highlights for each
class of each Portfolio described herein. Series A Investor Shares of the Ohio
Tax-Free Income Portfolio did not bear any expenses relating to the Distribution
and Service Plan during the year ended September 30, 1994 and during all prior
periods. It is expected that Series A Investor Shares of the Ohio Tax-Free
Income Portfolio will bear such expenses after the date of this Prospectus. No
Series B Investor Shares of the Portfolios and no shares of the Government
Income and International Fixed Income Portfolios were issued during the year
ended September 30, 1994.
The financial data included in the tables below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolios is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
5
<PAGE> 6
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
----------------------------------------------------------------
INSTITUTIONAL CLASS
----------------------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 11/1/89(1)
ENDED ENDED ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 11.17 $ 10.74 $ 10.26 $ 9.70 $ 10.00
---------- ---------- ---------- ---------- --------
Income from investment operations
Net investment income.................................. 0.64 0.67 0.69 0.74 0.66
Net gain (loss) on investments
(both realized and unrealized)....................... (1.21) 0.56 0.48 0.63 (0.29)
---------- ---------- ---------- ---------- -------
Total from investment operations................... (0.57) 1.23 1.17 1.37 0.37
---------- ---------- ---------- ---------- -------
Less distributions
Distributions from net investment income............... (0.64) (0.67) (0.69) (0.73) (0.66)
Distribution in excess of net investment income........ (0.02) -- -- (0.08) (0.01)
Distributions from net realized capital gains.......... (0.14) (0.13) -- -- --
Distributions in excess of net realized gains.......... (0.01) -- -- -- --
---------- ---------- ---------- ---------- -------
Total distributions................................ (0.81) (0.80) (0.69) (0.81) (0.67)
---------- ---------- ---------- ---------- -------
Net asset value at end of period........................... $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70
========== ========== ========== ========== =======
Total return............................................... (5.27)% 12.13% 11.80% 14.74% 3.80%
Ratios/Supplemental data
Net assets at end of period
(in thousands)....................................... $395,060 $341,791 $314,075 $ 52,802 $38,328
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.55% 0.74% 0.80% 0.80% 0.80%(2)
Before advisory/administration fee waivers........... 0.77% 0.78% 0.80% 0.84% 0.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 6.11% 6.25% 6.28% 7.36% 7.31%(2)
Before advisory/administration fee waivers........... 5.89% 6.21% 6.28% 7.32% 7.29%(2)
Portfolio turnover rate................................ 61% 72% 56% 38% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
6
<PAGE> 7
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
-------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
------------------- ------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/29/93(1) YEAR YEAR 2/05/92(1)
ENDED THROUGH ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............................. $ 11.17 $ 10.96 $ 11.18 $10.74 $10.40
------- -------- ------- ------- -------
Income from investment operations
Net investment income.......................................... 0.59 0.11 0.57 0.66 0.46
Net gain (loss) on investments (both realized and
unrealized).................................................. (1.18) .21 (1.19) 0.57 0.34
------- -------- ------- ------- -------
Total from investment operations........................... (0.59) 0.32 (0.62) 1.23 0.80
------- -------- ------- ------- -------
Less distributions
Distributions from net investment income....................... (0.62) (0.11) (0.60) (0.66) (0.46)
Distribution in excess of net investment income................ (0.02) -- (0.02) -- --
Distributions from net realized capital gains.................. (0.14) -- (0.14) (0.13) --
Distributions in excess of net realized gains.................. (0.01) -- (0.01) -- --
------- -------- ------- ------- ------
Total distributions........................................ (0.79) (0.11) (0.77) (0.79) (0.46)
------- -------- ------- ------- ------
Net asset value at end of period................................... $ 9.79 $ 11.17 $ 9.79 $11.18 $10.74
======= ======== ======= ======= ======
Total return....................................................... (5.49)% 2.93% (5.76)%3 12.13%3 7.86%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $67,655 $15,322 $10,921 $7,252 $1,417
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.80% 0.80%(2) 1.00% 0.84% 0.80%(2)
Before advisory/administration fee waivers................... 1.02% 0.84%(2) 1.22% 0.88% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 5.95% 5.83%(2) 5.66% 6.09% 6.28%(2)
Before advisory/administration fee waivers................... 5.73% 5.79%(2) 5.44% 6.05% 6.28%(2)
Portfolio turnover rate........................................ 61% 72% 61% 72% 56%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
7
<PAGE> 8
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
---------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------- --------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 1/21/93(1) YEAR 7/29/93(1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period..................................... $11.31 $10.61 $11.31 $10.97
------- -------- ------- --------
Income from investment operations
Net investment income.................................................. 0.53 0.42 0.51 0.09
Net gain (loss) on investments (both realized and unrealized).......... (0.93) 0.70 (0.93) 0.34
------- -------- ------- --------
Total from investment operations................................... (0.40) 1.12 (0.42) 0.43
------- -------- ------- --------
Less distributions
Distributions from net investment income............................... (0.53) (0.42) (0.51) (0.09)
Distributions from net realized capital gains.......................... (0.34) -- (0.34) --
------- -------- ------- --------
Total distributions................................................ (0.87) (0.42) (0.85) (0.09)
------- -------- ------- --------
Net asset value at end of period........................................... $10.04 $11.31 $10.04 $11.31
======= ======== ======= ========
Total return............................................................... (3.77)% 10.72% (4.02)% 3.92%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................. $ 132 $ 675 $2,109 $ 634
Ratios of expenses to average net assets
After advisory/administration fee waivers............................ 0.50% 0.50%(2) 0.75% 0.71%(2)
Before advisory/administration
fee waivers........................................................ 1.73% 1.28%(2) 1.98% 1.49%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................ 4.97% 5.14%(2) 4.75% 4.99%(2)
Before advisory/administration fee waivers........................... 3.74% 4.36%(2) 3.52% 4.21%(2)
Portfolio turnover rate................................................ 40% 71% 40% 71%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
8
<PAGE> 9
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
----------------------------------------------------------------
SERIES A INVESTOR CLASS
----------------------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 5/14/90(1)
ENDED ENDED ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $11.31 $10.60 $10.33 $ 9.91 $10.00
---------- ---------- ---------- ---------- --------
Income from investment operations
Net investment income.................................. 0.48 0.55 0.58 0.64 0.25
Net gain (loss) on investments (both realized and
unrealized).......................................... (0.93) 0.83 0.49 0.46 (0.11)
---------- ---------- ---------- ---------- --------
Total from investment operations................... (0.45) 1.38 1.07 1.10 0.14
---------- ---------- ---------- ---------- --------
Less distributions
Distributions from net investment income............... (0.48) (0.55) (0.59) (0.66) (0.23)
Distributions from net realized capital gains.......... (0.34) (0.12) (0.21) (0.02) --
---------- ---------- ---------- ---------- --------
Total distributions................................ (0.82) (0.67) (0.80) (0.68) (0.23)
---------- ---------- ---------- ---------- --------
Net asset value at end of period........................... $10.04 $11.31 $10.60 $10.33 $ 9.91
========== ========== ========== ========== ========
Total return............................................... (4.19)%(3) 13.48%(3) 10.67%(3) 11.40%(3) 1.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $6,972 $7,831 $7,349 $3,510 $4,044
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.95% 0.57% 0.53% 1.00% 1.00%(2)
Before advisory/administration fee waivers........... 2.18% 1.36% 1.67% 1.89% 1.70%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 4.53% 5.06% 5.56% 6.23% 6.56%(2)
Before advisory/administration fee waivers........... 3.30% 4.27% 4.42% 5.34% 5.86%(2)
Portfolio turnover rate................................ 40% 71% 38% 95% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
9
<PAGE> 10
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
--------------------------------------
FOR THE
PERIOD
YEAR YEAR 4/20/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period........................................... $ 10.60 $ 10.46 $ 10.00
-------- -------- --------
Income from investment operations
Net investment income........................................................ 0.55 0.54 0.24
Net gain (loss) on investments (both realized and unrealized)................ (0.86) 0.16 0.46
-------- -------- --------
Total from investment operations......................................... (0.31) 0.70 0.70
-------- -------- --------
Less distributions
Distributions from net investment income..................................... (0.55) (0.54) (0.24)
Distributions from net realized capital gains................................ (0.10) (0.02) --
-------- -------- --------
Total distributions...................................................... (0.65) (0.56) (0.24)
-------- -------- --------
Net asset value at end of period................................................. $ 9.64 $ 10.60 $ 10.46
======== ======== ========
Total return..................................................................... (3.08)% 6.88% 7.14%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................... $128,974 $137,065 $105,620
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................. 0.40% 0.73% 0.80%(2)
Before advisory/administration fee waivers................................. 0.80% 0.81% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................. 5.48% 5.23% 5.28%(2)
Before advisory/administration fee waivers................................. 5.08% 5.15% 5.28%(2)
Portfolio turnover rate.......................................................... 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
10
<PAGE> 11
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
-------------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
------------------- -----------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/29/93(1) YEAR YEAR 5/11/92(1)
ENDED THROUGH ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period........................... $10.60 $ 10.45 $10.60 $10.46 $10.05
------- -------- ------- ------- --------
Income from investment operations
Net investment income........................................ 0.53 0.09 0.53 0.54 0.24
Net gain (loss) on investments (both realized and
unrealized)................................................ (0.86) 0.15 (0.87) 0.16 0.41
------- -------- ------- ------- --------
Total from investment operations......................... (0.33) 0.24 (0.34) 0.70 0.65
------- -------- ------- ------- --------
Less distributions
Distributions from net investment income..................... (0.53) (0.09) (0.52) (0.54) (0.24)
Distributions from net realized capital gains................ (0.10) -- (0.10) (0.02) --
------- -------- ------- ------- --------
Total distributions...................................... (0.63) (0.09) (0.62) (0.56) (0.24)
------- -------- ------- ------- --------
Net asset value at end of period................................. $ 9.64 $ 10.60 $ 9.64 $10.60 $10.46
======= ======== ======= ======= ========
Total return..................................................... (3.31)% 2.30% (3.36)%(3) 6.84%(3) 6.64%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................... $60,812 $15,035 $8,508 $7,666 $1,484
Ratios of expenses to average net assets
After advisory/administration fee waivers.................. 0.65% 0.67%(2) 0.65% 0.76% 0.80%(2)
Before advisory/administration fee waivers................. 1.05% 0.75%(2) 1.05% 0.84% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................. 5.30% 5.14%(2) 5.24% 5.19% 5.28%(2)
Before advisory/administration fee waivers................. 4.90% 5.06%(2) 4.84% 5.11% 5.28%(2)
Portfolio turnover rate.......................................... 9% 80% 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
11
<PAGE> 12
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
---------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
------------------- ------------------- -----------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/1/92(1) YEAR 7/29/93(1) YEAR 12/1/92(1)
ENDED THROUGH ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $10.53 $10.00 $10.53 $10.24 $10.53 $10.00
------- -------- ------- -------- ------- --------
Income from investment operations
Net investment income........................... 0.53 0.36 0.49 0.09 0.53 0.36
Net gain (loss) on investments (both realized
and unrealized)............................... (0.91) 0.53 (0.91) 0.29 (0.91) 0.53
------- -------- ------- -------- ------- --------
Total from investment operations............ (0.38) 0.89 (0.42) 0.38 (0.38) 0.89
------- -------- ------- -------- ------- --------
Less distributions
Distributions from net investment income........ (0.53) (0.36) (0.49) (0.09) (0.53) (0.36)
Distributions from net realized capital gains... (0.02) -- (0.02) -- (0.02) --
------- -------- ------- -------- ------- --------
Total distributions......................... (0.55) (0.36) (0.51) (0.09) (0.55) (0.36)
------- -------- ------- -------- ------- --------
Net asset value at end of period.................... $ 9.60 $10.53 $ 9.60 $10.53 $ 9.60 $10.53
======= ======== ======= ======== ======= ========
Total return........................................ (3.75)% 9.10% (4.00)% 3.68% (3.75)%(3) 9.10%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)...... $ 127 $1,676 $4,428 $ 907 $3,825 $2,386
Ratios of expenses to average net assets
After advisory/administration
fee waivers................................. 0.10% 0.08%(2) 0.35% 0.32%(2) 0.10% 0.07%(2)
Before advisory/administration
fee waivers................................. 1.49% 2.59%(2) 1.74% 2.83%(2) 1.49% 2.58%(2)
Ratios of net investment income to average net
assets
After advisory/administration
fee waivers................................. 5.16% 4.99%(2) 5.06% 4.71%(2) 5.18% 4.90%(2)
Before advisory/administration
fee waivers................................. 3.77% 2.48%(2) 3.67% 2.20%(2) 3.79% 2.39%(2)
Portfolio turnover rate............................. 61% 36% 61% 36% 61% 36%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
12
<PAGE> 13
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
-------------------------------------------------------------------
INSTITUTIONAL SERIES A
CLASS SERVICE CLASS INVESTOR CLASS
------------------ ------------------ -------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/1/92(1) YEAR 7/29/931 YEAR 12/1/92(1)
ENDED THROUGH ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................... $10.70 $10.00 $10.70 $10.43 $10.70 $ 10.00
------- -------- ------- -------- ------- --------
Income from investment operations
Net investment income................................ 0.53 0.39 0.51 0.09 0.52 0.42
Net gain (loss) on investments (both realized and
unrealized)........................................ (0.85) 0.73 (0.85) 0.28 (0.85) 0.73
------- -------- ------- -------- ------- --------
Total from investment operations................. (0.32) 1.12 (0.34) 0.37 (0.33) 1.15
------- -------- ------- -------- ------- --------
Less distributions
Distributions from net investment income............. (0.53) (0.39) (0.51) (0.09) (0.52) (0.42)
Distributions from net realized
capital gains...................................... (0.03) (0.03) (0.03) (0.01) (0.03) (0.03)
------- -------- ------- -------- ------- --------
Total distributions.............................. (0.56) (0.42) (0.54) (0.10) (0.55) (0.45)
------- -------- ------- -------- ------- --------
Net asset value at end of period......................... $ 9.82 $10.70 $ 9.82 $10.70 $ 9.82 $ 10.70
======= ======== ======= ======== ======= ========
Total return............................................. (2.96)% 11.69% (3.20)% 3.54% (3.06)%(3) 11.69%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $ 639 $ 256 $11,518 $3,894 $46,563 $35,934
Ratios of expenses to average net assets
After advisory/administration
fee waivers...................................... 0.39% 0.09%(2) 0.55% 0.34%(2) 0.41% 0.07%(2)
Before advisory/administration
fee waivers...................................... 0.99% 0.97%(2) 1.15% 1.22%(2) 1.01% 0.95%(2)
Ratios of net investment income to average net assets
After advisory/administration
fee waivers...................................... 5.27% 5.19%(2) 4.97% 4.90%(2) 5.06% 5.19%(2)
Before advisory/administration
fee waivers...................................... 4.67% 4.31%(2) 4.37% 4.02%(2) 4.46% 4.31%(2)
Portfolio turnover rate.................................. 30% 40% 30% 40% 30% 40%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
13
<PAGE> 14
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
--------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
--------------------- --------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/1/93(1) YEAR 9/1/93(1) 11/17/93(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.................... $ 10.00 $10.00 $10.00 $10.00 $ 9.96
---------- -------- ---------- -------- ------
Income from investment operations
Net investment income................................. 0.42 0.02 0.39 0.02 0.34
Net gain (loss) on investments (both realized and
unrealized)......................................... (0.42) -- (0.42) -- (0.38)
---------- -------- ---------- -------- ------
Total from investment operations.................. -- 0.02 (0.03) 0.02 (0.04)
---------- -------- ---------- -------- ------
Less distributions
Distributions from net investment income.............. (0.42) (0.02) (0.39) (0.02) (0.34)
Distributions from net realized capital gains......... -- -- -- -- --
---------- -------- ---------- -------- ------
Total distributions............................... (0.42) (0.02) (0.39) (0.02) (0.34)
---------- -------- ---------- -------- ------
Net asset value at end of period.......................... $ 9.58 $10.00 $ 9.58 $10.00 $ 9.58
========== ======== ========== ======== ============
Total return.............................................. (0.02)% 0.23% (0.26)% 0.21% (0.43)(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $ 17,619 $3,748 $6,230 $2,811 $ 277
Ratios of expenses to average net assets
After advisory/administration fee waivers........... 0.40% 0.40%(2) 0.65% 0.65%(2) 0.65%(2)
Before advisory/administration fee waivers.......... 0.95% 1.42%(2) 1.20% 1.67% 1.20%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers........... 4.27% 2.92%(2) 4.07% 2.57%(2) 4.19%(2)
Before advisory/administration fee waivers.......... 3.72% 1.90%(2) 3.52% 1.55%(2) 3.64%(2)
Portfolio turnover rate................................... 113% 0% 113% 0% 113%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
14
<PAGE> 15
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
--------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
--------------------- --------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/17/93(1) YEAR 9/23/93(1) 5/20/94(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.................. $ 10.01 $ 10.00 $ 10.01 $ 9.99 $ 9.23
---------- -------- ---------- -------- ------
Income from investment operations
Net investment income............................... 0.54 0.02 0.54 -- 0.20
Net gain (loss) on investments (both realized and
unrealized)....................................... (0.88) (0.01) (0.91) 0.02 (0.17)
---------- -------- ---------- -------- ------
Total from investment operations................ (0.34) 0.01 (0.37) 0.02 0.03
---------- -------- ---------- -------- ------
Less distributions
Distributions from net investment income............ (0.56) -- (0.53) -- (0.21)
Distributions from net realized capital gains....... (0.06) -- (0.06) -- --
---------- -------- ---------- -------- ------
Total distributions............................. (0.62) -- (0.59) -- (0.21)
---------- -------- ---------- -------- ------
Net asset value at end of period........................ $ 9.05 $ 10.01 $ 9.05 $10.01 $ 9.05
========== ======== ========== ======== ============
Total return............................................ (3.52)% 0.10% (3.80)% 0.20% 0.31%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 71,896 $56,713 $ 35,764 $ 91 $ 87
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.45% 0.45%(2) 0.70% 0.70%(2) 0.85%(2)
Before advisory/administration fee waivers........ 0.88% 0.84%(2) 1.13% 1.09%(2) 1.28%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 5.54% 4.72%(2) 5.33% 4.35%(2) 5.35%(2)
Before advisory/administration fee waivers........ 5.11% 4.33%(2) 4.90% 3.96%(2) 4.92%(2)
Portfolio turnover rate................................. 92% 4% 92% 4% 92%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
15
<PAGE> 16
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
MANAGED INCOME PORTFOLIO
The Portfolio will normally invest at least 80% of the value of its total
assets in debt securities of all types, although up to 20% of the value of its
total assets may be invested in preferred stocks. Debt securities may include,
without limitation, bonds, debentures, notes, equipment lease and trust
certificates, mortgage-related securities, Municipal Obligations (other than
tax-exempt derivative securities), guaranteed investment contracts (GICs) and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The sub-adviser uses a number of factors in selecting
securities, including without limitation as applicable, debt to equity and
capital ratios, pre-tax fixed charge coverage, return on equity, the issuance's
size, current yield, general economic analysis, preservation of capital,
potential for realizing capital appreciation, maturity and yield to maturity.
Purchasable debt securities and preferred stock are rated at the time of
purchase within the four highest ratings assigned by Moody's Investors Service,
Inc. ("Moody's") (i.e., Aaa, Aa, A, Baa for bonds and preferred stock) or by
Standard & Poor's Corporation ("S&P") (i.e., AAA, AA, A, BBB for bonds and
preferred stock) or, if unrated, are determined by sub-adviser at the time of
purchase to be of comparable quality. Securities rated "Baa" by Moody's or "BBB"
by S&P, respectively, are generally considered to be investment grade although
they have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher grade bonds. If a
portfolio security is reduced below Baa by Moody's or BBB by S&P, the
Portfolio's sub-adviser will dispose of the security in an orderly fashion as
soon as practicable. See Appendix A to the Statement of Additional Information
for a description of Moody's and S&P's rating symbols.
The Portfolio may invest up to 10% of the value of its total assets in debt
securities of foreign issuers. Investors should realize that investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operated in the United
States. Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio may hold from time to time
various foreign currencies pending their investment in foreign securities or
their conversion into U.S. dollars, the value of the Portfolio's assets as
measured in U.S. dollars may be affected favorably or unfavorably by changes in
exchange rates. Although the Portfolio intends to invest in securities of
companies and governments of developed, stable nations, investors should realize
that the value of the Portfolio's investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control regulations in those foreign
nations. In addition, changes in government administrations or economic or
monetary policies in the U.S. or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or adversely affect the
Portfolio's operations. Furthermore, the economies of individual foreign nations
may differ from that of the United States, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. Any
foreign investments made by the Portfolio must be made in compliance with U.S.
and foreign currency restrictions and tax laws restricting the amounts and types
of foreign investments.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. The Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities in U.S. companies. Expenses relating to
foreign investments are higher than those relating to domestic securities. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
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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.
Purchasable Municipal Obligations include debt obligations issued by
governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities. Private activity bonds issued by or
on behalf of public authorities to finance various privately operated facilities
are considered Municipal Obligations. Dividends paid by the Portfolio that are
derived from interest on such Municipal Obligations would be taxable to the
Portfolio's shareholders for Federal income tax purposes.
When investing in GICs, the Portfolio makes cash contributions to a deposit
fund of an insurance company's general account. The insurance company then
credits to the deposit fund on a monthly basis guaranteed interest which is
based on an index (in most cases this index is expected to be the Salomon
Brothers CD Index). GICs provide that this guaranteed interest will not be less
than a certain minimum rate. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the general assets of the insurance company. The Portfolio will only
purchase GICs from insurance companies which, at the time of purchase, are rated
"A+" by A.M. Best Company, have assets of $1 billion or more and meet quality
and credit standards established by the sub-adviser pursuant to guidelines
approved by the Board of Trustees. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist.
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. Moreover, certain investments in
lease obligations may be illiquid and subject to the investment limitations
described below. The Portfolio does not currently intend to invest in such lease
obligations. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
Under normal market conditions, the Managed Income Portfolio's
average-weighted maturity will generally be between 5 and 15 years.
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------------------------------------
TAX-FREE INCOME PORTFOLIO
Purchasable Municipal Obligations are rated within the four highest
categories assigned by Moody's (Aaa, Aa, A or Baa) or by S&P (AAA, AA, A or BBB)
in the case of bonds, rated SP-2 or higher by S&P or MIG-2 or higher by Moody's
in the case of notes, rated A-2 or higher by S&P or Prime-2 or higher by Moody's
in the case of tax-exempt commercial paper or VMIG-2 or higher by Moody's in the
case of variable rate demand notes or are unrated securities determined at the
time of purchase to be of comparable quality by the sub-adviser. In the event
that the rating of a Portfolio security is reduced below Baa by Moody's or BBB
by S&P, the security will be disposed of in an orderly fashion as soon as
practicable. See "Investment Policies--Managed Income Portfolio" for a
description of Municipal Obligations and certain considerations relating to
securities rated Baa or BBB by Moody's or S&P, respectively, "Investment
Policies--Common Investment Policies" for a description of other investment
policies and Appendix A to the Statement of Additional Information for a
description of Moody's and S&P's ratings.
Under normal market conditions, the Tax-Free Income Portfolio's
average-weighted maturity will generally be between 10 and 25 years.
------------------------------------
INTERMEDIATE GOVERNMENT PORTFOLIO
Treasury obligations differ in their interest rates, maturities and times
of issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities such as Government National Mortgage Association
pass-through certificates are supported by the United States' full faith and
credit; others such as those of the Federal Home Loan Banks are supported by the
right of the issuer to borrow from the Treasury; others such as those issued by
the Federal National Mortgage Association and the Student Loan Marketing
Association are supported by the U.S. Government's discretionary authority to
purchase certain obligations of the agency or instrumentality; and others are
supported only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it always will do so
because it is not so obligated by law. The Portfolio may invest in CMOs rated at
the time of purchase within the four highest ratings assigned by Moody's (i.e.,
Aaa, Aa, A, Baa) or by S&P (i.e., AAA, AA, A, BBB) or, if unrated, are
determined by sub-adviser at the time of purchase to be of comparable quality.
CMOs are not government securities. During normal market conditions, at least
65% of the Portfolio's total assets will be invested in U.S. Government
obligations or repurchase agreements relating to such obligations. See
"Investment Policies--Managed Income Portfolio" for a description of certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively, "Investment Policies--Common Investment Policies" for a
description of other investment policies and Appendix A to the Statement of
Additional Information for a description of Moody's and S&P's ratings.
Under normal market conditions, the Intermediate Government Portfolio's
average-weighted maturity will generally be between three and ten years.
------------------------------------
OHIO TAX-FREE INCOME PORTFOLIO
Purchasable Municipal Obligations are rated within the four highest ratings
assigned by Moody's (i.e., Aaa, Aa, A, Baa) or by S&P (AAA, AA, A, BBB) in the
case of bonds, rated SP-2 or higher by S&P or MIG-2 or higher by Moody's
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in the case of notes, rated A-2 or higher by S&P or Prime-2 or higher by Moody's
in the case of tax-exempt commercial paper or VMIG-2 or higher by Moody's in the
case of variable rate demand notes or are unrated securities determined at the
time of purchase to be of comparable quality by the sub-adviser. If a portfolio
security is reduced below Baa by Moody's or BBB by S&P, the Portfolio's
sub-adviser will dispose of the security in an orderly fashion as soon as
practicable. The Portfolio will not trade its securities for the purpose of
seeking profits. For purposes of this policy, the Portfolio may vary its
portfolio securities if (i) there has been an adverse change in a security's
credit rating or in that of its issuer or in the adviser's or sub-adviser's
credit analysis of the security or its issuer; (ii) there has been, in the
opinion of the adviser and sub-adviser, a deterioration or anticipated
deterioration in general economic or market conditions affecting issuers of Ohio
Municipal Obligations, or a change or anticipated change in interest rates;
(iii) adverse changes or anticipated changes in market conditions or economic or
other factors temporarily affecting the issuers of one or more portfolio
securities make necessary or desirable the sale of such security or securities
in anticipation of the Portfolio's repurchase of the same or comparable
securities at a later date; or (iv) the adviser or sub-adviser engages in
temporary defensive investment strategies. See "Investment Policies--Managed
Income Portfolio" for a description of Municipal Obligations and certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively, and Appendix A to the Statement of Additional Information for a
description of Moody's and S&P's ratings.
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) these obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "Investment Policies--Common Investment
Policies" for a description of other investment policies.
Under normal market conditions, the Ohio Tax-Free Income Portfolio's
average-weighted maturity will generally be between 10 and 25 years.
------------------------------------
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
Purchasable Municipal Obligations are rated within the four highest ratings
assigned by Moody's (i.e., Aaa, Aa, A, Baa) or by S&P (AAA, AA, A, BBB) in the
case of bonds, rated SP-2 or higher by S&P or MIG-2 or higher by Moody's in the
case of notes, rated A-2 or higher by S&P or Prime-2 or higher by Moody's in the
case of tax-exempt commercial paper or VMIG-2 or higher by Moody's in the case
of variable rate demand notes or are unrated securities determined at the time
of purchase to be of comparable quality by the sub-adviser. If a portfolio
security is reduced below Baa by
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Moody's or BBB by S&P, the Portfolio's sub-adviser will dispose of the security
in an orderly fashion as soon as practicable. See "Investment Policies--Managed
Income Portfolio" for a description of Municipal Obligations and certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively, and Appendix A to the Statement of Additional Information for a
description of Moody's and S&P's ratings.
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 "Investment Policies--Common Investment Policies" for a
description of other investment policies.
The Commonwealth has sold a substantial amount of bonds over the past
several years, but the debt burden remains moderate. The recession has affected
Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service
sectors, with losses in more high-paid manufacturing positions. A new governor
took office in January, but the Commonwealth is likely to continue to show
fiscal restraint.
Under normal market conditions, the Pennsylvania Tax-Free Income
Portfolio's average-weighted maturity will generally be between 10 and 25 years.
------------------------------------
SHORT-TERM BOND PORTFOLIO
The Portfolio will invest up to 100% of the value of its total assets in
debt securities rated at the time of purchase within the four highest ratings
assigned by Moody's (Aaa, Aa, A, Baa) or by S&P (AAA, AA, A, BBB), or if
unrated, are determined by the sub-adviser at the time of purchase to be of
comparable quality. Debt securities may include, without limitation, bonds,
debentures, notes, equipment lease and trust certificates, mortgage-related
securities, structured rate notes and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. See "Investment
Policies--Managed Income Portfolio" for a discussion of mortgage-backed
securities. See "Investment Policies--Intermediate Government Portfolio" for
examples of the types of U.S. Government Obligations that the Portfolio may
purchase.
The Portfolio may purchase bank obligations, such as certificates of
deposit, bankers' acceptances and demand and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the adviser
deems the instrument to present minimal credit risks. Such investments may
include Eurodollar Certificates of Deposit ("EDCs") which are U.S.
dollar-dominated certificates of deposit issued by foreign and domestic banks
located outside the United States; Eurodollar Time Deposits ("ETDs") which are
U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or a
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foreign bank; Canadian Time Deposits ("CTDs") which are essentially the same as
ETDs except that they are issued by Canadian offices of major Canadian banks;
and Yankee Certificates of Deposit ("Yankee CDs") which are U.S. dollar-
denominated certificates of deposit issued by a U.S. branch of a foreign bank
and held in the United States. The Portfolio may also make interest-bearing
savings deposits in commercial and savings banks.
Investments in obligations issued by foreign banks and foreign branches of
U.S. banks may involve risks that are different from investments in obligations
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held by the Portfolio.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks.
The Portfolio may purchase rated and unrated variable and floating rate
instruments. 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
sub-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. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
Under normal market conditions, the Short-Term Bond Portfolio's
average-weighted maturity is expected to be five years or less.
------------------------------------
INTERMEDIATE-TERM BOND PORTFOLIO
The Intermediate-Term Bond Portfolio will invest up to 100% of its total
assets in debt securities similar to those of the Short-Term Bond Portfolio. See
"Investment Policies--Short-Term Bond Portfolio" for a discussion of the types
of securities in which the Portfolio may invest. See "Investment
Policies--Common Investment Policies" for a discussion of other investment
policies.
Under normal market conditions, the Intermediate-Term Bond Portfolio's
average-weighted maturity is expected to be between five and ten years.
------------------------------------
GOVERNMENT INCOME PORTFOLIO
The Portfolio is designed primarily for investors seeking current income
through a professionally-managed diversified portfolio of U.S. Government
securities. During normal market periods, at least 65% of the Portfolio's assets
will be invested in U.S. Government obligations (or repurchase agreements
relating to such obligations). The composition and dollar-weighted average
portfolio maturity of the Portfolio will vary from time to time based upon the
sub-adviser's assessment of relative yields available on U.S. Government
securities of different maturities, its
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<PAGE> 22
expectations of future changes in interest rates and the determination of the
sub-adviser of how best to further the Portfolio's investment objective. The
Portfolio may invest in securities of all maturities--short-term,
intermediate-term and long-term. Treasury obligations differ only in their
interest rates, maturities and times of issuance. Obligations of certain
agencies and instrumentalities of the U.S. Government such as the Government
National Mortgage Association are supported by the United States' full faith and
credit; others such as those of the Federal National Mortgage Association and
the Student Loan Marketing Association are supported by the right of the issuer
to borrow from the 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 instrumentality. 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 Portfolio purchases primarily fixed rate securities, including but not
limited to high coupon U.S. Government agency mortgage-backed securities, which
provide a higher coupon at the time of purchase than the then prevailing market
rate yield. The prices of high coupon securities do not tend to rise as rapidly
as those of traditional fixed rate securities at times when interest rates are
decreasing, and tend to decline more slowly at times when interest rates are
increasing. The Portfolio may purchase such securities at a premium, which means
that a faster principal prepayment rate than expected will reduce the market
value of and income from such securities, while a slower prepayment rate will
tend to increase the market value of and income from such securities. If the
Portfolio buys mortgage-backed securities at a premium, mortgage foreclosures
and prepayment of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Portfolio's principal investment to the
extent of the premium paid.
------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in high quality fixed income obligations of foreign issuers.
The Portfolio's investments may include: (i) debt obligations issued or
guaranteed by foreign sovereign governments or their agencies, authorities,
instrumentalities or political subdivisions, including a foreign state, province
or municipality; (ii) debt obligations of supranational organizations such as
the World Bank, Asian Development Bank, European Investment Bank, and European
Economic Community; (iii) debt obligations of foreign banks and bank holding
companies; (iv) debt obligations of domestic banks and corporations issued in
foreign currencies; (v) debt obligations denominated in the European Currency
Unit (ECU); (vi) foreign corporate debt securities and commercial paper; and
(vii) private placements. Such securities may include loan participations and
assignments, convertible securities and zero-coupon securities. The Portfolio
may invest up to 5% of its net assets in securities rated below investment grade
by nationally recognized statistical rating organizations ("NRSROs") or in
comparable unrated securities. Such securities are commonly referred to as "junk
bonds." The portion of the Portfolio's assets invested in various countries will
vary from time to time depending on the sub-adviser's assessment of market
opportunities. The Portfolio is not restricted to any maximum or minimum time to
maturity in purchasing portfolio securities, and the average maturity of the
Portfolio's assets will vary based upon the sub-adviser's assessment of economic
and market conditions. The Portfolio has no minimum requirements for
diversification of its portfolio securities by country other than being invested
at all times in at least three countries other than the United States.
In determining appropriate investments for the Portfolio, primary emphasis
is placed upon the characteristics of the particular issues, although
significant emphasis is placed on macroeconomic factors. Macroeconomic factors
that ordinarily are considered by the sub-adviser in determining the appropriate
distribution of investments among various countries and geographic regions
include the prospects for relative economic growth among certain foreign
countries, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships,
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and the range of individual investment opportunities available to international
investors. The Portfolio will generally invest in countries where the
combination of fixed income market returns and currency exchange rate movements
is attractive, or, if the currency trend is unfavorable, where the currency risk
can be minimized through hedging. The Portfolio does not trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held.
The Portfolio may use forward foreign currency exchange contracts and enter
into currency futures contracts (or options thereon) to hedge against movements
in the value of foreign currencies relative to the U.S. dollar in connection
with specific portfolio transactions or with respect to portfolio positions. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specified currency at a future date at a price set at the time of the
contract. Foreign currency exchange contracts do not eliminate fluctuations in
the values of portfolio securities but rather allow the Portfolio to establish a
rate of exchange for a future point in time.
To maintain greater flexibility, the Portfolio may invest in instruments
which have the characteristics of futures securities. Such instruments may take
a variety of forms, such as debt securities with interest or principal payments
determined by reference to the value of a currency or commodity at a future
point in time. The risks of such investments could reflect the risks of
investing in futures, currencies and securities, including volatility and
illiquidity.
The Portfolio may also invest in fixed income securities issued by U.S.
corporations, obligations of the U.S. Government and its agencies and
instrumentalities. The Portfolio may also invest in Brady Bonds, which are
securities issued in various currencies (primarily the U.S. dollar) that have
been created through the exchange of existing commercial bank loans to Latin
American public and private entities for new bonds in connection with debt
restructuring under a debt restructuring plan announced by former U.S. Secretary
of the Treasury Nicholas F. Brady.
During periods in which the sub-adviser believes changes in economic,
financial or political conditions make it advisable, the Portfolio may, for
temporary defensive purposes, reduce its holdings in certain foreign obligations
and invest some or all of its assets in certain short-term and intermediate-term
debt securities or hold cash without limitation. The short-term and
intermediate-term debt securities in which the Portfolio may invest include: (a)
obligations of the United States or foreign governments, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with financial institutions with respect to such
securities. The Portfolio intends to invest only in short-term and medium-term
securities that are rated in one of the two highest rating categories by an
NRSRO or, if unrated, determined to be equivalent in credit quality by the
sub-adviser. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
SPECIAL RISK CONSIDERATIONS. Investors should realize that investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operated in the United
States or securities issued by the U.S. Government. Because foreign securities
generally are denominated and pay dividends or interest in foreign currencies
pending their investment in foreign securities or their conversion into U.S.
dollars, the value of the Portfolio's assets as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates.
Although the Portfolio intends to invest in securities of companies and
governments of developed, stable nations, investors should realize that the
value of the Portfolio's investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control regulations in those foreign nations. In
addition, changes in
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government administrations or economic or monetary policies in the U.S. or
abroad could positively or negatively affect the performance of portfolio
securities and the Portfolio's operations. Investments in sovereign debt involve
certain risks, including the risk that foreign governments may default on their
obligations and offer only limited recourse, attempt to renegotiate the debt at
a lower rate, or freeze investments of U.S. entities. Furthermore, the economies
of individual foreign nations may differ from that of the United States, whether
favorably or unfavorably, in areas such as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Any foreign investments made by the Portfolio must be made
in compliance with U.S. and foreign currency restrictions and tax laws
restricting the amounts and types of foreign investments.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. In addition, while the
volume of transactions effected on foreign stock exchanges has increased in
recent years, it remains appreciably below that of the New York Stock Exchange.
Accordingly, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities in U.S.
companies. In buying and selling securities on foreign exchanges, the Portfolio
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. Moreover, the Portfolio's expenses are
higher than those incurred by investment companies having portfolios of domestic
securities. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
------------------------------------
COMMON INVESTMENT POLICIES
This section describes certain investment policies that are common to
Portfolios. Each Portfolio's investment objective and policies (except for the
80% concentration in Municipal Obligations specified in the first sentence of
the first paragraph of "Investment Policies--Common Investment
Policies--Tax-Free Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios") may be changed by the Board of Trustees without shareholder
approval. Depending upon prevailing market conditions, a Portfolio may purchase
debt securities at a discount from face value, which produces a yield greater
than the coupon rate. Conversely, if debt securities are purchased at a premium
over face value, the yield will be lower than the coupon rate. An increase in
interest rates will generally reduce the value of the investments in a Portfolio
and a decline in interest rates will generally increase the value of those
investments.
MORTGAGE-RELATED SECURITIES. The Managed Income, Intermediate Government,
Short-Term Bond, Intermediate-Term Bond, Government Income and International
Fixed Income Portfolios may invest in mortgage-related securities. Purchasable
mortgage-related securities are represented by pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), as well as by private issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or are otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. If a Portfolio purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from increases in
interest rates or prepayment of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true because in periods of declining interest rates mortgages
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underlying securities are prone to prepayment. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to a Portfolio. Mortgage-related
securities provide regular payments consisting of interest and principal. No
assurance can be given as to the return a Portfolio will receive when these
amounts are reinvested.
Mortgage-related securities acquired by the Portfolios may include
collateralized mortgage obligations ("CMOs") issued by FNMA, FHLMC or other U.S.
Government agencies or instrumentalities, as well as by private issuers. CMOs
provide an investor with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-related securities. Issuers of CMOs
frequently elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. Generally, payments of principal are applied to the CMO classes in
the order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. Sometimes, however, CMO classes are "parallel
pay," i.e., payments of principal are made to two or more classes concurrently.
CMOs may exhibit more or less price volatility and interest rate risk than other
types of mortgage-related obligations.
ASSET-BACKED SECURITIES. The Managed Income, Short-Term Bond,
Intermediate-Term Bond and International Fixed Income Portfolios may purchase
asset-backed securities, which represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, most
often a pool of assets similar to one another. Assets generating such payments
will consist of such instruments as motor vehicle installment purchase
obligations, credit card receivables and home equity loans. The Portfolios may
also invest in other types of asset-backed securities that may be available in
the future. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. In certain circumstances, asset-backed securities may be considered
illiquid securities subject to the percentage limitations described below.
Asset-backed securities may involve certain risks that are not presented by
mortgage-backed securities arising primarily from the nature of the underlying
assets (i.e., credit card and automobile loan receivables as opposed to real
estate mortgages). For example, credit card receivables are generally unsecured
and may require the repossession of personal property upon the default of the
debtor which may be difficult or impracticable in some cases.
OPTIONS AND FUTURES CONTRACTS. Each Portfolio may write covered call
options, buy put options, buy call options and write put options, without
limitation except as noted in this paragraph. Such options may relate to
particular securities or to various indexes and may or may not be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Each Portfolio may also invest in futures contracts and options on futures
contracts (index futures contracts or interest rate futures contracts, as
applicable) for hedging purposes or for other purposes so long as aggregate
initial margins and premiums required for non-hedging positions do not exceed 5%
of its net assets, after taking into account any unrealized profits and losses
on any such contracts it has entered into. However, no Portfolio may write put
options or purchase or sell futures contracts or options on futures contracts to
hedge more than its total assets unless immediately after any such transaction
the aggregate amount of premiums paid for put options and the amount of margin
deposits on its existing futures positions do not exceed 5% of its total assets.
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Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the right to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a particular security, an
option on an index provides the holder with the right to make or receive a cash
settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
A Portfolio will engage in unlisted over-the-counter options only with
broker/dealers deemed creditworthy by the adviser or sub-adviser. Closing
transactions in certain options are usually effected directly with the same
broker/dealer that effected the original option transaction. A Portfolio bears
the risk that the broker/dealer will fail to meet its obligations. There is no
assurance that a Portfolio will be able to close an unlisted option position.
Furthermore, unlisted options are not subject to the protections afforded
purchasers of listed options by the Options Clearing Corporation, which performs
the obligations of its members who fail to do so in connection with the purchase
or sale of options.
To enter into a futures contract, a Portfolio must make a deposit of
initial margin with its custodian in a segregated account in the name of its
futures broker. Subsequent payments to or from the broker, called variation
margin, will be made on a daily basis as the price of the underlying security or
index fluctuates, making the long and short positions in the futures contracts
more or less valuable.
When investing in futures contracts, the Portfolios must satisfy certain
asset segregation requirements to ensure that the use of futures is unleveraged.
When a Portfolio takes a long position in a futures contract, it must maintain a
segregated account containing cash and/or certain liquid assets equal to the
purchase price of the contract, less any margin or deposit. When a Portfolio
takes a short position in a futures contract, the Portfolio must maintain a
segregated account containing cash and/or certain liquid assets in an amount
equal to the market value of the securities underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are not
applicable when a Portfolio "covers" a futures position generally by entering
into an offsetting position.
The risks related to the use of options and futures contracts include: (i)
the correlation between movements in the market price of the portfolio
investments (held or intended for purchase) being hedged and in the price of the
futures contract or option may be imperfect; (ii) possible lack of a liquid
secondary market for closing out options or futures positions; (iii) the need
for additional portfolio management skills and techniques; and (iv) losses due
to unanticipated market movements. Successful use of options and futures by a
Portfolio is subject to the adviser's or sub-adviser's ability to correctly
predict movements in the direction of the market. For example, if a Portfolio
uses futures contracts as a hedge against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Portfolio will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have approximately
equal offsetting losses in its futures positions. The risk of loss in trading
futures contracts in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial loss or gain to the investor.
Thus, a purchase or sale of a futures contract may result in losses or gains in
excess of the amount invested in the contract. For a further discussion see
"Investment Policies" in the Statement of Additional Information.
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REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are in substance loans. Default by or bankruptcy of the seller would,
however, expose a Portfolio to possible loss because of adverse market action or
delays in connection with the disposition of the underlying obligations.
CASH EQUIVALENTS. Each Portfolio may invest in taxable and tax-free
short-term, interest-bearing instruments or deposits of United States and
foreign issuers to maintain liquidity, pending investment and for temporary
defensive purposes. Such investments may include, but are not limited to,
commercial paper, certificates of deposit, variable or floating rate notes,
bankers' acceptances, time deposits (the Managed Income Portfolio will not
invest more than 5% of its total assets in time deposits with maturities in
excess of seven days which are subject to penalties upon early withdrawal),
government securities and money market deposit accounts.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit a
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the securities delivery takes place. Each
Portfolio's when-issued purchases and forward commitments are not expected to
exceed 25% of the value of its total assets absent unusual market conditions.
The Portfolios do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the adviser or sub-adviser). A reverse repurchase agreement involves a sale by a
Portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase the same securities at an agreed-upon price and date.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities the
Portfolio is obligated to repurchase. Reverse repurchase agreements are
considered to be borrowings by a Portfolio under the Investment Company Act of
1940 (the "1940 Act").
The Short-Term Bond, Intermediate-Term Bond, Intermediate Government and
Government Income Portfolios may enter into reverse repurchase agreement
transactions with member banks on the Federal Reserve Bank of New York's list of
reporting dealers. The Portfolios typically will invest the proceeds of a
reverse repurchase agreement in money market instruments or repurchase
agreements maturing not later than the expiration of the reverse repurchase
agreement. This use of the proceeds is known as leverage. The Portfolios will
enter into a reverse repurchase agreement for leverage purposes only when the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction.
A Portfolio will establish a segregated account with its custodian in which
it will maintain cash, U.S. government securities or other liquid high grade
debt obligations equal in value to its obligations with respect to reverse
repurchase agreements.
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by
other investment companies within the limits prescribed by the 1940 Act. Each
Portfolio currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in
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the aggregate in securities of investment companies as a group; and (iii) not
more than 3% of the outstanding voting stock of any one investment company will
be owned by the Portfolio or by the Fund as a whole. As a shareholder of another
investment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Portfolio bears directly in connection with its own operations.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Tax-Free
Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios
(collectively, "Tax-Free Portfolios") may invest in tax-exempt derivative
securities relating to Municipal Obligations, including tender option bonds,
participations, beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolios from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
SECURITIES LENDING. To increase income on its investments, each Portfolio
may lend its portfolio securities with an aggregate value of up to 30% of its
total assets to broker/dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government or
its agencies or instrumentalities or an irrevocable letter of credit issued by a
bank which is deemed creditworthy by the adviser or sub-adviser. Default by or
bankruptcy of a borrower would expose a Portfolio to possible loss because of
adverse market action, expenses and/or delays in connection with the disposition
of the underlying securities.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of
the value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and
repurchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this 15%
limit. Each Portfolio may purchase securities which are not registered under the
Securities Act of 1933 (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 security. This investment
practice could have the effect of increasing the level of illiquidity in a
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
TAX-FREE INCOME, OHIO TAX-FREE INCOME AND PENNSYLVANIA TAX-FREE INCOME
PORTFOLIOS. During normal market conditions: up to 20% of each of the Tax-Free
Portfolios' net assets may be invested in securities which are not Municipal
Obligations; at least 80% of each Tax-Free Portfolio's net assets will be
invested in Municipal Obligations the interest on which is exempt from regular
Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax; and at least 65% of the total net assets of
each of Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios will be
invested in Ohio and Pennsylvania Municipal Obligations, respectively. Each
Tax-Free Portfolio may invest up to 20% of its net assets in Municipal
Obligations the interest on which is exempt from regular Federal income tax but
is an item of tax preference for purposes of the Federal alternative minimum
tax. During temporary defensive periods, each Tax-Free Portfolio may invest
without limitation in obligations which are not Municipal Obligations and may
hold without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to Municipal Obligations set forth above, or if unrated, are of
comparable quality as
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determined by the adviser or sub-adviser, and may also include, without
limitation, other debt obligations, such as bank obligations. Each Tax-Free
Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to purchase
at the Portfolio's option specified Municipal Obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligation to which such commitment relates.
Each Tax-Free Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes.
Although each Tax-Free 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, and may invest up to 20% of its total assets in private
activity bonds when added together with any taxable investments held by the
particular Portfolio, they do not presently intend to do so unless in the
opinion of the adviser or sub-adviser the investment is warranted. To the extent
a Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. 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 fixed-income securities. Accordingly, the ability of a Tax-Free
Portfolio to buy and sell tax-exempt securities may, at any particular time and
with respect to any particular securities, be limited.
The Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios are
classified as non-diversified under the 1940 Act. Investment returns on a
non-diversified portfolio typically are dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio. Additionally, a non-diversified portfolio may be more susceptible to
economic, political and regulatory developments than a diversified portfolio
with similar objectives.
INTEREST RATE RISK. The value of fixed income securities in the Portfolios
can be expected to vary inversely with changes in prevailing interest rates.
Fixed income securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than securities with shorter maturities.
BORROWING. The Short-Term Bond, Intermediate-Term Bond, Intermediate
Government and Government Income Portfolios are authorized to borrow funds and
utilize leverage (including through reverse repurchase agreements and dollar
rolls) in amounts not exceeding 33 1/3% of their respective total assets
(including the amount borrowed) and under current market conditions intend to
borrow or obtain equivalent leverage up to such amount. The use of leverage by
the Portfolios creates an opportunity for increased net income, but, at the same
time, creates special risks. In particular, if a Portfolio borrows on a
short-term basis and invests the proceeds in long-term securities, an increase
in interest rates may (i) reduce or eliminate the interest rate differential
usually available between short-term and long-term rates and (ii) reduce the
value of the Portfolio's long-term securities, thereby exposing the Portfolio to
lower yields and risk of loss on disposition of its long-term securities. A
Portfolio will only borrow or use leverage when the adviser believes that such
activities will benefit the Portfolio. A Portfolio may also borrow up to an
additional 5% of its total assets for temporary purposes without regard to the
foregoing limitation.
As noted above, the Portfolios expect to engage in investment management
techniques such as reverse repurchase agreements and dollar rolls which provide
leverage in much the same manner as borrowings but which are not considered to
be borrowings or senior securities by the SEC subject to the limitations
described above if investments therein are appropriately collateralized by high
grade liquid assets.
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DOLLAR ROLL TRANSACTIONS. To take advantage of attractive financing
opportunities in the mortgage market and to enhance current income, the
Short-Term Bond, Intermediate-Term Bond, Intermediate Government and Government
Income Portfolios may enter into dollar roll transactions. A dollar roll
transaction, which is considered a borrowing by a Portfolio, involves a sale by
the Portfolio of a mortgage-backed or other security to a financial institution,
such as a bank or broker/dealer, concurrently with an agreement by the Portfolio
to repurchase a similar security from the institution at a later date at an
agreed-upon price. The securities that are repurchased will bear the same
interest rate and stated maturity as those sold, but pools of mortgages
collateralizing such securities may have different prepayment histories than
those sold, which may affect the duration of such securities. During the period
between the sale and repurchase, a Portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Portfolio, and the income
from these investments will generate income for the Portfolio. If such income
does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use of
this technique will diminish the investment performance of a Portfolio compared
with what such performance would have been without the use of dollar rolls. At
the time that a Portfolio enters into a dollar roll transaction, it will place
in a segregated account maintained with its custodian cash, U.S. government
securities or other liquid high grade debt obligations having a value equal to
the repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that its value is maintained.
Dollar roll transactions involve the risk that the market value of the
securities a Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the
Portfolio originally held when the Portfolio is able to complete the purchase.
Successful use of mortgage dollar rolls may depend upon the investment adviser's
ability to correctly predict interest rates and prepayments. There is no
assurance that dollar rolls can be successfully employed.
PORTFOLIO TURNOVER RATES. Although it may vary from year to year, it is
currently estimated that under normal market conditions the annual portfolio
turnover rate for a Portfolio will not exceed 100%. A Portfolio's annual
portfolio turnover rate will not, however, be a factor preventing a sale or
purchase when the adviser or sub-adviser believes investment considerations
warrant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
Each Portfolio is subject to the following fundamental investment
limitations, which may not be changed with respect to a Portfolio except upon
the affirmative vote of the holders of a majority of the Portfolio's outstanding
shares. Each of the Managed Income, Tax-Free Income, Intermediate Government,
Short-Term Bond, Intermediate-Term Bond, Government Income and International
Fixed Income Portfolios may not:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the
value of the Portfolio's total assets would (taken at current value) be
invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Portfolio or the Fund,
except that up to 25% of the value of the Portfolio's total assets may
(taken at current value) be invested without regard to these limitations.
For purposes of this limitation, a security is considered to be issued by
the entity (or entities) whose assets and revenues back the security. A
guarantee of a security shall not be deemed to be a security issued by the
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guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the value of
the Portfolio's total assets.
No Portfolio may:
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's 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, provided that (a) there is no limitation
with respect to (i) instruments issued (as defined in Investment Limitation
No.1 above) 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
(ii) repurchase agreements secured by the instruments described in clause
(i); (b) 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 (c) utilities will be divided
according to their services; for example, gas, gas transmission, electric
and gas, electric and telephone will each be considered a separate
industry.
3. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate
any assets, except in connection with any such borrowing and then in
amounts not in excess of one-third of the value of the Portfolio's total
assets at the time of such borrowing. No Portfolio will purchase securities
while its aggregate borrowings (including reverse repurchase agreements and
borrowings from banks) in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with a
Portfolio's investment practices are not deemed to be pledged for purposes
of this limitation.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Portfolio's portfolio securities will not constitute a violation of such
limitation, except that any borrowing by a Portfolio that exceeds the
fundamental investment restrictions stated above must be reduced to meet such
restrictions within the period required by the 1940 Act (currently three days).
In order to permit the sale of the Fund's shares in certain states, the
Fund may make commitments more restrictive than the investment policies and
limitations described in this Prospectus. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it will revoke
the commitment by terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolios, see the Fund's Statement of Additional Information.
MANAGEMENT
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BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. The Statement of Additional Information contains the
name of each trustee and certain background information.
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ADVISER AND SUB-ADVISERS
PIMC was organized in 1977 by PNC Bank to perform advisory services for
investment companies. The principal business address of: PIMC is 400 Bellevue
Parkway, Wilmington, Delaware 19809; PNC Bank is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107; PNC Bank Ohio is 201 East Fifth Street,
Cincinnati, Ohio 45202; and PCM is 1700 Market Street, 27th Floor, Philadelphia,
Pennsylvania 19103.
As adviser, PIMC is responsible for the overall investment management of
the Portfolios. The sub-advisers are responsible for the day-to-day management
of the particular Portfolios, and generally make all purchase and sale decisions
regarding the investments made by such Portfolios. The sub-advisers also provide
research and credit analysis as well as certain other services.
The Tax-Free Income Portfolio's manager, W. Don Simmons, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Simmons has been with PIMC since 1984 and the Portfolio's
manager since its inception.
The Pennsylvania Tax-Free Income Portfolio's manager, Douglas J. Gaylor, is
the person primarily responsible for the day-to-day management of the
Portfolio's investments. Mr. Gaylor has been with PNC Bank since 1993 and the
Portfolio's manager since September 1993. Prior to joining PNC Bank, Mr. Gaylor
was with Wilmington Trust Company for 10 years.
The Ohio Tax-Free Income Portfolio's manager, Kimberly A. Burford, is the
person primarily responsible for the day-to-day management of the Portfolio's
investments. Ms. Burford has been with PNC Bank since 1979 and the Portfolio's
manager since its inception.
The Short-Term Bond, Intermediate-Term Bond, Intermediate Government and
Managed Income Portfolios' manager, Beth A. Coyne, is the person primarily
responsible for the day-to-day management of the Portfolios' investments. Ms.
Coyne has been the Short-Term Bond and Intermediate-Term Bond Portfolios'
manager since their inception and began managing the Intermediate Government and
Managed Income Portfolios in 1994. Ms. Coyne has been with PNC Bank since 1990.
Prior to 1990, Ms. Coyne sold fixed income securities for Kidder Peabody & Co.,
Inc.
The Government Income and International Fixed Income Portfolios' manager,
Charles F. Wills, is the person primarily responsible for the day-to-day
management of the Portfolios' investments. Mr. Wills has been the Government
Income and International Fixed Income Portfolios' manager since their inception.
Mr. Wills has been with PNC Bank since 1983.
For the services provided and expenses assumed by it, PIMC is entitled to
receive fees, computed daily and payable monthly, at the following annual rates
from the specified Portfolios: each of the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios, .50%
of the first $1 billion of their respective average daily net assets, .45% of
the next $1 billion of their respective average daily net assets, .425% of the
next $1 billion of their respective average daily net assets and .40% of their
respective average daily net assets in excess of $3 billion; and International
Fixed Income Portfolio, .55% of its first $1 billion of average daily net
assets, .50% of its next $1 billion of average daily net assets, .475% of its
next $1 billion of average daily net assets and .45% of its average daily net
assets in excess of $3 billion. The Fund paid PIMC advisory fees at annual rates
of .35%, .20%, .09%, .11% and .19% of the average daily net assets of the
Managed Income, Intermediate Government, Pennsylvania Tax-Free Income,
Short-Term Bond and Intermediate-Term Bond Portfolios, respectively, for the
year ended September 30, 1994, and PIMC waived advisory fees at annual rates of
.15%, .30%, .41%, .39% and .31% of the average daily net assets of such
respective Portfolios for that year. PIMC waived all advisory fees with respect
to the Tax-Free Income and Ohio Tax-Free Income Portfolios for the year ended
September 30, 1994. During that year, PIMC reimbursed expenses at the annual
rates of
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.38%, .50% and .02% of the average daily net assets of the Tax-Free Income, Ohio
Tax-Free Income and Pennsylvania Tax-Free Income Portfolios, respectively. From
time to time PIMC may waive all or any portion of its advisory fees for and may
reimburse expenses of the Portfolios. See "Introduction--Expense Table."
For its sub-advisory services, the sub-adviser for each specified Portfolio
is entitled to receive from PIMC a fee, computed daily and payable monthly, at
the following annual rates: each of the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios, .35%
of its first $1 billion of average daily net assets, .30% of its next $1 billion
of average daily net assets, .275% of its next $1 billion of average daily net
assets, and .25% of its average daily net assets in excess of $3 billion, and
International Fixed Income Portfolio, .40% of its first $1 billion of average
daily net assets, .35% of its next $1 billion of average daily net assets, .325%
of its next $1 billion of average daily net assets and .30% of its average daily
net assets in excess of $3 billion. Such sub-advisory fees have no effect on the
advisory fees payable by each Portfolio to PIMC. PIMC paid PNC Bank sub-advisory
fees at annual rates of .30%, .15%, .06%, .11% and .14% of the average daily net
assets of the Managed Income, Intermediate Government, Pennsylvania Tax-Free
Income, Short-Term Bond and Intermediate-Term Bond Portfolios, respectively, for
the year ended September 30, 1994, and PNC Bank waived sub-advisory fees at the
annual rates of .05%, .20%, .29%, .24% and .21% of the average daily net assets
of such respective Portfolios for that year. PNC Bank and PNC Bank Ohio waived
all sub-advisory fees with respect to the Tax-Free Income and Ohio Tax-Free
Income Portfolios, respectively, for the year ended September 30, 1994. Each
sub-adviser may from time to time waive all or any portion of its sub-advisory
fee for any Portfolio.
------------------------------------
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as the Fund's
co-administrators. 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 .20% of the first $500 million of each
Portfolio's average daily net assets, .18% of the next $500 million of each
Portfolio's average daily net assets, .16% of the next $1 billion of each
Portfolio's average daily net assets and .15% of each Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at annual rates of .13%, .10%, .04%, .04% and .08% of the
average daily net assets of the Managed Income, Intermediate Government,
Pennsylvania Tax-Free Income, Short-Term Bond and Intermediate-Term Bond
Portfolios, respectively, for the year ended September 30, 1994, and the
Administrators waived combined administration fees at annual rates of .07%,
.10%, .16%, .16% and .12% of the average daily net assets of such respective
Portfolios for that year. The Administrators waived all combined administration
fees with respect to the Tax-Free Income and Ohio Tax-Free Income Portfolios for
the year ended September 30, 1994. During that year, the Administrators
reimbursed expenses at the annual rates of .15%, .20% and .01% of the average
daily net assets of the Tax-Free Income, Ohio Tax-Free Income and Pennsylvania
Tax-Free Income Portfolios, respectively. From time to time the Administrators
may waive all or any portion of the administration fees for the Portfolios.
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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, PNC Bank Ohio and their 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 Portfolios ("Series
A Investor Shares," "Series B Investor Shares" and "Institutional Shares"). See
"Description of Shares."
------------------------------------
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio (such
as fees relating to the Fund's Service Plan for Service Shares) will be borne
solely by such Shares.
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<PAGE> 35
If the total expenses borne by any Portfolio in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, PIMC,
the sub-advisers and the Administrators will bear the amount of such excess to
the extent required by such regulations in proportion to the fees otherwise
payable to them for such year. Such amount, if any, will be estimated and
accrued daily and paid on a monthly basis. See "Introduction--Example,"
"Management-- Adviser and Sub-Advisers" and "Management--Administrators" for
discussions of expense reimbursements and fee waivers.
------------------------------------
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, PNC Bank Ohio, 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 change in the Fund's method of
operations would affect its net asset value per share or result in a financial
loss to any Customer.
------------------------------------
PORTFOLIO TRANSACTIONS
A Portfolio's adviser or sub-adviser will seek the best price and execution
in placing brokerage transactions. In this regard, the adviser or sub-adviser
may consider a number of factors in determining which brokers to use in
purchasing or selling portfolio securities. These factors, which are more fully
discussed in the Statement of Additional Information, include, but are not
limited to, research services, sales of shares of the Fund, the reasonableness
of commissions and quality of services and execution. Brokerage transactions for
the Portfolios may be directed through registered broker/dealers ("Authorized
Dealers") who have entered into dealer agreements with the Distributor, subject
to the requirements of best execution.
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<PAGE> 36
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of each 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 for the Service Shares of
the Portfolios next computed after an order is received by PFPC. 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) 441-7379. Orders received by PFPC after
4:00 p.m. (Eastern Time) are priced at the net asset value per share on the
following Business Day. 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)
441-7379. Shares are redeemed at the net asset value per share of the Service
Shares of the Portfolio 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
36
<PAGE> 37
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).
Payment for redeemed Shares for which a redemption order is received by
PFPC before 4:00 p.m. (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the next Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received after 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 a 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 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.
A shareholder of record may be required to redeem Shares in any Portfolio
if the balance in such shareholder's account in that 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 Portfolios 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 for each Portfolio is calculated
as of the close of trading on the NYSE (currently 4:00 p.m. Eastern Time) on
each Business Day by adding the value of all its securities, cash and other
assets allocable to its Shares, subtracting the liabilities allocable to its
Shares and dividing by the total number of Shares outstanding. The net asset
value per Share of each Portfolio is determined independently of the Portfolio's
other classes and independently of the Fund's other Portfolios.
Valuation of securities held by each Portfolio is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; an option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in
37
<PAGE> 38
the absence of a sale, the mean between the last bid and asked prices prior to
4:00 p.m. (Eastern Time); and securities for which market quotations are not
readily available are valued at fair market value as determined in good faith by
or under the direction of the Fund's Board of Trustees. The amortized cost
method of valuation will also be used with respect to debt obligations with
sixty days or less remaining to maturity unless the investment adviser and/or
sub-adviser under the supervision of the Board of Trustees determines such
method does not represent fair value.
Valuation of securities of foreign issuers and those held by the
International Fixed Income Portfolio is as follows: to the extent sale prices
are available, securities which are traded on a recognized stock exchange,
whether U.S. or foreign, are valued at the latest sale price on that exchange
prior to the time when assets are valued or prior to the close of regular
trading hours on the NYSE. In the event that there are no sales, the mean
between the last available bid and asked prices will be used. If a security is
traded on more than one exchange, the latest sale price on the exchange where
the security is primarily traded is used. An option or futures contract is
valued at the last sales price prior to 4:00 p.m. (Eastern Time), as quoted on
the principal exchange or board of trade on which such option or contract is
traded, or in the absence of a sale, the mean between the last bid and asked
prices prior to 4:00 p.m. (Eastern Time). In the event that application of these
methods of valuation results in a price for a security which is deemed not to be
representative of the market value of such security, the security will be valued
by, under the direction of or in accordance with a method specified by the Board
of Trustees as reflecting fair value. The amortized cost method of valuation
will be used with respect to debt obligations with sixty days or less remaining
to maturity unless the investment adviser and/or sub-adviser under the
supervision of the Board of Trustees determines such method does not represent
fair value. All other assets and securities held by the Portfolio (including
restricted securities) are valued at fair value as determined in good faith by
the Board of Trustees or by someone under its direction. Any assets which are
denominated in a foreign currency are translated into U.S. dollars at the
prevailing market rates.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders. For dividend
purposes, a Portfolio's investment income available for distribution to holders
of Service Shares is reduced by accrued expenses directly attributable to that
Portfolio and the general expenses of the Fund prorated to that Portfolio on the
basis of its relative net assets. A Portfolio's net investment income available
for distribution to the holders of Service Shares will be reduced by the amount
of other expenses allocated to that Portfolio's Service Shares, including fees
payable under the Fund's Service Plan. All distributions are reinvested at net
asset value in the form of additional full and fractional Shares of the relevant
Portfolio unless a shareholder elects otherwise. 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. The net investment
income of each of the Managed Income, Tax-Free Income, Intermediate Government,
Intermediate-Term Bond and International Fixed Income Portfolios is declared
monthly as a dividend to investors who are Shareholders of such Portfolio at the
close of business on the day of declaration. The net investment income of each
of the Pennsylvania Tax-Free Income, Ohio Tax-Free Income, Government Income and
Short-Term Bond Portfolios is declared daily as a dividend to investors who are
Shareholders of such Portfolio at, and whose payment for Share purchases are
available to the particular Portfolio in Federal funds by, the close of business
on the day of declaration. All such dividends are paid within ten days after the
end of each month and, in the case of the Pennsylvania Tax-Free Income, Ohio
Tax-Free Income, Government Income and Short-
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<PAGE> 39
Term Bond Portfolios, within seven days after redemption of all of a
shareholder's Shares in a Portfolio. Net realized capital gains (including net
short-term capital gains), if any, will be distributed by each Portfolio at
least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, it generally will be relieved of
Federal income tax on amounts distributed to shareholders, but shareholders,
unless otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital), regardless of whether such
distributions are paid in cash or reinvested in additional Shares.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain, regardless of
the length of time a shareholder has held his Shares and whether such gain was
reflected in the price paid for the Shares. All other distributions, to the
extent they are taxable, are taxed to shareholders as ordinary income.
Each Tax-Free Portfolio intends to pay substantially all of its dividends
as "exempt interest dividends." Investors in these Portfolios should note,
however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" on their Federal income tax returns 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 and environmental tax liability. Although they
do not currently intend to do so, during normal market conditions the Tax-Free
Portfolios may invest up to 20% of their respective net assets 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 from such private activity bonds. Shareholders who are recipients of
Social Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments.
Each Tax-Free Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable. Such percentages will apply uniformly
to all distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during
January of the following year.
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<PAGE> 40
An investor considering buying shares of a Portfolio on or just before the
record date of a taxable dividend should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, will be
taxable to him.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of Portfolio Shares depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
Any loss upon the sale or exchange of shares of a Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Ohio
Tax-Free Income Portfolio, the loss will be disallowed for Ohio income tax
purposes to the same extent, even though, for Ohio income tax purposes, some
portion of such dividends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the
International Fixed Income Portfolio from foreign securities will be subject to
foreign withholding taxes or other taxes. So long as more than 50% of the value
of the Portfolio's total assets at the close of the taxable year in question
consists of stock or securities of foreign corporations, the Portfolio may
elect, for U.S. Federal income tax purposes, to treat certain foreign taxes paid
by it, including generally any withholding taxes and other foreign income taxes,
as paid by its shareholders. The Portfolio intends to make this election. As a
result, the amount of such foreign taxes paid by the Portfolio will be included
in its shareholders' income pro rata (in addition to taxable distributions
actually received by them), and each shareholder generally will be entitled
either (a) to credit his proportionate amounts of such taxes against his U.S.
Federal income tax liabilities, or (b) if he itemizes his deductions, to deduct
such proportionate amounts from his U.S. income.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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 income taxes or school district income taxes
in Ohio will not be subject to such taxes on distributions from the Ohio
Tax-Free Income Portfolio to the extent that such distributions consist of
interest on Ohio Municipal Obligations or obligations issued by the U.S.
Government, its agencies, instrumentalities or territories (if the interest on
such obligations is exempt from state income taxation under the laws of the
United States) ("U.S. Obligations"), provided that the Portfolio continues to
qualify as a regulated investment company for federal income tax purposes and
that at all times at least 50% of the value of the total assets of the Ohio
Tax-Free Income 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 the regulated investment
company and 50% requirements are satisfied.) Corporations that are subject to
the Ohio corporation franchise tax will not have to include distributions from
the Ohio Tax-Free Income Portfolio in their net income base for purposes of
calculating their Ohio corporation franchise tax liability to the extent that
such distributions either constitute exempt-interest dividends or consist of
interest on Ohio Municipal Obligations or U.S. Obligations. However, Shares of
the Ohio Tax-Free Income 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.
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<PAGE> 41
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder
attributable to interest realized by the Pennsylvania Tax-Free Income 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 Tax-Free Income 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 Tax-Free
Income Portfolio for more than six months, the School District Tax.
To the extent that gain on the disposition of a share represents gain
realized on Pennsylvania Municipal Obligations held by the Pennsylvania Tax-Free
Income Portfolio, such gain may be subject to the Personal Income Tax and
Corporate Net Income Tax. Such gain may also be subject to the School District
Tax, except that gain realized with respect to a share held for more than six
months is not subject to the School District Tax.
No opinion is expressed regarding the extent, if any, to which shares, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Tax-Free Income 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 and
Federal obligations (if the interest on such obligations is exempt from state
and local taxation under the laws of the United States). 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
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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 nine Portfolios of the Fund
which, except for the Pennsylvania Tax-Free Income and Ohio Tax-Free Income
Portfolios, are classified as diversified companies under the 1940 Act. The
Managed Income, Tax-Free Income and Intermediate Government Portfolios were each
established with only one class of shares. In each case, the original class of
shares was available to all investors until the subsequent establishment of
multiple classes in the Portfolio. In addition, 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."
41
<PAGE> 42
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 a Portfolio's Series A Investor
Shares and Series B Investor Shares (collectively, "Investor Shares") will bear
the payments described in the prospectus for such shares that are paid under the
Fund's Distribution and Service Plan and Series B Distribution Plan,
respectively (collectively, the "Distribution Plans"). Under the Distribution
Plans, the Distributor is entitled to payments by each Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing 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 Investor Shares. In addition,
payments under the Series B Distribution Plan will be used to pay for or finance
sales commissions and other fees payable to Service Organizations and other
broker/dealers who sell Series B Investor Shares. Service Organizations may also
provide support services such as establishing and maintaining accounts and
records relating to shareholders of 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
and Service Plan provides for payments to the Distributor at an annual rate not
to exceed .55% of the average daily net asset value of each Portfolio's
outstanding Series A Investor Shares. The Series B Distribution Plan provides
for payments to the Distributor at an annual rate not to exceed .75% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
Shares. In addition, holders of Series B Investor Shares bear the expense of
fees described in the prospectus for such shares that are paid under the Fund's
Series B Service Plan. Payments under the Series B Service Plan will cover
expenses relating to the support services provided to the beneficial owners of
Series B Investor Shares by certain Service Organizations and sometimes by the
Distributor. Such services are intended to supplement the services provided by
the Fund's Administrators and transfer agent. In consideration for payments
aggregating up to .25% (on an annualized basis) of the average daily net asset
value of Series B Investor Shares owned beneficially by their customers, Service
Organizations and the Distributor may provide one or more of the following
services to such customers: establishing and maintaining accounts and records
relating to customers that invest in Series B Shares; processing dividend and
distribution payments from the Fund on behalf of customers; arranging for bank
wires; providing sub-accounting with respect to Series B Shares beneficially
owned by customers or the information necessary for sub-accounting; forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to customers; assisting in processing purchase, exchange and redemption
requests from customers and in placing such orders with the Fund's service
contractors; assisting customers in changing dividend options, account
designations and addresses; providing customers with a service that invests the
assets of their accounts in Series B Shares pursuant to specific or
pre-authorized instructions; providing information periodically to customers
showing their positions in Series B Shares and integrating such statements with
those of other transactions and balances in customers' other accounts with the
Service Organization; responding to customer inquiries relating to the services
performed by the Service Organization or the Distributor; responding to customer
inquiries concerning their investments in Series B Shares; and providing other
similar shareholder liaison services. Institutional Shares bear no shareholder
42
<PAGE> 43
servicing or distribution fees. As a result of these different fees, the net
asset value and the net yields on the Fund's Institutional Shares will generally
be higher than those on the Fund's Service Shares, the net asset value and the
net yields on the Fund's Service Shares will generally be higher than those on
the Fund's Series A Investor Shares, and the net asset value and the net yields
on the Fund's Series A Investor Shares will generally be higher than those on
the Fund's Series B Investor Shares if payments by the Portfolios under the
Service Plan, the Distribution and Service Plan, the Series B Distribution Plan
and the Series B Service Plan are made at the maximum rates. Standardized total
return and yield quotations will be computed separately for each class of
Shares. Series A and Series B Investor Shares are exchangeable at the option of
the holder for Series A and Series B Investor Shares, respectively, in the
Fund's other investment portfolios. Series B Investor Shares are exchangeable
for Series B Investor Shares in the Fund's Money Market Portfolio, but are not
exchangeable for shares in the Fund's other money market investment portfolios.
Series A Investor Shares of the Portfolios are offered to the public at the net
asset value per share plus a maximum sales charge of 4.50% of the offering price
on single purchases of less than $50,000; the sales charge is reduced on a
graduated scale on single purchases of $50,000 or more and certain exemptions
from the sales charge may apply. The sales charge does not apply to exchanges of
Series A Investor Shares among the Portfolios. Series B Investor Shares are
subject to a maximum contingent deferred sales charge of 5.0%. The deferred
sales charge decreases over time. Series B Investor Shares may be exchanged for
Series B Investor Shares of another investment portfolio of the Fund without the
payment of any deferred sales charge at the time the exchange is made. Because
Service Shares and Institutional Shares are sold without a sales charge, holders
of Service Shares and Institutional Shares have no such exchange privileges.
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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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).
PERFORMANCE INFORMATION
From time to time, total return and yield data for Shares of the Portfolios
may be quoted in advertisements or in communications to shareholders. Total
return will be calculated on an average annual total return basis for various
periods. Average annual total return reflects the average annual percentage
change in value of an investment in Shares of a Portfolio over the measuring
period. This method of calculating total return assumes that dividends and
capital gain distributions made by the Portfolio during the period relating to
Shares are reinvested in Shares.
The yields of Shares of the Portfolios are computed based on the net income
of a Portfolio allocated to such Shares during a 30-day (or one month) period,
which period will be identified in connection with the particular yield
quotation. More specifically, the yield of Shares of a Portfolio is computed by
dividing the Portfolio's net income per share allocated to such Shares during a
30-day (or one month) period by the net asset value per share on the last day of
the period and annualizing the result on a semi-annual basis. Each Tax-Free
Portfolio's "tax-equivalent yield" may also be quoted from time to time, which
shows the level of taxable yield needed to produce an after-tax equivalent to
43
<PAGE> 44
such Portfolio's tax-free yield. This is done by increasing such Portfolio's
yield (calculated above) by the amount necessary to reflect the payment of
Federal and/or state income tax at a stated tax rate.
Performance data of Shares of a Portfolio may be compared to those 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 total return and/or yield of Shares of a Portfolio may
be compared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and with the
performance of the Shearson Lehman GMNA Index, the Shearson Lehman Index of
Baa-rated Corporate Bonds, the T-Bill Index, the "stocks, bonds and inflation
Index" published annually by Ibbotson Associates and the Shearson Lehman Hutton
Government Corporate Bond Index. Performance information may also include
evaluations of the Portfolios and their Shares 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.
In addition to providing performance information that demonstrates the
actual yield or returns of Shares of a particular Portfolio over a particular
period of time, a Portfolio may provide certain other information demonstrating
hypothetical investment returns. Such information may include, but is not
limited to, illustrating the compounding effects of a dividend in a dividend
reinvestment plan or the impact of tax-deferred investing.
Performance quotations of Shares of a Portfolio represent past performance
and should not be considered as representative of future results. The investment
return and principal value of an investment in Shares of a Portfolio will
fluctuate so that an investor's Shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data for
Shares of a Portfolio cannot necessarily be used to compare an investment in
such Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Institutions directly to their customer accounts in connection
with investments in Shares will not be included in the Portfolio's calculations
of yield and total return.
* * *
44
<PAGE> 45
- -----------------------------------------------------
- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH 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>
Introduction..................................... 2
Financial Highlights............................. 5
Investment Policies.............................. 16
Investment Limitations........................... 30
Management....................................... 31
Purchase and Redemption of Shares................ 36
Net Asset Value.................................. 37
Dividends and Distributions...................... 38
Taxes............................................ 39
Description of Shares............................ 41
Other Information................................ 43
</TABLE>
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER TO THE OHIO TAX-FREE INCOME PORTFOLIO
PNC Bank, Ohio, National Association
Cincinnati, Ohio
SUB-ADVISER TO THE MANAGED INCOME, INTERMEDIATE GOVERNMENT, TAX-FREE INCOME,
PENNSYLVANIA TAX-FREE INCOME, SHORT-TERM BOND, INTERMEDIATE-TERM BOND AND
GOVERNMENT INCOME
PORTFOLIOS AND CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
SUB-ADVISER TO INTERNATIONAL FIXED INCOME PORTFOLIO
Provident Capital Management, Inc.
Philadelphia, Pennsylvania
CO-ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR
Provident Distributors, Inc.
Radnor, Pennsylvania
DISTRIBUTOR
Provident Distributors, Inc.
Radnor, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
PNCS-P-002M
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
THE
FIXED INCOME
PORTFOLIOS
SERVICE CLASS
PROSPECTUS
MANAGED INCOME PORTFOLIO
- -----------------------------------------------------
TAX-FREE
INCOME PORTFOLIO
- -----------------------------------------------------
INTERMEDIATE
GOVERNMENT PORTFOLIO
- -----------------------------------------------------
OHIO TAX-FREE
INCOME PORTFOLIO
- -----------------------------------------------------
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
- -----------------------------------------------------
SHORT-TERM
BOND PORTFOLIO
- -----------------------------------------------------
INTERMEDIATE-TERM
BOND PORTFOLIO
- -----------------------------------------------------
INTERNATIONAL
FIXED INCOME PORTFOLIO
- -----------------------------------------------------
GOVERNMENT
INCOME PORTFOLIO
- -----------------------------------------------------
JANUARY 30, 1995
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 46
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 47
THE PNC(R) FUND
THE FIXED INCOME PORTFOLIOS
SUPPLEMENT TO SERVICE AND INSTITUTIONAL CLASS PROSPECTUS DATED JANUARY 30, 1995
The section entitled "Introduction -- Portfolio Management" has been amended to
read as follows:
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc. ("BlackRock")
serves as sub-adviser to the Managed Income, Intermediate Government,
Intermediate-Term Bond, Short-Term Bond, Government Income, Pennsylvania
tax-Free Income and Ohio Tax-Free Income Portfolios; PNC Bank, National
Association ("PNC Bank") serves as sub- adviser to the Tax-Free Income
Portfolio; and Provident Capital Management, Inc. ("PCM") serves as
sub-adviser to the International Fixed Income Portfolio. The investment
adviser and sub-advisers are indirect wholly-owned subsidiaries of PNC
Bank Corp.
The section entitled "Management -- Adviser and Sub-Advisers" has been amended
to read as follows:
The second sentence of the first paragraph has been amended to read as follows:
The principal business address of : PIMC is 400 Bellevue Parkway,
Wilmington, Delaware 19809; PNC Bank is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107; PCM is 1700 Market Street, 27th Floor,
Philadelphia, Pennsylvania 19103; and BlackRock is 345 Park Avenue, New
York, New York 10154.
The fourth paragraph has been amended to read as follows:
Kevin Klingert has been the person primarily responsible for the
management of the Pennsylvania Tax-Free Income and Ohio Tax- Free Income
Portfolios since March 1995. Mr. Klingert has been with BlackRock since
1991. Mr. Klingert was formerly an Assistant Vice President at
Merrill, Lynch, Pierce, Fenner & Smith.
The fifth paragraph has been deleted.
The sixth paragraph has been amended to read as follows:
The Short-Term Bond, Intermediate-Term Bond, Intermediate
Government, Government Income and Managed Income Portfolios have been
managed by a BlackRock portfolio management team since March 1995. The
team is led by Robert S. Kapito and includes Michael P. Lustig and Scott
Amero. Mr. Kapito has been with BlackRock since 1988 and serves as Vice
Chairman of BlackRock. Mr. Lustig, who is currently Vice President of
BlackRock, has been with BlackRock since 1989, prior to which he was an
associate at Security Pacific Merchant Bank. Mr. Amero joined BlackRock
in 1990 where he is a Managing Director. Prior to 1990, Mr. amero was a
Vice President at The First Boston Corporation.
The seventh paragraph has been amended to read as follows:
The International Fixed Income Portfolio's Manager, Herve van
Caloen, is the person primarily responsible for the day-to-day
management of the Portfolio's investments. Mr. van Caloen has been a
portfolio manager with PCM since 1992 and currently heads PCM's
International Group. Mr. van Caloen has managed the Portfolio since
April 1995. Before joining PCM, Mr. van Caloen managed International
portfolios for Mitchell Hutchins and Scudder, Stevens and Clark.
The date of this Supplement is April 12, 1995.
PNCS-P-002S
PNCI-P-002S
<PAGE> 48
THE PNC(R) FUND
THE FIXED INCOME PORTFOLIOS
SUPPLEMENT TO SERVICE, INSTITUTIONAL AND INVESTOR CLASS PROSPECTUSES DATED
JANUARY 30, 1995
The section entitled "Introduction -- Portfolio Management" has been amended to
read as follows:
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc. ("BlackRock")
serves as sub-adviser to the Managed Income, Tax-Free Income, Intermediate
Government, Intermediate-Term Bond, Short-Term Bond, Government Income,
Pennsylvania Tax-Free Income and Ohio Tax-Free Income Portfolios; and
Provident Capital Management, Inc. ("PCM") serves as sub-adviser to the
International Fixed Income Portfolio. The investment adviser and
sub-advisers are indirect wholly-owned subsidiaries of PNC Bank Corp.
The section entitled "Management -- Adviser and Sub-Advisers" has been amended
as follows:
The first sentence of the first paragraph has been amended to read as follows:
PIMC was organized in 1977 by PNC Bank, National Association ("PNC Bank") to
provide advisory services for investment companies.
The third paragraph has been deleted.
The fourth paragraph has been amended to read as follows:
Kevin Klingert has been the person primarily responsible for the
management of the Pennsylvania Tax-Free Income and Ohio Tax-Free Income
Portfolios since March 1995 and has managed the Tax-Free Income Portfolio
since July 1995. Mr. Klingert has been with BlackRock since 1991. Mr.
Klingert was formerly an Assistant Vice President at Merrill, Lynch, Pierce,
Fenner & Smith.
The date of this Supplement is August 22, 1995.
PNC-P-002S
<PAGE> 1
EXHIBIT (17)(e)
THE FIXED INCOME PORTFOLIOS
INSTITUTIONAL CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to nine classes of shares ("Institutional Shares" or
"Shares") representing interests in nine of those portfolios (collectively, the
"Portfolios") which offer investors a range of investment opportunities with the
following objectives:
MANAGED INCOME PORTFOLIO--to provide current income consistent with
prudent investment management and preservation of capital. It pursues this
objective by investing primarily in high and medium grade fixed-income
securities.
TAX-FREE INCOME PORTFOLIO--to seek as high a level of current income
exempt from Federal income tax as is consistent with preservation of
capital. It pursues this objective by investing primarily in 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").
INTERMEDIATE GOVERNMENT PORTFOLIO--to provide current income consistent
with preservation of capital. It pursues this objective by investing
primarily in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements and collateralized
mortgage obligations ("CMOs") relating to such obligations.
OHIO TAX-FREE INCOME PORTFOLIO--to seek as high a level of current
income exempt from Federal and, to the extent possible, from Ohio income tax
as is consistent with preservation of capital. It pursues this objective by
investing primarily in municipal obligations issued by the State of Ohio and
its political subdivisions, agencies, instrumentalities and authorities and
tax-exempt derivative securities relating thereto ("Ohio Municipal
Obligations").
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO--to seek as high a level of
current income exempt from Federal and, to the extent possible, from
Pennsylvania income tax as is consistent with preservation of capital. It
pursues this objective by investing primarily in 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").
SHORT-TERM BOND PORTFOLIO--to seek a high level of current income
consistent with prudent investment risk. It pursues this objective by
investing primarily in investment grade debt securities. The Portfolio will
generally have a dollar-weighted average portfolio maturity of five years or
less.
INTERMEDIATE-TERM BOND PORTFOLIO--to seek a high level of current income
consistent with prudent investment risk. It pursues this objective by
investing primarily in investment grade debt securities. The Portfolio will
generally have a dollar-weighted average portfolio maturity of five to ten
years.
GOVERNMENT INCOME PORTFOLIO--to seek as high a level of current income
as is consistent with a reasonable concern for safety of principal. It
pursues this objective by investing primarily in debt securities issued,
guaranteed or otherwise backed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements relating to such obligations.
INTERNATIONAL FIXED INCOME PORTFOLIO--to achieve as high a level of
current income as is consistent with prudent investment risk. It pursues
this objective by investing primarily in an internationally diversified
portfolio of high quality government and corporate obligations.
Institutional Shares of the Portfolios ("Shares") are sold at net asset
value to institutional investors ("Institutions"). Shares of the Ohio Tax-Free
Income and Pennsylvania Tax-Free Income Portfolios are intended for residents of
Ohio and Pennsylvania, respectively.
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 free of charge from the Fund by calling
(800) 422-6538. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 2
INTRODUCTION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company which has registered
shares in 25 investment portfolios, nine of which are included in this
Prospectus.
PORTFOLIO MANAGEMENT
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. PNC Bank, Ohio, National Association ("PNC Bank Ohio")
serves as sub-adviser to the Ohio Tax-Free Income Portfolio, PNC Bank, National
Association ("PNC Bank") serves as sub-adviser to the Managed Income,
Intermediate Government, Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios and
Provident Capital Management, Inc. ("PCM") serves as sub-adviser to the
International Fixed Income Portfolio. The investment adviser and sub-advisers
are indirect wholly-owned subsidiaries of PNC Bank Corp.
THE ADMINISTRATORS
PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve as the
Fund's administrators (collectively, the "Administrators").
THE DISTRIBUTOR
Provident Distributors, Inc. (the "Distributor") serves as the Fund's
distributor.
2
<PAGE> 3
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS AND
EXPENSE
REIMBURSEMENTS AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
INTER- OHIO PENNSYLVANIA
MANAGED TAX-FREE MEDIATE TAX-FREE TAX-FREE
INCOME INCOME GOVERNMENT INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Advisory fees(1)......... .38% 0% .23% 0% .28%
Other operating
expenses............... .20 .53 .20 .53 .25
--- --- --- --- ---
Administration fees(1)... .15 0 .13 0 .09
Other expenses(1)........ .05 .53 .07 .53 .16
--- --- --- --- ---
Total fund operating
expenses............... .58% .53% .43% .53% .53%
=== === === === ===
INTER- INTER-
SHORT- MEDIATE NATIONAL
TERM TERM GOVERNMENT FIXED
BOND BOND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Advisory fees(1)........... .23% .28% .38% .43%
Other operating
expenses................. .20 .20 .20 .35
--- --- --- ---
Administration fees(1)... .09 .10 .10 .10
Other expenses(1)........ .11 .10 .10 .25
--- --- --- ---
Total fund operating
expenses................. .43% .48% .58% .78%
=== === === ===
</TABLE>
- ------------------
(1) Advisory fees are net waivers of .12%, .50%, .27%, .50%, .22%, .27%, .22%,
.12% and .12% and administration fees are net of waivers of .05%, .20%,
.07%, .20%, .11%, .11%, .10%, .10% and .10% for the Managed Income, Tax-Free
Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free
Income, Short-Term Bond, Intermediate-Term Bond, Government Income and
International Fixed Income Portfolios, respectively. In addition, the
Expense Table reflects reimbursements made to the Tax-Free Income Portfolio
by the adviser. PIMC and the Administrators are under no obligation to waive
or continue waiving such fees or reimbursing such expenses, but have
informed the Fund that they expect to waive or continue waiving such fees
and reimbursing such expenses during the current fiscal year as necessary to
maintain the Portfolios' total operating expenses at the levels set forth in
the table. The expenses noted above under "Other expenses" are estimated
based on the level of such expenses for the Fund's most recent fiscal year.
EXAMPLE
An investor in Institutional Shares would pay the following expenses on a
$1,000 investment in Shares of each of the Portfolios, assuming (1) 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>
Managed Income............................................ $6 $19 $ 32 $73
Tax-Free Income........................................... 5 17 30 68
Intermediate Government................................... 4 14 24 54
Ohio Tax-Free Income...................................... 5 17 30 66
Pennsylvania Tax-Free Income.............................. 5 17 30 66
Short-Term Bond........................................... 4 14 24 54
Intermediate-Term Bond.................................... 5 15 27 60
Government Income......................................... 6 19
International Fixed Income................................ 8 25
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the Portfolios' estimated operating expenses. Investors bear
these expenses either directly or indirectly. The information in the table for
the Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond and Intermediate-Term
Bond Portfolios is based on the advisory and administration fees and other
expenses payable after fee waivers for the fiscal year ended September 30,
1994, as restated to reflect revised fee waivers. The table estimates fees,
expenses, waivers and assets for the other Portfolios for the current fiscal
year. Total operating expenses would have been .75%, 1.23%, .77%, 1.23%, .86%,
.81%, .80%, .80% and 1.00% for Institutional Shares of the Managed Income,
Tax-Free Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Short-Term Bond, Intermediate-Term Bond, Government Income and
International Fixed Income Portfolios, respectively, without such fee waivers.
See Footnote 1 to the Expense Table, "Financial Highlights--Background,"
"Management," "Distribution of Shares," "How to Purchase Shares" and
"Description of Shares" for a further description of shareholder transaction
expenses and 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.
3
<PAGE> 4
CERTAIN RISK FACTORS TO CONSIDER
An investment in any of the Portfolios is subject to certain investment
considerations, as set forth in detail under "Investment Policies." As with
other mutual funds, there can be no assurance that any Portfolio will achieve
its investment objective. Some or all of the Portfolios may: purchase
mortgage-related securities, foreign securities and illiquid securities; enter
into repurchase and reverse repurchase agreements; lend portfolio securities to
third parties; and enter into futures contracts and options. The Ohio Tax-Free
Income and Pennsylvania Tax-Free Income Portfolios are classified as
non-diversified under the Investment Company Act of 1940 (the "1940 Act"). These
and the other investment practices set forth below and their associated risks
deserve careful consideration by investors. See "Investment Policies."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers four classes of shares in each
Portfolio--Service, Series A Investor, Series B Investor and Institutional
Shares. Service, Series A Investor, Series B Investor and Institutional Shares
in a Portfolio represent equal pro rata interests in such Portfolio, except that
they bear different expenses which reflect the difference in the range of
services provided to them. Under the Fund's Service Plan, Service Shares bear
the expense of fees at an annual rate not to exceed .15% of the average daily
net asset value of each Portfolio's outstanding Service Shares. Service Shares
also bear the expense of a service fee at an annual rate not to exceed .15% of
the average daily net asset value of each Portfolio's outstanding Service Shares
for other shareholder support activities provided by service organizations. See
"Description of Shares" for a description of the Service Plan and shareholder
support activities. Series A Investor Shares bear the expense of the Fund's
Distribution and Service Plan at an annual rate not to exceed .55% of the
average daily net asset value of each Portfolio's outstanding Series A Investor
Shares. Series B Investor Shares bear the expense of the Fund's Series B
Distribution Plan and Series B Service Plan at annual rates not to exceed .75%
and .25%, respectively, of the average daily net asset value of each Portfolio's
outstanding Series B Investor Shares. See "Description of Shares" for a
description of the Distribution and Service Plan, the Series B Distribution Plan
and the Series B Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
During periods in which fees relating to the Service Plan and shareholder
support activities and to the Distribution and Service Plan were not charged to
a Portfolio's Service Shares or Series A Investor Shares, respectively, the
financial data in the tables below pertaining to Service Shares or Series A
Investor Shares of such Portfolio are identical to the financial data relating
to Institutional Shares of the Portfolio for such periods or to what such
financial data would have been had Institutional Shares in the Portfolio been
outstanding for such periods (except, in each case, for the number of Service
and Series A Investor Shares outstanding).
The SEC requires that this Prospectus contain Financial Highlights for each
class of each Portfolio described herein. Series A Investor Shares of the Ohio
Tax-Free Income Portfolio did not bear any expenses relating to the Distribution
and Service Plan during the year ended September 30, 1994 and during all prior
periods. It is expected that Series A Investor Shares of the Ohio Tax-Free
Income Portfolio will bear such expenses after the date of this Prospectus. No
Series B Investor Shares of the Portfolios and no shares of the Government
Income and International Fixed Income Portfolios were issued during the year
ended September 30, 1994.
The financial data included in the tables below has been derived from
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolios is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
4
<PAGE> 5
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
-----------------------------------------------------------------
INSTITUTIONAL CLASS
-----------------------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 11/1/89(1)
ENDED ENDED ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 11.17 $ 10.74 $ 10.26 $ 9.70 $ 10.00
-------- -------- -------- -------- -------
Income from investment operations
Net investment income.................................. 0.64 0.67 0.69 0.74 0.66
Net gain (loss) on investments
(both realized and unrealized)....................... (1.21) 0.56 0.48 0.63 (0.29)
-------- -------- -------- -------- -------
Total from investment operations................... (0.57) 1.23 1.17 1.37 0.37
-------- -------- -------- -------- -------
Less distributions
Distributions from net investment income............... (0.64) (0.67) (0.69) (0.73) (0.66)
Distribution in excess of net investment income........ (0.02) -- -- (0.08) (0.01)
Distributions from net realized capital gains.......... (0.14) (0.13) -- -- --
Distributions in excess of net realized gains.......... (0.01) -- -- -- --
-------- -------- -------- -------- -------
Total distributions................................ (0.81) (0.80) (0.69) (0.81) (0.67)
-------- -------- -------- -------- -------
Net asset value at end of period........................... $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70
======== ======== ======== ======== =======
Total return............................................... (5.27)% 12.13% 11.80% 14.74% 3.80%
Ratios/Supplemental data
Net assets at end of period
(in thousands)....................................... $395,060 $341,791 $314,075 $ 52,802 $38,328
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.55% 0.74% 0.80% 0.80% 0.80%(2)
Before advisory/administration fee waivers........... 0.77% 0.78% 0.80% 0.84% 0.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 6.11% 6.25% 6.28% 7.36% 7.31%(2)
Before advisory/administration fee waivers........... 5.89% 6.21% 6.28% 7.32% 7.29%(2)
Portfolio turnover rate................................ 61% 72% 56% 38% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
5
<PAGE> 6
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
----------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
------------------- ---------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/29/93(1) YEAR YEAR 2/05/92(1)
ENDED THROUGH ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92
------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............................. $ 11.17 $ 10.96 $ 11.18 $10.74 $10.40
------- ------- ------- ------ ------
Income from investment operations
Net investment income.......................................... 0.59 0.11 0.57 0.66 0.46
Net gain (loss) on investments (both realized and
unrealized).................................................. (1.18) .21 (1.19) 0.57 0.34
------- ------- ------- ------ ------
Total from investment operations........................... (0.59) 0.32 (0.62) 1.23 0.80
------- ------- ------- ------ ------
Less distributions
Distributions from net investment income....................... (0.62) (0.11) (0.60) (0.66) (0.46)
Distribution in excess of net investment income................ (0.02) -- (0.02) -- --
Distributions from net realized capital gains.................. (0.14) -- (0.14) (0.13) --
Distributions in excess of net realized gains.................. (0.01) -- (0.01) -- --
------- ------- ------- ------ ------
Total distributions........................................ (0.79) (0.11) (0.77) (0.79) (0.46)
------- ------- ------- ------ ------
Net asset value at end of period................................... $ 9.79 $ 11.17 $ 9.79 $11.18 $10.74
======= ======= ======= ====== ======
Total return....................................................... (5.49)% 2.93% (5.76)%(3) 12.13%(3) 7.86%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $67,655 $15,322 $10,921 $7,252 $1,417
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.80% 0.80%(2) 1.00% 0.84% 0.80%(2)
Before advisory/administration fee waivers................... 1.02% 0.84%(2) 1.22% 0.88% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 5.95% 5.83%(2) 5.66% 6.09% 6.28%(2)
Before advisory/administration fee waivers................... 5.73% 5.79%(2) 5.44% 6.05% 6.28%(2)
Portfolio turnover rate........................................ 61% 72% 61% 72% 56%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
6
<PAGE> 7
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------- ----------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 1/21/93(1) YEAR 7/29/93(1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................................. $11.31 $10.61 $11.31 $10.97
------ ------ ------ ------
Income from investment operations
Net investment income............................................... 0.53 0.42 0.51 0.09
Net gain (loss) on investments (both realized and unrealized)....... (0.93) 0.70 (0.93) 0.34
------ ------ ------ ------
Total from investment operations................................ (0.40) 1.12 (0.42) 0.43
------ ------ ------ ------
Less distributions
Distributions from net investment income............................ (0.53) (0.42) (0.51) (0.09)
Distributions from net realized capital gains....................... (0.34) -- (0.34) --
------ ------ ------ ------
Total distributions............................................. (0.87) (0.42) (0.85) (0.09)
------ ------ ------ ------
Net asset value at end of period........................................ $10.04 $11.31 $10.04 $11.31
====== ====== ====== ======
Total return............................................................ (3.77)% 10.72% (4.02)% 3.92%
Ratios/Supplemental data
Net assets at end of period (in thousands).......................... $ 132 $ 675 $2,109 $ 634
Ratios of expenses to average net assets
After advisory/administration fee waivers......................... 0.50% 0.50%(2) 0.75% 0.71%(2)
Before advisory/administration
fee waivers..................................................... 1.73% 1.28%(2) 1.98% 1.49%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers......................... 4.97% 5.14%(2) 4.75% 4.99%(2)
Before advisory/administration fee waivers........................ 3.74% 4.36%(2) 3.52% 4.21%(2)
Portfolio turnover rate............................................. 40% 71% 40% 71%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
7
<PAGE> 8
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------
SERIES A INVESTOR CLASS
--------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
9/30/94 9/30/93 9/30/92 9/30/91
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period..................... $11.31 $10.60 $10.33 $ 9.91
------ ------ ------ ------
Income from investment operations
Net investment income.................................. 0.48 0.55 0.58 0.64
Net gain (loss) on investments (both realized and
unrealized).......................................... (0.93) 0.83 0.49 0.46
------ ------ ------ ------
Total from investment operations................... (0.45) 1.38 1.07 1.10
------ ------ ------ ------
Less distributions
Distributions from net investment income............... (0.48) (0.55) (0.59) (0.66)
Distributions from net realized capital gains.......... (0.34) (0.12) (0.21) (0.02)
------ ------ ------ ------
Total distributions................................ (0.82) (0.67) (0.80) (0.68)
------ ------ ------ ------
Net asset value at end of period........................... $10.04 $11.31 $10.60 $10.33
====== ====== ====== ======
Total return............................................... (4.19)%(3) 13.48%(3) 10.67%(3) 11.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $6,972 $7,831 $7,349 $3,510
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.95% 0.57% 0.53% 1.00%
Before advisory/administration fee waivers........... 2.18% 1.36% 1.67% 1.89%
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 4.53% 5.06% 5.56% 6.23%
Before advisory/administration fee waivers........... 3.30% 4.27% 4.42% 5.34%
Portfolio turnover rate................................ 40% 71% 38% 95%
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
-------------------------
SERIES A INVESTOR CLASS
-------------------------
FOR THE
PERIOD
5/14/90(1)
THROUGH
9/30/90
----------
<S> <C>
Net asset value at beginning of period..................... $10.00
------
Income from investment operations
Net investment income.................................. 0.25
Net gain (loss) on investments (both realized and
unrealized).......................................... (0.11)
------
Total from investment operations................... 0.14
------
Less distributions
Distributions from net investment income............... (0.23)
Distributions from net realized capital gains.......... --
------
Total distributions................................ (0.23)
------
Net asset value at end of period........................... $ 9.91
======
Total return............................................... 1.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $4,044
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 1.00%(2)
Before advisory/administration fee waivers........... 1.70%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 6.56%(2)
Before advisory/administration fee waivers........... 5.86%(2)
Portfolio turnover rate................................ 18%
</TABLE>
- -------------
1 Commencement of operations.
2 Annualized.
3 Sales load not reflected in total return.
8
<PAGE> 9
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
----------------------------------------
INSTITUTIONAL CLASS
----------------------------------------
FOR THE
PERIOD
YEAR YEAR 4/20/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- ----------
<S> <C> <C> <C>
Net asset value at beginning of period........................................ $ 10.60 $ 10.46 $ 10.00
-------- -------- --------
Income from investment operations
Net investment income..................................................... 0.55 0.54 0.24
Net gain (loss) on investments (both realized and unrealized)............. (0.86) 0.16 0.46
-------- -------- --------
Total from investment operations...................................... (0.31) 0.70 0.70
-------- -------- --------
Less distributions
Distributions from net investment income.................................. (0.55) (0.54) (0.24)
Distributions from net realized capital gains............................. (0.10) (0.02) --
-------- -------- --------
Total distributions................................................... (0.65) (0.56) (0.24)
-------- -------- --------
Net asset value at end of period.............................................. $ 9.64 $ 10.60 $ 10.46
======== ======== ========
Total return.................................................................. (3.08)% 6.88% 7.14%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................ $128,974 $137,065 $105,620
Ratios of expenses to average net assets
After advisory/administration fee waivers............................... 0.40% 0.73% 0.80%(2)
Before advisory/administration fee waivers.............................. 0.80% 0.81% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................... 5.48% 5.23% 5.28%(2)
Before advisory/administration fee waivers.............................. 5.08% 5.15% 5.28%(2)
Portfolio turnover rate....................................................... 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
9
<PAGE> 10
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
-----------------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
---------------------- --------------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/29/93(1) YEAR YEAR 5/11/92(1)
ENDED THROUGH ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92
------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 10.60 $ 10.45 $10.60 $10.46 $10.05
------- ------- ------ ------ ------
Income from investment operations
Net investment income.................................. 0.53 0.09 0.53 0.54 0.24
Net gain (loss) on investments (both realized and
unrealized).......................................... (0.86) 0.15 (0.87) 0.16 0.41
------- ------ ------ ------ ------
Total from investment operations................... (0.33) 0.24 (0.34) 0.70 0.65
------- ------ ------ ------ ------
Less distributions
Distributions from net investment income............... (0.53) (0.09) (0.52) (0.54) (0.24)
Distributions from net realized capital gains.......... (0.10) -- (0.10) (0.02) --
------- ------- ------ ------ ------
Total distributions................................ (0.63) (0.09) (0.62) (0.56) (0.24)
------- ------- ------ ------ ------
Net asset value at end of period........................... $ 9.64 $ 10.60 $ 9.64 $10.60 $10.46
======= ======= ====== ====== ======
Total return............................................... (3.31)% 2.30% (3.36)%(3) 6.84%(3) 6.64%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $60,812 $15,035 $8,508 $7,666 $1,484
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 0.65% 0.67%(2) 0.65% 0.76% 0.80%(2)
Before advisory/administration fee waivers........... 1.05% 0.75%(2) 1.05% 0.84% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 5.30% 5.14%(2) 5.24% 5.19% 5.28%(2)
Before advisory/administration fee waivers........... 4.90% 5.06%(2) 4.84% 5.11% 5.28%(2)
Portfolio turnover rate.................................... 9% 80% 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
10
<PAGE> 11
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
----------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
--------------------- --------------------- ------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/1/92(1) YEAR 7/29/93(1) YEAR 12/1/92(1)
ENDED THROUGH ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $10.53 $10.00 $10.53 $10.24 $10.53 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income........................... 0.53 0.36 0.49 0.09 0.53 0.36
Net gain (loss) on investments (both realized
and unrealized)............................... (0.91) 0.53 (0.91) 0.29 (0.91) 0.53
------ ------ ------ ------ ------ ------
Total from investment operations............ (0.38) 0.89 (0.42) 0.38 (0.38) 0.89
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net investment income........ (0.53) (0.36) (0.49) (0.09) (0.53) (0.36)
Distributions from net realized capital gains... (0.02) -- (0.02) -- (0.02) --
------ ------ ------ ------ ------ ------
Total distributions......................... (0.55) (0.36) (0.51) (0.09) (0.55) (0.36)
------ ------ ------ ------ ------ ------
Net asset value at end of period.................... $ 9.60 $10.53 $ 9.60 $10.53 $ 9.60 $10.53
====== ====== ====== ====== ====== ======
Total return........................................ (3.75)% 9.10% (4.00)% 3.68% (3.75)%(3) 9.10%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)...... $ 127 $1,676 $4,428 $ 907 $3,825 $2,386
Ratios of expenses to average net assets
After advisory/administration
fee waivers................................. 0.10% 0.08%(2) 0.35% 0.32%(2) 0.10% 0.07%(2)
Before advisory/administration
fee waivers................................. 1.49% 2.59%(2) 1.74% 2.83%(2) 1.49% 2.58%(2)
Ratios of net investment income to average net
assets
After advisory/administration
fee waivers................................. 5.16% 4.99%(2) 5.06% 4.71%(2) 5.18% 4.90%(2)
Before advisory/administration
fee waivers................................. 3.77% 2.48%(2) 3.67% 2.20%(2) 3.79% 2.39%(2)
Portfolio turnover rate............................. 61% 36% 61% 36% 61% 36%
</TABLE>
- -------------
1 Commencement of operations.
2 Annualized.
3 Sales load not reflected in total return.
11
<PAGE> 12
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
-----------------------------------------------
INSTITUTIONAL
CLASS SERVICE CLASS
--------------------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 12/1/92(1) YEAR 7/29/93(1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period................... $10.70 $10.00 $ 10.70 $10.43
------ ------ ------ ------
Income from investment operations
Net investment income................................ 0.53 0.39 0.51 0.09
Net gain (loss) on investments (both realized and
unrealized)........................................ (0.85) 0.73 (0.85) 0.28
------ ------ ------- ------
Total from investment operations................. (0.32) 1.12 (0.34) 0.37
------ ------ ------- ------
Less distributions
Distributions from net investment income............. (0.53) (0.39) (0.51) (0.09)
Distributions from net realized
capital gains...................................... (0.03) (0.03) (0.03) (0.01)
------ ------ ------- ------
Total distributions.............................. (0.56) (0.42) (0.54) (0.10)
------ ------ ------- ------
Net asset value at end of period......................... $ 9.82 $10.70 $ 9.82 $10.70
====== ====== ======= ======
Total return............................................. (2.96)% 11.69% (3.20)% 3.54%
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $ 639 $ 256 $11,518 $3,894
Ratios of expenses to average net assets
After advisory/administration
fee waivers...................................... 0.39% 0.09%(2) 0.55% 0.34%(2)
Before advisory/administration
fee waivers...................................... 0.99% 0.97%(2) 1.15% 1.22%(2)
Ratios of net investment income to average net assets
After advisory/administration
fee waivers...................................... 5.27% 5.19%(2) 4.97% 4.90%(2)
Before advisory/administration
fee waivers...................................... 4.67% 4.31%(2) 4.37% 4.02%(2)
Portfolio turnover rate.................................. 30% 40% 30% 40%
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
------------------------
SERIES A
INVESTOR CLASS
------------------------
FOR THE
PERIOD
YEAR 12/1/92(1)
ENDED THROUGH
9/30/94 9/30/93
------- ----------
<S> <C> <C>
Net asset value at beginning of period................... $ 10.70 $ 10.00
------- -------
Income from investment operations
Net investment income................................ 0.52 0.42
Net gain (loss) on investments (both realized and
unrealized)........................................ (0.85) 0.73
------- -------
Total from investment operations................. (0.33) 1.15
------- -------
Less distributions
Distributions from net investment income............. (0.52) (0.42)
Distributions from net realized
capital gains...................................... (0.03) (0.03)
------- -------
Total distributions.............................. (0.55) (0.45)
------- -------
Net asset value at end of period......................... $ 9.82 $ 10.70
======= =======
Total return............................................. (3.06)%(3) 11.69%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $46,563 $35,934
Ratios of expenses to average net assets
After advisory/administration
fee waivers...................................... 0.41% 0.07%(2)
Before advisory/administration
fee waivers...................................... 1.01% 0.95%(2)
Ratios of net investment income to average net assets
After advisory/administration
fee waivers...................................... 5.06% 5.19%(2)
Before advisory/administration
fee waivers...................................... 4.46% 4.31%(2)
Portfolio turnover rate.................................. 30%
</TABLE>
- -------------
1 Commencement of operations.
2 Annualized.
3 Sales load not reflected in total return.
12
<PAGE> 13
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
-------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
-------------------- --------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/1/93(1) YEAR 9/1/93(1) 11/17/93(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.................... $ 10.00 $10.00 $10.00 $10.00 $ 9.96
------- ------ ------ ------ ------
Income from investment operations
Net investment income................................. 0.42 0.02 0.39 0.02 0.34
Net gain (loss) on investments (both realized and
unrealized)......................................... (0.42) -- (0.42) -- (0.38)
------- ------ ------ ------ ------
Total from investment operations.................. -- 0.02 (0.03) 0.02 (0.04)
------- ------ ------ ------ ------
Less distributions
Distributions from net investment income.............. (0.42) (0.02) (0.39) (0.02) (0.34)
Distributions from net realized capital gains......... -- -- -- -- --
------- ------ ------ ------ ------
Total distributions............................... (0.42) (0.02) (0.39) (0.02) (0.34)
------- ------ ------ ------ ------
Net asset value at end of period.......................... $ 9.58 $10.00 $ 9.58 $10.00 $ 9.58
======= ====== ====== ====== ======
Total return.............................................. (0.02)% 0.23% (0.26)% 0.21% (0.43)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $17,619 $3,748 $6,230 $2,811 $ 277
Ratios of expenses to average net assets
After advisory/administration fee waivers........... 0.40% 0.40%(2) 0.65% 0.65%(2) 0.65%(2)
Before advisory/administration fee waivers.......... 0.95% 1.42%(2) 1.20% 1.67% 1.20%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers........... 4.27% 2.92%(2) 4.07% 2.57%(2) 4.19%(2)
Before advisory/administration fee waivers.......... 3.72% 1.90%(2) 3.52% 1.55%(2) 3.64%(2)
Portfolio turnover rate................................... 113% 0% 113% 0% 113%
</TABLE>
- -------------
1 Commencement of operations.
2 Annualized.
3 Sales load not reflected in total return.
13
<PAGE> 14
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
-------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
--------------------- -------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/17/93(1) YEAR 9/23/93(1) 5/20/94(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.................. $ 10.01 $ 10.00 $ 10.01 $ 9.99 $ 9.23
------- ------- ------- ------ ------
Income from investment operations
Net investment income............................... 0.54 0.02 0.54 -- 0.20
Net gain (loss) on investments (both realized and
unrealized)....................................... (0.88) (0.01) (0.91) 0.02 (0.17)
------- ------- ------- ------ ------
Total from investment operations................ (0.34) 0.01 (0.37) 0.02 0.03
------- ------- ------- ------ ------
Less distributions
Distributions from net investment income............ (0.56) -- (0.53) -- (0.21)
Distributions from net realized capital gains....... (0.06) -- (0.06) -- --
------- ------- ------- ------ ------
Total distributions............................. (0.62) -- (0.59) -- (0.21)
------- ------- ------- ------ ------
Net asset value at end of period........................ $ 9.05 $ 10.01 $ 9.05 $10.01 $ 9.05
======= ======= ======= ====== ======
Total return............................................ (3.52)% 0.10% (3.80)% 0.20% 0.31%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $71,896 $56,713 $35,764 $ 91 $ 87
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.45% 0.45%(2) 0.70% 0.70%(2) 0.85%(2)
Before advisory/administration fee waivers........ 0.88% 0.84%(2) 1.13% 1.09%(2) 1.28%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 5.54% 4.72%(2) 5.33% 4.35%(2) 5.35%(2)
Before advisory/administration fee waivers........ 5.11% 4.33%(2) 4.90% 3.96%(2) 4.92%(2)
Portfolio turnover rate................................. 92% 4% 92% 4% 92%
</TABLE>
- -------------
1 Commencement of operations.
2 Annualized.
3 Sales load not reflected in total return.
14
<PAGE> 15
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
MANAGED INCOME PORTFOLIO
The Portfolio will normally invest at least 80% of the value of its total
assets in debt securities of all types, although up to 20% of the value of its
total assets may be invested in preferred stocks. Debt securities may include,
without limitation, bonds, debentures, notes, equipment lease and trust
certificates, mortgage-related securities, Municipal Obligations (other than
tax-exempt derivative securities), guaranteed investment contracts (GICs) and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The sub-adviser uses a number of factors in selecting
securities, including without limitation as applicable, debt to equity and
capital ratios, pre-tax fixed charge coverage, return on equity, the issuance's
size, current yield, general economic analysis, preservation of capital,
potential for realizing capital appreciation, maturity and yield to maturity.
Purchasable debt securities and preferred stock are rated at the time of
purchase within the four highest ratings assigned by Moody's Investors Service,
Inc. ("Moody's") (i.e., Aaa, Aa, A, Baa for bonds and preferred stock) or by
Standard & Poor's Corporation ("S&P") (i.e., AAA, AA, A, BBB for bonds and
preferred stock) or, if unrated, are determined by sub-adviser at the time of
purchase to be of comparable quality. Securities rated "Baa" by Moody's or "BBB"
by S&P, respectively, are generally considered to be investment grade although
they have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher grade bonds. If a
portfolio security is reduced below Baa by Moody's or BBB by S&P, the
Portfolio's sub-adviser will dispose of the security in an orderly fashion as
soon as practicable. See Appendix A to the Statement of Additional Information
for a description of Moody's and S&P's rating symbols.
The Portfolio may invest up to 10% of the value of its total assets in debt
securities of foreign issuers. Investors should realize that investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operated in the United
States. Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio may hold from time to time
various foreign currencies pending their investment in foreign securities or
their conversion into U.S. dollars, the value of the Portfolio's assets as
measured in U.S. dollars may be affected favorably or unfavorably by changes in
exchange rates. Although the Portfolio intends to invest in securities of
companies and governments of developed, stable nations, investors should realize
that the value of the Portfolio's investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control regulations in those foreign
nations. In addition, changes in government administrations or economic or
monetary policies in the U.S. or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or adversely affect the
Portfolio's operations. Furthermore, the economies of individual foreign nations
may differ from that of the United States, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. Any
foreign investments made by the Portfolio must be made in compliance with U.S.
and foreign currency restrictions and tax laws restricting the amounts and types
of foreign investments.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. The Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities in U.S. companies. Expenses relating to
foreign investments are higher than those relating to domestic securities. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
15
<PAGE> 16
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.
Purchasable Municipal Obligations include debt obligations issued by
governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities. Private activity bonds issued by or
on behalf of public authorities to finance various privately operated facilities
are considered Municipal Obligations. Dividends paid by the Portfolio that are
derived from interest on such Municipal Obligations would be taxable to the
Portfolio's shareholders for Federal income tax purposes.
When investing in GICs, the Portfolio makes cash contributions to a deposit
fund of an insurance company's general account. The insurance company then
credits to the deposit fund on a monthly basis guaranteed interest which is
based on an index (in most cases this index is expected to be the Salomon
Brothers CD Index). GICs provide that this guaranteed interest will not be less
than a certain minimum rate. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the general assets of the insurance company. The Portfolio will only
purchase GICs from insurance companies which, at the time of purchase, are rated
"A+" by A.M. Best Company, have assets of $1 billion or more and meet quality
and credit standards established by the sub-adviser pursuant to guidelines
approved by the Board of Trustees. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist.
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. Moreover, certain investments in
lease obligations may be illiquid and subject to the investment limitations
described below. The Portfolio does not currently intend to invest in such lease
obligations. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
Under normal market conditions, the Managed Income Portfolio's
average-weighted maturity will generally be between 5 and 15 years.
16
<PAGE> 17
------------------------------------
TAX-FREE INCOME PORTFOLIO
Purchasable Municipal Obligations are rated within the four highest
categories assigned by Moody's (Aaa, Aa, A or Baa) or by S&P (AAA, AA, A or BBB)
in the case of bonds, rated SP-2 or higher by S&P or MIG-2 or higher by Moody's
in the case of notes, rated A-2 or higher by S&P or Prime-2 or higher by Moody's
in the case of tax-exempt commercial paper or VMIG-2 or higher by Moody's in the
case of variable rate demand notes or are unrated securities determined at the
time of purchase to be of comparable quality by the sub-adviser. In the event
that the rating of a Portfolio security is reduced below Baa by Moody's or BBB
by S&P, the security will be disposed of in an orderly fashion as soon as
practicable. See "Investment Policies--Managed Income Portfolio" for a
description of Municipal Obligations and certain considerations relating to
securities rated Baa or BBB by Moody's or S&P, respectively, "Investment
Policies--Common Investment Policies" for a description of other investment
policies and Appendix A to the Statement of Additional Information for a
description of Moody's and S&P's ratings.
Under normal market conditions, the Tax-Free Income Portfolio's
average-weighted maturity will generally be between 10 and 25 years.
------------------------------------
INTERMEDIATE GOVERNMENT PORTFOLIO
Treasury obligations differ in their interest rates, maturities and times
of issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities such as Government National Mortgage Association
pass-through certificates are supported by the United States' full faith and
credit; others such as those of the Federal Home Loan Banks are supported by the
right of the issuer to borrow from the Treasury; others such as those issued by
the Federal National Mortgage Association and the Student Loan Marketing
Association are supported by the U.S. Government's discretionary authority to
purchase certain obligations of the agency or instrumentality; and others are
supported only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it always will do so
because it is not so obligated by law. The Portfolio may invest in CMOs rated at
the time of purchase within the four highest ratings assigned by Moody's (i.e.,
Aaa, Aa, A, Baa) or by S&P (i.e., AAA, AA, A, BBB) or, if unrated, are
determined by sub-adviser at the time of purchase to be of comparable quality.
CMOs are not government securities. During normal market conditions, at least
65% of the Portfolio's total assets will be invested in U.S. Government
obligations or repurchase agreements relating to such obligations. See
"Investment Policies--Managed Income Portfolio" for a description of certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively, "Investment Policies--Common Investment Policies" for a
description of other investment policies and Appendix A to the Statement of
Additional Information for a description of Moody's and S&P's ratings.
Under normal market conditions, the Intermediate Government Portfolio's
average-weighted maturity will generally be between three and ten years.
------------------------------------
OHIO TAX-FREE INCOME PORTFOLIO
Purchasable Municipal Obligations are rated within the four highest ratings
assigned by Moody's (i.e., Aaa, Aa, A, Baa) or by S&P (AAA, AA, A, BBB) in the
case of bonds, rated SP-2 or higher by S&P or MIG-2 or higher by Moody's
17
<PAGE> 18
in the case of notes, rated A-2 or higher by S&P or Prime-2 or higher by Moody's
in the case of tax-exempt commercial paper or VMIG-2 or higher by Moody's in the
case of variable rate demand notes or are unrated securities determined at the
time of purchase to be of comparable quality by the sub-adviser. If a portfolio
security is reduced below Baa by Moody's or BBB by S&P, the Portfolio's
sub-adviser will dispose of the security in an orderly fashion as soon as
practicable. The Portfolio will not trade its securities for the purpose of
seeking profits. For purposes of this policy, the Portfolio may vary its
portfolio securities if (i) there has been an adverse change in a security's
credit rating or in that of its issuer or in the adviser's or sub-adviser's
credit analysis of the security or its issuer; (ii) there has been, in the
opinion of the adviser and sub-adviser, a deterioration or anticipated
deterioration in general economic or market conditions affecting issuers of Ohio
Municipal Obligations, or a change or anticipated change in interest rates;
(iii) adverse changes or anticipated changes in market conditions or economic or
other factors temporarily affecting the issuers of one or more portfolio
securities make necessary or desirable the sale of such security or securities
in anticipation of the Portfolio's repurchase of the same or comparable
securities at a later date; or (iv) the adviser or sub-adviser engages in
temporary defensive investment strategies. See "Investment Policies--Managed
Income Portfolio" for a description of Municipal Obligations and certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively, and Appendix A to the Statement of Additional Information for a
description of Moody's and S&P's ratings.
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) these obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "Investment Policies--Common Investment
Policies" for a description of other investment policies.
Under normal market conditions, the Ohio Tax-Free Income Portfolio's
average-weighted maturity will generally be between 10 and 25 years.
------------------------------------
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
Purchasable Municipal Obligations are rated within the four highest ratings
assigned by Moody's (i.e., Aaa, Aa, A, Baa) or by S&P (AAA, AA, A, BBB) in the
case of bonds, rated SP-2 or higher by S&P or MIG-2 or higher by Moody's in the
case of notes, rated A-2 or higher by S&P or Prime-2 or higher by Moody's in the
case of tax-exempt commercial paper or VMIG-2 or higher by Moody's in the case
of variable rate demand notes or are unrated securities determined at the time
of purchase to be of comparable quality by the sub-adviser. If a portfolio
security is reduced below Baa by
18
<PAGE> 19
Moody's or BBB by S&P, the Portfolio's sub-adviser will dispose of the security
in an orderly fashion as soon as practicable. See "Investment Policies--Managed
Income Portfolio" for a description of Municipal Obligations and certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively, and Appendix A to the Statement of Additional Information for a
description of Moody's and S&P's ratings.
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 "Investment Policies--Common Investment Policies" for a
description of other investment policies.
The Commonwealth has sold a substantial amount of bonds over the past
several years, but the debt burden remains moderate. The recession has affected
Pennsylvania's economic base, with income and job growth at levels below
national averages. Employment growth has shifted to the trade and service
sectors, with losses in more high-paid manufacturing positions. A new governor
took office in January, but the Commonwealth is likely to continue to show
fiscal restraint.
Under normal market conditions, the Pennsylvania Tax-Free Income
Portfolio's average-weighted maturity will generally be between 10 and 25 years.
------------------------------------
SHORT-TERM BOND PORTFOLIO
The Portfolio will invest up to 100% of the value of its total assets in
debt securities rated at the time of purchase within the four highest ratings
assigned by Moody's (Aaa, Aa, A, Baa) or by S&P (AAA, AA, A, BBB), or if
unrated, are determined by the sub-adviser at the time of purchase to be of
comparable quality. Debt securities may include, without limitation, bonds,
debentures, notes, equipment lease and trust certificates, mortgage-related
securities, structured rate notes and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. See "Investment
Policies--Managed Income Portfolio" for a discussion of mortgage-backed
securities. See "Investment Policies--Intermediate Government Portfolio" for
examples of the types of U.S. Government Obligations that the Portfolio may
purchase.
The Portfolio may purchase bank obligations, such as certificates of
deposit, bankers' acceptances and demand and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the adviser
deems the instrument to present minimal credit risks. Such investments may
include Eurodollar Certificates of Deposit ("ECDs") which are U.S.
dollar-denominated certificates of deposit issued by foreign and domestic banks
located outside the United States; Eurodollar Time Deposits ("ETDs") which are
U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or a
19
<PAGE> 20
foreign bank; Canadian Time Deposits ("CTDs") which are essentially the same as
ETDs except they are issued by Canadian offices of major Canadian banks; and
Yankee Certificates of Deposit ("Yankee CDs") which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States. The Portfolio may also make interest-bearing savings deposits
in commercial and savings banks.
Investments in obligations issued by foreign banks and foreign branches of
U.S. banks may involve risks that are different from investments in obligations
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held by the Portfolio.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks.
The Portfolio may purchase rated and unrated variable and floating rate
instruments. 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
sub-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. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
Under normal market conditions, the Short-Term Bond Portfolio's
average-weighted maturity is expected to be five years or less.
------------------------------------
INTERMEDIATE-TERM BOND PORTFOLIO
The Intermediate-Term Bond Portfolio will invest up to 100% of its total
assets in debt securities similar to those of the Short-Term Bond Portfolio. See
"Investment Policies--Short-Term Bond Portfolio" for a discussion of the types
of securities in which the Portfolio may invest. See "Investment
Policies--Common Investment Policies" for a discussion of other investment
policies.
Under normal market conditions, the Intermediate-Term Bond Portfolio's
average-weighted maturity is expected to be between five and ten years.
------------------------------------
GOVERNMENT INCOME PORTFOLIO
The Portfolio is designed primarily for investors seeking current income
through a professionally-managed diversified portfolio of U.S. Government
securities. During normal market periods, at least 65% of the Portfolio's assets
will be invested in U.S. Government obligations (or repurchase agreements
relating to such obligations). The composition and dollar-weighted average
portfolio maturity of the Portfolio will vary from time to time based upon the
sub-adviser's assessment of relative yields available on U.S. Government
securities of different maturities, its
20
<PAGE> 21
expectations of future changes in interest rates and the determination of the
sub-adviser of how best to further the Portfolio's investment objective. The
Portfolio may invest in securities of all maturities--short-term,
intermediate-term and long-term. Treasury obligations differ only in their
interest rates, maturities and times of issuance. Obligations of certain
agencies and instrumentalities of the U.S. Government such as the Government
National Mortgage Association are supported by the United States' full faith and
credit; others such as those of the Federal National Mortgage Association and
the Student Loan Marketing Association are supported by the right of the issuer
to borrow from the 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 instrumentality. 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 Portfolio purchases primarily fixed rate securities, including but not
limited to high coupon U.S. Government agency mortgage-backed securities, which
provide a higher coupon at the time of purchase than the then prevailing market
rate yield. The prices of high coupon securities do not tend to rise as rapidly
as those of traditional fixed rate securities at times when interest rates are
decreasing, and tend to decline more slowly at times when interest rates are
increasing. The Portfolio may purchase such securities at a premium, which means
that a faster principal prepayment rate than expected will reduce the market
value of and income from such securities, while a slower prepayment rate will
tend to increase the market value of and income from such securities. If the
Portfolio buys mortgage-backed securities at a premium, mortgage foreclosures
and prepayment of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Portfolio's principal investment to the
extent of the premium paid.
------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in high quality fixed income obligations of foreign issuers.
The Portfolio's investments may include: (i) debt obligations issued or
guaranteed by foreign sovereign governments or their agencies, authorities,
instrumentalities or political subdivisions, including a foreign state, province
or municipality; (ii) debt obligations of supranational organizations such as
the World Bank, Asian Development Bank, European Investment Bank, and European
Economic Community; (iii) debt obligations of foreign banks and bank holding
companies; (iv) debt obligations of domestic banks and corporations issued in
foreign currencies; (v) debt obligations denominated in the European Currency
Unit (ECU); (vi) foreign corporate debt securities and commercial paper; and
(vii) private placements. Such securities may include loan participations and
assignments, convertible securities and zero-coupon securities. The Portfolio
may invest up to 5% of its net assets in securities rated below investment grade
by nationally recognized statistical rating organizations ("NRSROs") or in
comparable unrated securities. Such securities are commonly referred to as "junk
bonds." The portion of the Portfolio's assets invested in various countries will
vary from time to time depending on the sub-adviser's assessment of market
opportunities. The Portfolio is not restricted to any maximum or minimum time to
maturity in purchasing portfolio securities, and the average maturity of the
Portfolio's assets will vary based upon the sub-adviser's assessment of economic
and market conditions. The Portfolio has no minimum requirements for
diversification of its portfolio securities by country other than being invested
at all times in at least three countries other than the United States.
In determining appropriate investments for the Portfolio, primary emphasis
is placed upon the characteristics of the particular issues, although
significant emphasis is placed on macroeconomic factors. Macroeconomic factors
that ordinarily are considered by the sub-adviser in determining the appropriate
distribution of investments among various countries and geographic regions
include the prospects for relative economic growth among certain foreign
countries, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships,
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and the range of individual investment opportunities available to international
investors. The Portfolio will generally invest in countries where the
combination of fixed income market returns and currency exchange rate movements
is attractive, or, if the currency trend is unfavorable, where the currency risk
can be minimized through hedging. The Portfolio does not trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held.
The Portfolio may use forward foreign currency exchange contracts and enter
into currency futures contracts (or options thereon) to hedge against movements
in the value of foreign currencies relative to the U.S. dollar in connection
with specific portfolio transactions or with respect to portfolio positions. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specified currency at a future date at a price set at the time of the
contract. Foreign currency exchange contracts do not eliminate fluctuations in
the values of portfolio securities but rather allow the Portfolio to establish a
rate of exchange for a future point in time.
To maintain greater flexibility, the Portfolio may invest in instruments
which have the characteristics of futures securities. Such instruments may take
a variety of forms, such as debt securities with interest or principal payments
determined by reference to the value of a currency or commodity at a future
point in time. The risks of such investments could reflect the risks of
investing in futures, currencies and securities, including volatility and
illiquidity.
The Portfolio may also invest in fixed income securities issued by U.S.
corporations, obligations of the U.S. Government and its agencies and
instrumentalities. The Portfolio may also invest in Brady Bonds, which are
securities issued in various currencies (primarily the U.S. dollar) that have
been created through the exchange of existing commercial bank loans to Latin
American public and private entities for new bonds in connection with debt
restructuring under a debt restructuring plan announced by former U.S. Secretary
of the Treasury Nicholas F. Brady.
During periods in which the sub-adviser believes changes in economic,
financial or political conditions make it advisable, the Portfolio may, for
temporary defensive purposes, reduce its holdings in certain foreign obligations
and invest some or all of its assets in certain short-term and intermediate-term
debt securities or hold cash without limitation. The short-term and
intermediate-term debt securities in which the Portfolio may invest include: (a)
obligations of the United States or foreign governments, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with financial institutions with respect to such
securities. The Portfolio intends to invest only in short-term and medium-term
securities that are rated in one of the two highest rating categories by an
NRSRO or, if unrated, determined to be equivalent in credit quality by the
sub-adviser. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
SPECIAL RISK CONSIDERATIONS. Investors should realize that investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operated in the United
States or securities issued by the U.S. Government. Because foreign securities
generally are denominated and pay dividends or interest in foreign currencies
pending their investment in foreign securities or their conversion into U.S.
dollars, the value of the Portfolio's assets as measured in U.S. dollars will be
affected favorably or unfavorably by changes in exchange rates.
Although the Portfolio intends to invest in securities of companies and
governments of developed, stable nations, investors should realize that the
value of the Portfolio's investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control regulations in those foreign nations. In
addition, changes in
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government administrations or economic or monetary policies in the U.S. or
abroad could positively or negatively affect the performance of portfolio
securities and the Portfolio's operations. Investments in sovereign debt involve
certain risks, including the risk that foreign governments may default on their
obligations and offer only limited recourse, attempt to renegotiate the debt at
a lower rate, or freeze investments of U.S. entities. Furthermore, the economies
of individual foreign nations may differ from that of the United States, whether
favorably or unfavorably, in areas such as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Any foreign investments made by the Portfolio must be made
in compliance with U.S. and foreign currency restrictions and tax laws
restricting the amounts and types of foreign investments.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. In addition, while the
volume of transactions effected on foreign stock exchanges has increased in
recent years, it remains appreciably below that of the New York Stock Exchange.
Accordingly, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities in U.S.
companies. In buying and selling securities on foreign exchanges, the Portfolio
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. Moreover, the Portfolio's expenses are
higher than those incurred by investment companies having portfolios of domestic
securities. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
------------------------------------
COMMON INVESTMENT POLICIES
This section describes certain investment policies that are common to
Portfolios. Each Portfolio's investment objective and policies (except for the
80% concentration in Municipal Obligations specified in the first sentence of
the first paragraph of "Investment Policies--Common Investment
Policies--Tax-Free Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios") may be changed by the Board of Trustees without shareholder
approval. Depending upon prevailing market conditions, a Portfolio may purchase
debt securities at a discount from face value, which produces a yield greater
than the coupon rate. Conversely, if debt securities are purchased at a premium
over face value, the yield will be lower than the coupon rate. An increase in
interest rates will generally reduce the value of the investments in a Portfolio
and a decline in interest rates will generally increase the value of those
investments.
MORTGAGE-RELATED SECURITIES. The Managed Income, Intermediate Government,
Short-Term Bond, Intermediate-Term Bond, Government Income and International
Fixed Income Portfolios may invest in mortgage-related securities. Purchasable
mortgage-related securities are represented by pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), as well as by private issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or are otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. If a Portfolio purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from increases in
interest rates or prepayment of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true because in periods of declining interest rates mortgages
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underlying securities are prone to prepayment. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to a Portfolio. Mortgage-related
securities provide regular payments consisting of interest and principal. No
assurance can be given as to the return a Portfolio will receive when these
amounts are reinvested.
Mortgage-related securities acquired by the Portfolios may include
collateralized mortgage obligations ("CMOs") issued by FNMA, FHLMC or other U.S.
Government agencies or instrumentalities, as well as by private issuers. CMOs
provide an investor with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-related securities. Issuers of CMOs
frequently elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. Generally, payments of principal are applied to the CMO classes in
the order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. Sometimes, however, CMO classes are "parallel
pay," i.e., payments of principal are made to two or more classes concurrently.
CMOs may exhibit more or less price volatility and interest rate risk than other
types of mortgage-related obligations.
ASSET-BACKED SECURITIES. The Managed Income, Short-Term Bond,
Intermediate-Term Bond and International Fixed Income Portfolios may purchase
asset-backed securities, which represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, most
often a pool of assets similar to one another. Assets generating such payments
will consist of such instruments as motor vehicle installment purchase
obligations, credit card receivables and home equity loans. The Portfolios may
also invest in other types of asset-backed securities that may be available in
the future. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. In certain circumstances, asset-backed securities may be considered
illiquid securities subject to the percentage limitations described below.
Asset-backed securities may involve certain risks that are not presented by
mortgage-backed securities arising primarily from the nature of the underlying
assets (i.e., credit card and automobile loan receivables as opposed to real
estate mortgages). For example, credit card receivables are generally unsecured
and may require the repossession of personal property upon the default of the
debtor which may be difficult or impracticable in some cases.
OPTIONS AND FUTURES CONTRACTS. Each Portfolio may write covered call
options, buy put options, buy call options and write put options, without
limitation except as noted in this paragraph. Such options may relate to
particular securities or to various indexes and may or may not be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Each Portfolio may also invest in futures contracts and options on futures
contracts (index futures contracts or interest rate futures contracts, as
applicable) for hedging purposes or for other purposes so long as aggregate
initial margins and premiums required for non-hedging positions do not exceed 5%
of its net assets, after taking into account any unrealized profits and losses
on any such contracts it has entered into. However, no Portfolio may write put
options or purchase or sell futures contracts or options on futures contracts to
hedge more than its total assets unless immediately after any such transaction
the aggregate amount of premiums paid for put options and the amount of margin
deposits on its existing futures positions do not exceed 5% of its total assets.
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Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the right to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a particular security, an
option on an index provides the holder with the right to make or receive a cash
settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
A Portfolio will engage in unlisted over-the-counter options only with
broker/dealers deemed creditworthy by the adviser or sub-adviser. Closing
transactions in certain options are usually effected directly with the same
broker/dealer that effected the original option transaction. A Portfolio bears
the risk that the broker/dealer will fail to meet its obligations. There is no
assurance that a Portfolio will be able to close an unlisted option position.
Furthermore, unlisted options are not subject to the protections afforded
purchasers of listed options by the Options Clearing Corporation, which performs
the obligations of its members who fail to do so in connection with the purchase
or sale of options.
To enter into a futures contract, a Portfolio must make a deposit of
initial margin with its custodian in a segregated account in the name of its
futures broker. Subsequent payments to or from the broker, called variation
margin, will be made on a daily basis as the price of the underlying security or
index fluctuates, making the long and short positions in the futures contracts
more or less valuable.
When investing in futures contracts, the Portfolios must satisfy certain
asset segregation requirements to ensure that the use of futures is unleveraged.
When a Portfolio takes a long position in a futures contract, it must maintain a
segregated account containing cash and/or certain liquid assets equal to the
purchase price of the contract, less any margin or deposit. When a Portfolio
takes a short position in a futures contract, the Portfolio must maintain a
segregated account containing cash and/or certain liquid assets in an amount
equal to the market value of the securities underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are not
applicable when a Portfolio "covers" a futures position generally by entering
into an offsetting position.
The risks related to the use of options and futures contracts include: (i)
the correlation between movements in the market price of the portfolio
investments (held or intended for purchase) being hedged and in the price of the
futures contract or option may be imperfect; (ii) possible lack of a liquid
secondary market for closing out options or futures positions; (iii) the need
for additional portfolio management skills and techniques; and (iv) losses due
to unanticipated market movements. Successful use of options and futures by a
Portfolio is subject to the adviser's or sub-adviser's ability to correctly
predict movements in the direction of the market. For example, if a Portfolio
uses futures contracts as a hedge against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Portfolio will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have approximately
equal offsetting losses in its futures positions. The risk of loss in trading
futures contracts in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial loss or gain to the investor.
Thus, a purchase or sale of a futures contract may result in losses or gains in
excess of the amount invested in the contract. For a further discussion see
"Investment Policies" in the Statement of Additional Information.
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REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are in substance loans. Default by or bankruptcy of the seller would,
however, expose a Portfolio to possible loss because of adverse market action or
delays in connection with the disposition of the underlying obligations.
CASH EQUIVALENTS. Each Portfolio may invest in taxable and tax-free
short-term, interest-bearing instruments or deposits of United States and
foreign issuers to maintain liquidity, pending investment and for temporary
defensive purposes. Such investments may include, but are not limited to,
commercial paper, certificates of deposit, variable or floating rate notes,
bankers' acceptances, time deposits (the Managed Income Portfolio will not
invest more than 5% of its total assets in time deposits with maturities in
excess of seven days which are subject to penalties upon early withdrawal),
government securities and money market deposit accounts.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit a
Portfolio to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the securities delivery takes place. Each
Portfolio's when-issued purchases and forward commitments are not expected to
exceed 25% of the value of its total assets absent unusual market conditions.
The Portfolios do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the adviser or sub-adviser). A reverse repurchase agreement involves a sale by a
Portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase the same securities at an agreed-upon price and date.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities the
Portfolio is obligated to repurchase. Reverse repurchase agreements are
considered to be borrowings by a Portfolio under the Investment Company Act of
1940 (the "1940 Act").
The Short-Term Bond, Intermediate-Term Bond, Intermediate Government and
Government Income Portfolios may enter into reverse repurchase agreement
transactions with member banks on the Federal Reserve Bank of New York's list of
reporting dealers. The Portfolios typically will invest the proceeds of a
reverse repurchase agreement in money market instruments or repurchase
agreements maturing not later than the expiration of the reverse repurchase
agreement. This use of the proceeds is known as leverage. The Portfolios will
enter into a reverse repurchase agreement for leverage purposes only when the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction.
A Portfolio will establish a segregated account with its custodian in which
it will maintain cash, U.S. government securities or other liquid high grade
debt obligations equal in value to its obligations with respect to reverse
repurchase agreements.
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by
other investment companies within the limits prescribed by the 1940 Act. Each
Portfolio currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in
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the aggregate in securities of investment companies as a group; and (iii) not
more than 3% of the outstanding voting stock of any one investment company will
be owned by the Portfolio or by the Fund as a whole. As a shareholder of another
investment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Portfolio bears directly in connection with its own operations.
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL OBLIGATIONS. The Tax-Free
Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios
(collectively, "Tax-Free Portfolios") may invest in tax-exempt derivative
securities relating to Municipal Obligations, including tender option bonds,
participations, beneficial interests in trusts and partnership interests.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the
Portfolios from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and its investment adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
SECURITIES LENDING. To increase income on its investments, each Portfolio
may lend its portfolio securities with an aggregate value of up to 30% of its
total assets to broker/dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government or
its agencies or instrumentalities or an irrevocable letter of credit issued by a
bank which is deemed creditworthy by the adviser or sub-adviser. Default by or
bankruptcy of a borrower would expose a Portfolio to possible loss because of
adverse market action, expenses and/or delays in connection with the disposition
of the underlying securities.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% of
the value of its net assets in securities that are illiquid. GICs, variable and
floating rate instruments that cannot be disposed of within seven days, and
repurchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this 15%
limit. Each Portfolio may purchase securities which are not registered under the
Securities Act of 1933 (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 security. This investment
practice could have the effect of increasing the level of illiquidity in a
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
TAX-FREE INCOME, OHIO TAX-FREE INCOME AND PENNSYLVANIA TAX-FREE INCOME
PORTFOLIOS. During normal market conditions: up to 20% of each of the Tax-Free
Portfolios' net assets may be invested in securities which are not Municipal
Obligations; at least 80% of each Tax-Free Portfolio's net assets will be
invested in Municipal Obligations the interest on which is exempt from regular
Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax; and at least 65% of the total net assets of
each of Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios will be
invested in Ohio and Pennsylvania Municipal Obligations, respectively. Each
Tax-Free Portfolio may invest up to 20% of its net assets in Municipal
Obligations the interest on which is exempt from regular Federal income tax but
is an item of tax preference for purposes of the Federal alternative minimum
tax. During temporary defensive periods, each Tax-Free Portfolio may invest
without limitation in obligations which are not Municipal Obligations and may
hold without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to Municipal Obligations set forth above, or if unrated, are of
comparable quality as
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determined by the adviser or sub-adviser, and may also include, without
limitation, other debt obligations, such as bank obligations. Each Tax-Free
Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held by it. Under a stand-by commitment, a dealer agrees to purchase
at the Portfolio's option specified Municipal Obligations at a specified price.
The acquisition of a stand-by commitment may increase the cost, and thereby
reduce the yield, of the Municipal Obligation to which such commitment relates.
Each Tax-Free Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes.
Although each Tax-Free 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, and may invest up to 20% of its total assets in private
activity bonds when added together with any taxable investments held by the
particular Portfolio, they do not presently intend to do so unless in the
opinion of the adviser or sub-adviser the investment is warranted. To the extent
a Portfolio's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent than
it would be if its assets were not so invested. 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 fixed-income securities. Accordingly, the ability of a Tax-Free
Portfolio to buy and sell tax-exempt securities may, at any particular time and
with respect to any particular securities, be limited.
The Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios are
classified as non-diversified under the 1940 Act. Investment returns on a
non-diversified portfolio typically are dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio. Additionally, a non-diversified portfolio may be more susceptible to
economic, political and regulatory developments than a diversified portfolio
with similar objectives.
INTEREST RATE RISK. The value of fixed income securities in the Portfolios
can be expected to vary inversely with changes in prevailing interest rates.
Fixed income securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than securities with shorter maturities.
BORROWING. The Short-Term Bond, Intermediate-Term Bond, Intermediate
Government and Government Income Portfolios are authorized to borrow funds and
utilize leverage (including through reverse repurchase agreements and dollar
rolls) in amounts not exceeding 33 1/3% of their respective total assets
(including the amount borrowed) and under current market conditions intend to
borrow or obtain equivalent leverage up to such amount. The use of leverage by
the Portfolios creates an opportunity for increased net income, but, at the same
time, creates special risks. In particular, if a Portfolio borrows on a
short-term basis and invests the proceeds in long-term securities, an increase
in interest rates may (i) reduce or eliminate the interest rate differential
usually available between short-term and long-term rates and (ii) reduce the
value of the Portfolio's long-term securities, thereby exposing the Portfolio to
lower yields and risk of loss on disposition of its long-term securities. A
Portfolio will only borrow or use leverage when the adviser believes that such
activities will benefit the Portfolio. A Portfolio may also borrow up to an
additional 5% of its total assets for temporary purposes without regard to the
foregoing limitation.
As noted above, the Portfolios expect to engage in investment management
techniques such as reverse repurchase agreements and dollar rolls which provide
leverage in much the same manner as borrowings but which are not considered to
be borrowings or senior securities by the SEC subject to the limitations
described above if investments therein are appropriately collateralized by high
grade liquid assets.
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DOLLAR ROLL TRANSACTIONS. To take advantage of attractive financing
opportunities in the mortgage market and to enhance current income, the
Short-Term Bond, Intermediate-Term Bond, Intermediate Government and Government
Income Portfolios may enter into dollar roll transactions. A dollar roll
transaction, which is considered a borrowing by a Portfolio, involves a sale by
the Portfolio of a mortgage-backed or other security to a financial institution,
such as a bank or broker/dealer, concurrently with an agreement by the Portfolio
to repurchase a similar security from the institution at a later date at an
agreed-upon price. The securities that are repurchased will bear the same
interest rate and stated maturity as those sold, but pools of mortgages
collateralizing such securities may have different prepayment histories than
those sold, which may affect the duration of such securities. During the period
between the sale and repurchase, a Portfolio will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Portfolio, and the income
from these investments will generate income for the Portfolio. If such income
does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use of
this technique will diminish the investment performance of a Portfolio compared
with what such performance would have been without the use of dollar rolls. At
the time that a Portfolio enters into a dollar roll transaction, it will place
in a segregated account maintained with its custodian cash, U.S. government
securities or other liquid high grade debt obligations having a value equal to
the repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that its value is maintained.
Dollar roll transactions involve the risk that the market value of the
securities a Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom a Portfolio
sells securities becomes insolvent, the Portfolio's right to purchase or
repurchase securities may be restricted and the instruments which the Portfolio
is required to repurchase may be worth less than an instrument which the
Portfolio originally held when the Portfolio is able to complete the purchase.
Successful use of mortgage dollar rolls may depend upon the investment adviser's
ability to correctly predict interest rates and prepayments. There is no
assurance that dollar rolls can be successfully employed.
PORTFOLIO TURNOVER RATES. Although it may vary from year to year, it is
currently estimated that under normal market conditions the annual portfolio
turnover rate for a Portfolio will not exceed 100%. A Portfolio's annual
portfolio turnover rate will not, however, be a factor preventing a sale or
purchase when the adviser or sub-adviser believes investment considerations
warrant such sale or purchase. Portfolio turnover may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates will
generally result in higher transaction costs to a Portfolio.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
Each Portfolio is subject to the following fundamental investment
limitations, which may not be changed with respect to a Portfolio except upon
the affirmative vote of the holders of a majority of the Portfolio's outstanding
shares. Each of the Managed Income, Tax-Free Income, Intermediate Government,
Short-Term Bond, Intermediate-Term Bond, Government Income and International
Fixed Income Portfolios may not:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the
value of the Portfolio's total assets would (taken at current value) be
invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Portfolio or the Fund,
except that up to 25% of the value of the Portfolio's total assets may
(taken at current value) be invested without regard to these limitations.
For purposes of this limitation, a security is considered to be issued by
the entity (or entities) whose assets and revenues back the security. A
guarantee of a security shall not be deemed to be a security issued by the
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guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the value of
the Portfolio's total assets.
No Portfolio may:
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's 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, provided that (a) there is no limitation
with respect to (i) instruments issued (as defined in Investment Limitation
No. 1 above) 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
(ii) repurchase agreements secured by the instruments described in clause
(i); (b) 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 (c) utilities will be divided
according to their services; for example, gas, gas transmission, electric
and gas, electric and telephone will each be considered a separate
industry.
3. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate
any assets, except in connection with any such borrowing and then in
amounts not in excess of one-third of the value of the Portfolio's total
assets at the time of such borrowing. No Portfolio will purchase securities
while its aggregate borrowings (including reverse repurchase agreements and
borrowings from banks) in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with a
Portfolio's investment practices are not deemed to be pledged for purposes
of this limitation.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Portfolio's portfolio securities will not constitute a violation of such
limitation, except that any borrowing by a Portfolio that exceeds the
fundamental investment restrictions stated above must be reduced to meet such
restrictions within the period required by the 1940 Act (currently three days).
In order to permit the sale of the Fund's shares in certain states, the
Fund may make commitments more restrictive than the investment policies and
limitations described in this Prospectus. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it will revoke
the commitment by terminating sales of its shares in the state involved.
* * *
For information on additional investment limitations relating to the
Portfolios, see the Fund's Statement of Additional Information.
MANAGEMENT
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BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. The Statement of Additional Information contains the
name of each trustee and certain background information.
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ADVISER AND SUB-ADVISERS
PIMC was organized in 1977 by PNC Bank to perform advisory services for
investment companies. The principal business address of: PIMC is 400 Bellevue
Parkway, Wilmington, Delaware 19809; PNC Bank is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107; PNC Bank Ohio is 201 East Fifth Street,
Cincinnati, Ohio 45202; and PCM is 1700 Market Street, 27th Floor, Philadelphia,
Pennsylvania 19103.
As adviser, PIMC is responsible for the overall investment management of
the Portfolios. The sub-advisers are responsible for the day-to-day management
of the particular Portfolios, and generally make all purchase and sale decisions
regarding the investments made by such Portfolios. The sub-advisers also provide
research and credit analysis as well as certain other services.
The Tax-Free Income Portfolio's manager, W. Don Simmons, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Simmons has been with PIMC since 1984 and the Portfolio's
manager since its inception.
The Pennsylvania Tax-Free Income Portfolio's manager, Douglas J. Gaylor, is
the person primarily responsible for the day-to-day management of the
Portfolio's investments. Mr. Gaylor has been with PNC Bank since 1993 and the
Portfolio's manager since September 1993. Prior to joining PNC Bank, Mr. Gaylor
was with Wilmington Trust Company for 10 years.
The Ohio Tax-Free Income Portfolio's manager, Kimberly A. Burford, is the
person primarily responsible for the day-to-day management of the Portfolio's
investments. Ms. Burford has been with PNC Bank since 1979 and the Portfolio's
manager since its inception.
The Short-Term Bond, Intermediate-Term Bond, Intermediate Government and
Managed Income Portfolios' manager, Beth A. Coyne, is the person primarily
responsible for the day-to-day management of the Portfolios' investments. Ms.
Coyne has been the Short-Term Bond and Intermediate-Term Bond Portfolios'
manager since their inception and began managing the Intermediate Government and
Managed Income Portfolios in 1994. Ms. Coyne has been with PNC Bank since 1990.
Prior to 1990, Ms. Coyne sold fixed income securities for Kidder Peabody & Co.,
Inc.
The Government Income and International Fixed Income Portfolios' manager,
Charles F. Wills, is the person primarily responsible for the day-to-day
management of the Portfolios' investments. Mr. Wills has been the Government
Income and International Fixed Income Portfolios' manager since their inception.
Mr. Wills has been with PNC Bank since 1983.
For the services provided and expenses assumed by it, PIMC is entitled to
receive fees, computed daily and payable monthly, at the following annual rates
from the specified Portfolios: each of the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios, .50%
of the first $1 billion of their respective average daily net assets, .45% of
the next $1 billion of their respective average daily net assets, .425% of the
next $1 billion of their respective average daily net assets and .40% of their
respective average daily net assets in excess of $3 billion; and International
Fixed Income Portfolio, .55% of its first $1 billion of average daily net
assets, .50% of its next $1 billion of average daily net assets, .475% of its
next $1 billion of average daily net assets and .45% of its average daily net
assets in excess of $3 billion. The Fund paid PIMC advisory fees at annual rates
of .35%, .20%, .09%, .11% and .19% of the average daily net assets of the
Managed Income, Intermediate Government, Pennsylvania Tax-Free Income,
Short-Term Bond and Intermediate-Term Bond Portfolios, respectively, for the
year ended September 30, 1994, and PIMC waived advisory fees at the annual rates
of .15%, .30%, .41%, .39% and .31% of the average daily net assets of such
respective Portfolios for that year. PIMC waived all advisory fees with respect
to the Tax-Free Income and Ohio Tax-Free Income Portfolios for the year ended
September 30, 1994. During that year, PIMC reimbursed expenses at the annual
rates of
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<PAGE> 32
.38%, .50% and .02% of the average daily net assets of the Tax-Free Income, Ohio
Tax-Free Income and Pennsylvania Tax-Free Income Portfolios, respectively. From
time to time PIMC may waive all or any portion of its advisory fees for and may
reimburse expenses of the Portfolios. See "Introduction--Expense Table."
For its sub-advisory services, the sub-adviser for each specified Portfolio
is entitled to receive from PIMC a fee, computed daily and payable monthly, at
the following annual rates: each of the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios, .35%
of its first $1 billion of average daily net assets, .30% of its next $1 billion
of average daily net assets, .275% of its next $1 billion of average daily net
assets, and .25% of its average daily net assets in excess of $3 billion, and
International Fixed Income Portfolio, .40% of its first $1 billion of average
daily net assets, .35% of its next $1 billion of average daily net assets, .325%
of its next $1 billion of average daily net assets, and .30% of its average
daily net assets in excess of $3 billion. Such sub-advisory fees have no effect
on the advisory fees payable by each Portfolio to PIMC. PIMC paid PNC Bank
sub-advisory fees at annual rates of .30%, 15%, .06%, .11% and .14% of the
average daily net assets of the Managed Income, Intermediate Government,
Pennsylvania Tax-Free Income, Short-Term Bond and Intermediate-Term Bond
Portfolios, respectively, for the year ended September 30, 1994, and PNC Bank
waived sub-advisory fees at the annual rates of .05%, .20%, .29%, .24% and .21%
of the average daily net assets of such respective Portfolios for that year. PNC
Bank and PNC Bank Ohio waived all sub-advisory fees with respect to the Tax-Free
Income and Ohio Tax-Free Income Portfolios, respectively, for the year ended
September 30, 1994. Each sub-adviser may from time to time waive all or any
portion of its sub-advisory fee for any Portfolio.
------------------------------------
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as the Fund's
co-administrators. 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 .20% of the first $500 million of each
Portfolio's average daily net assets, .18% of the next $500 million of each
Portfolio's average daily net assets, .16% of the next $1 billion of each
Portfolio's average daily net assets and .15% of each Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at annual rates of .13%, .10%, .04%, .04%, and .08% of the
average daily net assets of the Managed Income, Intermediate Government,
Pennsylvania Tax-Free Income, Short-Term Bond and Intermediate-Term Bond
Portfolios, respectively, for the year ended September 30, 1994, and the
Administrators waived combined administration fees at annual rates of .07%,
.10%, .16%, .16%, and .12% of the average daily net assets of such respective
Portfolios for that year. The Administrators waived all combined administration
fees with respect to the Tax-Free Income and Ohio Tax-Free Income Portfolios for
the year ended September 30, 1994. During that year, the Administrators
reimbursed expenses at the annual rates of .15%, .20% and .01% of the average
daily net assets of the Tax-Free Income, Ohio Tax-Free Income and Pennsylvania
Tax-Free Income Portfolios, respectively. From time to time the Administrators
may waive all or any portion of the administration fees for the Portfolios.
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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 each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio will
be borne solely by such Shares.
If the total expenses borne by any Portfolio in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, PIMC,
the sub-advisers and the Administrators will bear the amount of such excess to
the extent required by such regulations in proportion to the fees otherwise
payable to them for such year. Such amount, if any, will be estimated and
accrued daily and paid on a monthly basis. See "Introduction--Example,"
"Management--Adviser and Sub-Advisers" and "Management--Administrators" for
discussions of expense reimbursements and fee waivers.
------------------------------------
PORTFOLIO TRANSACTIONS
A Portfolio's adviser or sub-adviser will seek the best price and execution
in placing brokerage transactions. In this regard, the adviser or sub-adviser
may consider a number of factors in determining which brokers to use in
purchasing or selling portfolio securities. These factors, which are more fully
discussed in the Statement of Additional Information, include, but are not
limited to, research services, sales of shares of the Fund, the reasonableness
of commissions and quality of services and execution. Brokerage transactions for
the Portfolios may be directed through registered broker/dealers ("Authorized
Dealers") who have entered into dealer agreements with the Distributor, subject
to the requirements of best execution.
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------------------------------------
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 company as agent for and upon the
order of customers. PNC Bank, PIMC, PNC Bank Ohio, 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 Institutional 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 Institutional
Shares. It is not anticipated, however, that any change in the Fund's method of
operations would affect its net asset value per share or result in a financial
loss to any investor.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of each 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 without a sales load on a continuous basis
to Institutions at the net asset value per share for the Institutional Shares of
the Portfolios next computed after an order is received by PFPC. 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) 441-7379. Orders received by PFPC after 4:00 p.m. (Eastern Time)
are priced at the net asset value per share on the following Business Day. The
Fund may in its discretion reject any order for Shares.
Payment for 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.
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)
441-7379. Shares are redeemed at the net asset value per share of the
Institutional Shares of the Portfolio 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
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<PAGE> 35
ACCOUNT IS REGISTERED, THE ACCOUNT NUMBER, RECENT TRANSACTIONS IN THE ACCOUNT,
AND THE ACCOUNT HOLDER'S SOCIAL SECURITY NUMBER, ADDRESS AND/OR BANK).
Payment for redeemed Shares for which a redemption order is received by
PFPC before 4:00 p.m. (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the next Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received after 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 a 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 any Portfolio if the
balance in its account in that 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.
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 for each Portfolio is
calculated as of the close of trading on the NYSE (currently 4:00 p.m. Eastern
Time) on each Business Day by adding the value of all its securities, cash and
other assets allocable to its Shares, subtracting the liabilities allocable to
its Shares and dividing by the total number of Shares outstanding. The net asset
value per Share of each Portfolio is determined independently of the Portfolio's
other classes and independently of the Fund's other portfolios.
Valuation of securities held by each Portfolio is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; an option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (Eastern Time); and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Fund's Board of Trustees. The amortized cost method
of valuation will also be used with respect to debt obligations with sixty days
or less remaining to maturity unless the investment adviser and/or sub-adviser
under the supervision of the Board of Trustees determines such method does not
represent fair value.
Valuation of securities of foreign issuers and those held by the
International Fixed Income Portfolio is as follows: to the extent sale prices
are available, securities which are traded on a recognized stock exchange,
whether U.S. or
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<PAGE> 36
foreign, are valued at the latest sale price on that exchange prior to the time
when assets are valued or prior to the close of regular trading hours on the
NYSE. In the event that there are no sales, the mean between the last available
bid and asked prices will be used. If a security is traded on more than one
exchange, the latest sale price on the exchange where the security is primarily
traded is used. An option or futures contract is valued at the last sales price
prior to 4:00 p.m. (Eastern Time), as quoted on the principal exchange or board
of trade on which such option or contract is traded, or in the absence of a
sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern
Time). In the event that application of these methods of valuation results in a
price for a security which is deemed not to be representative of the market
value of such security, the security will be valued by, under the direction of
or in accordance with a method specified by the Board of Trustees as reflecting
fair value. The amortized cost method of valuation will be used with respect to
debt obligations with sixty days or less remaining to maturity unless the
investment adviser and/or sub-adviser under the supervision of the Board of
Trustees determines such method does not represent fair value. All other assets
and securities held by the Portfolio (including restricted securities) are
valued at fair value as determined in good faith by the Board of Trustees or by
someone under its direction. Any assets which are denominated in a foreign
currency are translated into U.S. dollars at the prevailing market rates.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders. For dividend
purposes, a Portfolio's investment income available for distribution to holders
of Institutional Shares is reduced by accrued expenses directly attributable to
that Portfolio and the general expenses of the Fund prorated to that Portfolio
on the basis of its relative net assets. All distributions are reinvested at net
asset value in the form of additional full and fractional Shares of the relevant
Portfolio unless an Institution elects otherwise. 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. The net investment
income of each of the Managed Income, Tax-Free Income, Intermediate Government,
Intermediate-Term Bond and International Fixed Income Portfolios is declared
monthly as a dividend to investors who are Shareholders of such Portfolio at the
close of business on the day of declaration. The net investment income of each
of the Pennsylvania Tax-Free Income, Ohio Tax-Free Income, Government Income and
Short-Term Bond Portfolios is declared daily as a dividend to investors who are
Shareholders of such Portfolio at, and whose payment for Share purchases are
available to the particular Portfolio in Federal funds by, the close of business
on the day of declaration. All such dividends are paid within ten days after the
end of each month and, in the case of the Pennsylvania Tax-Free Income, Ohio
Tax-Free Income, Government Income and Short-Term Bond Portfolios, within seven
days after redemption of all of a shareholder's Shares in a Portfolio. Net
realized capital gains (including net short-term capital gains), if any, will be
distributed by each Portfolio at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
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<PAGE> 37
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, it generally will be relieved of
Federal income tax on amounts distributed to shareholders, but shareholders,
unless otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital), regardless of whether such
distributions are paid in cash or reinvested in additional Shares.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain, regardless of
the length of time a shareholder has held his Shares and whether such gain was
reflected in the price paid for the Shares. All other distributions, to the
extent they are taxable, are taxed to shareholders as ordinary income.
Each Tax-Free Portfolio intends to pay substantially all of its dividends
as "exempt interest dividends." Investors in these Portfolios should note,
however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" on their Federal income tax returns 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 and environmental tax liability. Although they
do not currently intend to do so, during normal market conditions the Tax-Free
Portfolios may invest up to 20% of their respective net assets 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 from such private activity bonds. Shareholders who are recipients of
Social Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments.
Each Tax-Free Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable. Such percentages will apply uniformly
to all distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during
January of the following year.
An investor considering buying shares of a Portfolio on or just before the
record date of a taxable dividend should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, will be
taxable to him.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of Portfolio Shares depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
Any loss upon the sale or exchange of shares of a Portfolio held for six
months or less will be disallowed for Federal income tax purposes to the extent
of any exempt interest dividends received by the shareholder. For the Ohio
37
<PAGE> 38
Tax-Free Income Portfolios, the loss will be disallowed for Ohio income tax
purposes to the same extent, even though, for Ohio income tax purposes, some
portion of such dividends actually may have been subject to Ohio income tax.
It is expected that dividends and certain interest income earned by the
International Fixed Income Portfolio from foreign securities will be subject to
foreign withholding taxes or other taxes. So long as more than 50% of the value
of the Portfolio's total assets at the close of the taxable year in question
consists of stock or securities of foreign corporations, the Portfolio may
elect, for U.S. Federal income tax purposes, to treat certain foreign taxes paid
by it, including generally any withholding taxes and other foreign income taxes,
as paid by its shareholders. The Portfolio intends to make this election. As a
result, the amount of such foreign taxes paid by the Portfolio will be included
in its shareholders' income pro rata (in addition to taxable distributions
actually received by them), and each shareholder generally will be entitled
either (a) to credit his proportionate amounts of such taxes against his U.S.
Federal income tax liabilities, or (b) if he itemizes his deductions, to deduct
such proportionate amounts from his U.S. income.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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, municipal taxes or school district income taxes in Ohio
will not be subject to such taxes on distributions from the Ohio Tax-Free Income
Portfolio to the extent that such distributions consist of interest on Ohio
Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States) ("U.S.
Obligations"), provided that the Portfolio continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Ohio Tax-Free Income 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 the regulated investment company and 50% requirements are
satisfied.) Corporations that are subject to the Ohio corporation franchise tax
will not have to include distributions from the Ohio Tax-Free Income Portfolio
in their net income base for purposes of calculating their Ohio corporation
franchise tax liability to the extent that such distributions either constitute
exempt-interest dividends or consist of interest on Ohio Municipal Obligations
or U.S. Obligations. However, Shares of the Ohio Tax-Free Income 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.
PENNSYLVANIA TAX CONSIDERATIONS. Income received by a shareholder
attributable to interest realized by the Pennsylvania Tax-Free Income 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.
38
<PAGE> 39
Income received by a shareholder attributable to gain on the sale or other
disposition by the Pennsylvania Tax-Free Income 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 Tax-Free
Income Portfolio for more than six months, the School District Tax.
To the extent that gain on the disposition of a share represents gain
realized on Pennsylvania Municipal Obligations held by the Pennsylvania Tax-Free
Income Portfolio, such gain may be subject to the Personal Income Tax and
Corporate Net Income Tax. Such gain may also be subject to the School District
Tax, except that gain realized with respect to a share held for more than six
months is not subject to the School District Tax.
No opinion is expressed regarding the extent, if any, to which shares, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax.)
Shareholders of the Pennsylvania Tax-Free Income 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 and
Federal obligations (if the interest on such obligations is exempt from state
and local taxation under the laws of the United States). 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 nine Portfolios of the Fund which, except
for the Ohio and Pennsylvania Tax-Free Income Portfolios, are classified as
diversified companies under the 1940 Act. The Managed Income, Tax-Free Income
and Intermediate Government Portfolios were each established with only one class
of shares. In each case, the original class of shares was available to all
investors until the subsequent establishment of multiple classes in the
Portfolio. In addition, 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.
39
<PAGE> 40
Institutional Shares bear no servicing or distribution fees. Holders of a
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 a Portfolio's Series A Investor Shares and Series B
Investor Shares (collectively, "Investor Shares") bear the payments described in
the prospectus for such shares that are paid under the Fund's Distribution and
Service Plan and Series B Distribution Plan, respectively (the "Distribution
Plans"). Under the Distribution Plans, the Distributor is entitled to payments
by each Portfolio for: (i) direct out-of-pocket promotional expenses incurred in
connection with advertising and marketing 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
Investor Shares. In addition, payments under the Series B Distribution Plan will
be used to pay for or finance sales commissions and other fees payable to
Service Organizations and other broker/dealers who sell Series B Investor
Shares. Service Organizations may also provide support services such as
establishing and maintaining accounts and records relating to shareholders of
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 and Service Plan provides for payments
to the Distributor at an annual rate not to exceed .55% of the average daily net
asset value of each Portfolio's outstanding Series A Investor Shares. The Series
B Distribution Plan provides for payments to the Distributor at an annual rate
not to exceed .75% of the average daily net asset value of each Portfolio's
outstanding Series B Investor Shares. In addition, holders of Series B Investor
Shares bear the expense of fees described in the prospectus for such shares that
are paid under the Fund's Series B Service Plan. Payments under the Series B
Service Plan will cover expenses relating to the support services provided to
the beneficial owners of Series B Investor Shares by certain Service
Organizations and sometimes by the Distributor. Such services are intended to
supplement the services provided by the Fund's Administrators and transfer
agent. In consideration for payments aggregating up to .25% (on an annualized
basis) of the average daily net asset value of Series B Investor Shares owned
beneficially by their customers, Service Organizations and the Distributor may
provide one or more of the following services to such customers: establishing
and maintaining accounts and records relating to customers that invest in Series
B Shares; processing dividend and distribution payments from the Fund on behalf
of customers; arranging for bank wires; providing sub-accounting with respect to
Series B Shares beneficially owned by customers or the information necessary for
subaccounting; forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to customers; assisting in processing
purchase, exchange and redemption requests from customers and in placing such
orders with the Fund's service contractors; assisting customers in changing
dividend options, account designations and addresses; providing customers with a
service that invests the assets of their accounts in Series B Shares pursuant to
specific or pre-authorized instructions; providing information periodically to
customers showing their positions in Series B Shares and integrating such
statements with those of other transactions and balances in customers' other
accounts with the Service Organization; responding to customer inquiries
relating to the services
40
<PAGE> 41
performed by the Service Organization or the Distributor; responding to customer
inquiries concerning their investments in Series B Shares; and providing other
similar shareholder liaison services. As a result of these different fees, the
net asset value and the net yields on the Fund's Institutional Shares will
generally be higher than those on the Fund's Service Shares, the net asset value
and the net yields on the Fund's Service Shares will generally be higher than
those on the Fund's Series A Investor Shares, and the net asset value and the
net yields on the Fund's Series A Investor Shares will generally be higher than
those on the Fund's Series B Investor Shares if payments by the Portfolios under
the Service Plan, the Distribution and Service Plan, the Series B Distribution
Plan and the Series B Service Plan are made at the maximum rates. Standardized
total return and yield quotations will be computed separately for each class of
Shares. Series A and Series B Investor Shares are exchangeable at the option of
the holder for Series A and Series B Investor Shares, respectively, in the
Fund's other investment portfolios. Series B Investor Shares are exchangeable
for Series B Investor Shares in the Fund's Money Market Portfolio, but are not
exchangeable for shares in the Fund's other money market investment portfolios.
Series A Investor Shares of the Portfolios are offered to the public at the net
asset value per share plus a maximum sales charge of 4.50% of the offering price
on single purchases of less than $50,000; the sales charge is reduced on a
graduated scale on single purchases of $50,000 or more and certain exemptions
from the sales charge may apply. The sales charge does not apply to exchanges of
Series A Investor Shares among the Portfolios. Series B Investor Shares are
subject to a maximum contingent deferred sales charge of 5.0%. The deferred
sales charge decreases over time. Series B Investor Shares may be exchanged for
Series B Investor Shares of another investment portfolio of the Fund without the
payment of any deferred sales charge at the time the exchange is made. Because
Service Shares and Institutional Shares are sold without a sales charge, holders
of Service Shares and Institutional Shares have no such exchange privileges.
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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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).
PERFORMANCE INFORMATION
From time to time, total return and yield data for Shares of the Portfolios
may be quoted in advertisements or in communications to Institutions. Total
return will be calculated on an average annual total return basis for various
periods. Average annual total return reflects the average annual percentage
change in value of an investment in Shares of a Portfolio over the measuring
period. This method of calculating total return assumes that dividends and
capital gain distributions made by the Portfolio during the period relating to
Shares are reinvested in Shares.
The yields of Shares of the Portfolios are computed based on the net income
of a Portfolio allocated to such Shares during a 30-day (or one month) period,
which period will be identified in connection with the particular yield
quotation. More specifically, the yield of Shares of a Portfolio is computed by
dividing the Portfolio's net income per share allocated to such Shares during a
30-day (or one month) period by the net asset value per share on the last day of
the period and annualizing the result on a semi-annual basis. Each Tax-Free
Portfolio's "tax-equivalent yield" may also be quoted from time to time, which
shows the level of taxable yield needed to produce an after-tax equivalent to
41
<PAGE> 42
such Portfolio's tax-free yield. This is done by increasing such Portfolio's
yield (calculated above) by the amount necessary to reflect the payment of
Federal and/or state income tax at a stated tax rate.
Performance data of Shares of a Portfolio may be compared to those 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 total return and/or yield of Shares of a Portfolio may
be compared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and with the
performance of the Shearson Lehman GMNA Index, the Shearson Lehman Index of
Baa-rated Corporate Bonds, the T-Bill Index, the "stocks, bonds and inflation
Index" published annually by Ibbotson Associates and the Shearson Lehman Hutton
Government Corporate Bond Index. Performance information may also include
evaluations of the Portfolios and their Shares 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.
In addition to providing performance information that demonstrates the
actual yield or returns of Shares of a particular Portfolio over a particular
period of time, a Portfolio may provide certain other information demonstrating
hypothetical investment returns. Such information may include, but is not
limited to, illustrating the compounding effects of a dividend in a dividend
reinvestment plan or the impact of tax-deferred investing.
Performance quotations of Shares of a Portfolio represent past performance
and should not be considered as representative of future results. The investment
return and principal value of an investment in Shares of a Portfolio will
fluctuate so that a shareholder's Shares, when redeemed, may be worth more or
less than their original cost. Since performance will fluctuate, performance
data for Shares of a Portfolio cannot necessarily be used to compare an
investment in such Shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Service Organizations directly to their customer accounts in
connection with investments in Shares will not be included in the Portfolio's
calculations of yield and total return.
42
<PAGE> 43
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH 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>
Introduction..................................... 2
Financial Highlights............................. 4
Investment Policies.............................. 15
Investment Limitations........................... 29
Management....................................... 30
Purchase and Redemption of Shares................ 34
Net Asset Value.................................. 35
Dividends and Distributions...................... 36
Taxes............................................ 36
Description of Shares............................ 39
Other Information................................ 41
</TABLE>
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER TO THE OHIO TAX-FREE INCOME PORTFOLIO
PNC Bank, Ohio, National Association
Cincinnati, Ohio
SUB-ADVISER TO THE MANAGED INCOME, INTERMEDIATE GOVERNMENT, TAX-FREE INCOME,
PENNSYLVANIA TAX-FREE INCOME, SHORT-TERM BOND, INTERMEDIATE-TERM BOND AND
GOVERNMENT INCOME
PORTFOLIOS AND CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
SUB-ADVISER TO INTERNATIONAL FIXED INCOME PORTFOLIO
Provident Capital Management, Inc.
Philadelphia, Pennsylvania
CO-ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR
Provident Distributors, Inc.
Radnor, Pennsylvania
DISTRIBUTOR
Provident Distributors, Inc.
Radnor, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
PNCI-P-002M
================================================================================
THE FIXED
INCOME PORTFOLIOS
INSTITUTIONAL
CLASS
PROSPECTUS
MANAGED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
TAX-FREE
INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INTERMEDIATE
GOVERNMENT PORTFOLIO
- --------------------------------------------------------------------------------
OHIO TAX-FREE
INCOME PORTFOLIO
- --------------------------------------------------------------------------------
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SHORT-TERM
BOND PORTFOLIO
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM
BOND PORTFOLIO
- --------------------------------------------------------------------------------
INTERNATIONAL
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT
INCOME PORTFOLIO
- --------------------------------------------------------------------------------
JANUARY 30, 1995
================================================================================
<PAGE> 44
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 45
THE PNC(R) FUND
THE FIXED INCOME PORTFOLIOS
SUPPLEMENT TO SERVICE AND INSTITUTIONAL CLASS PROSPECTUS DATED JANUARY 30, 1995
The section entitled "Introduction -- Portfolio Management" has been amended to
read as follows:
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc. ("BlackRock")
serves as sub-adviser to the Managed Income, Intermediate Government,
Intermediate-Term Bond, Short-Term Bond, Government Income, Pennsylvania
tax-Free Income and Ohio Tax-Free Income Portfolios; PNC Bank, National
Association ("PNC Bank") serves as sub- adviser to the Tax-Free Income
Portfolio; and Provident Capital Management, Inc. ("PCM") serves as
sub-adviser to the International Fixed Income Portfolio. The investment
adviser and sub-advisers are indirect wholly-owned subsidiaries of PNC
Bank Corp.
The section entitled "Management -- Adviser and Sub-Advisers" has been amended
to read as follows:
The second sentence of the first paragraph has been amended to read as follows:
The principal business address of : PIMC is 400 Bellevue Parkway,
Wilmington, Delaware 19809; PNC Bank is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107; PCM is 1700 Market Street, 27th Floor,
Philadelphia, Pennsylvania 19103; and BlackRock is 345 Park Avenue, New
York, New York 10154.
The fourth paragraph has been amended to read as follows:
Kevin Klingert has been the person primarily responsible for the
management of the Pennsylvania Tax-Free Income and Ohio Tax- Free Income
Portfolios since March 1995. Mr. Klingert has been with BlackRock since
1991. Mr. Klingert was formerly an Assistant Vice President at
Merrill, Lynch, Pierce, Fenner & Smith.
The fifth paragraph has been deleted.
The sixth paragraph has been amended to read as follows:
The Short-Term Bond, Intermediate-Term Bond, Intermediate
Government, Government Income and Managed Income Portfolios have been
managed by a BlackRock portfolio management team since March 1995. The
team is led by Robert S. Kapito and includes Michael P. Lustig and Scott
Amero. Mr. Kapito has been with BlackRock since 1988 and serves as Vice
Chairman of BlackRock. Mr. Lustig, who is currently Vice President of
BlackRock, has been with BlackRock since 1989, prior to which he was an
associate at Security Pacific Merchant Bank. Mr. Amero joined BlackRock
in 1990 where he is a Managing Director. Prior to 1990, Mr. amero was a
Vice President at The First Boston Corporation.
The seventh paragraph has been amended to read as follows:
The International Fixed Income Portfolio's Manager, Herve van
Caloen, is the person primarily responsible for the day-to-day
management of the Portfolio's investments. Mr. van Caloen has been a
portfolio manager with PCM since 1992 and currently heads PCM's
International Group. Mr. van Caloen has managed the Portfolio since
April 1995. Before joining PCM, Mr. van Caloen managed International
portfolios for Mitchell Hutchins and Scudder, Stevens and Clark.
The date of this Supplement is April 12, 1995.
PNCS-P-002S
PNCI-P-002S
<PAGE> 46
THE PNC(R) FUND
THE FIXED INCOME PORTFOLIOS
SUPPLEMENT TO SERVICE, INSTITUTIONAL AND INVESTOR CLASS PROSPECTUSES DATED
JANUARY 30, 1995
The section entitled "Introduction -- Portfolio Management" has been amended to
read as follows:
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. BlackRock Financial Management, Inc. ("BlackRock")
serves as sub-adviser to the Managed Income, Tax-Free Income, Intermediate
Government, Intermediate-Term Bond, Short-Term Bond, Government Income,
Pennsylvania Tax-Free Income and Ohio Tax-Free Income Portfolios; and
Provident Capital Management, Inc. ("PCM") serves as sub-adviser to the
International Fixed Income Portfolio. The investment adviser and
sub-advisers are indirect wholly-owned subsidiaries of PNC Bank Corp.
The section entitled "Management -- Adviser and Sub-Advisers" has been amended
as follows:
The first sentence of the first paragraph has been amended to read as follows:
PIMC was organized in 1977 by PNC Bank, National Association ("PNC Bank") to
provide advisory services for investment companies.
The third paragraph has been deleted.
The fourth paragraph has been amended to read as follows:
Kevin Klingert has been the person primarily responsible for the
management of the Pennsylvania Tax-Free Income and Ohio Tax-Free Income
Portfolios since March 1995 and has managed the Tax-Free Income Portfolio
since July 1995. Mr. Klingert has been with BlackRock since 1991. Mr.
Klingert was formerly an Assistant Vice President at Merrill, Lynch, Pierce,
Fenner & Smith.
The date of this Supplement is August 22, 1995.
PNC-P-002S
<PAGE> 1
EXHIBIT (17)(f)
THE EQUITY PORTFOLIOS
SERVICE CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to nine classes of shares (the "Service Shares" or
"Shares") representing interests in nine of those portfolios (collectively, the
"Portfolios") which offer investors a range of long-term investment
opportunities with the following objectives:
VALUE EQUITY PORTFOLIO--to seek long-term capital appreciation. It
pursues this objective by investing primarily in common stocks and
securities convertible into common stocks which the investment adviser
believes are undervalued.
GROWTH EQUITY PORTFOLIO--to seek long-term growth of capital and
secondarily to achieve current income and dividend growth potential. It
pursues this objective by investing primarily in equity securities with
earnings growth potential.
SMALL CAP GROWTH EQUITY PORTFOLIO--to seek long-term capital
appreciation. It pursues this objective by investing primarily in a
diversified portfolio of equity and equity-related securities of small
capitalization growth companies. Any income received is incidental to the
objective of capital appreciation.
CORE EQUITY PORTFOLIO--seeking long-term growth of capital and
secondarily dividend growth. It pursues this objective primarily by
investing in a diversified portfolio of equity securities with reasonable
value and above average potential for dividend and earnings growth.
INDEX EQUITY PORTFOLIO--seeking to duplicate the capital performance
and dividend income of the Standard & Poor's 500(R) Composite Stock Price
Index (the "S&P 500 Index"). It pursues this objective by investing
substantially in common stocks included in the S&P 500 Index.
SMALL CAP VALUE EQUITY PORTFOLIO--seeking to maximize capital
appreciation. It pursues this objective by investing primarily in common
stocks and securities convertible into common stocks. Any income received
is incidental to the objective of capital appreciation. Seeking to maximize
capital appreciation means seeking to equal or exceed the capital
appreciation of smaller-capitalized organizations' common stock and
securities convertible into common stocks.
INTERNATIONAL EQUITY PORTFOLIO--to provide long-term capital
appreciation. It pursues this objective by investing primarily in equity
securities of issuers in those countries included in the MSCI Europe,
Australia and Far East Index ("EAFE").
INTERNATIONAL EMERGING MARKETS PORTFOLIO--to seek long-term capital
appreciation. It pursues this objective by investing primarily in equity
securities in emerging country markets.
BALANCED PORTFOLIO--to achieve total return through a combination of
long-term growth of capital and current income consistent with preservation
of capital. It pursues this objective by making diversified investments
primarily in common and preferred stocks, debt securities, preferred stocks
and debt securities convertible into common stocks and government,
corporate, bank and commercial 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.
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 free of charge from the Fund by calling
(800) 422-6538. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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.
- --------------------------------------------------------------------------------
PROSPECTUS January 30, 1995
<PAGE> 2
INTRODUCTION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company which has registered
shares in 25 investment portfolios, nine of which are included in this
Prospectus.
PORTFOLIO MANAGEMENT
PNC Institutional Management Corporation ("PIMC") serves as the Fund's
investment adviser. Provident Capital Management, Inc. ("PCM") serves as
sub-adviser to the Value Equity, Small Cap Value Equity, International Equity
and International Emerging Markets Portfolios, and PNC Bank, National
Association ("PNC Bank") serves as sub-adviser to the Growth Equity, Small Cap
Growth Equity, Core Equity, Index Equity and Balanced Portfolios. The investment
adviser and the sub-advisers are indirect wholly-owned subsidiaries of PNC Bank
Corp.
THE ADMINISTRATORS
PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve as the
Fund's administrators (collectively, the "Administrators").
THE DISTRIBUTOR
Provident Distributors, Inc. (the "Distributor") serves as the Fund's
distributor.
2
<PAGE> 3
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR SERVICE SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
SMALL SMALL INTER-
CAP CAP INTER- NATIONAL
VALUE GROWTH GROWTH CORE INDEX VALUE NATIONAL EMERGING
EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY MARKETS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory
fees(1)...... .43% .43% .48% .43% .05% .53% .63% 1.00 % .43%
Other operating
expenses..... .55 .55 .55 .55 .43 .53 .65 1.08 .55
--- --- --- --- --- --- --- --- ---
Administration
fees(1).... .19 .16 .16 .16 .02 .15 .18 .05 .11
Service
Fees(1).... .15 .15 .15 .15 .15 .15 .15 .15 .15
Other
expenses... .21 .24 .24 .24 .26 .23 .32 .88 .29
--- --- --- --- --- --- --- --- ---
Total fund
operating
expenses..... .98% .98% 1.03% .98% .48% 1.06% 1.28% 2.08 % .98%
=== === === === === ==== ==== ==== ===
</TABLE>
- ------------------
(1) Advisory fees are net of waivers of .12%, .12%, .07%, .12%, .15%, .02%,
.12%, .25% and .12% and administration fees are net of waivers of .01%,
.04%, .04%, .04%, .18%, .05%, .02%, .15% and .09% for the Value Equity,
Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small Cap
Value Equity, International Equity, International Emerging Markets and
Balanced Portfolios, respectively. 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 Portfolios' total operating expenses during the current fiscal
year at the levels set forth in the table. The expenses noted above under
"Other expenses" are estimated based on the level of such expenses for the
Fund's most recent fiscal year.
EXAMPLE
An investor in Service Shares would pay the following expenses on a $1,000
investment in Shares of each of the Portfolios, assuming (1) 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>
Value Equity................................. $ 10 $31 $ 54 $ 120
Growth Equity................................ 10 31 54 120
Small Cap Growth Equity...................... 11 34 58 129
Core Equity.................................. 10 31 54 120
Index Equity................................. 5 15 27 60
Small Cap Value Equity....................... 11 34 58 129
International Equity......................... 13 41 70 155
International Emerging Markets............... 21 65
Balanced..................................... 10 31 54 120
</TABLE>
The foregoing Expense Table and Example are intended to assist investors in
understanding the Portfolios' estimated operating expenses. Investors bear these
expenses either directly or indirectly. The information in the table for the
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity,
Small Cap Value Equity, International Equity and Balanced Portfolios is based on
the advisory fees, administration fees and other expenses payable after fee
waivers with respect to the particular Portfolios for the fiscal year ended
September 30, 1994, as restated to include fees relating to the Service Plan and
fees for other shareholder support activities borne by Service Shares and to
reflect revised fee waivers. The table also estimates fees, expenses, waivers
and assets for the International Emerging Markets Portfolio for the current
fiscal year. Total operating expenses would have been: 1.11%, 1.14%, 1.14%,
1.14%, .81%, 1.13%, 1.42%, 2.48% and 1.19% for Service Shares of the Value
Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small
Cap Value Equity, International Equity, International Emerging Markets and
Balanced Portfolios, respectively, 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," "Distribution of Shares," "How to Purchase Shares" and
"Description of Shares" for a further description of shareholder transaction
expenses and 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.
3
<PAGE> 4
CERTAIN RISK FACTORS TO CONSIDER
An investment in any of the Portfolios is subject to certain investment
considerations. As with other mutual funds, there can be no assurance that any
Portfolio will achieve its investment objective. Some or all of the Portfolios
may: acquire and hold equity securities, mortgage-related securities, warrants,
foreign securities and illiquid securities; enter into repurchase and reverse
repurchase agreements; lend portfolio securities to third parties; and enter
into futures contracts and options and forward currency exchange contracts.
These and the other investment practices set forth below and their associated
risks deserve careful consideration by investors. Certain of the risks
associated with international investments are heightened with respect to
investments in emerging markets. See "Investment Policies," "Investment
Policies--International Equity Portfolio--Special Risk Considerations" and
"Investment Policies--International Emerging Markets Portfolio--Special Risk
Considerations."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BACKGROUND
The Fund currently offers four classes of shares in each
Portfolio--Service, Series A Investor, Series B Investor and Institutional
Shares. Service, Series A Investor, Series B Investor and Institutional Shares
in a Portfolio represent equal pro rata interests in such Portfolio, except that
they bear different expenses which reflect the difference in the range of
services provided to them. Under the Fund's Service Plan, Service Shares bear
the expense of fees at an annual rate not to exceed .15% of the average daily
net asset value of each Portfolio's outstanding Service Shares. Service Shares
also bear the expense of a service fee at an annual rate not to exceed .15% of
the average daily net asset value of each Portfolio's outstanding Service Shares
for other shareholder support activities provided by service organizations. See
"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 each Portfolio's outstanding Series A Investor
Shares. Series B Investor Shares bear the expense of the Fund's Series B
Distribution Plan and Series B Service Plan at annual rates not to exceed .75%
and .25%, respectively, of the average daily net asset value of each Portfolio's
outstanding Series B Investor Shares. See "Description of Shares" for a
description of the Distribution and Service Plan, the Series B Distribution Plan
and the Series B Service Plan. Institutional Shares bear no shareholder
servicing or distribution fees.
During periods in which fees relating to the Service Plan and shareholder
support activities and to the Distribution and Service Plan were not charged to
a Portfolio's Service Shares or Series A Investor Shares, respectively, the
financial data in the tables below pertaining to Service Shares or Series A
Investor Shares of such Portfolio are identical to the financial data relating
to Institutional Shares of the Portfolio for such periods or to what such
financial data would have been had Institutional Shares in the Portfolio been
outstanding for such periods (except, in each case, for the number of Service
and Series A Investor Shares outstanding).
The SEC requires that this Prospectus contain Financial Highlights for each
class of each Portfolio described herein. No Series B Investor Shares of the
Portfolios were issued during the year ended September 30, 1994.
The financial data included in the tables below has been derived from the
financial statements incorporated by reference in the Statement of Additional
Information and has been audited by Coopers & Lybrand, L.L.P., the Fund's
independent accountants. This financial data should be read in conjunction with
such financial statements. Further information about the performance of the
Portfolios is available in the annual report to shareholders. Both the Statement
of Additional Information and the annual report to shareholders may be obtained
from the Fund free of charge by calling the number on the front cover of this
Prospectus.
4
<PAGE> 5
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
--------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/20/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period......................... $ 11.68 $ 9.78 $ 10.00 $ 11.68 $ 11.21
-------- -------- -------- -------- --------
Income from investment operations
Net investment income....................................... 0.27 0.22 0.12 0.25 0.04
Net gain (loss) on investments (both realized
and unrealized)........................................... 0.16 1.91 (0.24) 0.16 0.48
-------- -------- -------- -------- --------
Total from investment operations........................ 0.43 2.13 (.12) 0.41 0.52
-------- -------- -------- -------- --------
Less distributions
Distributions from net investment income.................... (0.27) (0.23) (0.10) (0.25) (0.05)
Distributions from net realized capital gains............... (0.22) -- -- (0.22) --
-------- -------- -------- -------- --------
Total distributions..................................... (0.49) (0.23) (0.10) (0.47) (0.05)
-------- -------- -------- -------- --------
Net asset value at end of period............................... $ 11.62 $ 11.68 $ 9.78 $ 11.62 $ 11.68
======== ======== ======== ======== =======
Total return................................................... 3.76% 21.92% (1.19)% 3.51% 4.64%
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $577,996 $432,776 $322,806 $105,035 $23,137
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.65% 0.80% 0.85%(2) 0.90% 0.91%(2)
Before advisory/administration fee waivers................ 0.81% 0.83% 0.85%(2) 1.06% 0.94%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 2.44% 2.07% 2.62%(2) 2.24% 2.44%(2)
Before advisory/administration fee waivers................ 2.28% 2.04% 2.62%(2) 2.08% 2.41%(2)
Portfolio turnover rate........................................ 11% 11% 13% 11% 11%
<CAPTION>
VALUE EQUITY PORTFOLIO
--------------------------------
SERIES A INVESTOR CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 5/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period......................... $ 11.69 $ 9.78 $10.00
------- ------- --------
Income from investment operations
Net investment income....................................... 0.23 0.22 0.12
Net gain (loss) on investments (both realized
and unrealized)........................................... 0.15 1.91 (0.24)
------- ------- --------
Total from investment operations........................ 0.38 2.13 (0.12)
------- ------- --------
Less distributions
Distributions from net investment income.................... (0.23) (0.22) (0.10)
Distributions from net realized capital gains............... (0.22) -- --
------- ------- --------
Total distributions..................................... (0.45) (0.22) (0.10)
------- ------- --------
Net asset value at end of period............................... $ 11.62 $11.69 $ 9.78
======= ======= ========
Total return................................................... 3.32%(3) 21.95%(3) (1.19)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $10,412 $4,865 $ 16
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 1.05% 0.92% 0.85%(2)
Before advisory/administration fee waivers................ 1.21% 0.95% 0.85%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 2.08% 1.96% 2.62%(2)
Before advisory/administration fee waivers................ 1.92% 1.93% 2.62%(2)
Portfolio turnover rate........................................ 11% 11% 13%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
5
<PAGE> 6
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
-------------------------------------------------------------------------------
SERVICE
INSTITUTIONAL CLASS CLASS
--------------------------------------------------------- -------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR YEAR YEAR 11/1/89(1) YEAR 7/28/93(1)
ENDED ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/94 9/30/93
------- -------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period....... $ 11.58 $ 9.92 $ 10.28 $ 9.98 $ 10.00 $ 11.57 $10.54
------- -------- ------- ------- -------- ------- --------
Income from investment operations
Net investment income..................... 0.06 0.06 0.21 0.24 0.31 0.03 --
Net gain (loss) on investments (both
realized and unrealized)................ (1.34) 2.07 0.30 1.51 (0.26) (1.32) 1.03
------- -------- ------- ------- -------- ------- --------
Total from investment operations...... (1.28) 2.13 0.51 1.75 0.05 (1.29) 1.03
------- -------- ------- ------- -------- ------- --------
Less distributions
Distributions from net investment
income.................................. (0.01) (0.07) (0.37) (0.32) (0.07) -- --
Distributions from capital................ -- (0.01) -- -- -- -- --
Distributions from net realized capital
gains................................... (0.10) (0.39) (0.50) (1.13) -- (0.10) --
------- -------- ------- ------- -------- ------- --------
Total distributions................... (0.11) (0.47) (0.87) (1.45) (0.07) (0.10) --
------- -------- ------- ------- -------- ------- --------
Net asset value at end of period............. $ 10.19 $ 11.58 $ 9.92 $ 10.28 $ 9.98 $ 10.18 $11.57
======= ======== ======= ======= ======== ======= ========
Total return................................. (11.14)% 22.18% 4.98% 19.47% 0.40% (11.20)% 9.77%
Ratios/Supplemental data
Net assets at end of period (in
thousands).............................. $97,834 $100,049 $58,372 $54,912 $39,790 $36,752 $8,606
Ratios of expenses to average net assets
After advisory/administration fee
waivers............................... 0.65% 0.81% 0.85% 0.85% 0.85%(2) 0.90% 0.89%(2)
Before advisory/administration fee
waivers............................... 0.89% 0.87% 0.86% 0.91% 0.88%(2) 1.14% 0.95%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers............................... 0.62% 0.50% 2.07% 2.59% 2.75%(2) 0.51% (0.03)%(2)
Before advisory/administration fee
waivers............................... 0.38% 0.44% 2.06% 2.53% 2.72%(2) 0.26% (0.09)%(2)
Portfolio turnover rate...................... 212% 175% 162% 211% 149% 212% 175%
<CAPTION>
GROWTH EQUITY PORTFOLIO
----------------------------------
SERIES A INVESTOR CLASS
----------------------------------
FOR THE
PERIOD
YEAR YEAR 3/14/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period....... $11.57 $ 9.92 $10.09
------- ------- --------
Income from investment operations
Net investment income..................... 0.02 0.02 0.08
Net gain (loss) on investments (both
realized and unrealized)................ (1.33) 2.10 (0.10)
------- ------- --------
Total from investment operations...... (1.31) 2.12 (0.02)
------- ------- --------
Less distributions
Distributions from net investment
income.................................. -- (0.07) (0.15)
Distributions from capital................ -- (0.01) --
Distributions from net realized capital
gains................................... (0.10) (0.39) --
------- ------- --------
Total distributions................... (0.10) (0.47) (0.15)
------- ------- --------
Net asset value at end of period............. $10.16 $11.57 $9.92
======= ======= ========
Total return................................. (11.38)%(3) 22.08%(3) (0.17)%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands).............................. $5,049 $2,362 $239
Ratios of expenses to average net assets
After advisory/administration fee
waivers............................... 1.05% 0.91% 0.85%(2)
Before advisory/administration fee
waivers............................... 1.29% 0.97% 0.86%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers............................... 0.29% 0.18% 2.07%(2)
Before advisory/administration fee
waivers............................... 0.05% 0.12% 2.06%(2)
Portfolio turnover rate...................... 212% 175% 162%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
6
<PAGE> 7
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------- --------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR 9/14/93(1) YEAR 9/15/93(1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............................... $ 10.47 $ 10.00 $ 10.47 $ 9.96
------- ------ ------- -----
Income from investment operations
Net investment income............................................. 0.03 -- 0.01 --
Net gain (loss) on investments (both realized and unrealized)..... (0.33) 0.47 (0.34) 0.51
------- ------ ------- -----
Total from investment operations.............................. (0.30) 0.47 (0.33) 0.51
------- ------ ------- -----
Less distributions
Distributions from net investment income.......................... (0.01) -- -- --
Distributions from net realized capital gains..................... -- -- -- --
------- ------ ------- -----
Total distributions........................................... (0.01) -- -- --
------- ------ ------- -----
Net asset value at end of period..................................... $ 10.16 $ 10.47 $ 10.14 $10.47
======= ======== ======= ======
Total return......................................................... (2.89)% 4.70% (3.12)% 5.12%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................ $65,612 $ 11,310 $22,648 $ 911
Ratios of expenses to average net assets
After advisory/administration fee waivers....................... 0.48% 0.73%(2) 0.71% 0.99%(2)
Before advisory/administration fee waivers...................... 1.04% 1.42%(2) 1.27% 1.68%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................... 0.45% (0.11)%(2) 0.21% (0.34)%(2)
Before advisory/administration fee waivers...................... (0.10)% (0.80)%(2) (0.34)% (1.03)%(2)
Portfolio turnover rate.............................................. 89% 9% 89% 9%
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
---------------------------------
SERIES A INVESTOR CLASS
--------------------------------
FOR THE PERIOD
YEAR 9/15/93(1)
ENDED THROUGH
9/30/94 9/30/93
------- --------------
<S> <C> <C>
Net asset value at beginning of period.................................. $10.47 $ 9.96
------- -----
Income from investment operations
Net investment income................................................ -- --
Net gain (loss) on investments (both realized and unrealized)........ (0.35) 0.51
------- -----
Total from investment operations................................. (0.35) 0.51
------- -----
Less distributions
Distributions from net investment income............................. -- --
Distributions from net realized capital gains........................ -- --
------- -----
Total distributions.............................................. -- --
------- -----
Net asset value at end of period........................................ $10.12 $10.47
====== ======
Total return............................................................ (3.33)%(3) 5.12%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................... $1,620 $ 41
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................... 0.86% 1.13%(2)
Before advisory/administration fee waivers......................... 1.42% 1.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................... 0.07% (0.48)%(2)
Before advisory/administration fee waivers......................... (0.49)% (1.17)%(2)
Portfolio turnover rate................................................. 89% 9%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
7
<PAGE> 8
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
----------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------- -------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR 9/13/93(1) YEAR 9/15/93(1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............................. $ 9.97 $ 10.00 $ 9.97 $10.00
------- ------ ------- -----
Income from investment operations
Net investment income........................................... 0.22 0.01 0.19 --
Net gain (loss) on investments (both realized and unrealized)... (0.04) (0.04) (0.04) (0.03)
------- ------ ------- -----
Total from investment operations............................ 0.18 (0.03) 0.15 (0.03)
------- ------ ------- -----
Less distributions
Distributions from net investment income........................ (0.23) -- (0.20) --
Distributions from net realized capital gains................... -- -- -- --
------- ------ ------- -----
Total distributions......................................... (0.23) -- (0.20) --
------- ------ ------- -----
Net asset value at end of period................................... $ 9.92 $ 9.97 $ 9.92 $ 9.97
======= ======== ======= ======
Total return....................................................... 1.79% (.30)% 1.55% (.30)%
Ratios/Supplemental data
Net assets at end of period (in thousands)...................... $48,123 $ 69,268 $49,293 $ 704
Ratios of expenses to average net assets
After advisory/administration fee waivers..................... 0.65% 0.65%(2) 0.90% 0.90%(2)
Before advisory/administration fee waivers.................... 0.93% 0.87%(2) 1.18% 1.12%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................... 2.11% 2.17%(2) 1.96% 1.92%(2)
Before advisory/administration fee waivers.................... 1.82% 1.95%(2) 1.68% 1.70%(2)
Portfolio turnover rate............................................ 88% 2% 88% 2%
<CAPTION>
CORE EQUITY PORTFOLIO
----------------------
SERIES A
INVESTOR CLASS
--------------
FOR THE PERIOD
10/13/93(1)
THROUGH
9/30/94
--------------
<S> <C>
Net asset value at beginning of period..................................... $ 9.96
-----
Income from investment operations
Net investment income................................................... 0.18
Net gain (loss) on investments (both realized and unrealized)........... (0.03)
-----
Total from investment operations.................................... 0.15
-----
Less distributions
Distributions from net investment income................................ (0.19)
Distributions from net realized capital gains........................... --
-----
Total distributions................................................. (0.19)
-----
Net asset value at end of period........................................... $ 9.92
======
Total return............................................................... 1.54%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).............................. $ 601
Ratios of expenses to average net assets
After advisory/administration fee waivers............................. 1.05%(2)
Before advisory/administration fee waivers............................ 1.34%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................. 1.89%(2)
Before advisory/administration fee waivers............................ 1.60%(2)
Portfolio turnover rate.................................................... 88%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
8
<PAGE> 9
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
-------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- --------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/20/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.......................... $ 11.02 $ 10.06 $ 10.00 $ 11.02 $ 10.76
-------- -------- -------- ------- --------
Income from investment operations
Net investment income........................................ 0.31 0.27 0.13 0.29 0.05
Net gain (loss) on investments (both realized and
unrealized)................................................ 0.03 0.97 0.03 0.02 0.29
-------- -------- -------- ------- --------
Total from investment operations......................... 0.34 1.24 0.16 0.31 0.34
-------- -------- -------- ------- --------
Less distributions
Distributions from net investment income..................... (0.32) (0.28) (0.10) (0.29) (0.08)
Distributions from net realized capital gains................ (0.11) -- -- (0.11) --
-------- -------- -------- ------- --------
Total distributions...................................... (0.43) (0.28) (0.10) (0.40) (0.08)
-------- -------- -------- ------- --------
Net asset value at end of period................................ $ 10.93 $ 11.02 $ 10.06 $ 10.93 $ 11.02
======== ======== ======== ======= =======
Total return.................................................... 3.07% 12.40% 1.62% 2.78% 3.16%
Ratios/Supplemental data
Net assets at end of period (in thousands)................... $147,746 $186,163 $175,888 $27,376 $12,441
Ratios of expenses to average net assets
After advisory/administration fee waivers.................. 0.15% 0.40% 0.45%(2) 0.40% 0.41%(2)
Before advisory/administration fee waivers................. 0.52% 0.52% 0.64%(2) 0.77% 0.53%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................. 2.72% 2.46% 2.85%(2) 2.49% 3.04%(2)
Before advisory/administration fee waivers................. 2.35% 2.34% 2.66%(2) 2.12% 2.92%(2)
Portfolio turnover rate......................................... 17% 8% 23% 17% 8%
<CAPTION>
INDEX EQUITY PORTFOLIO
--------------------------------
SERIES A INVESTOR CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 6/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.......................... $11.02 $10.06 $10.07
------- ------- --------
Income from investment operations
Net investment income........................................ 0.25 0.27 0.10
Net gain (loss) on investments (both realized and
unrealized)................................................ 0.04 0.96 (0.01)
------- ------- --------
Total from investment operations......................... 0.29 1.23 0.09
------- ------- --------
Less distributions
Distributions from net investment income..................... (0.27) (0.27) (0.10)
Distributions from net realized capital gains................ (0.11) -- --
------- ------- --------
Total distributions...................................... (0.38) (0.27) (0.10)
------- ------- --------
Net asset value at end of period................................ $10.93 $11.02 $10.06
====== ====== ======
Total return.................................................... 2.66%(3) 12.33%(3) 0.91%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................... $2,632 $1,263 $ 56
Ratios of expenses to average net assets
After advisory/administration fee waivers.................. 0.55% 0.49% 0.45%(2)
Before advisory/administration fee waivers................. 0.92% 0.61% 0.64%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................. 2.35% 2.48% 2.85%(2)
Before advisory/administration fee waivers................. 1.98% 2.36% 2.66%(2)
Portfolio turnover rate......................................... 17% 8% 23%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
9
<PAGE> 10
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
-------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- --------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/13/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period........................ $ 13.08 $ 10.14 $ 10.00 $ 13.08 $ 12.28
-------- -------- -------- ------- --------
Income from investment operations
Net investment income...................................... 0.04 0.04 0.02 -- --
Net gain (loss) on investments (both realized and
unrealized).............................................. 0.77 3.02 0.13 0.77 0.80
-------- -------- -------- ------- --------
Total from investment operations....................... 0.81 3.06 0.15 0.77 0.80
-------- -------- -------- ------- --------
Less distributions
Distributions from net investment income................... (0.02) (0.04) (0.01) (0.01) --
Distributions from net realized capital gains.............. (0.25) (0.08) -- (0.25) --
-------- -------- -------- ------- --------
Total distributions.................................... (0.27) (0.12) (0.01) (0.26) --
-------- -------- -------- ------- --------
Net asset value at end of period.............................. $ 13.62 $ 13.08 $ 10.14 $ 13.59 $ 13.08
======== ======== ======= ======= =======
Total return.................................................. 6.28% 30.36% 1.50% 5.96% 6.51%
Ratios/Supplemental data
Net assets at end of period (in thousands)................. $168,360 $128,805 $75,045 $45,372 $21,689
Ratios of expenses to average net assets
After advisory/administration fee waivers................ 0.73% 0.83% 0.85%(2) 0.98% 0.99%(2)
Before advisory/administration fee waivers............... 0.85% 0.87% 0.89%(2) 1.10% 1.03%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................ 0.28% 0.31% 0.51%(2) 0.03% 0.12%(2)
Before advisory/administration fee waivers............... 0.16% 0.27% 0.47%(2) (0.09)% 0.08%(2)
Portfolio turnover rate....................................... 18% 41% 17% 18% 41%
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
--------------------------------
SERIES A INVESTOR CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 6/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period........................... $ 13.07 $10.14 $10.06
------- ------- --------
Income from investment operations
Net investment income......................................... (0.01) 0.03 0.02
Net gain (loss) on investments (both realized and
unrealized)................................................. 0.77 3.02 0.07
------- ------- --------
Total from investment operations.......................... 0.76 3.05 0.09
------- ------- --------
Less distributions
Distributions from net investment income...................... -- (0.04) (0.01)
Distributions from net realized capital gains................. (0.25) (0.08) --
------- ------- --------
Total distributions....................................... (0.25) (0.12) (0.01)
------- ------- --------
Net asset value at end of period................................. $ 13.58 $13.07 $10.14
======= ====== ======
Total return..................................................... 5.93%(3) 30.36%(3) 0.89%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).................... $16,884 $9,084 $ 62
Ratios of expenses to average net assets
After advisory/administration fee waivers................... 1.13% 0.94% 0.85%(2)
Before advisory/administration fee waivers.................. 1.25% 0.98% 0.89%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................... (0.11)% 0.19% 0.51%(2)
Before advisory/administration fee waivers.................. (0.23)% 0.15% 0.47%(2)
Portfolio turnover rate.......................................... 18% 41% 17%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
10
<PAGE> 11
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
-------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- --------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/27/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period........................ $ 12.48 $ 9.87 $ 10.00 $ 12.47 $ 11.76
-------- -------- -------- ------- --------
Income from investment operations
Net investment income...................................... 0.15 0.11 0.11 0.14 0.02
Net realized gain (loss) on investments.................... 1.17 2.61 (0.17) 1.14 0.69
-------- -------- -------- ------- --------
Total from investment operations....................... 1.32 2.72 (0.06) 1.28 0.71
-------- -------- -------- ------- --------
Less distributions
Distributions from net investment income................... (0.11) (0.11) (0.07) (0.09) --
Distributions from net realized capital gains.............. (0.25) -- -- (0.25) --
-------- -------- -------- ------- --------
Total distributions.................................... (0.36) (0.11) (0.07) (0.34) --
-------- -------- -------- ------- --------
Net asset value at end of period.............................. $ 13.44 $ 12.48 $ 9.87 $ 13.41 $ 12.47
======== ======== ======= ======= =======
Total return.................................................. 10.71% 27.72% (0.61)% 10.36% 6.03%
Ratios/Supplemental data
Net assets at end of period (in thousands)................. $284,905 $131,052 $60,357 $75,174 $11,985
Ratios of expenses to average net assets
After advisory/administration fee waivers................ 0.95% 1.10% 1.20%(2) 1.20% 1.18%(2)
Before advisory/administration fee waivers............... 1.14% 1.16% 1.21%(2) 1.39% 1.24%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................ 1.27% 1.17% 2.59%(2) 1.09% 1.01%(2)
Before advisory/administration fee waivers............... 1.08% 1.11% 2.58%(2) 0.90% 0.95%(2)
Portfolio turnover rate....................................... 37% 31% 15% 37% 31%
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------
SERIES A INVESTOR CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 6/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period........................ $ 12.47 $ 9.87 $10.68
------- ------- --------
Income from investment operations
Net investment income...................................... 0.12 0.12 0.09
Net realized gain (loss) on investments.................... 1.15 2.59 (0.83)
------- ------- --------
Total from investment operations....................... 1.27 2.71 (0.74)
------- ------- --------
Less distributions
Distributions from net investment income................... (0.09) (0.11) (0.07)
Distributions from net realized capital gains.............. (0.25) -- --
------- ------- --------
Total distributions.................................... (0.34) (0.11) (0.07)
------- ------- --------
Net asset value at end of period.............................. $ 13.40 $12.47 $ 9.87
======= ====== ======
Total return.................................................. 10.24%(3) 27.72%(3) (6.94)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................. $14,433 $3,669 $ 58
Ratios of expenses to average net assets
After advisory/administration fee waivers................ 1.35% 1.25% 1.20%(2)
Before advisory/administration fee waivers............... 1.54% 1.31% 1.21%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................ 0.96% 1.27% 2.59%(2)
Before advisory/administration fee waivers............... 0.77% 1.21% 2.58%(2)
Portfolio turnover rate....................................... 37% 31% 16%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
11
<PAGE> 12
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MARKETS PORTFOLIO
----------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS SERIES A INVESTOR CLASS
------------------- -------------- -----------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
6/17/94(1) 6/17/94(1) 6/17/94(1)
THROUGH THROUGH THROUGH
9/30/94 9/30/94 9/30/94
------------------- -------------- ----------------
<S> <C> <C> <C>
Net asset value at beginning of period.............................. $ 10.00 $10.00 $ 10.00
----- ----- -----
Income from investment operations
Net investment income............................................ 0.03 0.02 0.02
Net gain (loss) on investments (both realized and unrealized).... 0.53 0.53 0.52
----- ----- -----
Total from investment operations............................. 0.56 0.55 0.54
----- ----- -----
Less distributions
Distributions from net investment income......................... -- -- --
Distributions from net realized capital gains.................... -- -- --
----- ----- -----
Total distributions.......................................... -- -- --
----- ----- -----
Net asset value at end of period.................................... $ 10.56 $10.55 $ 10.54
======= ====== =======
Total return........................................................ 5.60% 5.50% 5.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)....................... $ 2,511 $3,505 $ 2,857
Ratios of expenses to average net assets
After advisory/administration fee waivers...................... 1.75%(2) 2.00%(2) 2.15%(2)
Before advisory/administration fee waivers..................... 2.73%(2) 2.98%(2) 3.13%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................... 1.19%(2) 1.10%(2) 0.74%(2)
Before advisory/administration fee waivers..................... 0.21%(2) 0.12%(2) (0.24)%(2)
Portfolio turnover rate............................................. 4% 4% 4%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
12
<PAGE> 13
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-------------------------------------------------------------------------
SERIES
A
INVESTOR
INSTITUTIONAL CLASS SERVICE CLASS CLASS
-------------------------------- -------------------- -------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 5/1/92(1) YEAR 7/29/93(1) YEAR
ENDED ENDED THROUGH ENDED THROUGH ENDED
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93 9/30/94
------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 12.42 $ 11.53 $11.01 $ 12.42 $ 12.05 $ 12.42
------- ------- -------- ------- -------- -------
Income from investment operations
Net investment income....................... 0.38 0.30 0.17 0.34 0.06 0.32
Net realized gain (loss) on investments..... (0.39) 1.15 0.51 (0.38) 0.38 (0.38)
------- ------- -------- ------- -------- -------
Total from investment operations........ (0.01) 1.45 0.68 (0.04) 0.44 (0.06)
------- ------- -------- ------- -------- -------
Less distributions
Distributions from net investment income.... (0.37) (0.30) (0.16) (0.34) (0.07) (0.32)
Distributions from net realized capital
gains..................................... (0.06) (0.26) -- (0.06) -- (0.06)
------- ------- -------- ------- -------- -------
Total distributions..................... (0.43) (0.56) (0.16) (0.40) (0.07) (0.38)
------- ------- -------- ------- -------- -------
Net asset value at end of period............... $ 11.98 $ 12.42 $11.53 $ 11.98 $ 12.42 $ 11.98
======= ======= ====== ======= ======= =======
Total return................................... (0.11)% 12.86% 6.23% (0.36)% 3.66% (0.50)%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands)................................ $17,610 $12,928 $2,501 $66,024 $15,842 $62,307
Ratios of expenses to average net assets
After advisory/administration fee
waivers................................. 0.65% 0.80% 0.95%(2) 0.90% 0.93%(2) 1.05%
Before advisory/administration fee
waivers................................. 0.91% 0.98% 1.51%(2) 1.16% 1.11%(2) 1.31%
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers................................. 3.16% 2.89% 3.28%(2) 2.96% 2.75%(2) 2.77%
Before advisory/administration fee
waivers................................. 2.89% 2.71% 2.72%(2) 2.70% 2.57%(2) 2.51%
Portfolio turnover rate........................ 54% 32% 36% 54% 32% 54%
<CAPTION>
BALANCED PORTFOLIO
----------------------------------------
SERIES A INVESTOR CLASS
----------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR 5/14/90(1)
ENDED ENDED ENDED THROUGH
9/30/93 9/30/92 9/30/91 9/30/90
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 11.53 $10.82 $ 9.13 $10.00
------- ------- ------- -------
Income from investment operations
Net investment income....................... 0.30 0.34 0.38 0.12
Net realized gain (loss) on investments..... 1.14 1.22 1.77 (0.88)
------- ------- ------- -------
Total from investment operations........ 1.44 1.56 2.15 (0.76)
------- ------- ------- -------
Less distributions
Distributions from net investment income.... (0.29) (0.39) (0.34) (0.11)
Distributions from net realized capital
gains..................................... (0.26) (0.46) (0.12) --
------- ------- ------- -------
Total distributions..................... (0.55) (0.85) (0.46) (0.11)
------- ------- ------- -------
Net asset value at end of period............... $ 12.42 $11.53 $10.82 $ 9.13
======= ====== ====== ======
Total return................................... 12.80%(3) 15.17%(3) 24.04%(3) (7.64)%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands)................................ $39,529 $8,481 $4,265 $3,960
Ratios of expenses to average net assets
After advisory/administration fee
waivers................................. 0.91% 0.95% 1.15% 1.15%(2)
Before advisory/administration fee
waivers................................. 1.09% 1.51% 1.86% 1.90%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers................................. 2.79% 3.28% 3.70% 3.07%(2)
Before advisory/administration fee
waivers................................. 2.61% 2.72% 2.99% 2.32%(2)
Portfolio turnover rate........................ 32% 36% 45% 37%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
13
<PAGE> 14
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
The Portfolio invests primarily in common stocks and securities convertible
into common stocks, selected on the basis of fundamental and/or technical
research, that appear to represent good relative values and seem likely to
appreciate in price. The ratios of a security's price to earnings and book
value, its earnings trend and its dividend growth rate will be factors
considered in security selection. The securities in which the Portfolio invests
may produce higher than average dividend yields. See "Investment
Policies--Common Investment Policies" for a description of other investment
policies.
------------------------------------
GROWTH EQUITY PORTFOLIO
The Portfolio will invest in stocks which its sub-adviser considers to have
favorable and above-average earnings growth prospects. The Portfolio emphasizes
ownership of companies in the middle and higher capitalization ranges (over $1
billion market capitalization at the time of purchase) and growth prospects
exceeding that of the general economy. In making portfolio investments, the
Portfolio's sub-adviser will assess significant characteristics such as
financial condition, revenue growth, profitability, earnings per share growth
and trading liquidity. The sub-adviser strives to find growth companies that
may, in the sub-adviser's judgment, demonstrate exceptional expertise in a
particular market niche, have outstanding management leadership, manufacture
revolutionary new products or possess insightful implementation of a corporate
strategic plan. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
------------------------------------
SMALL CAP GROWTH EQUITY PORTFOLIO
The Portfolio will invest in companies which the sub-adviser considers to
have favorable and above average earnings growth prospects. Most of these
companies will be smaller-capitalized organizations that have limited product
lines, markets and financial resources and are dependent upon a limited
management group. The Portfolio emphasizes investment in small companies with a
market capitalization under $1 billion at the time of purchase. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets in
equity securities of such issuers. In making portfolio investments, the
sub-adviser will assess characteristics such as financial condition, revenue,
growth, profitability, earnings per share growth and trading liquidity. See
"Investment Policies--Common Investment Policies" for a description of other
investment policies.
------------------------------------
CORE EQUITY PORTFOLIO
The Portfolio invests in a diversified portfolio of common stocks and
common stock-related securities. The sub-adviser will use economic, fundamental
and technical analysis in determining the selection of equity securities. Such
14
<PAGE> 15
analysis will generally include such factors as sales, growth and profitability
prospects for the economic sector and markets in which the entity operates and
for the products or services it provides; the entity's financial condition; its
ability to meet its liabilities and to provide income in the form of dividends;
the security's prevailing price; how that price compares to historical price
levels, to current price levels in the general market and to the prices of
competing entities; the sub-adviser's projected earnings estimates and earnings
growth rate for the entity; and how those figures relate to the current price of
the security. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
------------------------------------
INDEX EQUITY PORTFOLIO
The Portfolio intends to invest in substantially all the stocks in the S&P
500 Index in approximately the same proportions as they are represented in such
Index. The S&P 500 Index is composed of 500 common stocks chosen on the basis of
market value and industry diversification. While most issuers are among the 500
largest U.S. companies in terms of aggregate market value, some other stocks are
included for purposes of diversification.
The Portfolio is not managed traditionally (through the use of economic,
financial or market analysis). Adverse performance will ordinarily not result in
the elimination of a stock from the Portfolio. The Portfolio will remain fully
invested in common stocks even when stock prices are generally falling. During
normal market conditions the Portfolio will normally invest at least 90% of the
value of its total assets in securities included in the S&P 500 Index. The
adviser believes that over time and under normal market conditions, the
correlation between the performance of the Portfolio and the S&P 500 Index is
expected to be at least 0.95. Brokerage costs, fees, operating expenses and
tracking error among other things may cause the Portfolio's total return to be
lower than the S&P 500 Index's. The adviser shall monitor tracking accuracy, and
the Board will determine what actions should be taken if tracking accuracy is
not maintained. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
------------------------------------
SMALL CAP VALUE EQUITY PORTFOLIO
Portfolio holdings will consist primarily of common stocks of domestic
companies whose prices are low in relation to current earnings and which, in the
sub-adviser's opinion, seem capable of recovering from any out of favor
considerations. Most of these companies will be smaller-capitalized
organizations that have limited product lines, markets and financial resources
and are dependent upon a limited management group. The Portfolio emphasizes
investment in small companies with a market capitalization under $1 billion at
the time of purchase. Under normal market conditions, the Portfolio will invest
at least 65% of its total assets in equity securities of such issuers. See
"Investment Policies--Common Investment Policies" for a description of other
investment policies.
------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
The Portfolio invests primarily in equity securities and places primary
emphasis on those securities whose prices in their home market or stock exchange
are low in relation to current earnings and which, in the sub-adviser's opinion,
15
<PAGE> 16
seem capable of recovering from any out of favor considerations. The Portfolio
seeks to diversify its investments across countries, industry groups and
companies. However, it has no minimum requirements for diversification of its
portfolio securities by country other than being invested at all times in at
least three countries other than the United States.
In determining appropriate investments for the Portfolio, primary emphasis
is placed upon the characteristics of the particular issues, although
significant emphasis is placed on macroeconomic factors. The sub-adviser's
investment philosophy is that the best value in equity investing lies in equity
securities whose prices are low in relation to present earnings relative to the
securities' home market or stock exchange. In selecting an investment for the
Portfolio, the sub-adviser reviews the financial conditions and market price of
the issuer involved as well as its fundamental prospects and earnings potential.
The sub-advisor, where appropriate, may consider other valuation factors such as
price to book and price to cash flow. Macroeconomic factors that ordinarily are
considered by the sub-adviser in determining the appropriate distribution of
investments among various countries and geographic regions include the prospects
for relative economic growth among certain foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships, and the range of individual investment opportunities
available to international investors. The Portfolio does not trade in securities
for short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held.
Securities of foreign issuers in which the Portfolio may invest include
common and preferred stock. The Portfolio does not intend to invest in equity
securities of issuers incorporated in the United States (other than American
Depository Receipts) except, temporarily, when extraordinary circumstances
prevailing at the same time in a significant number of approved countries render
investments in such countries inadvisable.
The Portfolio may also invest in both sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") and other similar global instruments. ADRs
typically are issued by an American bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts, are receipts issued in
Europe, typically by foreign banks and trust companies, that evidence ownership
of either foreign or domestic underlying securities. GDRs are depository
receipts structured like global debt issues to facilitate trading on an
international basis. Unsponsored ADR, EDR and GDR programs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer.
The Portfolio may use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the "ECU" used
in the European Community) relative to the U.S. dollar in connection with
specific portfolio transactions or with respect to portfolio positions. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specified currency at a future date at a price set at the time of the
contract. Foreign currency exchange contracts do not eliminate fluctuations in
the values of portfolio securities but rather allow the Portfolio to establish a
rate of exchange for a future point in time.
SPECIAL RISK CONSIDERATIONS. Investors should realize that investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operated in the United
States. Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio may hold from time to time
various foreign currencies pending their investment in foreign securities or
their conversion into U.S. dollars, the value of the Portfolio's assets as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates.
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Although the Portfolio intends to invest in securities of companies and
governments of developed, stable nations, investors should realize that the
value of the Portfolio's investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control regulations in those foreign nations. In
addition, changes in government administrations or economic or monetary policies
in the U.S. or abroad could result in appreciation or depreciation of portfolio
securities and could favorably or adversely affect the Portfolio's operations.
Furthermore, the economies of individual foreign nations may differ from that of
the United States, whether favorably or unfavorably, in areas such as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Any foreign investments made
by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
In general, less information is publicly available with respect to foreign
issuers than is available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. In addition, while the
volume of transactions effected on foreign stock exchanges has increased in
recent years, it remains appreciably below that of the New York Stock Exchange.
Accordingly, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities in U.S.
companies. In buying and selling securities on foreign exchanges, the Portfolio
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. Moreover, the Portfolio's expenses are
higher than those incurred by investment companies having portfolios of domestic
securities. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Italy, Japan, Netherlands, New Zealand, Norway, Singapore, Malaysia, Spain,
Sweden, Switzerland and the United Kingdom are currently included in EAFE. See
"Investment Policies--Common Investment Policies" for a description of other
investment policies.
------------------------------------
INTERNATIONAL EMERGING MARKETS PORTFOLIO
The Portfolio invests primarily in equity securities of issuers in
"emerging markets." As used in this Prospectus, an emerging market is any
country which is generally considered to be an emerging or developing country by
the World Bank, the International Finance Corporation or the United Nations.
These countries generally include all countries except the United States,
Canada, Japan, Australia, New Zealand and most Western European countries. The
Portfolio's sub-adviser will initially focus on investments in the following
emerging markets: Argentina, Brazil, Bulgaria, Chile, China, Colombia, The Czech
Republic, Ecuador, Greece, Hungary, India, Israel, Lebanon, Malaysia, Mexico,
Morocco, Peru, The Philippines, Poland, Romania, Russia, South Africa, South
Korea, Taiwan, Thailand, Tunisia, Turkey, Venezuela and Vietnam. The Portfolio
may also invest in securities in other emerging markets if such investments
become feasible and desirable subsequent to the date of this Prospectus. The
Portfolio will not necessarily seek to diversify investments on a geographical
basis or on the basis of the level of economic development of any particular
country. The Portfolio will ordinarily invest in equity securities of issuers in
at least three different emerging markets.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in equity securities of issuers in emerging markets. Such
securities may include common stock and preferred stock (including convertible
preferred stock); bonds, notes and debentures convertible into common or
preferred stock; stock purchase warrants and rights; equity interests in trusts
and partnerships; and depositary receipts of companies: (i) the principal
securities trading market for which is in an emerging market; (ii) whose
principal trading market is in any country, provided that,
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alone or on a consolidated basis, they derive 50% or more of their annual
revenue from either goods produced, sales made or services performed in emerging
markets; or (iii) that are organized under the laws of, and with a principal
office in, an emerging market. The sub-adviser will make determinations as to
eligibility based on publicly available information and inquiries made to
individual >companies.
Under normal circumstances, the Portfolio may invest up to 35% of its total
assets in a combination of: (i) debt securities of government or corporate
issuers in emerging markets; (ii) equity and debt securities of government or
corporate issuers in developed countries, including the United States; and (iii)
cash and money market instruments. Such securities may include convertible
securities, mortgage-backed securities, asset-backed securities and zero-coupon
securities. The Portfolio will invest in debt securities that are rated at the
time of purchase within the four highest ratings assigned by a nationally
recognized statistical rating organization ("NRSRO"), or if unrated, are
determined by the sub-adviser at the time of purchase to be of comparable
quality. Investments in debt securities that are not rated within the four
highest ratings by an NRSRO will be limited to 5% of the Portfolio's net assets.
During periods in which the sub-adviser believes changes in economic,
financial or political conditions make it advisable, the Portfolio may, for
temporary defensive purposes, reduce its holdings in equity and other securities
and invest some or all of its assets in certain short-term and intermediate-term
debt securities or hold cash without limitation. The short-term and
intermediate-term debt securities in which the Portfolio may invest include: (a)
obligations of the United States Government or foreign governments, their
respective agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. or foreign banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with financial institutions with respect to such
securities. The Portfolio intends to invest only in short-term and intermediate-
term debt securities that are rated in one of the two highest rating categories
by an NRSRO or, if unrated, determined to be equivalent in credit quality by the
sub-adviser. See "Investment Policies--Common Investment Policies" for a
description of other investment policies.
In determining appropriate investments for the Portfolio, primary emphasis
is placed upon the characteristics of the particular issues, although
significant emphasis is placed on macroeconomic factors. The sub-adviser's
investment philosophy is that the best value in equity investing lies in equity
securities whose prices are low in relation to present earnings relative to the
securities' home market or stock exchange. In selecting an investment for the
Portfolios, the sub-adviser reviews the financial conditions and market price of
the issuer involved as well as its fundamental prospects and earnings potential.
The Portfolios normally will not emphasize dividend or interest income in
choosing securities, unless the sub-adviser believes that the income will
contribute to the securities' capital appreciation. The sub-adviser, where
appropriate, may consider other valuation factors such as price to book and
price to cash flow. Macroeconomic factors that ordinarily are considered by the
sub-adviser in determining the appropriate distribution of investments among
various countries and geographic regions include the prospects for relative
economic growth among certain foreign countries, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of individual investment opportunities available to
international investors. The Portfolios do not trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held.
The Portfolio may also invest in both sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") and other similar global instruments. ADRs
typically are issued by an American bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts, are receipts issued in
Europe, typically by foreign banks and trust companies, that evidence ownership
of either foreign or domestic
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underlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR and
GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile
than if such instruments were sponsored by the issuer.
The Portfolio may use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the European
Currency Unit (ECU)) relative to the U.S. dollar in connection with specific
portfolio transactions or with respect to portfolio positions. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Foreign currency exchange contracts do not eliminate fluctuations in the values
of portfolio securities but rather allow the Portfolio to establish a rate of
exchange for a future point in time.
SPECIAL RISK CONSIDERATIONS. Certain of the risks associated with
international investments are heightened with respect to investments in emerging
markets. The risks of expropriation, nationalization and social, political and
economic instability are greater in those countries than in more developed
capital markets. In addition, developing countries may have economies based on
only a few industries and small securities markets with a low volume of trading.
Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on investments
in issuers of industries deemed sensitive to relevant national interests. These
factors may limit the investment opportunities available to the Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from emerging markets.
Developing countries may also impose restrictions on the Portfolio's
ability to repatriate investment income or capital. Even where there is no
outright restriction on repatriation of investment income or capital, the
mechanics of repatriation may affect certain aspects of the operations of the
Portfolio. For example, funds may be withdrawn from the People's Republic of
China only in U.S. or Hong Kong dollars and only at an exchange rate established
by the government once each week.
Some of the currencies in emerging markets have experienced devaluations
relative to the U.S. dollar, and major adjustments have been made periodically
in certain of such currencies. Certain developing countries face serious
exchange constraints.
Lastly, governments of some developing countries exercise substantial
influence over many aspects of the private sector. In some countries, the
government owns or controls many companies, including the largest in the
country. As such, government actions in the future could have a significant
effect on economic conditions in developing countries in these regions, which
could affect private sector companies, the Portfolio and the value of its
portfolio securities. Furthermore, certain developing countries are among the
largest debtors to commercial banks and foreign governments. Trading in debt
obligations issued or guaranteed by such governments or their agencies and
instrumentalities involves a high degree of risk. For additional information on
the risks associated with investments in securities of foreign issuers, see
"Investment Policies--International Equity Portfolio--Special Risk
Considerations."
------------------------------------
BALANCED PORTFOLIO
At least 25% of the Portfolio's total assets will be invested in
fixed-income senior securities. With respect to convertible senior securities,
only that portion of the value of such securities attributable to their
fixed-income characteristics will be used for purposes of determining the
percentage of the Portfolio's assets invested in fixed-
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income senior securities. The actual percentage of assets invested in equity and
fixed-income securities will vary from time to time, depending on the
sub-adviser's judgment as to general market and economic conditions, trends and
yields, interest rates and changes in fiscal and monetary policies. The
following descriptions illustrate the types of instruments in which the
Portfolio may invest.
EQUITY SECURITIES. The Portfolio may invest in common stocks, securities
convertible into common stocks and readily marketable securities, such as
rights, which derive their value from common stocks. The sub-adviser will use
economic, fundamental and technical analysis in determining the selection of
equity securities. Such analysis will generally include such factors as sales,
growth and profitability prospects for the economic sector and markets in which
the entity operates and for the products or services it provides; the entity's
financial condition; its ability to meet its liabilities and to provide income
in the form of dividends; the security's prevailing price; how that price
compares to historical price levels, to current price levels in the general
market and to the prices of competing entities; the sub-adviser's projected
earnings estimates and earnings growth rate for the entity; and how those
figures relate to the current price.
DEBT SECURITIES. The Portfolio may invest in domestic and
dollar-denominated foreign debt securities, including without limitation, bonds,
debentures, notes, equipment lease and trust certificates, mortgage-related
securities, guaranteed investment contracts (GICs) and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, rated at
the time of purchase within the four highest rating groups assigned by Moody's
Investors Service, Inc. ("Moody's") (i.e., Aaa, Aa, A, Baa for bonds) or by
Standard & Poor's Corporation ("S&P") (i.e., AAA, AA, A, BBB for bonds) or, if
unrated, which sub-adviser determines at the time of purchase to be of
comparable quality. Securities rated "Baa" by Moody's or "BBB" by S&P,
respectively, are generally considered to be investment grade although they have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher grade bonds. If a portfolio
security is reduced below Baa by Moody's or BBB by S&P, the Portfolio's
sub-adviser will dispose of the security in an orderly fashion as soon as
practicable. Investments in securities of foreign issuers will be limited to 5%
of the Portfolio's total assets. See "Investment Policies--International Equity
Portfolio--Special Risk Considerations" for a discussion of investment
considerations associated with foreign securities, and see Appendix A to the
Statement of Additional Information for a description of Moody's and S&P's
rating symbols.
Purchasable mortgage-related securities are represented by pools of
mortgage loans assembled for sale to investors by various governmental agencies
such as the Government National Mortgage Association and government-related
organizations such as the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, as well as by private issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or are otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. If the Portfolio purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from increases in
interest rates or prepayment of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true because in periods of declining interest rates mortgages
underlying securities are prone to prepayment. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to the Portfolio. In addition, regular
payments received with respect to mortgage-related securities include both
interest and principal. No assurance can be given as to the return the Portfolio
will receive when these amounts are reinvested.
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When investing in GICs, the Portfolio makes cash contributions to a deposit
fund of an insurance company's general account. The insurance company then
credits to the deposit fund on a monthly basis guaranteed interest which is
based on an index (in most cases this index is expected to be the Salomon
Brothers CD Index). GICs provide that this guaranteed interest will not be less
than a certain minimum rate. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the general assets of the insurance company. The Portfolio will only
purchase GICs from insurance companies which, at the time of purchase, are rated
"A+" by A.M. Best Company, have assets of $1 billion or more and meet quality
and credit standards established by the sub-adviser pursuant to guidelines
approved by the Board of Trustees. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist.
The Portfolio may also invest in obligations issued by or on behalf of
state and local governmental issuers ("Municipal Obligations"), whether or not
the income thereon is exempt from the regular Federal income tax, provided the
Municipal Obligations are, at the time of purchase, rated Baa or BBB or higher
by Moody's or S&P, respectively, in the case of bonds, SP-1 by S&P or MIG-2 or
higher by Moody's in the case of notes, or VMIG-2 or higher by Moody's in the
case of variable rate notes, or if unrated, are determined by the sub-adviser at
the time of purchase to be of comparable quality. Municipal Obligations may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the return on such securities, on a pre-tax basis, is comparable
to that of corporate or U.S. Government obligations. Purchasable Municipal
Obligations include debt obligations issued by governmental entities to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds issued by or on behalf of public authorities
to finance various privately operated facilities are considered Municipal
Obligations. Dividends paid by the Portfolio that are derived from interest on
Municipal Obligations would be taxable to the Portfolio's shareholders for
Federal income tax purposes. See the first paragraph of "Investment
Policies--Balanced Portfolio--Debt Securities" for a description of certain
considerations relating to securities rated Baa or BBB by Moody's or S&P,
respectively. See "Investment Policies--International Equity Portfolio--Special
Risk Considerations" for a discussion of the risks associated with securities
issued by foreign issuers and see "Investment Policies--Common Investment
Policies" for a description of other investment policies.
------------------------------------
COMMON INVESTMENT POLICIES
This section describes certain investment policies that are common to the
Portfolios. Each Portfolio's investment objective and policies may be changed by
the Fund's Board of Trustees without shareholder approval.
EQUITY SECURITIES. During normal market conditions each Portfolio other
than the Balanced Portfolio will normally invest at least 80% of the value of
its total assets in equity securities, i.e., common stock and securities
convertible into common stock. The value of convertible securities fluctuates in
relation to changes in interest rates like bonds and, in addition, fluctuates in
relation to the value of the underlying stock.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). Each Portfolio may invest without
limitation in ADRs, securities issued by domestic entities evidencing ownership
of underlying foreign securities. See "Investment Policies--International Equity
Portfolio--Special Risk Considerations" for a description of investment
considerations associated with foreign securities.
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OPTIONS AND FUTURES CONTRACTS. Each Portfolio may write covered call
options, buy put options, buy call options and write put options without
limitation except as noted in this paragraph. Such options may relate to
particular securities or to various indexes and may or may not be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Each Portfolio may also invest in futures contracts and options on futures
contracts (index futures contracts or interest rate futures contracts, as
applicable) for hedging purposes or for other purposes so long as aggregate
initial margins and premiums required for non-hedging positions do not exceed 5%
of its net assets, after taking into account any unrealized profits and losses
on any such contracts it has entered into. However, no Portfolio may write put
options or purchase or sell futures contracts or options on futures contracts to
hedge more than its total assets unless immediately after any such transaction
the aggregate amount of premiums paid for put options and the amount of margin
deposits on its existing futures positions do not exceed 5% of its total assets.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the right to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a particular security, an
option on an index provides the holder with the right to make or receive a cash
settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
A Portfolio will engage in unlisted over-the-counter options only with
broker/dealers deemed creditworthy by the adviser or sub-adviser. Closing
transactions in certain options are usually effected directly with the same
broker/dealer that effected the original option transaction. A Portfolio bears
the risk that the broker/dealer will fail to meet its obligations. There is no
assurance that a Portfolio will be able to close an unlisted option position.
Furthermore, unlisted options are not subject to the protections afforded
purchasers of listed options by the Options Clearing Corporation, which performs
the obligations of its members who fail to do so in connection with the purchase
or sale of options.
To enter into a futures contract, a Portfolio must make a deposit of
initial margin with its custodian in a segregated account in the name of its
futures broker. Subsequent payments to or from the broker, called variation
margin, will be made on a daily basis as the price of the underlying security or
index fluctuates, making the long and short positions in the futures contracts
more or less valuable.
When investing in futures contracts, the Portfolios must satisfy certain
asset segregation requirements to ensure that the use of futures is unleveraged.
When a Portfolio takes a long position in a futures contract, it must maintain a
segregated account containing cash and/or certain liquid assets equal to the
purchase price of the contract, less any margin or deposit. When a Portfolio
takes a short position in a futures contract, the Portfolio must maintain a
segregated account containing cash and/or certain liquid assets in an amount
equal to the market value of the securities underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are not
applicable when a Portfolio "covers" a futures position generally by entering
into an offsetting position.
The risks related to the use of options and futures contracts include: (i)
the correlation between movements in the market price of the portfolio
investments (held or intended for purchase) being hedged and in the price of the
futures contract or option may be imperfect; (ii) possible lack of a liquid
secondary market for closing out options or futures positions; (iii) the need
for additional portfolio management skills and techniques; and (iv) losses due
to unanticipated market movements. Successful use of options and futures by a
Portfolio is subject to the adviser's or sub-adviser's
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ability to correctly predict movements in the direction of the market. For
example, if a Portfolio uses futures contracts as a hedge against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Portfolio will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have approximately equal offsetting losses in its futures positions. The
risk of loss in trading futures contracts in some strategies can be substantial,
due both to the low margin deposits required, and the extremely high degree of
leverage involved in future pricing. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor. Thus, a purchase or sale of a futures contract may result
in losses or gains in excess of the amount invested in the contract. For a
further discussion see "Investment Policies" in the Statement of Additional
Information.
WARRANTS. Each Portfolio may invest in warrants entitling the holder to buy
equity securities at a specific price for a specific period of time.
REPURCHASE AGREEMENTS. Each Portfolio may agree to purchase debt securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). Repurchase
agreements are in substance loans. Default by or bankruptcy of a seller would
expose a Portfolio to possible loss because of adverse market action, expenses
and/or delays in connection with the disposition of the underlying obligations.
CASH EQUIVALENTS. Each Portfolio may invest without limitation in
short-term, interest-bearing instruments or deposits of United States and
foreign issuers to maintain liquidity or pending investment. Additionally, each
Portfolio other than the Index Equity Portfolio may make such investments
without limitation for temporary defensive purposes. Such investments may
include, but are not limited to, commercial paper, certificates of deposit,
variable or floating rate notes, bankers' acceptances, time deposits, government
securities and money market deposit accounts. See "Investment
Policies--International Equity Portfolio--Special Risk Considerations" for a
description of investment considerations associated with foreign securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), and permit a
Portfolio to lock in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the securities delivery takes place. Each
Portfolio's when-issued purchases and forward commitments are not expected to
exceed 25% of the value of its total assets absent unusual market conditions.
The Portfolios do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the adviser or sub-adviser). A reverse repurchase agreement involves a sale by a
Portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase the same securities at an agreed-upon price and date.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price of the securities the
Portfolio is obligated to repurchase. Reverse repurchase agreements are
considered to be borrowings by a Portfolio under the Investment Company Act of
1940 (the "1940 Act").
INVESTMENT COMPANIES. Each Portfolio may invest in securities issued by
other investment companies within the limits prescribed by the 1940 Act. Each
Portfolio currently intends to limit its investments so that, as determined
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immediately after a securities purchase is made: (i) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio or by the Fund as a whole. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Portfolio bears directly in connection with
its own operations.
SECURITIES LENDING. To increase income on its investments, each Portfolio
may lend its portfolio securities with an aggregate value of up to 30% of its
total assets to broker/dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government or
its agencies or instrumentalities or an irrevocable letter of credit issued by a
bank which is deemed creditworthy by the adviser or sub-adviser. Default by or
bankruptcy of a borrower would expose a Portfolio to possible loss because of
adverse market action, expenses and/or delays in connection with the disposition
of the underlying securities.
ILLIQUID SECURITIES. No Portfolio will knowingly invest more than 15% 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
repurchase agreements and time deposits that do not provide for payment within
seven days after notice, without taking a reduced price, are subject to this 15%
limit. Each Portfolio may purchase securities which are not registered under the
Securities Act of 1933 (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 security. This investment
practice could have the effect of increasing the level of illiquidity in a
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
PORTFOLIO TURNOVER RATES. Although it may vary from year to year, it is
currently estimated that under normal market conditions the annual portfolio
turnover rate for the Value Equity, Small Cap Value Equity, Small Cap Growth
Equity, Core Equity, International Equity and International Emerging Markets
Portfolios will not exceed 150% and the annual portfolio turnover rate for the
Index Equity Portfolio will not exceed 25%. A Portfolio's annual portfolio
turnover rate will not, however, be a factor preventing a sale or purchase when
the adviser or sub-adviser believes investment considerations warrant such sale
or purchase. Portfolio turnover may vary greatly from year to year as well as
within a particular year. High portfolio turnover rates (i.e., over 100%) will
generally result in higher transaction costs to a Portfolio.
INVESTMENT LIMITATIONS
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Each Portfolio is subject to the following fundamental investment
limitations, which may not be changed with respect to a Portfolio except upon
the affirmative vote of the holders of a majority of the Portfolio's outstanding
Shares. No Portfolio may:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the
value of the Portfolio's total assets would (taken at current value) be
invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Portfolio or the Fund,
except that up to 25% of the value of the Portfolio's total assets may
(taken at current value) be invested without regard to these limitations.
For purposes of this limitation, a security is considered to be issued by
the entity (or entities) whose
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<PAGE> 25
assets and revenues back the security. A guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the
Portfolio, does not exceed 10% of the value of the Portfolio's total
assets.
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's 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, provided that (a) there is no limitation
with respect to (i) instruments issued (as defined in Investment Limitation
No. 1 above) 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
(ii) repurchase agreements secured by the instruments described in clause
(i); (b) 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 (c) utilities will be divided
according to their services; for example, gas, gas transmission, electric
and gas, electric and telephone will each be considered a separate
industry.
3. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate
any assets, except in connection with any such borrowing and then in
amounts not in excess of one-third of the value of the Portfolio's total
assets at the time of such borrowing. No Portfolio will purchase securities
while its aggregate borrowings (including reverse repurchase agreements and
borrowings from banks) in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with a
Portfolio's investment practices are not deemed to be pledged for purposes
of this limitation.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Portfolio's securities will not constitute a violation of such limitation,
except that any borrowing by a Portfolio that exceeds the fundamental investment
restrictions stated above must be reduced to meet such restrictions within the
period required by the 1940 Act (currently three days).
In order to permit the sale of the Fund's 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 limitations relating to the Portfolios, see
the Fund's Statement of Additional Information.
MANAGEMENT
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BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. The Statement of Additional Information contains the
name of each trustee and certain background information.
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<PAGE> 26
ADVISER AND SUB-ADVISERS
PIMC was organized in 1977 by PNC Bank to perform advisory services for
investment companies. The principal business address of: PIMC is 400 Bellevue
Parkway, Wilmington, Delaware 19809; PNC Bank is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107; and PCM is 1700 Market Street, 27th Floor,
Philadelphia, Pennsylvania 19103.
As adviser, PIMC is responsible for the overall investment management of
the Portfolios. The sub-advisers are responsible for the day-to-day management
of the particular Portfolios, and generally make all purchase and sale decisions
regarding the investments made by such Portfolios. The sub-advisers also provide
research and credit analysis as well as certain other services.
The Small Cap Value Equity Portfolio's Manager, Susan D. Menzies, is the
person primarily responsible for the day-to-day management of the Portfolio's
investments. Ms. Menzies has been with PCM since 1985 as Vice President and
manager of the Portfolio since 1994.
The Growth Equity Portfolio's manager, Michael O. Clark, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Clark has been with PNC Bank since 1992 and the Portfolio's
manager since 1992. Prior to 1992, Mr. Clark was Vice-President and Economist
for Del-Vest (an investment advisory firm subsidiary of the Bank of Delaware).
The Small Cap Growth Equity Portfolio's manager, William J. Wykle, is the
person primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Wykle has been with PNC Bank since 1986 and the Portfolio's
manager since its inception.
The Core Equity Portfolio's manager, John P. Bye, is the person primarily
responsible for the day-to-day management of the Portfolio's investments. Mr.
Bye has been with PNC Bank since 1980 and has been the Portfolio's manager since
its inception.
The Index Equity Portfolio's manager, Francis X. Morris, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Morris has been with PNC Bank since 1984 and the Portfolio's
manager since 1992.
The Value Equity Portfolio's manager, Earl J. Gaskins, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Gaskins has been with PCM since 1985 as Vice President and
manager of the Portfolio since 1994.
The International Equity and International Emerging Markets Portfolios'
manager, Herve van Caloen, is the person primarily responsible for the
day-to-day management of the Portfolios' investments. Mr. van Caloen has been
the Portfolios' manager since 1994. Mr. van Caloen has been a portfolio manager
with PCM since 1992 and currently heads PCM's International Group. Before
joining PCM, Mr. van Caloen managed international portfolios for Mitchell
Hutchins and Scudder, Stevens and Clark.
The Balanced Portfolio's manager, Daniel B. Eagan, is the person primarily
responsible for the day-to-day management of the Portfolio's investments. Mr.
Eagan has been the Portfolio's manager since 1994. Mr. Eagan has been with PNC
Bank since 1994 and is the director of investment strategy for PNC Bank's
Investment Management and Research Unit. Before joining PNC Bank, Mr. Eagan was
an investment consultant for William M. Mercer Asset Planning Inc. and Harris
Trust & Savings Bank.
For the services provided and expenses assumed by it, PIMC is entitled to
receive fees, computed daily and payable monthly, at the following annual rates
from the specified Portfolios: each of the Value Equity, Growth Equity,
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<PAGE> 27
Small Cap Value Equity, Balanced, Small Cap Growth Equity and Core Equity
Portfolios, .55% of the first $1 billion of their respective average daily net
assets, .50% of the next $1 billion of their respective average daily net
assets, .475% of the next $1 billion of their respective average daily net
assets and .45% of their respective average daily net assets in excess of $3
billion; Index Equity Portfolio, .20% of its average daily net assets;
International Equity Portfolio, .75% of its first $1 billion of average daily
net assets, .70% of its next $1 billion of average daily net assets, .675% of
its next $1 billion of average daily net assets and .65% of its average daily
net assets in excess of $3 billion; and International Emerging Markets
Portfolio, 1.25% of its first $1 billion of average daily net assets, 1.20% of
its next $1 billion of average daily net assets, 1.155% of its next $1 billion
of average daily net assets and 1.10% of its average daily net assets in excess
of $3 billion. Although the advisory fee rates payable by the International
Emerging Markets Portfolio are higher than the rates payable by most mutual
funds, the Fund believes they are comparable to the rates paid by many other
funds with similar investment objectives and policies and are appropriate for
the Portfolio in light of its investment objective and policies. The Fund paid
PIMC advisory fees at annual rates of .40%, .40%, .14%, .40%, .01%, .45%, .56%
and .38% of the average daily net assets of the Value Equity, Growth Equity,
Small Cap Growth Equity, Core Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios, respectively, for the year ended
September 30, 1994, and PIMC waived advisory fees at annual rates of .15%, .15%,
.41%, .15%, .19%, .10%, .19% and .17% of the average daily net assets of such
respective Portfolios for that year. The Fund paid PIMC advisory fees at the
annual rate of .40% of the average daily net assets of the International
Emerging Markets Portfolio for the period ended September 30, 1994, and PIMC
waived advisory fees at the annual rate of .85% of the average daily net assets
of such Portfolio for that period. PIMC may from time to time waive all or any
portion of its advisory fees for the Portfolios. See "Introduction--Expense
Table."
For its sub-advisory services, the sub-adviser for the particular Portfolio
is entitled to receive from PIMC a fee, computed daily and payable monthly, at
the following annual rates: Value Equity, Growth Equity, Small Cap Value Equity,
Balanced, Small Cap Growth Equity and Core Equity Portfolios, .40% of its first
$1 billion of average daily net assets, .35% of its next $1 billion of average
daily net assets, .325% of its next $1 billion of average daily net assets and
.30% of its average daily net assets in excess of $3 billion; International
Equity Portfolio, .60% of its first $1 billion of average daily net assets, .55%
of its next $1 billion of average daily net assets, .525% of its next $1 billion
of average daily net assets and .50% of its average daily net assets in excess
of $3 billion; International Emerging Markets Portfolio, 1.10% of its first $1
billion of average daily net assets, 1.05% of its next $1 billion of average
daily net assets, 1.005% of its next $1 billion of average daily net assets and
.95% of its average daily net assets in excess of $3 billion; and .15% of the
average daily net assets of the Index Equity Portfolio. Such sub-advisory fees
have no effect on the advisory fees payable by each Portfolio to PIMC. PIMC paid
PNC Bank or PCM sub-advisory fees at annual rates of .35%, .35%, .14%, .35%,
.01%, .40%, .50% and .33% of the average daily net assets of the Value Equity,
Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small Cap
Value Equity, International Equity and Balanced Portfolios, respectively, for
the year ended September 30, 1994, and PNC Bank or PCM waived sub-advisory fees
at annual rates of .05%, .05%, .26%, .05%, .14%, .10% and .07% of the average
daily net assets of the Value Equity, Growth Equity, Small Cap Growth Equity,
Core Equity, Index Equity, International Equity and Balanced Portfolios,
respectively, for that year. PIMC paid PCM sub-advisory fees at the annual rate
of .35% of the average daily net assets of the International Emerging Markets
Portfolio for the period ended September 30, 1994, and PCM waived sub-advisory
fees at the annual rate of .75% of the average daily net assets of such
Portfolio for that period. Each sub-adviser may from time to time waive all or
any portion of its sub-advisory fee for any Portfolio.
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<PAGE> 28
------------------------------------
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as the Fund's
co-administrators. 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 .20% of the first $500 million of each
Portfolio's average daily net assets, .18% of the next $500 million of each
Portfolio's average daily net assets, .16% of the next $1 billion of each
Portfolio's average daily net assets and .15% of each Portfolio's average daily
net assets in excess of $2 billion. The Fund paid the Administrators combined
administration fees at annual rates of .19%, .11%, .05%, .07%, .01%, .18%, .20%
and .10% of the average daily net assets of the Value Equity, Growth Equity,
Small Cap Growth Equity, Core Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios, respectively, for the year ended
September 30, 1994, and the Administrators waived combined administration fees
at annual rates of .01%, .09%, .15%, .13%, .19%, .02% and .10% of the average
daily net assets of the Value Equity, Growth Equity, Small Cap Growth Equity,
Core Equity, Index Equity, Small Cap Value Equity and Balanced Portfolios,
respectively, for that year. The Fund paid the Administrators combined
administration fees at the annual rate of .07% of the average daily net assets
of the International Emerging Markets Portfolio for the period ended September
30, 1994, and the Administrators waived combined administration fees at the
annual rate of .13% of the average daily net assets of such Portfolio for such
period. From time to time the Administrators may waive all or any portion of the
administration fees for the Portfolios.
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, PNC Bank Ohio and their 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
28
<PAGE> 29
investments in Service Shares; providing information periodically to Customers
showing their positions in Service Shares; and other similar shareholder liaison
service. 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 Portfolios ("Series A Investor Shares," "Series B
Investor Shares" and "Institutional Shares"). See "Description of Shares."
------------------------------------
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio (such
as fees relating to the Fund's Service Plan for Service Shares) will be borne
solely by such Shares.
If the total expenses borne by any Portfolio in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, PIMC,
the sub-advisers and the Administrators will bear the amount of such excess to
the extent required by such regulations in proportion to the fees otherwise
payable to them for such year. Such amount, if any, will be estimated and
accrued daily and paid on a monthly basis. See "Introduction--Example,"
"Management--Adviser and Sub-Advisers" and "Management--Administrators" for
discussions of fee waivers.
------------------------------------
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.
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<PAGE> 30
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 change in the Fund's method of
operations would affect its net asset value per share or result in a financial
loss to any Customer.
------------------------------------
PORTFOLIO TRANSACTIONS
A Portfolio's adviser or sub-adviser will seek the best price and execution
in placing brokerage transactions. In this regard, the adviser or sub-adviser
may consider a number of factors in determining which brokers to use in
purchasing or selling portfolio securities. These factors, which are more fully
discussed in the Statement of Additional Information, include, but are not
limited to, research services, sales of shares of the Fund, the reasonableness
of commissions and quality of services and execution. Brokerage transactions for
the Portfolios may be directed through registered broker/dealers ("Authorized
Dealers") who have entered into dealer agreements with the Distributor, subject
to the requirements of best execution.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shares of each 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 for the Service Shares of
the Portfolios next computed after an order is received by PFPC. 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) 441-7379. Orders received by PFPC after
4:00 p.m. (Eastern Time) are priced at the net asset value per share on the
following Business Day. The Fund may in its discretion may 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.
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<PAGE> 31
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)
441-7379. Shares are redeemed at the net asset value per share of the Service
Shares of the Portfolio 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).
Payment for redeemed Shares for which a redemption order is received by
PFPC before 4:00 p.m. (Eastern Time) on a Business Day is normally made in
Federal funds wired to the redeeming Institution on the next Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received after 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 a 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 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.
A shareholder of record may be required to redeem Shares in any Portfolio
if the balance in such shareholder's account in that 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 Portfolios 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
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<PAGE> 32
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 for each Portfolio is calculated
as of the close of regular trading hours on the NYSE (currently 4:00 p.m.
Eastern Time) on each Business Day by adding the value of all its securities,
cash and other assets allocable to its Shares, subtracting the liabilities
allocable to its Shares and dividing by the total number of Shares outstanding.
The net asset value per Share of each Portfolio is determined independently of
the Portfolio's other classes and independently of the Fund's other portfolios.
Valuation of securities held by each Portfolio is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; an option or futures contract is valued at the last
sales price prior to 4:00 p.m. (Eastern Time), as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, the mean between the last bid and asked prices prior to 4:00
p.m. (Eastern Time); and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Fund's Board of Trustees. The amortized cost method
of valuation will also be used with respect to debt obligations with sixty days
or less remaining to maturity unless the investment adviser and/or sub-adviser
under the supervision of the Board of Trustees determines such method does not
represent fair value.
Valuation of securities of foreign issuers and those held by the
International Equity and International Emerging Markets Portfolios is as
follows: to the extent sale prices are available, securities which are traded on
a recognized stock exchange, whether U.S. or foreign, are valued at the latest
sale price on that exchange prior to the time when assets are valued or prior to
the close of regular trading hours on the NYSE. In the event that there are no
sales, the mean between the last available bid and asked prices will be used. If
a security is traded on more than one exchange, the latest sale price on the
exchange where the stock is primarily traded is used. An option or futures
contract is valued at the last sales price prior to 4:00 p.m. (Eastern Time), as
quoted on the principal exchange or board of trade on which such option or
contract is traded, or in the absence of a sale, the mean between the last bid
and asked prices prior to 4:00 p.m. (Eastern Time). In the event that
application of these methods of valuation results in a price for a security
which is deemed not to be representative of the market value of such security,
the security will be valued by, under the direction of or in accordance with a
method specified by the Board of Trustees as reflecting fair value. The
amortized cost method of valuation will be used with respect to debt obligations
with sixty days or less remaining to maturity unless the investment adviser
and/or sub-adviser under the supervision of the Board of Trustees determines
such method does not represent fair value. All other assets and securities held
by the Portfolios (including restricted securities) are valued at fair value as
determined in good faith by the Board of Trustees or by someone under its
direction. Any assets which are denominated in a foreign currency are translated
into U.S. dollars at the prevailing market rates.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Portfolio will distribute substantially all of its net investment
income and net realized capital gains, if any, to shareholders. For dividend
purposes, a Portfolio's investment income available for distribution to holders
of Investor Shares is reduced by accrued expenses directly attributable to that
Portfolio and the general expenses of the Fund prorated to that Portfolio on the
basis of its relative net assets. A Portfolio's net investment income available
for distribution to the holders of Service Shares will be reduced by the amount
of other expenses allocated to that Portfolio's Service Shares, including fees
payable under the Fund's Service Plan. All distributions are reinvested at net
asset value in the form of additional full and fractional Shares of the relevant
Portfolio unless a shareholder elects otherwise. 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. The net investment
income of each Portfolio is declared quarterly as a dividend to investors who
are Shareholders of such Portfolio at the close of business on the day of
declaration. All such dividends are paid within ten days after the end of each
quarter. Net realized capital gains (including net short-term capital gains), if
any, will be distributed by each Portfolio at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, it generally will be relieved of
Federal income tax on amounts distributed to shareholders, but shareholders,
unless otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that are treated as a return of capital),
regardless of whether such distributions are paid in cash or reinvested in
additional Shares.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain, regardless of
the length of time a shareholder has held his Shares and whether such gain was
reflected in the price paid for the Shares. All other distributions, to the
extent they are taxable, are taxed to shareholders as ordinary income.
The Fund anticipates that dividends paid by the Growth Equity and Balanced
Portfolios will be eligible for the dividends received deduction allowed to
certain corporations to the extent of the total qualifying dividends received by
each Portfolio from domestic corporations for the taxable year. However,
corporate shareholders will have to take into account the entire amount of any
dividend received in determining their business untaxed reported profits
adjustment for Federal alternative minimum and environmental tax purposes. The
dividends received deduction is not available for capital gain dividends.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in those months will be deemed to have been received by the
shareholders on December 31 of such year, if the dividends are paid during
January of the following year.
An investor considering buying shares of a Portfolio on or just before the
record date of a dividend should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable to
him.
33
<PAGE> 34
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of Portfolio Shares depending upon the tax
basis of such Shares and their price at the time of redemption, transfer or
exchange.
It is expected that dividends and certain interest income earned by the
International Equity and International Emerging Markets Portfolios from foreign
securities will be subject to foreign withholding taxes or other taxes. So long
as more than 50% of the value of the respective Portfolios' total assets at the
close of the taxable year in question consists of stock or securities of foreign
corporations, a Portfolio may elect, for U.S. Federal income tax purposes, to
treat certain foreign taxes paid by it, including generally any withholding
taxes and other foreign income taxes, as paid by its shareholders. The
Portfolios intend to make this election. As a result, the amount of such foreign
taxes paid by each of these Portfolios will be included in its shareholders'
income pro rata (in addition to taxable distributions actually received by
them), and each shareholder generally will be entitled either (a) to credit his
proportionate amounts of such taxes against his U.S. Federal income tax
liabilities, or (b) if he itemizes his deductions, to deduct such proportionate
amounts from his U.S. income.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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.
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 nine Portfolios of the Fund
which are classified as diversified companies under the 1940 Act. The Value
Equity, Growth Equity, Index Equity, Small Cap Value Equity, International
Equity and Balanced Portfolios were each established with only one class of
shares. In each case, the original class of shares was available to all
investors until the subsequent establishment of multiple classes in the
Portfolio. In addition, 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
34
<PAGE> 35
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 a Portfolio's Series A Investor
Shares and Series B Investor Shares (collectively, "Investor Shares") will bear
the payments described in the prospectus for such shares that are paid under the
Fund's Distribution and Service Plan and Series B Distribution Plan,
respectively (collectively, the "Distribution Plans"). Under the Distribution
Plans, the Distributor is entitled to payments by each Portfolio for: (i) direct
out-of-pocket promotional expenses incurred in connection with advertising and
marketing 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 Investor Shares. In addition,
payments under the Series B Distribution Plan will be used to pay for or finance
sales commissions and other fees payable to Service Organizations and other
broker/dealers who sell Series B Investor Shares. Service Organizations may also
provide support services such as establishing and maintaining accounts and
records relating to shareholders of 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
and Service Plan provides for payments to the Distributor at an annual rate not
to exceed .55% of the average daily net asset value of each Portfolio's
outstanding Series A Investor Shares. The Series B Distribution Plan provides
for payments to the Distributor at an annual rate not to exceed .75% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
Shares. In addition, holders of Series B Investor Shares bear the expense of
fees described in the prospectus for such shares that are paid under the Fund's
Series B Service Plan. Payments under the Series B Service Plan will cover
expenses relating to the support services provided to the beneficial owners of
Series B Investor Shares by certain Service Organizations and sometimes by the
Distributor. Such services are intended to supplement the services provided by
the Fund's Administrators and transfer agent. In consideration for payments
aggregating up to .25% (on an annualized basis) of the average daily net asset
value of Series B Investor Shares owned beneficially by their customers, Service
Organizations and the Distributor may provide one or more of the following
services to such customers: establishing and maintaining accounts and records
relating to customers that invest in Series B Shares; processing dividend and
distribution payments from the Fund on behalf of customers; arranging for bank
wires; providing sub-accounting with respect to Series B Shares beneficially
owned by customers or the information necessary for sub-accounting; forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to customers; assisting in processing purchase, exchange and redemption
requests from customers and in placing such orders with the Fund's service
contractors; assisting customers in changing dividend options, account
designations and addresses; providing customers with a service that invests the
assets of their accounts in Series B Shares pursuant to specific or
pre-authorized instructions; providing information periodically to customers
showing their positions in Series B Shares and integrating such statements with
those of other transactions and balances in customers' other accounts with the
Service Organization; responding to customer inquiries relating to the services
performed by the Service Organization or the Distributor; responding to customer
inquiries concerning their investments in Series B Shares; and providing other
similar shareholder liaison services. Institutional Shares bear no shareholder
servicing or distribution fees. As a result of these different fees, the net
asset value and the total returns on the Fund's Institutional Shares will
generally be higher than those on the Fund's Service Shares, the net asset value
and the total returns on the Fund's Service Shares will generally be higher than
those on the Fund's Series A Investor Shares, and the net asset value and the
total returns on the Fund's Series A Investor Shares will generally be higher
than those on the Fund's Series B Investor Shares if payments by the Portfolios
under the Service Plan, the Distribution and Service Plan, the Series B
Distribution Plan and the Series B Service Plan are made at the maximum rates.
Standardized total return and yield quotations will be computed separately for
each class of Shares. Series A and Series B Investor Shares are exchangeable at
the option of the holder for Series A and Series B Investor Shares,
respectively, in the Fund's other
35
<PAGE> 36
investment portfolios. Series B Investor Shares are exchangeable for Series B
Investor Shares in the Fund's Money Market Portfolio, but are not exchangeable
for shares in the Fund's other money market investment portfolios. Series A
Investor Shares of the Portfolios are offered to the public at the net asset
value per share plus a maximum sales charge of 4.50% of the offering price on
single purchases of less than $50,000; the sales charge is reduced on a
graduated scale on single purchases of $50,000 or more and certain exemptions
from the sales charge may apply. The sales charge does not apply to exchanges of
Series A Investor Shares among the Portfolios. Series B Investor Shares are
subject to a maximum contingent deferred sales charge of 5.0%. The deferred
sales charge decreases over time. Series B Investor Shares may be exchanged for
Series B Investor Shares of another investment portfolio of the Fund without the
payment of any deferred sales charge at the time the exchange is made. Because
Service Shares and Institutional Shares are sold without a sales charge, holders
of Service Shares and Institutional Shares have no such exchange privileges.
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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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).
PERFORMANCE INFORMATION
From time to time, total return and yield data for Shares of the Balanced
Portfolio and total return data for Shares of the other Portfolios may be quoted
in advertisements or in communications to shareholders. Total return will be
calculated on an average annual total return basis for various periods. Average
annual total return reflects the average annual percentage change in value of an
investment in Shares of a Portfolio over the measuring period. This method of
calculating total return assumes that dividends and capital gain distributions
made by the Portfolio during the period relating to Shares are reinvested in
Shares.
The yield of Shares of the Balanced Portfolio is computed based on the net
income of the Portfolio allocated to such Shares during a 30-day (or one month)
period, which period will be identified in connection with the particular yield
quotation. More specifically, the yield of Shares of the Balanced Portfolio is
computed by dividing the Portfolio's net income per share allocated to such
Shares during a 30-day (or one month) period by the net asset value per share on
the last day of the period and annualizing the result on a semi-annual basis.
Performance data of Shares of a Portfolio may be compared to those 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 total return and/or yield of Shares of a Portfolio may
be compared to data prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. and Weisenberger Investment Company Service, and with the
performance of the S&P 500 Index, EAFE, the Dow Jones Industrial Average, the
Dimensional Fund Advisor's Small Cap Index, the Shearson Lehman GMNA Index, the
Shearson Lehman Index of Baa-rated Corporate Bonds, the T-Bill Index, the
"stocks, bonds and inflation Index" published
36
<PAGE> 37
annually by Ibbotson Associates, the Lipper International Fund Index, the
Shearson Lehman Hutton Government Corporate Bond Index and the Financial Times
World Stock Index. Performance information may also include evaluations of the
Portfolios and their Shares 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.
In addition to providing performance information that demonstrates the
actual yield or returns of Shares of a particular Portfolio over a particular
period of time, a Portfolio may provide certain other information demonstrating
hypothetical investment returns. Such information may include, but is not
limited to, illustrating the compounding effects of a dividend in a dividend
reinvestment plan or the impact of tax-deferred investing.
Performance quotations of Shares of a Portfolio represent past performance
and should not be considered as representative of future results. The investment
return and principal value of an investment in Shares of a Portfolio will
fluctuate so that an investor's Shares, when redeemed, may be worth more or less
than their original cost. Since performance will fluctuate, performance data for
Shares of a Portfolio cannot necessarily be used to compare an investment in
such Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Institutions directly to their customer accounts in connection
with investments in Shares will not be included in the Portfolio's calculations
of yield and total return.
* * *
37
<PAGE> 38
- -----------------------------------------------------
- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THE INDEX EQUITY PORTFOLIO IS NOT SPONSORED, ENDORSED, SOLD OR
PROMOTED BY STANDARD & POOR'S CORPORATION. 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>
Introduction..................................... 2
Financial Highlights............................. 4
Investment Policies.............................. 14
Investment Limitations........................... 24
Management....................................... 25
Purchase and Redemption of Shares................ 30
Net Asset Value.................................. 32
Dividends and Distributions...................... 33
Taxes............................................ 33
Description of Shares............................ 34
Other Information................................ 36
</TABLE>
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER TO VALUE EQUITY, SMALL CAP VALUE EQUITY,
INTERNATIONAL EQUITY AND INTERNATIONAL EMERGING
MARKETS PORTFOLIOS
Provident Capital Management, Inc.
Philadelphia, Pennsylvania
SUB-ADVISER TO BALANCED, GROWTH EQUITY, INDEX EQUITY,
SMALL CAP GROWTH EQUITY AND CORE EQUITY
PORTFOLIOS AND CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
CO-ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR
Provident Distributors, Inc.
Radnor, Pennsylvania
DISTRIBUTOR
Provident Distributors, Inc.
Radnor, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
PNCS-P-003M
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
THE EQUITY
PORTFOLIOS
SERVICE CLASS
PROSPECTUS
VALUE EQUITY PORTFOLIO
- -----------------------------------------------------
GROWTH
EQUITY PORTFOLIO
- -----------------------------------------------------
SMALL CAP GROWTH
EQUITY PORTFOLIO
- -----------------------------------------------------
CORE
EQUITY PORTFOLIO
- -----------------------------------------------------
INDEX
EQUITY PORTFOLIO
- -----------------------------------------------------
SMALL CAP VALUE
EQUITY PORTFOLIO
- -----------------------------------------------------
INTERNATIONAL
EQUITY PORTFOLIO
- -----------------------------------------------------
INTERNATIONAL EMERGING
MARKETS PORTFOLIO
- -----------------------------------------------------
BALANCED PORTFOLIO
- -----------------------------------------------------
JANUARY 30, 1995
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 39
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 40
THE PNC(R) FUND
THE EQUITY PORTFOLIOS
SUPPLEMENT TO SERVICE AND INSTITUTIONAL CLASS PROSPECTUS DATED JANUARY 30, 1995
The section entitled "Introduction -- Portfolio Management" has been amended to
read as follows:
PNC Institutional Management Corporation ("PIMC") serves as the
Fund's investment adviser. Provident Capital Management, Inc. ("PCM")
serves as sub-adviser to the Value Equity, Small Cap Value Equity,
International Equity and International Emerging Markets Portfolios; PNC
Equity Advisors Company ("PEAC") serves as sub-adviser to the Core
Equity, Growth Equity, Small Cap Growth Equity and Index Equity
Portfolios; and PNC Bank, National Association ("PNC Bank") serves as
sub-adviser to the Balanced Portfolio. The investment adviser and
sub-advisers are indirect wholly-owned subsidiaries of PNC Bank Corp.
The section entitled "Management -- Adviser and Sub-Advisers" has been amended
to read as follows:
The second sentence of the first paragraph has been amended to read as follows:
The principal business address of : PIMC is 400 Bellevue Parkway,
Wilmington, Delaware 19809; PEAC is 1835 Market Street, 15th Floor,
Philadelphia, PA 19103; PNC Bank is Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107; and PCM is 1700 Market Street, 27th
Floor, Philadelphia, Pennsylvania 19103.
The fourth paragraph has been amended to read as follows:
The Growth Equity Portfolio's manager , William J. Wykle, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Wykle has been with PEAC since March 1995 and has
managed the Portfolio since March 1995. Mr. Wykle was with PNC Bank
from 1986 to March 1995.
The second sentence of the fifth paragraph has been amended to read as follows:
Mr. Wykle has been with PEAC since March 1995. Mr. Wykle was with PNC
Bank from 1986 to March 1995. Mr. Wykle managed the Portfolio for PNC
Bank form its inception until March 1995.
The second sentence of the sixth paragraph has been amended to read as follows:
Mr. Bye has been with PEAC since March 1995. Mr. Bye was with
PNC Bank from 1980 to March 1995. Mr. Bye managed the Portfolio for
PNC Bank from its inception until March 1995.
The second sentence of the seventh paragraph has been amended to read as
follows:
Mr. Morris has been with PEAC since March 1995. Mr. Morris was
with PNC Bank form 1984 to March 1995. Mr. Morris managed the Portfolio
for PNC Bank from 1992 to March 1995.
The date of this Supplement is April 12, 1995.
PNCS-P-003S
PNCI-P-003S
<PAGE> 41
THE PNC(R) FUND
THE EQUITY PORTFOLIOS
SUPPLEMENT TO THE SERVICE, INSTITUTIONAL AND INVESTOR CLASS PROSPECTUSES DATED
JANUARY 30, 1995
The section entitled "Management -- Advisers and Sub-Advisers" has been amended
as follows:
The fourth paragraph has been amended to read as follows:
The Growth Equity Portfolio's manager, Robert K. Urquhart, is the person
primarily responsible for the day-to-day management of the Portfolio's
investments. Mr. Urquhart, the Managing Director of PEAC's Large Cap Growth
Equity Investments area, has been with PEAC since 1995 and has been the
manager of the Portfolio since 1995. Before joining PEAC, Mr. Urquhart was
the Chief Investment Officer and a partner of Cole Financial Group, Inc.; a
partner of Seacliff Holdings, Inc.; and a partner of RCM Capital Management.
The eighth paragraph has been amended to read as follows:
The Value Equity's co-managers, Earl J. Gaskins and Benedict E. Capaldi,
share primary responsibility for the day-to-day management of the
Portfolio's investments. Mr. Gaskins, a Vice President of PCM, has been with
PCM since 1985 and has managed the Portfolio since 1994. Mr. Capaldi, a Vice
President of PCM, has been with PCM since 1995 and has been the co-manager
of the Portfolio since 1995. Before joining PCM, Mr. Capaldi was a Senior
Vice President and Portfolio Manager with Radnor Capital Management, the
President of Chestnut Hill Advisors, Inc., and a Managing Director of
Brandywine Asset Management, Inc.
The ninth paragraph has been amended to read as follows:
The International Equity and International Emerging Markets Portfolios'
manager, William George Greig, is the person primarily responsible for the
day-to-day management of the Portfolios' investments. Mr. Greig, a Vice
President of PCM, has been with PCM since 1995 and has been the manager of
the Portfolio since 1995. Before joining PCM, Mr. Greig was a Managing
Partner of Akamai International; an Investment Director with the Framlington
Group; and a Research Director with Pilgrim Baxter & Associates.
The date of this Supplement is July 31, 1995.
PNC-P-003S
<PAGE> 1
EXHIBIT (17)(g)
THE PNC(R) FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to shares ("Shares") representing interests in the Money
Market, Municipal Money Market, Government Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Virginia Municipal Money Market, New Jersey Municipal Money Market,
Value Equity, Growth Equity, Index Equity, Small Cap Value Equity, International
Equity, International Emerging Markets, Balanced, Small Cap Growth Equity, Core
Equity, Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term Bond,
Government Income and International Fixed Income Portfolios of The PNC Fund (the
"Fund"). The Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Virginia Municipal Money Market and New Jersey Municipal
Money Market Portfolios are hereinafter collectively called "Money Market
Portfolios," and the other Portfolios are hereinafter collectively called
"Non-Money Market Portfolios." This Statement of Additional Information is not
a prospectus, and should be read only in conjunction with the Prospectuses of
the Fund relating to those Portfolios, dated _______ __, 1995, as amended from
time to time (the "Prospectuses"). Prospectuses may be obtained from the Fund's
distributor by calling toll-free (800) 441-7379. This Statement of Additional
Information is dated _______ __, 1995. Capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the
Prospectuses.
CONTENTS
<TABLE>
<S> <C>
Page
----
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Advisory, Administration,
Distribution and Servicing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information Concerning Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
-1-
<PAGE> 2
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR
THE PROSPECTUSES IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUSES AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUSES DO
NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE FUND'S DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-2-
<PAGE> 3
INVESTMENT POLICIES
The following supplements information contained in the Prospectus
concerning the Portfolios' investment policies. A description of applicable
credit ratings is set forth in Appendix A hereto. Except as indicated, the
information below relates only to those Portfolios that are authorized to
invest in the instruments or securities described below.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio other than the Municipal
Money Market, Ohio Municipal Money Market, Pennsylvania Municipal Money Market,
North Carolina Municipal Money Market, Virginia Municipal Money Market and New
Jersey Municipal Money Market Portfolios (the "Municipal Portfolios") may
invest in reverse repurchase agreements. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and
interest rate. Such agreements are considered to be borrowings under the
Investment Company Act of 1940 (the "1940 Act"), and may be entered into only
for temporary or emergency purposes. While reverse repurchase transactions are
outstanding, a Portfolio will maintain in a segregated account cash, U.S.
Government securities or other liquid, high-grade debt securities in an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
VARIABLE AND FLOATING RATE INSTRUMENTS. With respect to purchasable
variable and floating rate instruments, the adviser or sub-adviser will
consider the earning power, cash flows and liquidity ratios of the issuers and
guarantors of such instruments and, if the instruments are subject to a demand
feature, will monitor their financial status to meet payment on demand. Such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. The absence of an active secondary market
with respect to particular variable and floating rate instruments could make it
difficult for a Portfolio to dispose of a variable or floating rate note if the
issuer defaulted on its payment obligation or during periods that the Portfolio
is not entitled to exercise its demand rights, and the Portfolio could, for
these or other reasons, suffer a loss with respect to such instruments. In
determining average-weighted portfolio maturity, an instrument will usually be
deemed to have a maturity equal to the longer of the period remaining until the
next interest rate adjustment or the time the Portfolio involved can recover
payment of principal
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as specified in the instrument. Variable rate U.S. Government obligations held
by the Portfolios, however, will be deemed to have maturities equal to the
period remaining until the next interest rate adjustment.
MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. Each Non-Money Market Portfolio may purchase bank
obligations, such as certificates of deposit, bankers' acceptances and time
deposits, including instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches for
purposes of each Portfolio's investment policies. Investments in short-term
bank obligations may include obligations of foreign banks and domestic branches
of foreign banks, and also foreign branches of domestic banks.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government
that issue mortgage-related securities and among the securities that they
issue. Mortgage-related securities guaranteed by the Government National
Mortgage Association ("GNMA") include GNMA Mortgage Pass-Through Certificates
(also known as "Ginnie Maes") which are guaranteed as to the timely payment of
principal and interest by GNMA and such guarantee is backed by the full faith
and credit of the United States. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA guaranteed Mortgage Pass-Through Certificates (also known as "Fannie
Maes") which are solely the obligations of the FNMA, are not backed by or
entitled to the full faith and credit of the United States and are supported by
the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United
States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. FHLMC guarantees either ultimate collection or timely
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payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Managed Income, Intermediate Government, Short-Term Bond,
Intermediate-Term Bond, Government Income and International Fixed Income
Portfolios may invest in multiple class pass-through securities, including
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs and REMICs are debt obligations of a legal entity that are
collateralized by, and multiple class pass-through securities represent direct
ownership interests in, a pool of residential mortgage loans or mortgage
pass-through securities (the "Mortgage Assets"), the payments on which are used
to make payments on the CMOs or multiple pass-through securities. Investors
may purchase beneficial interests in REMICs, which are known as "regular"
interests or "residual" interests. The Portfolios do not intend to purchase
residual interests.
Each class of CMOs or REMIC Certificates, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must
be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates
may cause some or all of the classes of CMOs or REMIC Certificates to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs or REMIC Certificates on a
monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in
the order of their respective final distribution dates. Thus no payment of
principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs or REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are
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structured to apply principal payments and prepayments of the Mortgage Assets
to two or more classes concurrently on a proportionate or disproportionate
basis. These simultaneous payments are taken into account in calculating the
final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay
or sequential pay structures. These securities include accrual certificates
(also known as "Z-Bonds"), which only accrue interest at a specified rate until
all other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and
planned amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments
of the Mortgage Assets are then required to be applied to one or more other
classes of the Certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created that absorb
most of the volatility in the underlying Mortgage Assets. These tranches tend
to have market prices and yields that are much more volatile than the PAC
classes.
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of
interest, and also guarantees the ultimate payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("Pcs"). Pcs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by FHLMC and placed
in a PC pool. With respect to principal payments on Pcs, FHLMC generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. FHLMC also guarantees timely payment of principal
on certain Pcs, referred to as "Gold Pcs."
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ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected may reduce yield to maturity, while a prepayment rate that
is slower than expected may have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at a discount,
faster than expected prepayments may increase, while slower than expected
prepayments may decrease, yield to maturity.
In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations which the Portfolios may hold include U.S. Treasury bills, Treasury
instruments and Treasury bonds and the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
LEASE OBLIGATIONS. The Municipal Money Market, Pennsylvania
Municipal Money Market, Ohio Municipal Money Market, North Carolina Municipal
Money Market, Virginia Municipal Money Market, New Jersey Municipal Money
Market, Managed Income, Tax-Free Income, Pennsylvania Tax-Free Income, Ohio
Tax-Free Income, Short-Term Bond, Intermediate-Term Bond and
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International Fixed Income Portfolios may hold participation certificates in a
lease, an installment purchase contract, or a conditional sales contract
("lease obligations").
The Adviser will monitor the credit standing of each municipal
borrower and each entity providing credit support and/or a put option. In
determining whether a lease obligation is liquid, the Adviser will consider,
among other factors, the following: (i) whether the lease can be cancelled;
(ii) the degree of assurance that assets represented by the lease could be
sold; (iii) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (iv) the likelihood
that the municipality would discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations
of the municipality (e.g., the potential for an "event of nonappropriation");
(v) legal recourse in the event of failure to appropriate; (vi) whether the
security is backed by a credit enhancement such as insurance; and (vii) any
limitations which are imposed on the lease obligor's ability to utilize
substitute property or services other than those covered by the lease
obligation.
The Municipal Money Market, Pennsylvania Municipal Money Market, Ohio
Municipal Money Market, North Carolina Municipal Money Market, Virginia
Municipal Money Market and New Jersey Municipal Money Market Portfolios will
only invest in lease obligations with puts that (i) may be exercised at par on
not more than seven days notice, and (ii) are issued by institutions deemed by
the Adviser to present minimal credit risks. Such obligations will be
considered liquid. However, a number of puts are not exercisable at the time
the put would otherwise be exercised if the municipal borrower is not
contractually obligated to make payments (e.g., an event of nonappropriation
with a "nonappropriation" lease obligation). Under such circumstances, the
lease obligation while previously considered liquid would become illiquid, and
a Portfolio might lose its entire investment in such obligation.
Municipal leases, like other municipal debt obligations, are subject
to the risk of non-payment. The ability of issuers of municipal leases to make
timely lease payments may be adversely impacted in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Such non-payment would result in
a reduction of income to the Fund, and could result in a reduction in the value
of the municipal lease experiencing non-payment and a potential decrease in the
net asset value of the Fund. Issuers of municipal securities might seek
protection under the bankruptcy laws. In the event of bankruptcy of such an
issuer, the Fund could experience delays and limitations with respect to the
collection of principal and
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interest on such municipal leases and the Fund may not, in all circumstances,
be able to collect all principal and interest to which it is entitled. To
enforce its rights in the event of a default in lease payments, the Fund may
take possession of and manage the assets securing the issuer's obligations on
such securities, which may increase the Fund's operating expenses and adversely
affect the net asset value of the Fund. When the lease contains a
non-appropriation clause, however, the failure to pay would not be a default
and the Fund would not have the right to take possession of the assets. Any
income derived from the Fund's ownership or operation of such assets may not be
tax-exempt. In addition, the Fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended, may
limit the extent to which the Fund may exercise its rights by taking possession
of such assets, because as a regulated investment company the Fund is subject
to certain limitations on its investments and on the nature of its income.
COMMERCIAL PAPER. The Money Market Portfolios may purchase commercial
paper rated in one of the two highest rating categories of a nationally
recognized statistical rating organization ("NRSRO"). The Non-Money Market
Portfolios may purchase commercial paper rated (at the time of purchase) "A-1"
by S&P or "Prime-1" by Moody's or, when deemed advisable by the Portfolio's
adviser or sub-adviser, "high quality" issues rated "A-2" or "Prime-2" by S&P
or Moody's, respectively. These ratings symbols are described in Appendix A.
Commercial paper purchasable by each Portfolio includes "Section 4(2) paper," a
term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition
under the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. Certain transactions in Section 4(2) paper may qualify
for the registration exemption provided in Rule 144A under the Securities Act
of 1933.
REPURCHASE AGREEMENTS. Each Portfolio other than the Municipal
Portfolios may invest in repurchase agreements. The repurchase price under the
repurchase agreements described in the Prospectuses generally equals the price
paid by a Portfolio involved plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on securities
underlying the repurchase agreement). The financial institutions with whom a
Portfolio may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. A
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Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the securities subject
to the agreement at not less than the repurchase price (including accrued
interest). In addition, the Portfolio's adviser or sub-adviser will
mark-to-market daily the value of the securities, and will, if necessary,
require the seller to maintain additional securities to ensure that the value
is not less than the repurchase price. Securities subject to repurchase
agreements will be held by the Fund's custodian (or sub-custodian) in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolios
under the 1940 Act.
INVESTMENT GRADE DEBT OBLIGATIONS. Each of the Money Market
Portfolios may invest in securities in the two highest rating categories of
NRSROs. The Non-Money Market Portfolios invest in "investment grade
securities", which are securities rated in the four highest rating categories
of an NRSRO. It should be noted that debt obligations rated in the lowest of
the top four ratings (i.e., "Baa" by Moody's or "BBB" by S&P) are considered to
have some speculative characteristics and are more sensitive to economic change
than higher rated securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When a Portfolio
agrees to purchase securities on a when-issued or forward commitment basis, the
custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Portfolio may be required subsequently to place additional assets in
the separate account in order to ensure that the value of the account remains
equal to the amount of the Portfolio commitments. It may be expected that the
market value of the Portfolios' net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because a Portfolio's liquidity and ability to manage
its portfolio might be affected when it sets aside cash or portfolio securities
to cover such purchase commitments, each Portfolio expects that its commitments
to purchase when-issued securities and forward commitments will not exceed 25%
of the value of its total assets absent unusual market conditions.
A Portfolio will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, a Portfolio may dispose of or renegotiate a
commitment after it has been entered into, and may sell securities it has
committed to
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purchase before those securities are delivered to the Portfolio on the
settlement date. In these cases the Portfolio may realize a taxable capital
gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, is taken into account when determining the market value
of a Portfolio starting on the day the Portfolio agrees to purchase the
securities. The Portfolio does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. As stated in their
Prospectus, the Value Equity, Growth Equity, Small Cap Growth Equity, Core
Equity, Index Equity, Small Cap Value Equity, International Equity,
International Emerging Markets and Balanced Portfolios may participate in
rights offerings and may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. Subscription rights normally have a short life span to
expiration. The purchase of rights or warrants involves the risk that the
Portfolios could lose the purchase value of a right or warrant if the right to
subscribe to additional shares is not exercised prior to the rights' and
warrants' expiration. Also, the purchase of rights and/or warrants involves
the risk that the effective price paid for the right and/or warrant added to
the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. A Portfolio will not invest more than 5% of
its net assets, taken at market value, in warrants, or more than 2% of its net
assets, taken at market value, in warrants not listed on the New York or
American Stock Exchanges. Warrants acquired by a Portfolio in units or
attached to other securities are not subject to this restriction.
FOREIGN CURRENCY TRANSACTIONS. Forward foreign currency exchange
contracts involve an obligation to purchase or sell a specified currency at a
future date at a price set at the time of the contract. Forward currency
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Portfolio to establish a rate of exchange for a future point
in time. A Portfolio may enter into forward foreign
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currency exchange contracts when deemed advisable by its adviser or sub-adviser
under two circumstances. First, when entering into a contract for the purchase
or sale of a security, the Portfolio may enter into a forward foreign currency
exchange contract for the amount of the purchase or sale price to protect
against variations, between the date the security is purchased or sold and the
date on which payment is made or received, in the value of the foreign currency
relative to the U.S. dollar or other foreign currency.
Second, when the Portfolio's adviser or sub-adviser anticipates that a
particular foreign currency may decline substantially relative to the U.S.
dollar or other leading currencies, in order to reduce risk, the Portfolio may
enter into a forward contract to sell, for a fixed amount, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency. No Portfolio intends to enter
into forward contracts under this second circumstance on a regular or
continuing basis and will not do so if, as a result, it will have more than 15%
of the value of its total assets committed to such contracts. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is
entered into and the date it matures. In addition, while forward contracts may
offer protection from losses resulting from declines in the value of a
particular foreign currency, they also limit potential gains which might result
from increases in the value of such currency. A Portfolio will also incur
costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars.
A separate account of a Portfolio consisting of cash or liquid
securities equal to the amount of the Portfolio's assets that could be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Fund's custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or securities will be
placed in the account daily so that the value of the account will equal the
amount of such commitments by the Portfolio.
OPTIONS. Options trading is a highly specialized activity which
entails greater than ordinary investment risks. Options on particular
securities may be more volatile than the underlying securities, and therefore,
on a percentage basis, an investment in the underlying securities themselves.
A Portfolio will write
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call options only if they are "covered." In the case of a call option on a
security, the option is "covered" if a Portfolio owns the security underlying
the call or has an absolute and immediate right to acquire that security
without additional cash consideration (or, if additional cash consideration is
required, cash or cash equivalents in such amount as are held in a segregated
account by its custodian) upon conversion or exchange of other securities held
by it. For a call option on an index, the option is covered if a Portfolio
maintains with its custodian cash or cash equivalents equal to the contract
value. A call option is also covered if a Portfolio holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.
When a Portfolio purchases a put option, the premium paid by it is
recorded as an asset of the Portfolio. When a Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded
option is the last sale price or, in the absence of a sale, the mean between
the last bid and asked prices. If an option purchased by a Portfolio expires
unexercised the Portfolio realizes a loss equal to the premium paid. If the
Portfolio enters into a closing sale transaction on an option purchased by it,
the Portfolio will realize a gain if the premium received by the Portfolio on
the closing transaction is more than the premium paid to purchase the option,
or a loss if it is less. If an option written by a Portfolio expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option
written by a Portfolio is exercised, the proceeds of the sale will be increased
by the net premium originally received and the Portfolio will realize a gain or
loss.
There are several risks associated with transactions in options on
securities and indexes. For example, there are significant differences between
the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a
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national securities exchange ("Exchange") may be absent for reasons which
include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options or
underlying securities; unusual or unforeseen circumstances may interrupt normal
operations on an Exchange; the facilities of an Exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or one or more Exchanges could, for economic or other reasons, decide
or be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Non-Money Market
Portfolio may invest in futures contracts and options thereon (interest rate
futures contracts or index futures contracts, as applicable). Positions in
futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Portfolio would continue to be required
to make daily cash payments to maintain its required margin. In such
situations, if a Portfolio has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, a Portfolio may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on a Portfolio's ability to effectively hedge.
Successful use of futures by a Portfolio is also subject to the
adviser's ability to correctly predict movements in the direction of the
market. For example, if a Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition,
in some situations, if a Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect
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the rising market. A Portfolio may have to sell securities at a time when it
may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
Utilization of futures transactions by a Portfolio involves the risk
of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
STAND-BY COMMITMENTS. Under a stand-by commitment for a Municipal
Obligation, a dealer agrees to purchase at the
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Portfolio's option a specified Municipal Obligation at a specified price.
Stand-by commitments for Municipal Obligations may be exercisable by a
Portfolio at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved. It is expected that such stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Portfolio may pay for such a stand-by
commitment either separately in cash or by paying a higher price for Municipal
Obligations which are acquired subject to the commitment for Municipal
Obligations (thus reducing the yield to maturity otherwise available for the
same securities). The total amount paid in either manner for outstanding
stand-by commitments for Municipal Obligations held by a Portfolio will not
exceed 1/2 of 1% of the value of such Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
Stand-by commitments will only be entered into with dealers, banks and
broker-dealers which, in the adviser's or sub- adviser's opinion, present
minimal credit risks. A Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and not to exercise its rights thereunder for
trading purposes. Stand-by commitments will be valued at zero in determining
net asset value. Accordingly, where a Portfolio pays directly or indirectly
for a stand-by commitment, its cost will be reflected as an unrealized loss for
the period during which the commitment is held by such Portfolio and will be
reflected in realized gain or loss when the commitment is exercised or expires.
TAX-EXEMPT DERIVATIVES. The Municipal Portfolios and the Tax-Free
Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios
(collectively, the "Money and Non-Money Market Municipal Portfolios") may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. A number of different structures have been used. For example,
interests in long-term fixed-rate municipal obligations, held by a bank as
trustee or custodian, are coupled with tender option, demand and other features
when the tax-exempt derivatives are created. Together, these features entitle
the holder of the interest to tender (or put), the underlying municipal
obligation to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, municipal obligations are represented by
custodial receipts evidencing rights to receive specific future interest
payments, principal payments, or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying municipal securities at its
face value to the sponsor (usually a bank or broker dealer or other financial
institution), which is paid
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periodic fees equal to the difference between the bond's fixed coupon rate and
the rate that would cause the bond, coupled with the tender option, to trade at
par on the date of a rate adjustment. The Money and Non-Money Market Municipal
Portfolios may hold tax- exempt derivatives, such as participation interests
and custodial receipts, for municipal obligations which give the holder the
right to receive payment of principal subject to the conditions described
above. The Internal Revenue Service has not ruled on whether the interest
received on tax-exempt derivatives in the form of participation interests or
custodial receipts is tax-exempt, and accordingly, purchases of any such
interests or receipts are based on the opinion of counsel to the sponsors of
such derivative securities. Neither the Fund nor its investment adviser will
review the proceedings related to the creation of any tax-exempt derivatives or
the basis for such opinions.
SECURITIES LENDING. A Portfolio would continue to accrue interest on
loaned securities and would also earn income on investment collateral for such
loans. Any cash collateral received by a Portfolio in connection with such
loans would be invested in short-term U.S. Government obligations.
YIELDS AND RATINGS. The yields on certain obligations are dependent
on a variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer,
the size of the offering, the maturity of the obligation and the ratings of the
issue. The ratings of Moody's and S&P represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however,
are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. Subsequent to its purchase by a Portfolio, a rated security may
cease to be rated. The adviser or sub-adviser will consider such an event in
determining whether the Portfolio should continue to hold the security.
SECURITIES OF SMALL CAP ISSUERS. Securities of small cap issues
purchased by the Small Cap Value Equity and Small Cap Growth Equity Portfolios
may be exchange-listed or purchased "over-the-counter".
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN OHIO MUNICIPAL
OBLIGATIONS. As described above, the Ohio Tax-Free Money Market and Ohio
Tax-Free Income Portfolios (the "Ohio Portfolios") will each invest most of its
net assets in securities issued by or on behalf of (or in certificates of
participation in lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the State or its
political subdivisions (Ohio Obligations). The Ohio Portfolios are therefore
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susceptible to general or particular political, economic or regulatory factors
that may affect issuers of Ohio Obligations. The following information
constitutes only a brief summary of some of the many complex factors that may
have an effect. The information does not apply to "conduit" obligations on
which the public issuer itself has no financial responsibility. This
information is derived from official statements of certain Ohio issuers
published in connection with their issuance of securities and from other
publicly available information, and is believed to be accurate. No independent
verification has been made of any of the following information.
Generally, the creditworthiness of Ohio Obligations of local issuers
is unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment
in particular Ohio Obligations or in those obligations of particular Ohio
issuers. It is possible that the investment may be in particular Ohio
Obligations, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary,
and is not intended as a discussion of any specific factors that may affect any
particular obligation or issuer.
Ohio is the seventh most populous state; the 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1993 is 11,091,000.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods
manufacturing largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. As a result, general economic
activity, as in many other industrially-developed states, tends to be more
cyclical than in some other states and in the nation as a whole. Agriculture
is an important segment of the economy, with over half the State's area devoted
to farming and approximately 15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990
average monthly State rate was 5.7%, compared to the 5.5% national figure.
However, for the last four years the State rates were below the national rates
(6.5% versus 6.8% in 1993). The unemployment rate and its effects vary among
geographic areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely
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affect the market value of Ohio Obligations held in the Ohio Portfolios or the
ability of particular obligors to make timely payments of debt service on (or
lease payments relating to) those Obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most
State operations are financed through the General Revenue Fund (GRF), for which
the personal income and sales-use taxes are the major sources. Growth and
depletion of GRF ending fund balances show a consistent pattern related to
national economic conditions, with the ending FY balance reduced during less
favorable and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
Key biennium-ending fund balances at June 30, 1989 were $475.1 million
in the GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and
budgetary management fund). In the next two fiscal years necessary corrective
steps were taken to respond to lower receipts and higher expenditures in
certain categories than earlier estimated. Those steps included selected
reductions in appropriations spending and the transfer of $64 million from the
BSF to the GRF. Reported June 30, 1991 ending fund balances were $135.3
million (GRF) and $300 million (BSF).
To allow time to resolve certain budget differences for the latest
complete biennium, an interim appropriations act was enacted effective July 1,
1991; it included GRF debt service and lease rental appropriations for the
entire 1992-93 biennium, while continuing most other appropriations for a
month. Pursuant to the general appropriations act for the entire biennium,
passed on July 11, 1991, $200 million was transferred from the BSF to the GRF
in FY 1992.
Based on updated results and forecasts in the course of FY 1992, both
in light of a continuing uncertain nationwide economic situation, there was
projected, and then timely addressed, an FY 1992 imbalance in GRF resources and
expenditures. GRF receipts significantly below original forecasts resulted
primarily from lower collections of certain taxes, particularly sales - use and
personal income taxes. Higher expenditure levels came in certain areas,
particularly human services including Medicaid. The Governor ordered most
State agencies to reduce GRF spending in the last six months of FY 1992 by a
total of approximately $184 million. As authorized by the General Assembly,
the $100.4
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million BSF balance and additional amounts from certain other funds were
transferred late in the FY to the GRF, and adjustments made in the timing of
certain tax payments. Other administrative revenue and spending actions
resolved the remaining imbalance.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions. The Governor ordered, effective July 1, 1992, $300
million in selected GRF spending reductions. Subsequent executive and
legislative action in December 1992 -- a combination of tax revisions and
additional spending reductions -- resulted in a balance of GRF resources and
expenditures for the 1992-93 biennium. The June 30, 1993 ending GRF fund
balance was approximately $111 million, of which, as a first step to BSF
replenishment, $21 million was deposited in the BSF. (Based on June 30, 1994
balances, an additional $260 million has been deposited in the BSF, which has a
current balance of $281 million.)
No spending reductions were applied to appropriations needed for debt
service on or lease rentals relating to any State obligations.
The GRF appropriations act for the current 1994-95 biennium was passed
and signed by the Governor on July 1, 1993. It included all necessary GRF
appropriations for State debt service and lease rental payments then projected
for the biennium.
The State's incurrence or assumption of debt without a vote of the
people is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 13 constitutional amendments, the last adopted in 1993, Ohio voters
have authorized the incurrence of State debt and the pledge of taxes or excises
to its payment. At January 25, 1995, $794.4 million (excluding certain highway
bonds payable primarily from highway use charges) of this debt was outstanding
or awaiting delivery. The only such State debt then still authorized to be
incurred are portions of the highway bonds, and the following: (a) up to $100
million of obligations for coal research and development may be outstanding at
any one time ($38.9 million outstanding); (b) $360 million of obligations
authorized for local infrastructure improvements, no more than $120 million of
which may be issued in any calendar year ($728.2 million outstanding or
awaiting delivery); and (c) up to $200
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million in general obligation bonds for parks, recreation and natural resources
purposes which may be outstanding at any one time (no more than $50 million to
be issued in any one year).
The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include
obligations issued by the Ohio Public Facilities Commission and the Ohio
Building Authority, and certain obligations issued by the State Treasurer, over
$4.5 billion of which were outstanding or awaiting delivery at January 25,
1995.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing.
The General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has
never been implemented, a part from a "guarantee fund" approach funded
essentially from program revenues.)
State and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate in the range of 46% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 107
districts from voter-authorized income taxes, for significant portions of their
budgets. Litigation, similar to that in other states, is pending questioning
the constitutionality of Ohio's system of school funding. The trial court
recently concluded that aspects of the system (including basic operating
assistance) are
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unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. A small number
of the State's 612 local school districts have in any year required special
assistance to avoid year-end deficits. A current program provides for school
district cash need borrowing directly from commercial lenders, with diversion
of State subsidy distributions to repayment if needed. Borrowings under this
program totalled $68.6 million for 44 districts (including $46.6 million for
one district) in FY 1992, $94.5 million for 27 districts (including $75 million
for one)in FY 1993, and $15.6 million for 28 districts in FY 1994.
Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations. With other subdivisions, they
also receive local government support and property tax relief moneys
distributed by the State. For those few municipalities that on occasion have
faced significant financial problems, there are statutory procedures for a
joint State/local commission to monitor the municipality's fiscal affairs and
for development of a financial plan to eliminate deficits and cure any
defaults. Since inception in 1979, these procedures have been applied to 23
cities and villages; for 18 of them the fiscal situation was resolved and the
procedures terminated.
At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions
and other local taxing districts. The Constitution has since 1934 limited to
1% of true value in money the amount of the aggregate levy (including a levy
for unvoted general obligations) of property taxes by all overlapping
subdivisions, without a vote of the electors or a municipal charter provision,
and statutes limit the amount of that aggregate levy to 10 mills per $1 of
assessed valuation (commonly referred to as the "ten-mill limitation"). Voted
general obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN PENNSYLVANIA MUNICIPAL
OBLIGATIONS. The concentration of investments in Pennsylvania Municipal
Obligations by the Pennsylvania Municipal Money Market and Pennsylvania
Tax-Free Income Portfolios raises special investment considerations. In
particular, changes in the economic condition and governmental policies of the
Commonwealth of Pennsylvania and its municipalities could adversely affect the
value of those Portfolios and their portfolio securities. This section briefly
describes current economic trends in Pennsylvania.
Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad
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industries have led to diversification of the Commonwealth's economy. Recent
sources of economic growth in Pennsylvania are in the service sector, including
trade, medical and health services, education and financial institutions.
Agriculture continues to be an important component of the Commonwealth's
economic structure, with nearly one-third of the Commonwealth's total land area
devoted to cropland, pasture and farm woodlands.
The population of Pennsylvania experienced a slight increase in the
period 1980 through 1990 and has a high proportion of persons 65 or older. The
Commonwealth is highly urbanized, with almost 85% of the 1980 census population
residing in metropolitan statistical areas. The two largest metropolitan
statistical areas, those containing the Cities of Philadelphia and Pittsburgh,
together comprise approximately 50% of the Commonwealth's total population.
The Commonwealth utilizes the fund method of accounting and over 120
funds have been established for purposes of recording receipts and
disbursements of the Commonwealth, of which the General Fund is the largest.
Most of the Commonwealth's operating and administrative expenses are payable
from the General Fund. The major tax sources for the General Fund are the
sales tax, the personal income tax and the corporate net income tax. Major
expenditures of the Commonwealth include funding for education, public health
and welfare, transportation, and economic development.
The constitution of the Commonwealth provides that operating budget
appropriations of the Commonwealth may not exceed the estimated revenues and
available surplus in the fiscal year for which funds are appropriated. Annual
budgets are enacted for the General Fund (the principal operating fund of the
Commonwealth) and for certain special revenue funds which together represent
the majority of expenditures of the Commonwealth. Although a negative balance
was experienced applying generally accepted accounting principles ("GAAP") in
the General Fund for fiscal 1990 and 1991, tax increases and spending decreases
helped return the General Fund balance to a surplus at June 30, 1992 of $87.5
million and at June 30, 1993 of $698.9 million. The deficit in the
Commonwealth's unreserved/undesignated funds of prior years also was reversed
to a surplus of $64.4 million as of June 30, 1993.
Current constitutional provisions permit the Commonwealth to issue the
following types of debt: (i) electorate approved debt, (ii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average
tax revenues of the preceding five fiscal years, (iii) tax anticipation notes
payable in the fiscal year of issuance and (iv) debt to suppress insurrection
or rehabilitate areas affected by disaster. Certain state-created
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agencies issue debt supported by assets of, or revenues derived from, the
various projects financed and the debt of such agencies is not an obligation of
the Commonwealth, although some of the agencies are indirectly dependent on
Commonwealth appropriations.
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suits relating to the following matters: (a) the ACLU
has filed suit in Federal court demanding additional funding for child welfare
services; the Commonwealth settled a similar suit in the Commonwealth Court of
Pennsylvania and is seeking the dismissal of the federal suit, inter alia,
because of that settlement. The district court has denied class certification
to the ACLU, and the parties have stipulated to a judgment against the
plaintiffs to allow plaintiffs to appeal the denial of class certification (no
available estimates of potential liability); (b) in 1987, the Supreme Court of
Pennsylvania held the statutory scheme for county funding of the judicial
system to be in conflict with the constitution of the Commonwealth, but stayed
judgment pending enactment by the legislature of funding consistent with the
opinion, and the legislature has yet to consider legislation implementing the
judgment. In 1992, a new action in mandamus was filed seeking to compel the
Commonwealth to comply with the original decision; (c) several banks have filed
suit against the Commonwealth contesting the constitutionality of a law enacted
in 1989 imposing a bank shares tax; in July 1994, the Commonwealth Court en
banc upheld the constitutionality of the 1989 bank shares tax law, but struck
down a companion law to provide credits against the bank shares tax for new
banks; cross-appeals from that decision to the Pennsylvania Supreme Court have
been filed; (d) litigation has been filed in both state and Federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the Federal case has been stayed pending
resolution of the state case and the state case is in the pre-trial stage (no
available estimate of potential liability); (e) the ACLU has brought a class
action on behalf of inmates challenging the conditions of confinement in
thirteen of the Commonwealth correctional institutions; a proposed settlement
agreement has been submitted to the court and members of the class for their
review (no available estimate of potential cost of complying with the
injunction sought, but capital and personnel costs might cost millions of
dollars); (f) a consortium of public interest law firms has filed a class
action suit alleging that the Commonwealth has not complied with a Federal
mandate to provide screening, diagnostic and treatment services for all
Medicaid- eligible children under 21; the district court denied class
certification and the parties have submitted a tentative settlement agreement
to the court for approval; and (g)
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litigation has been filed in federal court by the Pennsylvania Medical Society
seeking payment of the full co-pay and deductible in excess of the maximum fees
set under the Commonwealth's medical assistance program for outpatient services
provided to medical assistance patients who also were eligible for Medicare;
the Commonwealth received a favorable decision in the federal district court,
but the Pennsylvania Medical Society won a reversal in the federal circuit
court (potential liability estimated at $50 million per year).
Local government units in the Commonwealth of Pennsylvania (which
include, among other things, counties, cities, boroughs, towns, townships,
school districts and other municipally created units such as industrial
development authorities and municipality authorities, including water and sewer
authorities) are permitted to issue debt for capital projects: (i) in any
amount so long as the debt has been approved by the voters of the local
government unit; or (ii) without electoral approval if the aggregate
outstanding principal amount of debt of the local government unit is not in
excess of 100% of its borrowing base (in the case of a school district of the
first class), 300% of its borrowing base (in the case of a county) or 250% of
its borrowing base (in the case of all other local government units); or (iii)
without electoral approval and without regard to the limit described in (ii) in
any amount in the case of certain subsidized debt and qualifying
self-liquidating debt. Lease rental debt may also be issued, in which case the
total debt limits described in section (ii) (taking into account all existing
lease rental debt in addition to all other debt) are increased. The borrowing
base for a local government unit is the average of total revenues for the three
fiscal years preceding the borrowing. The risk of investing in debt issued by
any particular local government unit depends, in the case of general obligation
bonds secured by tax revenues, on the credit-worthiness of that issuer or, in
the case of revenue bonds, on the revenue producing ability of the project
being financed, and not directly on the credit-worthiness of the Commonwealth
of Pennsylvania as a whole.
The City of Philadelphia (the "City") has been experiencing severe
financial difficulties which has impaired its access to public credit markets
and a long-term solution to the City's financial crisis is still being sought.
The City experienced a series of General Fund deficits for fiscal years 1988
through 1992. The City has no legal authority to issue deficit reduction bonds
on its own behalf, but state legislation has been enacted to create an
Intergovernmental Cooperation Authority (the "Authority") to provide fiscal
oversight for Pennsylvania cities (primarily Philadelphia) suffering recurring
financial difficulties. The Authority is broadly empowered to assist cities in
avoiding defaults and eliminating deficits by encouraging the adoption of sound
budgetary practices and issuing
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bonds. In order for the Authority to issue bonds on behalf of the City, the
City and the Authority entered into an intergovernmental cooperative agreement
providing the Authority with certain oversight powers with respect to the
fiscal affairs of the City, and the Authority originally approved a five-year
financial plan prepared by the City on April 6, 1992. The Authority approved
the latest update of the five year financial plan on May 2, 1994. The City has
reported a surplus of approximately $15 million for the fiscal year ending June
30, 1994. In June 1992, the Authority issued $474,555,000 in bonds to
liquidate the City's deficit balance in its general fund. The Authority issued
$643,430,000 of bonds in July 1993 and $178,675,000 of bonds in August 1993 to
refund certain general obligation bonds of the City and to fund additional
capital projects.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NORTH CAROLINA
MUNICIPAL OBLIGATIONS. The concentration of investments in North Carolina
Municipal Obligations by the North Carolina Municipal Money Market Portfolio
raises special investment considerations. In particular, changes in the
economic condition and governmental policies of North Carolina and its
political subdivisions, agencies, instrumentalities, and authorities could
adversely affect the value of the Portfolio and its portfolio securities. This
section briefly describes current economic trends in North Carolina.
The State of North Carolina has two major operating funds: the
General Fund and the Highway Fund. In addition, the 1989 General Assembly
created the Highway Trust Fund to provide funding for a major highway
construction program. North Carolina derives most of its revenue from taxes,
including individual income tax, corporation income tax, sales and use taxes,
corporation franchise tax, alcoholic beverage tax, insurance tax, inheritance
tax, tobacco products tax, soft drink tax and intangible personal property tax.
North Carolina receives other non-tax revenues which are also deposited in the
General Fund. The most important are Federal funds collected by North Carolina
agencies, university fees and tuition, interest earned by the North Carolina
Treasurer on investments of General Fund moneys and revenues from the judicial
branch. The proceeds from the motor fuel tax, highway use tax and motor
vehicle license tax are deposited in the Highway Fund and the Highway Trust
Fund.
During the 1989-92 budget years, growth of North Carolina tax revenues
slowed considerably, requiring tax increases and budget adjustments, including
hiring freezes and restrictions, spending constraints, changes in timing and
certain collections and payments, and other short-term budget adjustments
necessary to comply with North Carolina's constitutional mandate for a balanced
budget. Many areas of North Carolina government were
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affected. Reductions in capital spending, local government aid, and the use of
the budget stabilization reserve, combined with other budget adjustments,
brought the budget into balance. Tax increases in the fiscal 1992 budget
included a $.01 increase in the North Carolina sales tax and increases in the
personal and corporate income tax rates, as well as increases in the tax on
cigarettes and alcohol, among other items.
Fiscal year 1992 ended with a positive fund balance of approximately
$164.8 million. By law, $41.2 million of such positive fund balance was
required to be reserved in the General Fund of North Carolina as part of a
"Savings Reserve," leaving an unrestricted General Fund balance at June 30,
1992 of $123.6 million. Fiscal year 1993 ended with a positive General Fund
balance of approximately $537.3 million. Of this amount, $134.3 million was
reserved in the Savings Reserve and $57 million was reserved in a Reserve for
Repair and Renovation of State Facilities, leaving an unrestricted General Fund
balance at June 30, 1993 of $346 million. Fiscal year 1994 ended with a
positive General Fund balance of approximately $444.7 million. An additional
$178 million was available from a reserved fund balance. Of this aggregate
amount, $155.7 million was reserved in the Savings Reserve (bringing the total
reserve to $210.6 million after prior withdrawals) and $60 million was reserved
in the Reserve for Repair and Renovation of State Facilities (bringing the
total reserve to $60 million after prior withdrawals), leaving an unrestricted
General Fund balance at June 30, 1994 of $407 million.
The foregoing results are presented on a budgetary basis. Accounting
principles applied to develop data on a budgetary basis differ significantly
from those principles used to present financial statements in conformity with
generally accepted accounting principles (GAAP). Based on a modified accrual
basis (GAAP), the General Fund balance at June 30, 1993 and 1994 was $681.5
million and $1,240.9 million, respectively.
The 1993 sessions of the General Assembly reduced departmental
operating requirements by $357.6 million for fiscal year 1995 and authorized
continuation funding of $8,603.4 million. The savings reductions were based on
recommendations from the Governor, a Governmental Performance Audit Committee,
and selective savings identified by the General Assembly. After review of the
continuation budget, the General Assembly authorized funding for planned
expansion to existing programs and funded new initiatives for children,
economic development, education, human services, and environmental programs.
Expansion funds of $1,650.4 million for fiscal year 1995 were approved during
the 1993 and 1994 sessions of the General Assembly. In addition to the
transfers to the Savings Reserve from the fiscal year-end credit balance, the
General Assembly in 1993
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appropriated $66.7 million for the Savings Reserve. The General Assembly
authorized $189.4 million for capital improvements spending and $60 million for
the Reserve for Repair and Renovation of State Facilities for fiscal year 1995.
The North Carolina budget is based upon a number of existing and
assumed State and non-State factors, including State and national economic
conditions, international activity, Federal government policies and legislation
and the activities of the State's General Assembly. Such factors are subject
to change which may be material and affect the budget.
During recent years North Carolina has moved from an agricultural to a
service and goods producing economy. According to the North Carolina
Employment Security Commission (the "Commission"), in May 1994, North Carolina
ranked tenth among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated North Carolina's seasonally
adjusted unemployment rate in December 1994 to be 3.3% of the labor force, as
compared with an unemployment rate of 5.4% nationwide. As part of its 1993-95
budget, the General Assembly provided major funding for economic initiatives in
an effort to create additional jobs.
The following are certain cases pending in which the State of North
Carolina faces the risk of either a loss of revenue or an unanticipated
expenditure which, in the opinion of the North Carolina Department of State
Treasurer, would not materially adversely affect the State's ability to meet
its financial obligations:
1. Swanson Case -- State Tax Refunds - Federal Retirees. In
Davis v. Michigan (1989), the United States Supreme Court ruled that a Michigan
income tax statute which taxed federal retirement benefits while exempting
those paid by state and local governments violated the constitutional doctrine
of intergovernmental tax immunity. At the time of the Davis decision, North
Carolina law contained similar exemptions in favor of state and local retirees.
Those exemptions were repealed prospectively, beginning with the 1989 tax year.
All public pension and retirement benefits are now entitled to a $4,000 annual
exclusion.
Following Davis, federal retirees filed a class action suit in federal
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The complaints alleged that the amount in controversy
exceeded $140 million. The North Carolina Department of Revenue estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In
1991, the North Carolina Supreme Court
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ruled in favor of the State in the state court action, concluding that Davis
could only be applied prospectively and that the taxes collected from the
federal retirees were thus not improperly collected. In 1993, the United
States Supreme Court vacated that decision and remanded the case back to the
North Carolina Supreme Court. The North Carolina Supreme Court then ruled in
favor of the State on the grounds that the federal retirees had failed to
comply with state procedures for challenging unconstitutional taxes.
Plaintiffs petitioned the United States Supreme Court for review of that
decision. On December 12, 1994, the United States Supreme Court announced that
it would not hear the case. The United States District Court has ruled in
favor of the defendants in the companion federal case, and a petition for
reconsideration was denied. Plaintiffs have appealed to the United States
Court of Appeals. No date for oral argument has been set. The North Carolina
Attorney General's Office believes that sound legal arguments support the
State's position.
2. Bailey case -- State Tax Refunds - State Retirees. State and
local governmental retirees filed a class action suit in 1990 as a result of
the repeal of the income tax exemptions for state and local government
retirement benefits. The original suit was dismissed after the North Carolina
Supreme Court ruled in 1991 that the plaintiffs had failed to comply with state
law requirements for challenging unconstitutional taxes and the United States
Supreme Court denied review. In 1992, many of the same plaintiffs filed a new
lawsuit alleging essentially the same claims, including breach of contract,
unconstitutional impairment of contract rights by the State in taxing benefits
that were allegedly promised to be tax-exempt and violation of several state
constitutional provisions. The North Carolina Attorney General's Office
estimates that the amount in controversy is approximately $40-$45 million
annually for the tax years 1989 through 1992. The case is now pending in
Superior Court. Defendants' motion to dismiss as a matter of law has been
denied. The North Carolina Attorney General's Office believes that sound legal
arguments support the State's position.
3. Fulton Case. The State's intangible personal property tax
levied on certain shares of stock has been challenged by the plaintiff on
grounds that it violates the United States Constitution Commerce Clause by
discriminating against stock issued by corporations that do all or part of
their business outside the State. The plaintiff in the action is a North
Carolina corporation that does all or part of its business outside the State.
The plaintiff seeks to invalidate the tax in its entirety and to recover tax
paid on the value of its shares in other corporations. The North Carolina
Court of Appeals invalidated the taxable percentage deduction and excised it
from the statute beginning with the 1994 tax year. The effect of this ruling
is to increase collections by rendering all stock taxable
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on 100% of its value. The State and the plaintiff sought further appellate
review. On December 9, 1994, the North Carolina Supreme Court ruled in favor
of the State, reversing the decision of the Court of Appeals and upholding the
tax on intangible personal property. The plaintiff has announced it intends to
petition the United States Supreme Court for review of that decision. Net
collections from the tax for the fiscal year ended June 30, 1994 amounted to
$127.6 million. The North Carolina Attorney General's Office believes that
sound legal arguments support the State's position.
In October 1993, the State issued a total of $194.7 million general
obligation bonds (consisting of $87.5 million Prison and Youth Services
Facilities Bonds, $61 million Public Improvement Refunding Bonds, $30.2 million
Highway Refunding Bonds, and $16 million Clean Water Refunding Bonds). An
additional $67.5 million general obligation bonds (Prison and Youth Services
Facilities Bonds) were issued in November, 1993. On November 2, 1993, a total
of $740 million general obligation bonds (consisting of $310 million University
Improvement Bonds, $250 million Community College Bonds, $145 million Clean
Water Bonds, and $35 million State Parks Bonds) were approved by the voters of
the State. Pursuant to this authorization, the State issued $400 million
general obligation bonds (Capital Improvement Bonds) in January, 1994. The
proceeds of these Capital Improvement Bonds may be used for any purpose for
which the proceeds of the University Improvement Bonds, Community College
Bonds, and State Parks Bonds may be used (none of such proceeds may be used for
Clean Water purposes). An additional $60 million general obligation bonds
(Clean Water Bonds) were issued in September and October, 1994. The offering
of the remaining $280 million of these authorized bonds is anticipated to occur
over the next two years.
Currently, Moody's Investors Service, Inc., Standard & Poor's
Corporation, and Fitch Investors Service, Inc. rate North Carolina general
obligation bonds Aaa, AAA, and AAA, respectively. See Appendix A.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN VIRGINIA MUNICIPAL
OBLIGATIONS. The Virginia Municipal Money Market Portfolio will invest
primarily in Virginia Municipal Obligations. For this reason, the Portfolio is
affected by political, economic, regulatory or other developments that
constrain the taxing, revenue-collecting and spending authority of Virginia
issuers or otherwise affect the ability of Virginia issuers to pay interest,
principal, or any premium. The following information constitutes only a brief
summary of certain of these developments and does not purport to be a complete
description of them.
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The rate of economic growth in the Commonwealth of Virginia has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8 percent rate of growth in per capita personal income was slightly ahead of
the national rate of growth of 4.7 percent. During 1990 and 1992, Virginia's
per capita personal income grew at a slightly lower rate than the U.S. average.
Per capita income in Virginia has been consistently above national levels over
the past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest of number of
jobs, followed by wholesale and retail trade, government employment and
manufacturing. Because of Virginia's proximity in Washington, D.C. and the
concentration of military installations in the Commonwealth (the largest such
concentration in the United States), the Federal government has a grater
economic impact on Virginia relative to its size than on any of the other
states except Alaska and Hawaii. It is unclear what effect the current efforts
by the Federal government to restructure the defense budget will have on the
long-term economic conditions of the Commonwealth.
According to statistics published by the U.S. Department of Labor, the
Commonwealth typically has one of the lowest unemployment rates in the nation.
This is generally attributed to the balance among the various sectors
represented in the economy. During 1993, an average of 5 percent of Virginians
were unemployed as compared with the national average of 6.8 percent. At the
same time, the population of the state has continued to grow over the last
decade at a rate that is substantially higher than the national average. The
rate of increase in such population growth has declined since reaching a high
of 2.1 percent annually in 1987 and, in 1993, was approximately 1.8 percent.
Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few strikes
or work stoppages. Virginia is also one of the least unionized among the
industrialized states.
Budget and Deficit Matters. Virginia's state government operates on a
two-year budget. The Constitution vests the ultimate responsibility and
authority for levying taxes and appropriating revenue in the General Assembly,
but the Governor has broad authority to manage the budgetary process; the
budgetary process begins in May of even-numbered years, approximately 14 months
before the start of a biennium when the Governor gives initial guidance to
state agencies regarding base budgets, maximum employment levels and policy
initiatives. By the following December, final revenue estimates are submitted
by the Department of Taxation for review by the Governor, the Advisory Board of
Economists and the Advisory Council on Revenue
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Estimates. Final adjustments to revenues and services are then made, and a
bill detailing the Governor's budget is prepared. The Governor is required by
statute to present the budget bill and a narrative summary of the bill to the
General Assembly by December 20 in the year immediately prior to each even-year
session. In the odd-year sessions of the General Assembly, amendments are
considered to the Appropriation Act of the previous year.
Once an appropriation act becomes law, revenue collections and
expenditures are constantly monitored by the Governor, assisted by the
Secretary of Finance and Department of Planning and Budget, to ensure that a
balanced budget is maintained. If projected revenue collections fall below
amounts appropriated at any time, the Governor must reduce expenditures and
withhold allotments of appropriations (other than for debt service and other
specified purposes) to restore balance. Up to 15 percent of a general fund
appropriation to an agency may be withheld, if required.
The Constitution further requires the Governor to ensure that expenses
do not exceed total revenues anticipated plus fund balances during the
two-and-a-half-year period following the end of the General Assembly session in
which appropriations are made. An amendment to the Constitution, effective
January 1, 1993, established a Revenue Stabilization Fund. This fund is used
to offset, in part, anticipated shortfalls in revenues in years when
appropriations based on initial forecasts exceed expected revenues in any
subsequent forecast. The Revenue Stabilization Fund consists of an amount not
to exceed 10% of the Commonwealth's average annual tax revenues derived from
taxes on income and retail sales as certified by the Auditor of Public Accounts
for the three immediately preceding fiscal years. If in any year total
revenues are forecasted to decline by more than 2% of the certified tax
revenues collected in the most recently ended fiscal year, the General Assembly
may appropriate an amount for transfer from the Revenue Stabilization Fund to
the General Fund in an amount not to exceed one-half of the forecasted
shortfall. Earnings in excess of the 10% cap are transferred to the General
Fund as received.
In fiscal year 1994, revenues increased six percent from the previous
year, while total expenditures increased by 4.5 percent. Revenues exceeded
expenditures by $731.2 million, an increase of 20 percent over fiscal year
1993.
Tax Matters. General fund revenues are principally composed of direct
taxes. In fiscal year 1994, approximately 94.9% of total tax revenues was
derived from five major taxes imposed by the Commonwealth on individual and
fiduciary income, sales and
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use, corporate income, public services corporations and premiums of insurance
companies.
Nongeneral revenues consist of all revenues not formally accounted for
in the general fund. Included in this category are special taxes and user
charges earmarked for specific purposes, the majority of institutional revenues
and revenues from the sale of property and commodities, plus receipts from the
Federal government.
Approximately 50% of the nongeneral revenues consist of grants and
donations from the Federal government, motor vehicle taxes and institutional
revenues. Institutional revenues consist primarily of fees and charges
collected by institutions of higher education, medical and mental hospitals and
correctional institutions. Motor vehicle-related taxes include the motor
vehicle fuel tax, a motor vehicle sales and use tax, oil excise tax, fees
generated from driver licenses, title registration, and motor vehicle
registrations and other miscellaneous revenues.
Debt Management. In September 1991, the Debt Capacity Advisory
Committee was created by the Governor through an executive order. The
committee is charged with annually estimating the amount of tax-supported debt
that may prudently be authorized consistent with the financial goals, capital
needs and policies of the Commonwealth. The committee reviews the outstanding
debt of all agencies, institutions, boards and authorities of the Commonwealth
for which the Commonwealth has either a direct or indirect pledge of tax
revenues or moral obligation. The committee released its first report in
January 1992 and its second in January 1994.
The Department of Planning and Budget has prepared a Six-Year Capital
Outlay Plan for the Commonwealth. The Plan lists proposed capital projects,
and it recommends how the proposed projects should be financed. More
specifically, the Plan distinguishes between immediate demands and longer-term
needs, assesses the state's ability to meet its highest priority needs and
outlines approaches for addressing priorities in terms of costs, benefits and
financing mechanisms.
The Constitution of Virginia prohibits the creation of debt by or on
behalf of the Commonwealth that is backed by the Commonwealth's full faith and
credit, except as provided in Section 9 of Article X. Section 9 of Article X
contains several different provisions for the issuance of general obligation
and other debt:
Section 9(a)(2) provides that the General Assembly may contract
general obligation debt to meet certain types of emergencies, subject to
limitations on amount and duration; to
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meet casual deficits in the revenue or in anticipation of the collection of
revenues of the Commonwealth; and to redeem a previous debt obligation of the
Commonwealth. Total indebtedness issued pursuant to this Section may not
exceed 30 percent of an amount equal to 1.15 times the annual tax revenues
derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts for the preceding fiscal year.
Section 9(b) provides that the General Assembly may authorize the
creation of general obligation debt for capital projects. Such debt is
required to be authorized by an affirmative vote of a majority of each house of
the General Assembly and approved in a statewide election. The outstanding
amount of such debt is limited to an amount equal to 1.15 times the average
annual tax revenues derived from taxes on income and retail sales, as certified
by the Auditor of Public Accounts for the three preceding fiscal years less the
total amount of bonds outstanding. The amount of 9(b) debt that may be
authorized in any single fiscal year is limited to 25% of the limit on all 9(b)
debt less the amount of 9(b) debt authorized in the current and prior three
fiscal years.
Section 9(c) provides that the General Assembly may authorize the
creation of general obligation debt for revenue-producing capital projects
(so-called "double-barrel" debt). Such debt is required to be authorized by an
affirmative vote of two-thirds of each house of the General Assembly and
approved by the Governor. The Governor must certify before the enactment of
the authorizing legislation and again before the issuance of the debt that the
net revenues pledged are expected to be sufficient to pay principal of and
interest on the debt. The outstanding amount of 9(c) debt is limited to an
amount equal to 1.15 times the average annual tax revenues derived from taxes
on income and retail sales, as certified by the Auditor of Public Accounts for
the three preceding fiscal years. While the debt limits under Sections 9(b)
and 9(c) are each calculated as the same percentage of the same average tax
revenues, these debt limits are separately computed and apply separately to
each type of debt.
Based on individual, fiduciary and corporate income taxes and the
state sales and use tax, as certified as of July 1, 1994, the debt limits and
remaining debt margins under Article X,
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Section 9 are set forth below (in $ thousands).
<TABLE>
<S> <C>
Section 9(a)(2) General Obligation Debt Limit(5):
- -------------------------------------------------
Debt Limit (30% of 1.15 times annual tax revenues for fiscal year 1994) $1,954,008
Less Bonds Outstanding: (none) -
---------------
Debt Margin $1,954,008
===============
Section 9(b) General Obligation Debt Limit:
- -------------------------------------------
Debt Limit (1.15 times average tax revenues for three fiscal years as calculated above) $6,136,996
Less Bonds Outstanding:
Public Facilities Bonds 213,570
Transportation Facilities Refunding Bonds 71,825
---------------
Debt Margin $5,851,601
Additional Section 9(b) Debt Borrowing Restriction:
Four-year authorization restriction (25% of 9(b) Debt Limit) $1,534,249
Less 9(b) Debt authorized in past three years 612,944
---------------
Total Additional Borrowing $921,305
===============
(maximum amount that could be authorized
by the General Assembly)
Section 9(c) General Obligation Debt Limit and Debt Margin
- ----------------------------------------------------------
Debt Limit (1.15 times average tax revenues for three fiscal years as calculated above) $6,136,996
Less Bonds Outstanding:
Parking Facilities 10.645
Transportation Facilities 80,115
Higher Education Institutions 406,427
---------------
Debt Margin $5,639,809
===============
</TABLE>
Article X further provides in Section 9(d) that the restrictions of
Section 9 are not applicable to any obligation incurred by the Commonwealth or
any of its institutions, agencies or authorities if the full faith and credit
of the Commonwealth is not pledged or committed to the payment of such
obligation. There are currently outstanding various types of such 9(d) revenue
bonds. Certain of these bonds, however, are paid in part or in whole from
revenues received as appropriations by the General Assembly from general tax
revenues, while others are paid solely from revenues of the applicable project.
The debt repayments of the Virginia Public Building Authority, the
Virginia Port Authority, the Virginia College Building Authority Equipment
Leasing Program and The Innovative Technology Authority are supported in large
part by General Fund appropriations. Together, payments to these authorities
totaled $87.3 million in fiscal year 1994.
The Commonwealth Transportation Board ("CTB") in 1993 issued its
$111,680,000 Transportation Contract Revenue Refunding Bonds to refund in full
an earlier series of the same bonds issued to finance costs related to its
Route 28 Project. In 1989, CTB issued its $200,000,000 Transportation Revenue
Bonds, Series 1989
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(U.S. Route 58 Corridor Development Program). These bonds were refunded in
part in 1993 by the issuance of CTB's $91,455,000 Transportation Revenue
Refunding Bonds, Series 1993A (U.S. Route 58 Corridor Development Program).
Additional costs of that program were financed through the issuance of CTB's
$98,715,000 Transportation Revenue Bonds, Series 1993 B (U.S. Route 58 Corridor
Development Program). In August, 1993, CTB also issued its $134,060,000
Transportation Revenue Bonds, Series 1993C (Northern Virginia Transportation
District Program). These bonds are secured by and payable from funds
appropriated by the General Assembly from the Transportation Trust Fund for
such purpose. The Transportation Trust Fund was established by the General
Assembly in 1986 as a special non-reverting fund administered and allocated by
the Transportation Board to provide increased funding for construction, capital
and other needs of state highways, airports, mass transportation and ports.
The Virginia Port Authority has also issued bonds in the approximately amount
of $106 million which are secured by a portion of the Transportation Trust
Fund. The fund balance of the Transportation Trust Fund administered by the
Transportation Board at June 30, 1994, was $278.9 million.
The Commonwealth is also involved in numerous leases that are subject
to appropriation of funding by the General Assembly. For all capital leases,
the principal balance was $21.1 million as of June 30, 1993.
The Commonwealth finances the acquisition of certain personal property
and equipment through installment purchase agreements. The length of the
agreements and the interest rates charged vary. In most cases, the agreements
are collateralized by the personal property and equipment acquired.
Installment purchase agreements contain nonappropriation clauses indicating
that continuation of the installment purchase is subject to funding by the
General Assembly. The balance of installment purchase obligations was $48.3
million as of June 30, 1993.
Bonds issued by the Virginia Housing Development Authority, the
Virginia Resources Authority and the Virginia Public School Authority are
designed to be self-supporting from their individual loan programs. A portion
of the Virginia Housing Development Authority and Virginia Public School
Authority bonds and all of the Virginia Resources Authority bonds are secured
in part by a moral obligation pledge of the Commonwealth. Should the need
arise, the Commonwealth may consider funding deficiencies in the respective
debt service for such moral obligation debt. To date, none of these
authorities has advised the Commonwealth that any such deficiencies exist.
Local Government. Local government in the Commonwealth is comprised
of 95 counties, 41 incorporated cities, and 190
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incorporated towns. The Commonwealth is unique among the several states in
that cities and counties are independent, and their land areas do not overlap.
Cities and counties are the units of general government that have traditionally
provided all services not provided by the Commonwealth; they levy and collect
their own taxes. On the other hand, towns constitute a part of the counties in
which they are located; they levy and collect taxes for town purposes, but
their residents are also subject to county taxes. The largest expenditure by
local governments in the Commonwealth are for education, but local governments
also provide other services such as water and sewer, police and fire protection
and recreational facilities.
According to figures prepared by the Auditor of Public Accounts of
Virginia, the total outstanding general obligation and revenue debt of counties
in the Commonwealth was approximately $4.1 billion as of June 30, 1993, most of
which was borrowed for school construction. The amount of debt of Virginia's
cities outstanding as of June 30, 1993, was approximately $3.6 billion, while
towns had approximately $233 million outstanding as of June 30, 1993.
Pending Litigation. On March 28, 1989, in Davis v. Michigan the
United States Supreme Court declared unconstitutional a Michigan statute
exempting from state income tax the retirement benefits paid to former workers
by the state and local governments but not comparable benefits paid by the
Federal government. At that time, Virginia exempted state and local but not
Federal government benefits.
Harper v. Department of Transportation is a suit by Federal retirees
seeking refund of four years of state income taxes paid during 1985-1988. On
May 27, 1994, the Virginia Supreme Court agreed to hear Harper on appeal from
the Alexandria Circuit Court. In a July 1994 special session, the Virginia
General Assembly passed emergency legislation to provide payments to Federal
retirees in settlement of the principal amount, excluding interest, of the
retirees' claims for overpaid taxes. On July 26, 1994, in order to permit the
settlement process to go forward, the Virginia Supreme Court granted a stay in
the proceedings in Harper for six months or until further order of the Court,
whichever occurs first.
The settlement payments are to be made over a five-year period,
commencing on March 31, 1995. The total amount of the proposed settlement is
$340 million plus earnings on the investment of such amount that may be
appropriated. These amounts will be paid to participating retirees in
installments of $60 million on March 31, 1995, and $70 million on each
succeeding March 31 through 1999, subject to appropriation by the General
Assembly.
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Retirees who choose to accept and remain eligible to recover such
taxes must have responded to the Department of Taxation by November 1, 1994.
By February 1, 1995 , retirees must have signed and returned to the Tax
Commissioner a settlement agreement releasing the Commonwealth from any further
liability for claims arising out of such taxes and dismissing any related
litigation to which the taxpayer is a party. The legislation also provides
that in the event the total principal amount of the claims of the taxpayers
opting out of the settlement exceeds $20 million, the entire settlement shall
be null and void unless reauthorized by the General Assembly on or before March
1, 1995. The estimated amount of such claims, including interest calculated as
of December 31, 1993, is approximately $707.5 million.
After the decision in Davis v. Michigan, the General Assembly amended
applicable Virginia law to make all pensions taxable. On July 8, 1993, in
Stepka v. Commonwealth several former state employees and one current state
employee filed suit against the Commonwealth and the Department of Taxation in
the Circuit Court of the City of Richmond claiming that legislature's response
to Davis breached an implied contract not to tax state employees' pensions and
seeking refunds for all such taxes paid. The Commonwealth and the Department
have filed responsive pleadings. The case involves multiple plaintiffs with
claims aggregating approximately $19.2 million as of June 1994. The outcome of
the foregoing actions cannot be predicted.
Current Rating. Most recently, Moody's has rated the long-term
general obligation bonds of the Commonwealth Aaa, and Standard & Poor's has
rated such bonds AAA. There can be no assurance that the economic conditions
on which these ratings are based will continue or that particular bond issues
may not be adversely affected by changes in economic or political conditions.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN NEW JERSEY MUNICIPAL
OBLIGATIONS. The State of New Jersey and its political subdivisions, agencies
and public authorities are authorized to issue two general classes of
indebtedness: general obligation bonds and revenue bonds. Both classes of
bonds may be included in the New Jersey Municipal Money Market Portfolio. The
repayment of principal and interest on general obligation bonds is secured by
the full faith and credit of the issuer, backed by the issuer's taxing
authority, without recourse to any special project or source of revenue.
Special obligation or revenue bonds may be repaid only from revenues received
in connection with the project for which the bonds are issued, special excise
taxes, or other special revenue sources and generally are issued by entities
without taxing power. Neither the State of New Jersey nor any of its
subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
General obligation bonds of the State are repaid from revenues
obtained through the State's general taxing authority. An inability to
increase taxes may adversely affect the State's ability to authorize or repay
debt.
Public authorities, private non-profit corporations, agencies and
similar entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities
are not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity
bonds in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing
Authority's ability to repay debt on special obligation bonds and no assurance
can be given that sufficient revenues will be obtained to make such payments,
although in some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health
care facilities, transportation facilities, office buildings and related
facilities, housing facilities, pollution control facilities, water and sewage
facilities and power and electric facilities. Each of these facilities may
incur different difficulties in meeting its debt repayment obligations.
Hospital facilities, for example, are subject to changes in Medicare and
Medicaid reimbursement regulations, attempts by Federal and state legislatures
to limit the costs of health care and management's ability to complete
construction projects on a timely basis as well as to maintain projected rates
of occupancy and utilization. At any given time, there are several proposals
pending on a Federal and state level concerning health care which may further
affect a hospital's debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of Federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private
activity bonds issued by the New Jersey Economic Development Authority, a major
issuer of special obligation bonds, have defaulted on their debt service
obligations. Because these special obligation bonds were repayable only from
revenue received from the specific projects which they funded, the New Jersey
Economic Development Authority was unable to repay the debt service to
bondholders for such facilities. Each issue of special obligation bonds,
however, depends on its own revenue for repayment, and thus these defaults
should not affect the ability of the New Jersey Economic Development Authority
to repay obligations on other bonds that it issues in the future.
The State has, in the past, experienced a period of substantial
economic growth with unemployment levels below the national average. Recently,
however, the state has experienced an economic slowdown, and its unemployment
rate has risen to the extent the State has lost its relative advantage over the
nation. To the extent that any adverse conditions exist in the future which
affect the obligor's ability to repay debt, the value of the Portfolio may be
immediately and substantially affected.
The following are cases presently pending or threatened in which the
State has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (i) several labor unions have challenged 1992
legislation mandating a revaluation of several public employee pension funds
which resulted in a refund of $773 million in public employer contributions to
the State and annual savings to the State of approximately $226 million for
fiscal 1993 and thereafter; (ii) in June 1990, the State Supreme Court held the
State's public school funding mechanism unconstitutional; legislation which was
enacted to establish a new funding system has also been challenged; (iii)
several cases filed in the State courts challenged the basis on which
recoveries of certain costs for residents in State psychiatric hospitals and
other facilities are shared between the State Department of Human Services and
the State's county governments, and certain counties are seeking the recovery
from the Department of costs they have incurred for the maintenance of such
residents; (iv) a lawsuit filed in the United States District Court in 1990
alleges that the State Department of Human Services has established
unreasonably low Medicaid payment rates for long-term care facilities; (v) a
number of taxpayers are seeking refunds of taxes paid to the Spill Compensation
Fund, on the grounds, inter alia, that the State law is preempted by the
Federal Superfund legislation; (vi) the 1990 Fair Automobile Insurance Reform
Act has been challenged in several State court suits, including provisions in
the Act dealing with the premium tax surtax which was intended to raise $300
million in 1993; (vii) a suit was filed in 1991 seeking to impose directly on
the State the responsibility for funding the State's judicial system, which has
been primarily funded by the counties; (viii) several union welfare benefit
plans are challenging the State's hospital rate-setting system in a suit filed
in United States District Court; the Court held in 1992 that certain provisions
of the State system are preempted by Federal law; and (ix) the method by which
various State agencies reduced their personnel has been challenged and the case
is pending before the State Supreme Court.
Although the Portfolio generally intends to invest its assets
primarily in New Jersey Municipal Obligations rated within the two highest
rating categories of an NRSRO, there can be no assurance that such ratings will
remain in effect until such obligations mature or are redeemed or will not be
revised downward or withdrawn. Such revisions or withdrawals may have an
adverse affect on the market price of such securities.
ADDITIONAL INVESTMENT LIMITATIONS.
In addition to the investment limitations disclosed in the
Prospectuses, each Portfolio is subject to the investment limitations
enumerated in this subsection which may be changed with respect to a particular
Portfolio only by a vote of the holders of a majority of such Portfolio's
outstanding shares (as defined below under "Miscellaneous").
No Portfolio may:
1. Purchase or sell real estate, except that each
Portfolio may purchase securities of issuers which deal in real
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estate and may purchase securities which are secured by interests in real
estate.
2. Acquire any other investment company or investment
company security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise permitted by the
1940 Act.
3. Act as an underwriter of securities within the
meaning of the Securities Act of 1933 except to the extent that the purchase of
obligations directly from the issuer thereof, or the disposition of securities,
in accordance with the Portfolio's investment objective, policies and
limitations may be deemed to be underwriting.
4. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except for transactions in options on
securities, securities indices, futures contracts and options on futures
contracts.
5. Purchase securities of companies for the purpose of
exercising control.
6. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to a Portfolio's transactions in futures contracts
and related options or a Portfolio's sale of securities short against the box,
and (b) a Portfolio may obtain short-term credit as may be necessary for the
clearance or purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in
oil, gas or mineral exploration or development programs, except that each
Portfolio may, to the extent appropriate to its investment policies, purchase
securities (publicly traded securities in the case of each Money Market
Portfolio) of companies engaging in whole or in part in such activities and may
enter into futures contracts and related options.
8. Make loans, except that each Portfolio may purchase
and hold debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies and may lend portfolio securities.
Although the foregoing investment limitations would permit the Money
Market Portfolios to invest in options, futures contracts and options on
futures contracts, and to sell securities short against the box, those
Portfolios do not currently intend to trade in such instruments or engage in
such transactions during the next twelve months. Prior to making any such
investments, a Money Market Portfolio would notify its
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<PAGE> 40
shareholders and add appropriate descriptions concerning the instruments and
transactions to its Prospectus.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Fund, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Philip E. Coldwell 72 Trustee Economic Consultant;
Coldwell Financial Consultants Chairman, Coldwell
3330 Southwestern Blvd. Financial Consultants;
Dallas, TX 75225 Director, Maxus Energy
Corporation (energy
products) from 1989 to 1993;
Director or Trustee of
Temporary Investment Fund, Inc.,
Trust for Federal Securities,
Municipal Fund for Temporary
Investment and Portfolios for
Diversified Investment.
Robert R. Fortune 78 Trustee Financial consultant;
2920 Ritter Lane Chairman, President and
Allentown, PA 18104 Chief Executive Officer,
Associated Electric & Gas
Insurance Services Limited
from 1984 to 1993; Member of
the Financial Executives
Institute and American
Institute of Certified
Public Accountants; Director,
Trustee or Managing General
Partner of a number of
investment companies advised
by PIMC; Director, Prudential
Utility Fund, Inc., Prudential
Structured Maturity Fund, Inc.
and Prudential IncomeVertible
Fund, Inc.
Rodney D. Johnson 53 Trustee President, Fairmount
</TABLE>
-40-
<PAGE> 41
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Fairmont Capital Advisers, Capital Advisors, Inc.
Inc. (financial advisers)
1435 Walnut St. since 1987; Treasurer,
Philadelphia, PA 19102 North Philadelphia Health
System (formerly Girard
Medical Center) from 1988
to 1992; Member, Board of
Education, School District
of Philadelphia, 1983 to
1988; Treasurer, Cascade
Aphasia Center, 1984 to
1988; Director or Trustee of
Temporary Investment Fund,
Inc., Trust for Federal
Securities, Municipal Fund
for Temporary Investment,
Portfolios for Diversified
Investment, Municipal Fund
for California Investors,
Inc. and Municipal Fund for
New York Investors, Inc.
G. Willing Pepper(1) 86 Chairman of Retired; Chairman of the
128 Springton the Board Board, Specialty
Lake Road and President Composites Corporation
Media, PA 19063 until May 1984;
Chairman of the Board, The
Institute for Cancer
Research until 1979;
Director, Philadelphia
National Bank until 1978;
President, Scott Paper
Company from 1971 to
1973; Director, Marmon
Group, Inc. until April
1986; Director, Trustee
or Managing General
Partner of a number
of investment companies
advised by PIMC.
</TABLE>
- --------------------
(1) This trustee may be deemed an "interested person" of the Fund as
defined in the 1940 Act.
-41-
<PAGE> 42
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Anthony M. Santomero 48 Trustee Deputy Dean from
310 Keithwood Road 1990 to 1994, Richard
Wynnewood, PA 19096 K. Mellon Professor
of Finance since April 1984,
and Dean's Advisory
Council Member since
July 1984, The Wharton
School, University of
Pennsylvania; Associate
Editor, Journal of Banking
and Finance since June 1978;
Associate Editor, Journal of
Economics and Business since
October 1979; Associate Editor,
Journal of Money, Credit and
Banking since January 1980;
Research Associate, New York
University Center for Japan-U.S.
Business and Economic Studies
since July 1989; Editorial
Advisory Board, Open Economics
Review since November 1990;
Director, The Zweig Fund and
The Zweig Total Return Fund;
Director or Trustee of Temporary
Investment Fund, Inc., Trust
for Federal Securities, Municipal
Fund for Temporary Investment,
Portfolios for Diversified
Investment and Municipal Fund
for California Investors, Inc.
David R. Wilmerding, Jr. 60 Vice-Chairman President, Gates,
One Aldwyn Center of the Board Wilmerding, Carper &
Villanova, PA 19085 Rawlings, Inc.
(investment advisers)
since February 1989;
Director, Beaver Management
Corporation; Until September
1988, President, Treasurer
and Trustee, The Mutual
</TABLE>
-42-
<PAGE> 43
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Assurance Company; Until
September 1988, Chairman,
President Treasurer and
Director, The Green Tree
Insurance Company (a
wholly-owned subsidiary
of The Mutual Assurance
Company); Until September
1988, Director, Keystone
State Life Insurance Company;
Director, Trustee or Managing
General Partner of a number
of investment companies advised
by PIMC.
Edward J. Roach 70 Treasurer Certified Public
400 Bellevue Parkway and Vice- Accountant; Partner of
Suite 100 President the accounting firm of
Wilmington, DE 19809 Main Hurdman until 1981; Vice
Chairman of the Board, Fox
Chase Cancer Center; Trustee
Emeritus, Pennsylvania School
for the Deaf; Trustee Emeritus,
Immaculata College; President,
Vice President and/or Treasurer
of a number of investment
companies advised by PIMC.
Morgan R. Jones 55 Secretary Partner in the law
Philadelphia National firm of Drinker Biddle &
Bank Building Reath, Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107-3496
</TABLE>
The Fund pays trustees who are not affiliated with PNC Institutional
Management Corporation ("PIMC") or Provident Distributors, Inc. ("PDI" or
"Distributor") $5,500 annually and $500 per meeting of the Board or any
committee thereof that is not held in conjunction with a Board meeting (subject
to a cap of $6,000 per year for such meeting fees), and pays the Chairman an
additional $5,000 annually. Trustees who are not affiliated with PIMC or the
Distributor are reimbursed for any expenses incurred in attending meetings of
the Board of Trustees or any committee thereof. No officer, director or
employee of PIMC, Provident Capital Management, Inc. ("PCM"), PNC Bank,
National Association
-43-
<PAGE> 44
("PNC Bank"), Black Rock Financial Management, Inc. ("Black Rock"), PNC
Equity Advisors Company ("PEAC"), PFPC Inc. ("PFPC"), Provident Distributors,
Inc. (formerly, MFD Group, Inc.) ("PDI" and, collectively with PFPC, the
"Administrators") or the Distributor currently receives any compensation from
the Fund. Drinker Biddle & Reath, of which Mr. Jones is a partner, receives
legal fees as counsel to the Fund. As of the date of this Statement of
Additional Information, the trustees and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of each Portfolio.
The table below sets forth the compensation actually received from the
Fund Complex, of which the Fund is a part, by the trustees for the fiscal year
ended September 30, 1994:
<TABLE>
<CAPTION>
===========================================================================================================================
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM REGISTRANT AND
NAME OF PERSON, COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX (1)
POSITION REGISTRANT FUND EXPENSES RETIREMENT PAID TO TRUSTEES
--------------- ----------------- ------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip E. Coldwell, Trustee $7,625 n/a n/a (4)(2) $44,025.00
- ---------------------------------------------------------------------------------------------------------------------------
Robert R. Fortune, Trustee $7,625 n/a n/a (6)(2) $56,725.00
- ---------------------------------------------------------------------------------------------------------------------------
Rodney D. Johnson, Trustee $7,625 n/a n/a (6)(2) $54,775.00
- ---------------------------------------------------------------------------------------------------------------------------
G. Willing Pepper, Chairman $11,625 n/a n/a (7)(2) $98,275.00
of the Board and President
- ---------------------------------------------------------------------------------------------------------------------------
Anthony M. Santomero, Trustee $7,625 n/a n/a (5)(2) $44,025.00
- ---------------------------------------------------------------------------------------------------------------------------
Henry M. Watts, Jr.,(1) Trustee $2,675 n/a n/a (8)(2) $61,875.00
- ---------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Jr., $7,625 n/a n/a (6)(2) $61,025.00
Trustee
===========================================================================================================================
</TABLE>
- -------------------------------
(1) A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any of the other investment companies.
(2) Total number of investment companies trustee serves on within the
Fund Complex.
(3) Mr. Watts resigned as trustee on May 5, 1994.
-44-
<PAGE> 45
SHAREHOLDER AND TRUSTEE LIABILITY. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, the
Fund's Declaration of Trust provides that shareholders shall not be subject to
any personal liability in connection with the assets of the Fund for the acts
or obligations of the Fund, and that every note, bond, contract, order or other
undertaking made by the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder
and not because of his acts or omissions or some other reason. The Declaration
of Trust also provides that the Fund shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Fund,
and shall satisfy any judgment thereon.
The Declaration of Trust further provides that all persons having any
claim against the trustees or Fund shall look solely to the trust property for
payment; that no trustee of the Fund shall be personally liable for or on
account of any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the trust
property or the conduct of any business of the Fund; and that no trustee shall
be personally liable to any person for any action or failure to act except by
reason of his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a trustee. With the exception stated, the
Declaration of Trust provides that a trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him in connection
with the defense or disposition of any proceeding in which he may be involved
or with which he may be threatened by reason of his being or having been a
trustee, and that the Fund will indemnify officers, representatives and
employees of the Fund to the same extent that trustees are entitled to
indemnification.
INVESTMENT ADVISORY, ADMINISTRATION,
DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PIMC, BlackRock, PCM, PEAC and PNC Bank and the fees
received by each of them for such services are described in the Prospectuses.
As stated in the Prospectuses, PIMC may from time to time voluntarily waive its
advisory fees with respect to a Portfolio and may voluntarily reimburse
Portfolios for expenses. In addition, if the total expenses borne by any
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations,
-45-
<PAGE> 46
PIMC and the Administrators will bear the amount of such excess to the extent
required by such regulations in proportion to the fees otherwise payable to
them for such year. Such amount, if any, will be estimated and accrued daily
and paid on a monthly basis. As of the date of this Statement of Additional
Information, to the knowledge of the Fund, there were no state expense
limitations more restrictive than the following: 2 1/2% of the first $30
million of average annual net assets, 2% of the next $70 million of average
annual net assets, and 1 1/2% of average annual net assets in excess of $100
million.
PIMC renders advisory services to each of the Portfolios pursuant to an
Investment Advisory Agreement. PCM renders sub-advisory services to the Value
Equity, Small Cap Value Equity, International Equity, International Fixed
Income and International Emerging Markets Portfolios pursuant to Sub-Advisory
Agreements. PNC Bank renders sub-advisory services to the Money Market,
Government Money Market, Municipal Money Market, Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Virginia Municipal Money Market, New Jersey Municipal Money Market, Balanced
and Tax-Free Income Portfolios pursuant to Sub-Advisory Agreements. BlackRock
renders sub-advisory services to the Managed Income, Intermediate Government,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term Bond,
Intermediate-Term Bond and Government Income Portfolios pursuant to
Sub-Advisory Agreements. PEAC renders sub-advisory services to the Growth
Equity, Small Cap Growth Equity, Core Equity and Index Equity Portfolios
pursuant to Sub-Advisory Agreements. These Advisory and Sub-Advisory
Agreements are collectively referred to as the "Advisory Contracts." From
December 1, 1992 (commencement of operations) to March 29, 1995, PNC Bank,
Ohio, National Association ("PNC Bank Ohio") served as sub-adviser to the Ohio
Tax-Free Income Portfolio. From November 1, 1989 (commencement of operations)
to May 8, 1992, PNC Bank Ohio served as sub-adviser to the Municipal Money
Market Portfolio. From November 1, 1989 (commencement of operations) to
September 10, 1993, PNC Bank Ohio served as sub-adviser to the Managed Income
and Growth Equity Portfolios. From April 20, 1992 (commencement of
operations) to July 22, 1992, Advanced Investment Management, Inc. served as
sub-adviser to the Index Equity Portfolio. From April 20, 1992 to September
10, 1993, PCM served as sub-adviser to the Intermediate Government Portfolio.
From July 23, 1992 to March 29, 1995, PNC Bank served as sub-adviser to the
Index Equity Portfolio. From September 11, 1993 to March 29, 1995, PNC Bank
served as sub-adviser to the Managed Income, Intermediate Government and Growth
Equity Portfolios. From December 1, 1992 (commencement of operations) to March
29, 1995, PNC Bank served as sub-adviser to the Ohio Tax-Free Income and
Pennsylvania Tax-Free Income Portfolios. From September 1, 1993 (commencement
of operations) to March 29, 1995, PNC Bank served as sub-adviser to the
Short-Term Bond Portfolio. From September 13, 1993 (commencement of
operations) to March 29, 1995, PNC Bank served as sub-adviser to the Core
Equity Portfolio. From September 14, 1993 (commencement of operations) to
March 29, 1995, PNC Bank served as sub-adviser to the Small Cap Growth Equity
Portfolio. From September 17, 1993 (commencement of operations) to March 29,
1995, PNC Bank served as sub-adviser to the Intermediate-Term Bond Portfolio.
Under the Advisory Contracts, PIMC, PCM, PEAC, PNC Bank and BlackRock
are not liable for any error of judgment or mistake of law or for any loss
suffered by the Fund or a Portfolio in connection with the performance of the
Advisory Contracts, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of PIMC, PCM, PEAC, PNC Bank or BlackRock in
the performance of their respective duties or from reckless disregard of their
respective duties and obligations thereunder. Each of the Advisory Contracts
is terminable as to a Portfolio by vote of the Board of Trustees or by the
holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to PIMC,
PCM, PEAC, PNC Bank or BlackRock, as the case may be. PIMC, PCM, PEAC, PNC
Bank or BlackRock may also terminate their advisory
-46-
<PAGE> 47
relationship with respect to a Portfolio, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
its assignment.
For the year ended September 30, 1994, the Fund paid advisory fees to
PIMC, after waivers, of $951,230, $171,405, $281,771, $6,724, $42,612, $0,
$1,398,343, $0, $368,546, $0, $49,646, $36,893, $131,294, $2,306,672, $467,637,
$55,825, $303,169, $28,392, $890,883, $1,408,053 and $470,579 with respect to
the Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International Equity
and Balanced Portfolios. For that year, PIMC waived advisory fees of
$3,359,847, $599,920, $986,201, $217,938, $336,382, $249,914, $599,290,
$47,655, $552,819, $35,709, $227,003, $137,696, $206,071, $865,002, $175,364,
$160,320, $113,689, $376,934, $197,974, $477,733 and $202,166 for such
respective Portfolios, and reimbursed the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Tax-Free Income, Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios for certain operational expenses totalling $20,660, $19,022,
$26,804, $35,898, $35,496, and $9,645, respectively. For the period from
commencement of operations (July 25, 1994 for the Virginia Municipal Money
Market Portfolio and June 17, 1994 for the International Emerging Market
Portfolio) through September 30, 1994, the Fund paid advisory fees to PIMC,
after waivers, of $0 and $7,672 with respect to the Virginia Municipal Money
Market and International Emerging Markets Portfolios, respectively. For the
same periods, PIMC waived advisory fees of $8,925 and $16,051 for such
respective Portfolios, and reimbursed the Virginia Municipal Money Market
Portfolio for certain operational expenses totalling $4,816.
For the year ended September 30, 1993, the Fund paid advisory fees to
PIMC, after waivers, of $2,899,093, $509,475, $601,820, $1,522,695, $0,
$594,202, $1,996,726, $400,652, $212,413, $564,065, $598,040 and $124,556 for
the Money Market, Municipal Money Market, Government Money Market, Managed
Income, Tax-Free Income, Intermediate Government, Value Equity, Growth Equity,
Index Equity, Small Cap Value Equity, International Equity and Balanced
Portfolios, respectively. For that year, PIMC waived advisory fees of
$815,911, $131,249, $195,459, $87,513, $43,457, $77,301, $108,242, $31,912,
$161,606, $34,794, $47,134 and $45,203 for such respective Portfolios, and
reimbursed the Tax-Free Income Portfolio for certain operational expenses
totalling $7,314. For the period from commencement of operations (December 1,
1992 for each of the Ohio Tax-Free Income
-47-
<PAGE> 48
and Pennsylvania Tax-Free Income Portfolios; May 3, 1993 for the North Carolina
Municipal Money Market Portfolio; June 1, 1993 for each of the Ohio Municipal
Money Market and Pennsylvania Municipal Money Market Portfolios; September 1,
1993 for the Short-Term Bond Portfolio; September 13, 1993 for the Core Equity
Portfolio; September 14, 1993 for the Small Cap Growth Equity Portfolio; and
September 17, 1993 for the Intermediate-Term Bond Portfolio) to September 30,
1993, the Fund paid advisory fees to PIMC, after waivers, of $0, $0, $0, $0,
$0, $0, $5,432, $0 and $14,325 for the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term Bond,
Intermediate-Term Bond, Small Cap Growth Equity and Core Equity Portfolios,
respectively. For the same periods, PIMC waived advisory fees of $28,953,
$18,117, $47,085, $8,781, $87,528, $2,078, $5,432, $2,773 and $5,372 for such
respective Portfolios, and reimbursed the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Ohio Tax-Free Income, Pennsylvania Tax-Free Income and Short-Term Bond
Portfolios for certain operational expenses totalling $8,630, $11,411, $11,729,
$20,906, $19,064 and $1,349, respectively.
For the year ended September 30, 1992, the Fund paid advisory fees to
PIMC, after waivers, of $2,526,929, $495,175, $706,211, $303,330, $8,166,
$815,088 and $0 for the Money Market, Municipal Money Market, Government Money
Market, Growth Equity, Balanced, Managed Income and Tax-Free Income Portfolios,
respectively. For that year, PIMC waived advisory fees of $315,866, $61,909,
$88,276, $6,541, $26,089 and $22,281 for the Money Market, Municipal Money
Market, Government Money Market, Growth Equity, Balanced and Tax-Free Income
Portfolios, respectively, and reimbursed the Tax-Free Income Portfolio for
certain operational expenses totalling $19,415. For the period from
commencement of operations (April 13, 1992 for the Small Cap Value Equity
Portfolio, April 20, 1992 for the Value Equity, Index Equity and Intermediate
Government Portfolios and April 27, 1992 for the International Equity
Portfolio) to September 30, 1992, the Fund paid advisory fees to PIMC, after
waivers, of $786,513, $88,130, $177,897, $187,950 and $208,451, for the Value
Equity, Index Equity, Small Cap Value Equity, International Equity and
Intermediate Government Portfolios, respectively. For the same periods, PIMC
waived advisory fees of $67,979, $4,597, $3,247 and $178 for the Index Equity,
Small Cap Value Equity, International Equity and Intermediate Government
Portfolios, respectively.
For the year ended September 30, 1994, PIMC paid sub-advisory fees to
the specified Portfolios' sub-adviser, after waivers, of $0, $0, $0, $0, $0,
$0, $1,198,580, $0, $276,410, $0, $33,198, $36,893, $97,470, $2,018,338,
$409,182, $55,825,
-48-
<PAGE> 49
$265,273, $28,392, $791,896, $1,257,191, and $409,420 with respect to the Money
Market, Municipal Money Market, Government Money Market, Ohio Municipal Money
Market, Pennsylvania Municipal Money Market, North Carolina Municipal Money
Market, Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free
Income, Pennsylvania Tax-Free Income, Short-Term Bond, Intermediate-Term Bond,
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Index
Equity, Small Cap Value Equity, International Equity and Balanced Portfolios.
For that year, such sub-advisers waived sub-advisory fees of $479,008, $85,703,
$140,886, $24,962, $42,110, $27,768, $199,763, $33,359, $368,546, $24,996,
$160,456, $85,319, $138,685, $288,334, $58,455, $101,371, $37,896, $275,602,
$0, $251,438, and $79,849 for such respective Portfolios. For the period from
commencement of operations (July 25, 1994 for the Virginia Municipal Money
Market Portfolio and June 17, 1994 for the International Emerging Markets
Portfolio) through September 30, 1994, PIMC paid sub-advisory fees to the
specified Portfolios' sub-adviser, after waivers, of $0 and $6,723 with respect
to the Virginia Municipal Money Market and International Emerging Markets
Portfolios, respectively. For the same periods, such sub- advisers waived
sub-advisory fees of $992 and $14,153 for such respective Portfolios.
For the year ended September 30, 1993, PIMC paid sub-advisory fees to
the specified Portfolios' sub-adviser, after waivers, of $0, $0, $0,
$1,065,887, $0, $415,941, $1,452,164, $291,383, $159,310, $410,229, $478,432
and $90,586 for the Money Market, Municipal Money Market, Government Money
Market, Managed Income, Tax-Free Income, Intermediate Government, Value Equity,
Growth Equity, Index Equity, Small Cap Value Equity, International Equity and
Balanced Portfolios, respectively. For that year, such sub- advisers waived
sub-advisory fees of $412,778, $71,192, $88,587, $61,259, $30,420, $54,111,
$78,721, $25,967, $121,205, $25,305, $37,707 and $32,875 for such respective
Portfolios. For the period from commencement of operations to September 30,
1993, the Fund paid sub-advisory fees to the specified Portfolios' sub-adviser,
after waivers, of $0, $0, $0, $0, $0, $0, $3,802, $0 and $10,418 for the Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond, Small Cap Growth Equity and Core
Equity Portfolios, respectively. For the same periods, such sub-advisers
waived sub-advisory fees of $3,217, $2,013, $5,232, $6,147, $61,270, $1,456,
$3,802, $2,017 and $3,906 for such respective Portfolios. For the period from
October 1, 1992 to September 10, 1993, PIMC paid sub- advisory fees of
$1,017,364 and $274,275 to PNC Bank Ohio for the Managed Income and Growth
Equity Portfolios, respectively. For the period from October 1, 1992 to
September 10, 1993, PIMC paid sub-
-49-
<PAGE> 50
advisory fees of $397,885 to PCM with respect to the Intermediate Government
Portfolio.
For the year ended September 30, 1992, PIMC paid sub-advisory fees to
the specified Portfolios' sub-adviser, after waivers, of $0, $0, $220,604,
$5,939, $0 and $570,562, for the Money Market, Government Money Market, Growth
Equity, Balanced, Tax-Free Income and Managed Income Portfolios, respectively.
For that year, such sub-advisers waived sub-advisory fees of $315,866, $88,276,
$4,757, $18,974 and $15,597 for the Money Market, Government Money Market,
Growth Equity, Balanced and Tax-Free Income Portfolios, respectively. For the
period from commencement of operations to September 30, 1992, PIMC paid
sub-advisory fees to the specified Portfolios' sub-adviser, after waivers, of
$572,004, $129,380, $150,360 and $145,916 for the Value Equity, Small Cap Value
Equity, International Equity and Intermediate Government Portfolios,
respectively. For the same periods, the specified Portfolios' sub-adviser
waived sub-advisory fees of $3,343, $2,598 and $125, for the Small Cap Value
Equity, International Equity and Intermediate Government Portfolios,
respectively. For the period from October 1, 1991 to May 8, 1992 for the
Tax-Free Money Market Portfolio and the period April 20, 1992 to July 22, 1992
for the Index Equity Portfolio, PIMC paid sub-advisory fees to the particular
Portfolio's sub-adviser, after waivers, of $192,992 and $35,282, respectively,
and such sub-advisers waived sub-advisory fees of $0 and $30,027, respectively.
Such sub-advisory fees have no effect on the advisory fees payable by each
Portfolio to PIMC.
ADMINISTRATION AGREEMENTS. The Administrators serve as the Fund's
co-administrators pursuant to an Administration Agreement (the "Administration
Agreement"). The Administrators have agreed to maintain office facilities for
the Fund, furnish the Fund with statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by
the Fund.
The Administration Agreement provides that the Administrators will not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund or a Portfolio in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from
reckless disregard of their respective duties and obligations thereunder.
For the year ended September 30, 1994, the Fund paid the
Administrators combined administration fees, after waivers, of $803,349,
$42,931, $132,901, $2,241, $11,758, $0, $521,204, $0, $186,742, $0, $19,858,
$14,758, $52,518, $1,075,209, $128,262, $20,166, $52,164, $27,115, $354,486,
$502,876 and $125,112 with
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respect to the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International Equity
and Balanced Portfolios. For that year, the Administrators waived combined
administration fees of $541,066, $214,178, $289,756, $72,646, $114,573,
$83,304, $277,849, $19,062, $181,804, $14,284, $90,020, $55,078, $82,428,
$61,908, $105,557, $58,432, $99,421, $378,211, $41,462, and $119,522 with
respect to the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax- Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity and Balanced
Portfolios, respectively, and reimbursed the Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, North Carolina Municipal Money Market,
Tax-Free Income, Ohio Tax-Free Income, and Pennsylvania Tax-Free Income
Portfolios for certain operational expenses totalling $6,887, $6,340, $8,934,
$14,359, $14,199 and $3,858, respectively. For the period from commencement of
operations (July 25, 1994 for the Virginia Municipal Money Market Portfolio and
June 17, 1994 for the International Emerging Markets Portfolio) through
September 30, 1994, the Fund paid Administrators combined administration fees,
after waivers, of $0 and $1,259 with respect to the Virginia Municipal Money
Market and International Emerging Market Portfolios, respectively. For the
same periods, the Administrators waived combined administration fees of $2,975
and $2,537 for such respective Portfolios, and reimbursed the Virginia
Municipal Money Market Portfolio for certain operational expenses totalling
$1,605.
For the period from February 1, 1993 to September 30, 1993, the Fund
paid the Administrators combined administration fees, after waivers, of
$674,120, $117,768, $157,519, $397,750, $0, $167,611, $0, $0, $528,584,
$101,208, $195,736, $156,048, $123,924 and $44,667 for the Money Market,
Municipal Money Market, Government Money Market, Managed Income, Tax-Free
Income, Intermediate Government, Pennsylvania Tax-Free Income, Ohio Tax-Free
Income, Value Equity, Growth Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios, respectively. For that period,
the Administrators waived combined administration fees of $101,509, $21,036,
$30,288, $87,513, $11,914, $24,673, $85,754, $8,757, $9,382, $12,879, $59,581,
$5,441, $6,477 and $8,046 for such respective Portfolios, and reimbursed the
Pennsylvania Tax-Free Income and
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Ohio Tax-Free Income Portfolios for certain operational expenses totalling
$5,766 and $6,515, respectively. For the period from commencement of
operations to September 30, 1993, the Fund paid the Administrators combined
administration fees, after waivers, of $0, $0, $0, $0, $1,262, $173 and $4,722
for the Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market, Short-Term Bond, Intermediate-Term Bond, Small
Cap Growth Equity and Core Equity Portfolios, respectively. For the same
period, the Administrators waived combined administration fees of $9,651,
$6,039, $15,695, $831, $3,084, $835 and $2,441 for such respective Portfolios.
For the period from October 1, 1992 to January 31, 1993, the Fund paid
PFPC and the former co-administrator combined administration fees, before
waivers, of $397,594, $74,771, $77,953, $212,227, $0, $76,317, $227,477,
$43,210, $118,702, $56,278, $41,645 and $4,938 Money Market, Municipal Money
Market, Government Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Value Equity, Growth Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios, respectively. For that period,
PFPC and the former co-administrator waived combined administration fees of $0,
$0, $0, $0, $5,469, $0, $0, $0, $0, $0, $0 and $4,080 for such respective
Portfolios, and reimbursed the Tax-Free Income Portfolio for certain
operational expenses totalling $0. For the period from commencement of
operations to January 31, 1993, the Fund paid PFPC and the former
co-administrator combined administration fees, before waivers, of $0 and $0 for
the Ohio Tax-Free Income and Pennsylvania Tax-Free Income Portfolios,
respectively. For the same period, PFPC and the former co-administrator waived
combined administration fees of $124 and $1,774 for such respective Portfolios,
and reimbursed such Portfolios for certain operational expenses totalling
$1,848 and $1,859, respectively.
For the year ended September 30, 1992, the Fund paid PFPC and the
former co-administrator combined administration fees, after waivers, of
$923,307, $185,695, $264,829, $112,680, $3,511, $326,035 and $0 for the Money
Market, Municipal Money Market, Government Money Market, Growth Equity,
Balanced, Managed Income and Tax-Free Income Portfolios, respectively. For
that year, PFPC and the former co-administrator waived combined administration
fees of $8,946 and $8,912 for the Balanced and Tax-Free Income Portfolios,
respectively. For the services provided and expenses assumed by PFPC and the
former co-administrator, the Fund paid them combined administration fees of
$286,005, $156,109, $66,361, $50,986 and $83,451 for the Value Equity, Index
Equity, Small Cap Value Equity, International Equity and Intermediate
Government Portfolios, respectively, for the periods from the dates the
respective Portfolios commenced operations to September 30, 1992. See
"Investment Advisory,
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Administration, Distribution and Servicing Agreements - Advisory and
Sub-Advisory Agreements" regarding the Administrators' agreement to reimburse
the Fund in the event the expenses of a Portfolio exceed applicable state
expense limitations.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of
the Fund's assets pursuant to a custodian agreement (the "Custodian
Agreement"). Under the Custodian Agreement, PNC Bank or a sub-custodian (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
holds and transfers portfolio securities on account of each Portfolio, (iii)
accepts receipts and makes disbursements of money on behalf of each Portfolio,
(iv) collects and receives all income and other payments and distributions on
account of each Portfolio's securities and (v) makes periodic reports to the
Board of Trustees concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that, with respect to
sub-custodians other than sub-custodians for foreign securities, PNC Bank
remains responsible for the performance of all its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian. The Chase Manhattan Bank, N.A., State Street Bank and Trust
Company and Barclays Bank PLC serve as the Fund's sub-custodians.
For its services to the Fund under the Custodian Agreement, PNC Bank
receives a fee which is calculated based upon each investment portfolio's
average gross assets, with a minimum monthly fee of $1,000 per investment
portfolio. PNC Bank is also entitled to out-of-pocket expenses and certain
transaction charges.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund pursuant to a Transfer Agency Agreement (the
"Transfer Agency Agreement"), under which PFPC (i) issues and redeems Service,
Investor, and Institutional classes of shares in each Portfolio, (ii) addresses
and mails all communications by each Portfolio to record owners of its shares,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts and (iv) makes periodic reports to the
Board of Trustees concerning the operations of each Portfolio. PFPC may, on 30
days' notice to the Fund, assign its duties as transfer and dividend disbursing
agent to any other affiliate of PNC Bank Corp. For its services with respect
to the Fund's Institutional and Service Shares under the Transfer Agency
Agreement, PFPC receives fees at the annual rate of .03% of the average net
asset value of outstanding Institutional and Service Shares in each Portfolio,
plus per account fees and disbursements. For its services under the Transfer
Agency Agreement with respect to Investor Shares, PFPC receives per account
fees, with minimum annual fees of $24,000 for each Portfolio, plus
disbursements.
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<PAGE> 54
DISTRIBUTOR AND DISTRIBUTION PLANS. The Fund has entered into a
distribution agreement with the Distributor under which the Distributor, as
agent, offers shares of each Portfolio on a continuous basis. The Distributor
has agreed to use appropriate efforts to effect sales of the shares, but it is
not obligated to sell any particular amount of shares. A message from the
Distributor has been attached to this Statement of Additional Information as
Appendix B.
The Distributor is entitled to payments by each class of Series A
Investor Shares and Series B Investor Shares for certain distribution and other
expenses in addition to the sales charges described in the Prospectuses (if
applicable). The Fund's Distribution and Service Plan for Series A Investor
Shares and the Fund's Series B Distribution Plan (collectively, "the Plans")
provide, among other things, that: (i) the Distributor shall submit quarterly
reports to the Board of Trustees regarding the amounts expended under each Plan
and the purposes for which such expenditures were made; (ii) each Plan will
continue in effect for so long as its continuance is approved at least annually
by the Board of Trustees; (iii) any material amendment thereto must be approved
by the Board of Trustees, including the trustees who are not "interested
persons" of the Fund (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plans or any agreement
entered into in connection with the Plans ("12b-1 Trustees"), acting in person
at a meeting called for said purpose; (iv) any amendment to increase materially
the costs which any class of shares may bear for distribution pursuant to the
Plans shall be effective only upon approval by a vote of a majority of the
outstanding shares of such class; and (v) while the Plans remain in effect, the
selection and nomination of the Fund's trustees who are not "interested
persons" of the Fund shall be committed to the discretion of such
non-interested trustees.
The Distribution and Service and Series B Distribution Plans are
terminable as to any class of Series A and Series B Investor Shares,
respectively, without penalty at any time by a vote of a majority of the 12b-1
Trustees, or by vote of the holders of a majority of the shares of such
respective classes. Similarly, any agreement entered into pursuant to either
Plan with a Service Organization is terminable as to a class without penalty,
at any time, by the Fund or by the Service Organization upon written notice to
the other. Each such agreement will terminate automatically in the event of
its assignment.
The front-end sales charge and amounts payable to the Distributor
under the Distribution and Service Plan are used by the Distributor to pay
commissions and other fees payable to Service Organizations and other
broker/dealers who sell Series A Shares.
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<PAGE> 55
Service Organizations and other broker/dealers receive commissions
from the Distributor for selling Series B Shares, which are paid at the time of
the sale. These commissions approximate the commissions payable with respect
to sales of Series A Shares. The fees payable under the Series B Distribution
Plan (at an annual rate of .75% of the average daily net asset value of each
Portfolio's outstanding Series B Shares) are intended to cover the expense to
the Distributor of paying such up-front commissions, and the contingent
deferred sales charge is calculated to charge the investor with any shortfall
that would occur if Series B Shares are redeemed prior to the expiration of the
six year period, after which Series B Shares automatically convert to Series A
Shares. To provide funds for the payment of up-front sales commissions, the
Distributor has entered into an agreement with PNC Investment Corp. ("PNCIC"),
an affiliate of the Fund's adviser, which provides funds for the payment of
commissions and other fees payable to Service Organizations and broker/dealers
who sell Series B Shares. Under the terms of that agreement, the Distributor
has sold and assigned to PNCIC the fees which may be payable from time to time
to the Distributor under the Series B Distribution Plan and the contingent
deferred sales charges payable to the Distributor with respect to Series B
Shares.
For the fiscal year ended September 30, 1994, the Series A Investor
Shares of the Money Market, Municipal Money Market, Government Money Market,
Ohio Municipal Money Market, Pennsylvania Municipal Money Market, Managed
Income, Tax-Free Income, Intermediate Government, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap
Growth Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Equity and Balanced Portfolios bore expenses relating to the Distribution and
Service Plan in the amount of $10,092, $165, $427, $252, $193, $43,985,
$33,891, $20,618, $53,423, $316, $34, $31,135, $16,155, $3,297, $921, $8,190,
$54,045, $39,012 and $222,954, respectively. For the period from commencement
of operations to September 30, 1994, the Series A Investor Shares of the
International Emerging Markets Portfolio bore expenses relating to the
Distribution and Service Plan in the amount of $2,703. All such amounts paid
under the Distribution and Service Plan were paid as compensation to dealers
for distribution assistance. For the period from commencement of operations to
September 30, 1994, Series A Investor Shares of the Ohio Tax-Free Income
Portfolio bore no expenses relating to the Distribution and Service Plan. As
of September 30, 1994, the public offering of Series A Investor Shares of the
North Carolina Municipal Money Market and Virginia Municipal Money Market
Portfolios had not commenced. No Series B Investor Shares of any Portfolio
were issued during the fiscal year ended September 30, 1994.
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<PAGE> 56
No compensation is payable by the Fund to the Distributor for its
distribution services for Service or Institutional Shares.
Service Organizations may charge their clients additional fees for
account services.
SERVICE PLAN. As stated in the Prospectus for the Fund's Service
Shares, the Fund intends to enter into service agreements with institutions
pursuant to which institutions will render certain support services to their
customers who are the beneficial owners of Service Shares ("Customers"). Such
services will be provided to Customers who are the beneficial owners of Service
Shares and are intended to supplement the services provided by the Fund's
Administrators and transfer agent to the Fund's shareholders of record. In
consideration for payment of up to .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their Customers,
institutions may provide one or more of the following services to such
Customers: processing purchase and redemption requests from Customers and
placing orders with the Fund's transfer agent or the Distributor; processing
dividend payments from the Fund on behalf of Customers; providing
sub-accounting with respect to Service Shares beneficially owned by Customers
or the information necessary for sub-accounting; and other similar services.
In consideration for payment of a service fee of up to a separate .15% (on an
annualized basis) of the average daily net asset value of Service Shares owned
beneficially by their Customers, institutions may provide one or more of these
additional services to such Customers: responding to Customer inquiries
relating to the services performed by the institution and to Customer inquiries
concerning their investments in Service Shares; providing information
periodically to Customers showing their positions in Service Shares; and other
similar shareholder liaison services. Customers who are beneficial owners of
Service Shares should read the Prospectus in light of the terms and fees
governing their accounts with institutions. These servicing fees are not paid
to institutions with respect to other classes of shares of the Portfolios
("Series A Investor Shares," "Series B Investor Shares" and "Institutional
Shares").
For the fiscal year ended September 30, 1994, the Service Shares of
the Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate- Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International Equity
and Balanced Portfolios bore expenses relating to the Fund's Service Plan and
other service fees
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<PAGE> 57
aggregating $1,382,350, $368,547, $677,020, $97,034, $56,294, $87, $106,193,
$3,523, $99,744, $5,089, $24,652, $13,458, $69,088, $177,459, $58,828, $28,347,
$66,516, $52,752, $84,160, $110,459 and $123,661, respectively. For the period
from commencement of operations to September 30, 1994, the Service Shares of
the International Emerging Markets Portfolio bore expenses relating to the
Fund's Service Plan and other servicing fees aggregating $1,620. As of
September 30, 1994, the public offering of Service Shares of the Virginia
Municipal Money Market Portfolio had not commenced.
SERIES B SERVICE PLAN. As stated in the Prospectus for the Fund's
Series B Investor Shares, the Fund intends to enter into service agreements
with Service Organizations pursuant to which Service Organizations and
sometimes the Distributor will render certain support services to their
customers who are the beneficial owners of Series B Investor Shares. Such
services will be provided to customers who are the beneficial owners of Series
B Investor Shares and are intended to supplement the services provided by the
Fund's Administrators and transfer agent. In consideration for payment
aggregating up to .25% (on an annualized basis) of the average daily net asset
value of Series B Investor Shares owned beneficially by their customers,
Service Organizations and the Distributor may provide one or more of the
following services to such customers: establishing and maintaining accounts
and records relating to customers that invest in Series B Shares; processing
dividend and distribution payments from the Fund on behalf of customers;
arranging for bank wires; providing sub-accounting with respect to Series B
Shares beneficially owned by customers or the information necessary for
sub-accounting; forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to customers; assisting in processing
purchase, exchange and redemption requests from customers and in placing such
orders with the Fund's service contractors; assisting customers in changing
dividend options, account designations and addresses; providing customers with
a service that invests the assets of their accounts in Series B Shares pursuant
to specific or pre-authorized instructions; providing information periodically
to customers showing their positions in Series B Shares and integrating such
statements with those of other transactions and balances in customers' other
accounts with the Service Organization; responding to customer inquiries
relating to the services performed by the Service Organization or the
Distributor; responding to customer inquiries concerning their investments in
Series B Shares; and providing other similar shareholder liaison services.
Fees relating to the Series B Service Plan are not paid to Service
Organizations or the Distributor with respect to other classes of shares of the
Portfolios ("Service Shares," "Series A Investor Shares" and
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"Institutional Shares"). Customers who are beneficial owners of Series B
Investor Shares should read the Prospectus in light of the terms and fees
governing their accounts with Service Organizations. No Series B Investor
Shares of any Portfolio were issued during the fiscal year ended September 30,
1994.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the adviser and sub-advisers seek
to obtain the best price and execution for a Portfolio, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. While the adviser and sub-advisers generally
seek reasonably competitive commission rates, payment of the lowest commission
or spread is not necessarily consistent with obtaining the best price and
execution in particular transactions. Payments of commissions to brokers who
are affiliated persons of the Fund (or affiliated persons of such persons) will
be made in accordance with Rule 17e-1 under the 1940 Act.
No Portfolio has any obligation to deal with any broker or group of
brokers in the execution of portfolio transactions. The adviser and
sub-advisers may, consistent with the interests of a Portfolio, select brokers
on the basis of the research, statistical and pricing services they provide to
a Portfolio and the adviser's or sub-adviser's other clients. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by the adviser and sub-advisers under
their respective contracts. A commission paid to such brokers may be higher
than that which another qualified broker would have charged for effecting the
same transaction, provided that adviser or sub-adviser determines in good faith
that such commission is reasonable in terms either of the transaction or the
overall responsibility of adviser or sub-adviser to a Portfolio and its other
clients and that the total commissions paid by a Portfolio will be reasonable
in relation to the benefits to a Portfolio over the long-term. Commission
rates for brokerage transactions on foreign stock exchanges are generally
fixed. In addition, the adviser or sub-adviser may take into account the sale
of shares of the Fund in allocating purchase and sale orders for portfolio
securities to brokers (including brokers that are affiliated with them or
Distributor).
For the year or period ended September 30, 1994, the Value Equity,
Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small Cap
Value Equity, International Equity, International Emerging Markets and Balanced
Portfolios paid
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brokerage commissions of $431,232, $530,428, $62,339, $156,700, $47,190,
$185,560, $1,031,631, $32,367, and $164,460, respectively.
For the year or period ended September 30, 1993, the Value Equity,
Growth Equity, Small Cap Growth Equity, Core Equity, Index Equity, Small Cap
Value Equity, International Equity and Balanced Portfolios paid brokerage
commissions of $136,565, $366,421, $1,186, $4,770, $18,386, $105,423, $308,297
and $68,556, respectively, of which $4,390, $264 and $636 for the Growth
Equity, Small Cap Growth Equity and Small Cap Value Equity Portfolios,
respectively, was paid to Shearson Lehman Hutton Inc. ("Shearson"), an
affiliate of the Fund's former distributor. Approximately 1%, 22% and 1% of
the aggregate brokerage commissions of the Growth Equity, Small Cap Growth
Equity and Small Cap Value Equity Portfolios, respectively, were paid to
Shearson, representing approximately 1%, 22% and 1% of the aggregate dollar
amounts of transactions by those respective Portfolios involving the payment of
commissions.
For the year ended September 30, 1992, the Growth Equity and Balanced
Portfolios paid brokerage commissions of $300,421 and $11,821, respectively, of
which $19,840 for the Growth Equity Portfolio was paid to Shearson Lehman
Hutton Inc. ("Shearson"), an affiliate of the Fund's former distributor.
Approximately 7% of the Growth Equity Portfolio's aggregate brokerage
commissions for the year ended September 30, 1992 were paid to Shearson,
representing approximately 7% of the aggregate dollar amount of transactions by
that Portfolio involving the payment of commission. For the period from
commencement of operations to September 30, 1992, the Value Equity, Index
Equity, Small Cap Value Equity and International Equity Portfolios paid
brokerage commissions of $68,214, $43,725, $23,728 and $84,226, respectively.
Over-the-counter issues, including corporate debt and U.S. Government
securities, are normally traded on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers. The
Portfolios will primarily engage in transactions with these dealers or deal
directly with the issuer unless a better price or execution could be obtained
by using a broker. Prices paid to a dealer with respect to both foreign and
domestic securities will generally include a "spread," which is the difference
between the prices at which the dealer is willing to purchase and sell the
specific security at the time, and includes the dealer's normal profit.
Purchases of money market instruments by a Portfolio are made from
dealers, underwriters and issuers. The Portfolios do not currently expect to
incur any brokerage commission expense on such transactions because money
market instruments are generally
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<PAGE> 60
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Each Money Market Portfolio intends to
purchase only securities with remaining maturities of 13 months or less as
determined in accordance with the rules of the SEC. As a result, the portfolio
turnover rates of a Money Market Portfolio will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by a Money Market Portfolio, the turnover rates should not
adversely affect the Portfolio's net asset values or net income.
Securities purchased in underwritten offerings include a fixed amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid. It is the policy of the
Portfolios to give primary consideration to obtaining the most favorable price
and efficient execution of transactions involving money market instruments. In
seeking to implement this policy of the Portfolios, adviser and sub-advisers
will effect transactions involving money market instruments with those dealers
they believe provide the most favorable prices and are capable of providing
efficient executions.
The adviser or sub-advisers may seek to obtain an undertaking from
issuers of commercial paper or dealers selling commercial paper to consider the
repurchase of such securities from a Portfolio prior to maturity at their
original cost plus interest (sometimes adjusted to reflect the actual maturity
of the securities), if it believes that a Portfolio's anticipated need for
liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that a Portfolio would incur a capital loss in
liquidating commercial paper, especially if interest rates have risen since
acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment
accounts managed by the adviser or sub-advisers are made independently of each
other in the light of differing conditions. However, the same investment
decision may be made for two or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated as to amount in a manner deemed equitable to each
such account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Portfolio is
concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such securities of which PIMC, BlackRock, PNC
Bank, PCM, PEAC, the Administrators,
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Distributor or any affiliated person (as defined in the 1940 Act) thereof is a
member except pursuant to procedures adopted by the Board of Trustees in
accordance with Rule 10f-3 under the 1940 Act. In no instance will portfolio
securities be purchased from or sold to PIMC, BlackRock, PNC Bank, PCM, PEAC,
the Administrators, Distributor or any affiliated person of the foregoing
entities except as permitted by SEC exemptive order or by applicable law.
The portfolio turnover rate of a Portfolio is calculated by dividing
the lesser of a Portfolio's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Portfolio during the year.
The Fund is required to identify any securities of its regular brokers
or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held
by the Fund as of the end of its most recent fiscal year. As of September 30,
1994, the following Portfolios held the following securities: (a) Money Market
Portfolio: variable rate obligations of Goldman Sachs Group L.P., Lehman
Brothers Holdings, Inc. and Morgan Stanley Group in the principal amounts of
$47,000,000, $50,000,000 and $29,998,328, respectively; medium-term note of
Morgan Stanley Group in the principal amount of $15,000,000; and repurchase
agreements with Kidder, Peabody & Co., Morgan Stanley & Co. and PaineWebber
Group in the principal amounts of $100,000,000, $65,000,000 and $10,000,000,
respectively; (b) Government Money Market Portfolio: repurchase agreements with
Kidder, Peabody & Co. and Morgan Stanley & Co. in the principal amounts of
$9,058,000 and $70,000,000, respectively; (c) Managed Income Portfolio:
corporate bonds and variable rate obligations of Morgan Stanley Group in the
principal amounts of $4,925,000 and $10,000,000, respectively; medium-term note
of Salomon Brothers, Inc. in the principal amount of $3,730,680; (d) Short-Term
Bond Portfolio: corporate bonds of Lehman Brothers, Inc. and Merrill Lynch Co.,
Inc. in the principal amounts of $992,500 and $956,250, respectively;
medium-term note of Salomon Brothers, Inc. in the principal amount of $932,670;
Intermediate-Term Bond Portfolio: corporate bonds of Lehman Brothers Holdings,
Inc. in the principal amount of $975,000; and Index Equity Portfolio: common
stock of Merrill Lynch & Co., Inc. and Salomon, Inc. in the principal amounts
of $380,875 and $280,450, respectively.
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<PAGE> 62
PURCHASE AND REDEMPTION INFORMATION
COMPUTATION OF PUBLIC OFFERING PRICES FOR SERIES A INVESTOR SHARES OF
THE NON-MONEY MARKET PORTFOLIOS. An illustration of the computation of the
public offering price per Series A Investor Share of each Non-Money Market
Portfolio, based on the value of the Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap
Growth Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Equity, International Emerging Markets and Balanced Portfolios' net assets as
of September 30, 1994 and the value of the Government Income and International
Fixed Income Portfolios' initial capitalization prior to the commencement of
operations, follows:
TABLE
<TABLE>
<CAPTION>
Value Growth Small Cap Index
Equity Equity Growth Equity Core Equity Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $10,412,074 $5,049,054 $1,620,407 $601,053 $2,631,836
Outstanding
Shares . . . . . . . . . . . . . . . 895,820 496,922 160,040 60,595 240,770
============ =========== =========== ========== ==========
Net Asset Value
Per Share . . . . . . . . . . . . . $11.62 $10.16 $10.12 $9.92 $10.93
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .55 $ .48 $ .48 $ .47 $ .52
------ ------ --------- --------- ------
Offering to Public . . . . . . . . . $12.17 $10.64 $10.60 $10.39 $11.45
======== ======= ========= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Small
Cap Value International Managed Tax-Free
Equity Equity Balanced Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $16,884,283 $14,432,684 $62,306,981 $10,921,371 $6,972,180
Outstanding
Shares . . . . . . . . . . . . . . . 1,243,462 1,077,374 5,200,179 1,115,757 694,590
============ =========== ============ ============ ===========
Net Asset Value
Per Share . . . . . . . . . . . . . $13.58 $13.40 $11.98 $9.79 $10.04
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .64 $ .63 $ .56 $ .46 $ .47
-------- -------- -------- -------- -------
Offering to Public . . . . . . . . . $14.22 $14.03 $12.54 $10.25 $10.51
======== ======== ======== ======== =======
</TABLE>
-62-
<PAGE> 63
<TABLE>
<CAPTION>
Pennsylvania
Intermediate Ohio Tax- Tax-Free Short-Term Intermediate-
Government Free Income Income Bond Term Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $8,508,396 $3,824,845 $46,562,641 $277,387 $87,119
Outstanding
Shares . . . . . . . . . . . . . . . 882,983 398,330 4,742,341 28,876 9,630
============ ============ ============= ========== ========
Net Asset Value
Per Share . . . . . . . . . . . . . $9.64 $9.60 $9.82 $9.58 $9.05
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .45 $ .45 $ .46 $ .45 $ .43
-------- -------- -------- -------- --------
Offering to Public . . . . . . . . . $10.09 $10.05 $10.28 $10.03 $9.48
========== ========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
International
Government International Emerging
Income Fixed Income Markets
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
Net Assets . . . . . . . . . . . . . $100 $100 $2,857,212
Outstanding
Shares . . . . . . . . . . . . . . . 10 10 271,033
======= ======== ==========
Net Asset Value
Per Share . . . . . . . . . . . . . $10.00 $10.00 $10.54
Maximum Sales Charge,
4.50% of offering price
(4.71% of net asset
value per share) . . . . . . . . . . $ .47 $ .47 $ .50
--------- -------- --------
Offering to Public . . . . . . . . . $10.47 $10.47 $11.04
========= ======== ========
</TABLE>
Total front-end sales charges paid by shareholders of Series A
Investor Shares of the Managed Income, Tax-Free Income, Intermediate
Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term
Bond, Intermediate-Term Bond, Value Equity, Growth Equity, Small Cap Growth
Equity, Core Equity, Index Equity, Small Cap Value Equity, International
Equity, International Emerging Markets and Balanced Portfolios for the year or
period ended September 30, 1994 were $150,150, $37,504, $50,694, $64,596,
$678,464, $10,268, $2,124, $195,675, $81,496, $44,054, $17,550, $38,454,
$230,590, $303,547, $130,755 and $1,213,056, respectively. The public offering
of Series A Investor Shares of the Government Income and International Fixed
Income Portfolios had not commenced as of September 30, 1994.
Total front-end sales charges paid by shareholders of Series A
Investor Shares of the Value Equity, Growth Equity, Small Cap
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<PAGE> 64
Value Equity, International Equity, Balanced, Managed Income, Tax-Free Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income and
Index Equity Portfolios for the year or period ended September 30, 1993 were
$155,096, $60,863, $250,615, $86,294, $1,304,538, $202,926, $128,003, $127,347,
$68,959, $1,083,103 and $37,281, respectively. The public offering of Series A
Investor Shares of the Short-Term Bond, Intermediate-Term Bond, Core Equity,
Government Income, International Fixed Income and International Emerging
Markets Portfolios had not commenced as of September 30, 1993.
Total front-end sales charges paid by shareholders of Series A
Investor Shares of the Value Equity, Growth Equity, Small Cap Value Equity,
International Equity, Balanced, Managed Income, Tax-Free Income and
Intermediate Government Portfolios for the year or period ended September 30,
1992 were $36, $5,072, $802, $452, $162,649, $48,926, $145,624 and $21,284,
respectively. The Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios had not commenced operations as of September 30, 1992.
Series B Investor Shares of the Non-Money Market Portfolios are sold
at the net asset value per share next determined after a purchase order is
received. Series B Investor Shares of the Non-Money Market Portfolios are
subject to a contingent deferred sales charge which is payable on redemption of
such Series B Investor Shares.
Service and Institutional Shares of each Portfolio are sold at the net
asset value per share next determined after a purchase order is received.
EXCHANGE PRIVILEGE. By use of the exchange privilege, the investor
authorizes the Fund's transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the investor and
believed by the Fund's transfer agent to be genuine. The records of the Fund's
transfer agent pertaining to such instructions are binding. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
affected shareholders. The exchange privilege is only available in states
where the exchange may legally be made.
A front-end sales charge or a contingent deferred sales charge will be
imposed (unless an exemption from either sales charge applies) when Investor
Shares of a Money Market Portfolio are redeemed and the proceeds are used to
purchase Series A Investor Shares and Series B Investor Shares, respectively,
of a Non-Money Market Portfolio.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Series A Shares of the Non- Money Market Portfolios at
net asset value, without a sales
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<PAGE> 65
charge, with the proceeds from the redemption of shares of any other investment
company which were sold with a sales charge or commission in accordance with
the terms set forth in the Prospectuses. This does not include shares of an
affiliated mutual fund which were or would be subject to a contingent deferred
sales charge upon redemption. For purposes of this restriction, the term
"affiliated mutual fund" means:
i) any Portfolio of the Fund; and
ii) any other investment company, if such company and the Fund
hold themselves out to investors as related companies for
purposes of investment and investor services, and if:
a) that company and the Fund have a common investment
adviser or distributor; or
b) the investment adviser or distributor of such company
or the Fund is an "affiliated person" (as defined in
Section 2(a)(3) of the 1940 Act) of the investment
adviser or distributor of the Fund or the company,
respectively.
MISCELLANEOUS. The Fund reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
repurchase of a Portfolio's shares by making payment in whole or in part in
securities chosen by the Fund and valued in the same way as they would be
valued for purposes of computing a Portfolio's net asset value. If payment is
made in securities, a shareholder may incur transaction costs in converting
these securities into cash. The Fund has elected, however, to be governed by
Rule 18f-1 under the 1940 Act so that a Portfolio is obligated to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on the NYSE is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is
not reasonably practicable, or for such other periods as the SEC may permit.
(A Portfolio may also suspend or postpone the recordation of the transfer of
its shares upon the occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectuses, the Fund
may redeem shares involuntarily to reimburse a Portfolio
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<PAGE> 66
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder as provided
in the Prospectus from time to time.
VALUATION OF PORTFOLIO SECURITIES
In determining the approximate market value of portfolio investments,
the Fund may employ outside organizations, which may use, without limitation, a
matrix or formula method that takes into consideration market indexes,
matrices, yield curves and other specific adjustments. This may result in the
securities being valued at a price different from the price that would have
been determined had the matrix or formula method not been used. All cash,
receivables and current payables are carried on the Fund's books at their face
value. Other assets, if any, are valued at fair value as determined in good
faith under the supervision of the Board of Trustees.
MONEY MARKET PORTFOLIOS. The value of the portfolio securities of
each Money Market Portfolio is calculated using the amortized cost method of
valuation. Under this method the market value of an instrument is approximated
by amortizing the difference between the acquisition cost and value at maturity
of the instrument on a straight-line basis over the remaining life of the
instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account. The market
value of debt securities usually reflects yields generally available on
securities of similar quality. When such yields decline, market values can be
expected to increase, and when yields increase, market values can be expected
to decline.
As indicated, the amortized cost method of valuation may result in the
value of a security being higher or lower than its market price, the price a
Money Market Portfolio would receive if the security were sold prior to
maturity. The Fund's Board of Trustees has established procedures for the
purpose of maintaining a constant net asset value of $1.00 per share for each
Money Market Portfolio, which include a review of the extent of any deviation
of net asset value per share, based on available market quotations, from the
$1.00 amortized cost per share. Should that deviation exceed 1/2 of 1% for a
Money Market Portfolio, the Fund's Board of Trustees will promptly consider
whether any action should be initiated to eliminate or reduce material dilution
or other unfair results to shareholders. Such action may include redeeming
shares in kind, selling portfolio securities prior to maturity, reducing or
withholding dividends, shortening the average portfolio maturity, reducing the
number of outstanding shares without monetary consideration, and utilizing
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<PAGE> 67
a net asset value per share as determined by using available market quotations.
Each Money Market Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, and
will limit portfolio investments, including repurchase agreements, to those
instruments that the adviser or sub-adviser (depending on the Money Market
Portfolio) determines present minimal credit risks pursuant to guidelines
adopted by the Fund's Board of Trustees. There can be no assurance that a
constant net asset value will be maintained for each Money Market Portfolio.
NON-MONEY MARKET PORTFOLIOS. The valuation of securities held by the
Non-Money Market Portfolios is discussed in their respective Prospectuses.
PERFORMANCE INFORMATION
MONEY MARKET PORTFOLIO YIELD. Each Money Market Portfolio's current
and effective yields for Service, Series A Investor and Institutional Shares
and the Money Market Portfolio's current and effective yields for Series B
Investor Shares are computed separately using standardized methods required by
the SEC. The annualized yield for a class of Service, Series A Investor,
Series B Investor or Institutional Shares is computed by: (a) determining the
net change in the value of a hypothetical account having a balance of one share
at the beginning of a seven-calendar day period; (b) dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return; and (c) annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account reflects
the value of additional shares purchased with dividends declared and all
dividends declared on both the original share and such additional shares, but
does not include realized gains and losses or unrealized appreciation and
depreciation. Compound effective yields are computed by adding 1 to the base
period return (calculated as described above) raising the sum to a power equal
to 365/7 and subtracting 1. For the seven-day period ended March 31, 1995,
the annualized yield for Service Shares of each of the Money Market Portfolios
was as follows: [INSERT DATA]. For the seven-day period ended March 31, 1995,
the annualized yield for Series
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<PAGE> 68
A Investor Shares of each of the Money Market Portfolios was as follows:
[INSERT DATA]. For the seven-day period ended March 31, 1995, the annualized
yield for Institutional Shares of each of the Money Market Portfolios was as
follows: [INSERT DATA]. For the seven-day period ended March 31, 1995, the
annualized effective yield for Service Shares of each of the Money Market
Portfolios was as follows: [INSERT DATA]. For the seven-day period ended
March 31, 1995, the annualized effective yield for Series A Investor
Shares of each of the Money Market Portfolios was as follows: [INSERT
DATA]. For the seven-day period ended March 31, 1995, the annualized effective
yield for Institutional Shares of each of the Money Market Portfolios was as
follows: [INSERT DATA]. In addition, a standardized "tax-equivalent yield"
may be quoted for Service, Series A Investor and Institutional Shares in the
Municipal Money Market, Ohio Municipal Money Market, Pennsylvania Municipal
Money Market, North Carolina Municipal Money Market and Virginia Municipal
Money Market Portfolios, which is computed separately for each class by: (a)
dividing the portion of the Portfolio's yield for shares (as calculated above)
that is exempt from Federal or state income tax by one minus a stated Federal
or state income tax rate; and (b) adding the figure resulting from (a) above to
that portion, if any, of the yield that is not exempt from Federal and state
income tax. For the seven-day period ended March 31, 1995, the annualized
tax-equivalent yield for Service Shares of each of the Money Market Portfolios
was as follows: [INSERT DATA]
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<PAGE> 69
For the seven-day period ended March 31, 1995, the annualized tax-equivalent
yield for Series A Investor Shares of each of the Money Market Portfolios
was as follows: [INSERT DATA]. For the seven-day period ended March 31,
1995, the annualized tax-equivalent yield for Institutional Shares of
each of the Money Market Portfolios was as follows: The fees which
may be imposed by institutions on their Customers are not
reflected in the calculations of yields for the Money Market Portfolios. No
Series A Investor Shares of the Virginia Municipal Money Market Portfolio,
no Series B Investor Shares of the Money Market Portfolio, and no shares of any
class of the New Jersey Municipal Money Market Portfolio had been issued
prior to March 31, 1995. Yields on Institutional Shares will generally be
higher than yields on Service Shares; yields on Service Shares will generally
be higher than yields on Series A Investor Shares; and yields on Service A
Investor Shares will generally be higher than yields on Series B Investor
Shares.
From time to time, in advertisements or in reports to shareholders,
the yields of a Portfolio's Service, Series A Investor, Series B Investor or
Institutional Shares may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indexes. For
example, the yield of a Portfolio's Service, Series A Investor, Series B
Investor or Institutional Shares may be compared to the Donoghue's Money Fund
Average, which is an average compiled by IBC/Donoghue's MONEY FUND REPORT of
Holliston, MA 01746, a widely-recognized independent publication that monitors
the performance of money market funds, or to the data prepared by Lipper
Analytical Services, Inc., a widely-recognized independent service that
monitors the performance of mutual funds.
TOTAL RETURN. For purposes of quoting and comparing the performance
of shares of the Non-Money Market Portfolios to the performance of other mutual
funds and to stock or other relevant indexes in advertisements or in
communications to shareholders, performance may be stated in terms of total
return. The total return for each class of a Non-Money Market Portfolio will
be calculated independently of the other classes within that
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<PAGE> 70
Portfolio. Under the rules of the SEC, funds advertising performance must
include total return quotes calculated according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
In calculating the ending redeemable value for Series A Investor
Shares of the Fund's Non-Money Market Portfolios, the maximum front-end sales
charge is deducted from the initial $1,000 payment and all dividends and
distributions by the particular Portfolio are assumed to have been reinvested
at net asset value as described in the particular Prospectus on the
reinvestment dates during the period. In calculating the ending redeemable
value for Series B Investor Shares of the Non-Money Market Portfolios, the
maximum contingent deferred sales charge is deducted at the end of the period
and all dividends and distributions by the particular Portfolio are assumed to
have been reinvested at net asset value as described in the particular
Prospectus on the reinvestment dates during the period. Total return, or "T"
in the formula above, is computed by finding the average annual compounded
rates of return over the specified periods that would equate the initial amount
invested to the ending redeemable value. Based on the foregoing calculation:
(i) the average annual total return for Service Shares of the Non-Money Market
Portfolios for the year ended March 31, 1995 was as follows: [INSERT DATA].
(ii) the average annual total return for Series A Investor Shares of the
Non-Money Market Portfolios for the year ended
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<PAGE> 71
March 31, 1995 was as follows: [INSERT DATA].
(iii) the average annual total return for Institutional Shares of the Non-Money
Market Portfolios for the year ended March 31, 1995 was as follows: [INSERT
DATA].
(iv) the average annual total return for Service Shares of the Non-Money Market
Portfolios for the period from commencement of operations (July 28, 1993 for
the Growth Equity Portfolio; July 29, 1993 for each of the Managed Income,
Tax-Free Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Value Equity, Index Equity, Small Cap Value Equity,
International Equity and Balanced Portfolios; September 1, 1993 for the
Short-Term Bond Portfolio; September 15, 1993 for each of the Small Cap Growth
Equity and Core Equity Portfolios; September 23, 1993 for the Intermediate-Term
Bond Portfolio; and June 17, 1994 for the International Emerging Markets
Portfolio) to March 31, 1995 was as follows: [INSERT DATA].
(v) the average annual total return for Series A Investor Shares of the
Non-Money Market Portfolios for the period from commencement of operations (May
14, 1990 for each of the Tax-Free Income and Balanced Portfolios; February 5,
1992 for the Managed Income Portfolio; March 14, 1992 for the Growth Equity
Portfolio; May 2, 1992 for the Value Equity Portfolio; May 11, 1992 for the
Intermediate Government Portfolio; June 2, 1992 for each of the
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<PAGE> 72
Index Equity, Small Cap Value Equity and International Equity Portfolios;
December 1, 1992 for each of the Ohio Tax-Free Income and Pennsylvania Tax-Free
Income Portfolios; September 15, 1993 for the Small Cap Growth Equity
Portfolio; October 13, 1993 for the Core Equity Portfolio; November 17, 1993
for the Short-Term Bond Portfolio; May 20, 1994 for the Intermediate-Term Bond
Portfolio; and June 17, 1994 for the International Emerging Markets Portfolio)
to March 31, 1995 was as follows: [INSERT DATA].
(vi) the average annual total return for Institutional Shares of the Non-Money
Market Portfolios for the period from commencement of operations (November 1,
1989 for each of the Managed Income and Growth Equity Portfolios; April 13,
1992 for the Small Cap Value Equity Portfolio; April 20, 1992 for each of the
Intermediate Government, Value Equity and Index Equity Portfolios; April 27,
1992 for the International Equity Portfolio; May 1, 1992 for the Balanced
Portfolio; December 1, 1992 for each of the Ohio Tax-Free Income and
Pennsylvania Tax-Free Income Portfolios; September 1, 1993 for the Short-Term
Bond Portfolio; September 13, 1993 for the Core Equity Portfolio; September 14,
1993 for the Small Cap Growth Equity Portfolio; September 17, 1993 for the
Intermediate-Term Bond Portfolio; and June 17, 1994 for the International
Emerging Markets Portfolio) to March 31, 1995 was as follows: [INSERT DATA].
No shares of any class of the Government Income and International
Fixed Income Portfolio had been issued prior to March 31, 1995.
Each class of the Non-Money Market Portfolios may also from time to
time include in advertisements and communications to shareholders a total
return figure that is not calculated
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<PAGE> 73
according to the formula set forth above in order to compare more accurately
the performance of each class of a Non-Money Market Portfolio's shares with
other performance measures. For example, in comparing the total return of a
Non-Money Market Portfolio's shares with data published by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. or Weisenberger Investment
Company Service, or with the performance of the Standard & Poor's 500 Stock
Index, EAFE, the Dow Jones Industrial Average or the Shearson Lehman Hutton
Government Corporate Bond Index, as appropriate, a Non-Money Market Portfolio
may calculate the aggregate total return for its shares of a certain class for
the period of time specified in the advertisement or communication by assuming
the investment of $10,000 in such Non-Money Market Portfolio's shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. A Non-Money Market Portfolio
does not, for these purposes, deduct from the initial value invested or the
ending value any amount representing front-end or deferred sales charges,
respectively, charged to purchasers of Series A and Series B Investor Shares,
respectively. The Series A and Series B Investor classes of the Portfolio
will, however, disclose the maximum applicable sales charge and will also
disclose that the performance data does not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted.
NON-MONEY MARKET PORTFOLIO YIELD. The Balanced, Managed Income,
Tax-Free Income, Intermediate Government, Ohio Tax-Free Income, Pennsylvania
Tax-Free Income, Short-Term Bond, Intermediate-Term Bond, Government Income and
International Fixed Income Portfolios may advertise their yields on their
Service, Series A Investor, Series B Investor and Institutional Shares. Under
the rules of the SEC, each such Portfolio advertising the respective yields for
its Service, Series A Investor, Series B Investor and Institutional Shares must
calculate yield using the following formula:
a-b 6
YIELD = 2[(----- +1) - 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
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<PAGE> 74
d = the maximum offering price per share on the
last day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Portfolio is recognized by accruing 1/360th of the stated dividend rate of
the security each day that the security is in the Portfolio. Except as noted
below, interest earned on any debt obligations held by the Portfolio is
calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest) and dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Portfolio. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.
With respect to debt obligations purchased at a discount or premium,
the formula generally calls for amortization of the discount or premium.
However, interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the
case of tax- exempt obligations that are issued with original issue discount
but which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have discounts based on current
market value that are less than the then-remaining portion of the original
issue discount (market premium), the yield to maturity is based on the market
value.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period;
and (b) a Portfolio may elect either (i) to amortize the discount and premium
on the remaining security, based on the cost of the security, to the
weighted-average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted-average maturity date
is not
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<PAGE> 75
available, or (ii) not to amortize discount or premium on the remaining
security. The amortization schedule will be adjusted monthly to reflect
changes in the market values of debt obligations.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter. In the case of Series A Investor Shares
of a Non-Money Market Portfolio, a Portfolio's maximum offering price per share
for purposes of the formula includes the maximum front- end sales charge
imposed by the Portfolio -- currently 4.50% of the per share offering price.
For the 30-day period ended March 31, 1995, the annualized yield on
Service Shares of the Portfolios referenced below was as follows: [INSERT
DATA]. For the 30-day period ended on March 31, 1995, the annualized yield on
Series A Investor Shares of the Portfolios referenced below was as follows:
[INSERT DATA]. For the 30-day period ended on March 31, 1995, the annualized
yield on Institutional Shares of the Portfolios referenced below was as
follows: [INSERT DATA].
Each of the Tax-Free Income, Ohio Tax-Free Income and Pennsylvania
Tax-Free Income Portfolios may advertise the tax equivalent yield for its
shares of a specified class. Under the rules of the SEC, such a Portfolio
advertising its tax equivalent yield must calculate such tax equivalent yield
by dividing that portion of the yield of the Portfolio which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the Portfolio which is not tax-exempt. For the 30-day
period ended on March 31, 1995, the annualized tax-equivalent yield on
Service Shares of the Portfolios referenced below was as follows (assuming a
Federal income tax rate of 28%): [INSERT DATA].
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<PAGE> 76
For the 30-day period ended on March 31, 1995, the annualized
tax-equivalent yield on Series A Investor Shares of the Portfolios referenced
below was as follows (assuming a Federal income tax rate of 28%): For the
30-day period ended on March 31, 1995, the annualized tax-equivalent yield on
Institutional Shares of the Portfolios referenced below was as follows
(assuming a Federal income tax rate of 28%): [INSERT DATA].
OTHER INFORMATION REGARDING INVESTMENT RETURNS. In addition to
providing performance information that demonstrates the total return or yield
of shares of a particular class of a Portfolio over a specified period of time,
the Fund may provide certain other information demonstrating hypothetical
investment returns. Such information may include, but is not limited to,
illustrating the compounding effects of a dividend in a dividend reinvestment
plan or the impact of tax-free investing. As illustrated below, the Fund may
demonstrate, using certain specified hypothetical data, the compounding effect
of dividend reinvestment on investments in a Non-Money Market Portfolio.
-76-
<PAGE> 77
The Money and Non-Money Market Municipal Portfolios may illustrate in
advertising or sales literature the benefits of tax- free investing. For
example, Table 1 shows taxpayers how to translate Federal tax savings from
investments the income on which is not subject to Federal income tax into an
equivalent yield from a taxable investment. Similarly, Tables 2, 3, 4, 5 and 6
show Pennsylvania, Ohio, North Carolina, Virginia and New Jersey shareholders
the approximate yield that a taxable investment must earn at various income
brackets to produce after-tax yields equivalent to those of the Pennsylvania
Municipal Money Market and Pennsylvania Tax-Free Income Portfolios, the Ohio
Municipal Money Market and Ohio Tax-Free Income Portfolios, the North Carolina
Municipal Money Market Portfolio, the Virginia Municipal Money Market
Portfolio, and the New Jersey Municipal Money Market Portfolio respectively.
The yields below are for illustration purposes only and are not intended to
represent current or future yields for the Money and Non-Money Market
Municipal Portfolios, which may be higher or lower than the yields shown.
-77-
<PAGE> 78
TABLE 1
<TABLE>
<CAPTION>
Federal TAX-EXEMPT YIELD
1995 Taxable Marginal
Income Bracket Tax Rate* 3.0 3.5 4.0 4.5 5.0 5.5 6.0
- ------------------------------------------------------------------------------------------------------------------------------
Single Return Joint Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $23,350 $ 0 - $39,000 15.0% 3.529% 4.118% 4.706% 5.294% 5.882% 6.471% 7.059%
$23,351 - $56,550 $39,001 - $94,250 28.0% 4.167% 4.861% 5.556% 6.250% 6.944% 7.639% 8.333%
$56,551 -$117,950 $94,251 -$143,600 31.0% 4.348% 5.072% 5.797% 6.522% 7.246% 7.971% 8.696%
$117,951-$256,500 $143,601-$256,500 36.0% 4.688% 5.469% 6.250% 7.031% 7.812% 8.594% 9.375%
Over $256,500 Over $256,500 39.6% 4.967% 5.795% 6.623% 7.450% 8.278% 9.106% 9.934%
</TABLE>
*Rates do not include the phase out of personal exemptions or itemized
deductions. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should consider that the benefit of
certain itemized deductions and the benefit of personal exemptions are limited
in the case of higher income individuals. For 1995, taxpayers with adjusted
gross income in excess of a threshold amount of approximately $114,700 are
subject to an overall limitation on certain itemized deductions, requiring a
reduction in such deductions equal to the lesser of (i) 3% of adjusted gross
income in excess of the threshold of approximately $114,700 or (ii) 80% of the
amount of such itemized deductions otherwise allowable. The benefit of each
personal exemption is phased out at the rate of two percentage points for each
$2,500 (or fraction thereof) of adjusted gross income in the phase-out zone.
For single taxpayers the range of adjusted gross income comprising the
phase-out zone for 1995 is estimated to be from $114,700 to $237,201 and for
married taxpayers filing a joint return from $172,050 to $294,551. The Federal
tax brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1995.
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<PAGE> 79
TABLE 2
<TABLE>
<CAPTION>
Approx.
Combined
Federal
and PA TAX-EXEMPT YIELD
1995 Federal Marginal
Taxable Income Bracket Tax Rate* 3.0 3.5 4.0 4.5 5.0 5.5 6.0
- ----------------------------------------------------------------------------------------------------------------------------
Single Return Joint Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 23,350 $ 0 - $39,000 17.380% 3.631% 4.236% 4.841% 5.447% 6.052% 6.657% 7.262%
$23,351 - $ 56,550 $ 39,001 - $94,250 30.016% 4.287% 5.001% 5.716% 6.430% 7.144% 7.859% 8.573%
$56,551 - $117,950 $ 94,251 -$143,600 32.932% 4.473% 5.219% 5.964% 6.710% 7.455% 8.201% 8.946%
$117,951- $256,500 $143,601 -$256,500 37.792% 4.823% 5.626% 6.430% 7.234% 8.038% 8.841% 9.645%
Over $256,500 Over $256,500 41.291% 5.110% 5.962% 6.813% 7.665% 8.517% 9.368% 10.220%
</TABLE>
*The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state income taxes). If the standard deduction is taken for
Federal income tax purposes, the taxable equivalent yield required to equal a
specified tax-exempt yield is at least as great as that shown in the table. It
is assumed that the investor is not subject to the alternative minimum tax.
Where applicable, investors should consider that the benefit of certain
itemized deductions and the benefit of personal exemptions are limited in the
case of higher income individuals. For 1995, taxpayers with adjusted gross
income in excess of a threshold amount of approximately $114,700 are subject to
an overall limitation on certain itemized deductions, requiring a reduction in
such deductions equal to the lesser of (i) 3% of adjusted gross income in
excess of the threshold of approximately $114,700 or (ii) 80% of the amount of
such itemized deductions otherwise allowable. The benefit of each personal
exemption is phased out at the rate of two percentage points for each $2,500
(or fraction thereof) of adjusted gross income in the phase-out zone. For
single taxpayers the range of adjusted gross income comprising the phase-out
zone for 1995 is estimated to be from $114,700 to $237,201 and for married
taxpayers filing a joint return from $172,050 to $294,551. The Federal tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
further adjusted for inflation for each year after 1995.
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<PAGE> 80
TABLE 3
<TABLE>
<CAPTION>
Weighted Approximate
Federal Ave.Ohio Combined Federal Tax-Exempt Yield
1995 Marginal Marginal and Ohio
Income Bracket* Tax Rate Tax Rate* Marginal Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- -------------- -------- -------- ----------------- ---- ----- ----- ------ ------ ----- ------
Single Return Taxable Yield - Single Return
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 23,350 15.0% 2.549% 17.166% 3.622% 4.225% 4.829% 5.433% 6.036% 6.640% 7.243%
23,351 - 56,550 28.0% 4.828% 31.476% 4.378% 5.108% 5.837% 6.567% 7.297% 8.026% 8.756%
56,551 - 100,000 31.0% 5.543% 34.824% 4.603% 5.370% 6.137% 6.904% 7.672% 8.439% 9.206%
100,001 - 117,950 31.0% 6.900% 35.761% 4.670% 5.448% 6.227% 7.005% 7.783% 8.562% 9.340%
117,951 - 200,000 36.0% 6.900% 40.416% 5.035% 5.874% 6.713% 7.552% 8.392% 9.231% 10.070%
200,001 - 256,500 36.0% 7.500% 40.800% 5.068% 5.912% 6.757% 7.601% 8.446% 9.291% 10.135%
Over 256,500 39.6% 7.500% 44.130% 5.370% 6.265% 7.159% 8.054% 8.949% 9.844% 10.739%
</TABLE>
<TABLE>
<CAPTION>
Joint Return Taxable Yield - Joint Return
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 39,000 15.0% 2.711% 17.304% 3.628% 4.232% 4.837% 5.442% 6.046% 6.651% 7.255%
39,001 - 94,250 28.0% 4.881% 31.514% 4.380% 5.111% 5.841% 6.571% 7.301% 8.031% 8.761%
94,251 - 100,000 31.0% 5.646% 34.896% 4.608% 5.376% 6.144% 6.912% 7.680% 8.448% 9.216%
100,001 - 143,600 31.0% 6.555% 35.523% 4.653% 5.428% 6.204% 6.979% 7.755% 8.530% 9.306%
143,601 - 200,000 36.0% 6.555% 40.195% 5.016% 5.852% 6.688% 7.524% 8.361% 9.197% 10.033%
200,001 - 219,900 36.0% 7.125% 40.560% 5.047% 5.888% 6.729% 7.571% 8.412% 9.253% 10.094%
219,901 - 256,500 36.0% 7.500% 40.800% 5.068% 5.912% 6.757% 7.601% 8.446% 9.291% 10.135%
Over 256,500 39.6% 7.500% 44.130% 5.370% 6.265% 7.159% 8.054% 8.949% 9.844% 10.739%
</TABLE>
*The income brackets applicable to the state of Ohio do not correspond to the
Federal taxable income brackets. In addition, Ohio taxable income will likely
be different than Federal taxable income because it is computed by reference to
Federal adjusted gross income with specifically-defined Ohio modifications and
exemptions, and does not consider many of the deductions allowed from Federal
adjusted gross income in computing Federal taxable income. In arriving at the
combined marginal tax rate, a weighted average of Ohio's marginal tax rate was
used within each Federal taxable income bracket up to $100,000, at which point
Ohio's actual 6.9% marginal rate was applied up to taxable income of $200,000,
at which point Ohio's top actual marginal rate of 7.5% was applied. The Ohio
joint filing credit has been taken into account in determining the marginal tax
rate for the taxable yield on joint returns up to the maximum credit amount
allowed. However, no other state tax credits, exemptions, or local taxes have
been
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<PAGE> 81
taken into account in arriving at the combined marginal tax rate. The income
amount shown is income subject to Federal income tax reduced by adjustments to
income, exemptions, and itemized deductions (including the deduction for state
and local income taxes). If the standard deduction is taken for Federal income
tax purposes, the taxable equivalent yield required to equal a specified tax-
exempt yield is at least as great as that shown in the table. It is assumed
that the investor is not subject to the alternative minimum tax. Where
applicable, investors should consider that the benefit of certain itemized
deductions and the benefit of personal exemptions are limited in the case of
higher income individuals. For 1994, taxpayers with adjusted gross income in
excess of a $111,800 threshold amount are subject to an overall limitation on
certain itemized deductions, requiring a reduction in such deductions equal to
the lesser of (i) 3% of adjusted gross income in excess of the $111,800
threshold or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out at the rate of
two percentage points for each $2,500 (or fraction thereof) of adjusted gross
income in the phase-out zone. For single taxpayers the range of adjusted gross
income comprising the phase-out zone for 1994 is from $111,800 to $234,301 and
for married taxpayers filing a joint return the range is from $167,700 to
$290,201. The Federal tax brackets, the threshold amounts at which itemized
deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for each year
after 1994.
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<PAGE> 82
TABLE 4
<TABLE>
<CAPTION>
1995 Taxable North
Income Bracket Federal Carolina Combined Federal Tax-Exempt Yield
Marginal Marginal and North Carolina
Single Return Joint Return Tax Rate Tax Rate Marginal Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------- ------------ -------- -------- ------------------ ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 12,750 0 - 21,250 15.0% 6.00% 20.100% 3.755% 4.380% 5.006% 5.632% 6.258% 6.884% 7.509%
12,751 - 23,350 21,251 - 39,000 15.0% 7.00% 20.950% 3.795% 4.428% 5.060% 5.693% 6.325% 6.958% 7.590%
23,351 - 56,550 39,001 - 94,250 28.0% 7.00% 33.040% 4.480% 5.227% 5.974% 6.720% 7.467% 8.214% 8.961%
56,551 - 60,000 94,251 -100,000 31.0% 7.00% 35.830% 4.675% 5.454% 6.233% 7.013% 7.792% 8.571% 9.350%
60,001 - 117,950 100,001 -143,600 31.0% 7.75% 36.348% 4.713% 5.499% 6.284% 7.070% 7.855% 8.641% 9.426%
117,951 - 256,500 143,601- 256,500 36.0% 7.75% 40.960% 5.081% 5.928% 6.775% 7.622% 8.469% 9.316% 10.163%
Over 256,500 Over 256,500 39.6% 7.75% 44.281% 5.384% 6.282% 7.179% 8.076% 8.974% 9.871% 10.768%
</TABLE>
*The taxable income brackets applicable to North Carolina do not correspond to
the Federal taxable income brackets. The taxable income brackets presented in
this table represent the breakpoints for both the Federal and North Carolina
marginal tax rate changes. When applying these brackets, Federal taxable
income may be different than North Carolina taxable income. No state tax
credits, exemptions, or local taxes have been taken into account in arriving at
the combined marginal tax rate. The income amount shown is income subject to
Federal income tax reduced by adjustments to income, exemptions, and itemized
deductions (including the deduction for state and local income taxes). If the
standard deduction is taken for Federal income tax purposes, the taxable
equivalent yield required to equal a specified tax-exempt yield is at least as
great as that shown in the table. It is assumed that the investor is not
subject to the alternative minimum tax. Where applicable, investors should
consider that the benefit of certain itemized deductions and the benefit of
personal exemptions are limited in the case of higher-income individuals. For
1995, taxpayers with adjusted gross income in excess of $114,700 are subject to
an overall limitation on certain itemized deductions, requiring a reduction in
such deductions equal to the lesser of (i) 3% of adjusted gross income in
excess of $114,700 or (ii) 80% of the amount of such itemized deductions
otherwise allowable. The benefit of each personal exemption is phased out at
the rate of two percentage points for each $2,500 (or fraction thereof) of
adjusted gross income in the phase-out zone. For single taxpayers the range of
adjusted gross income comprising the phase-out zone for 1995 is from $114,700
to $237,201, and for married taxpayers filing a joint return the range is from
$172,050 to $294,551. The Federal tax brackets, the threshold amounts at which
itemized deductions are subject to reduction, and the range over which personal
exemptions are phased out will be further adjusted for inflation for each year
after 1995.
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<PAGE> 83
TABLE 5
<TABLE>
<CAPTION>
1995 Taxable
Income Bracket Federal Virginia Combined Federal Tax-Exempt Yield
Marginal Marginal and Virginia
Single Return Joint Return Tax Rate Tax Rate Marginal Tax Rate* 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------- ------------ -------- -------- ------------------ ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 22,750 0 - 38,000 15.0% 5.75% 19.888% 3.745% 4.369% 4.993% 5.617% 6.241% 6.865% 7.489%
22,751 - 55,100 38,001 - 91,850 28.0% 5.75% 32.140% 4.421% 5.158% 5.894% 6.631% 7.368% 8.105% 8.842%
55,101 - 115,000 91,851 - 140,000 31.0% 5.75% 34.968% 4.613% 5.382% 6.151% 6.920% 7.688% 8.457% 9.226%
115,001 - 250,000 140,001 - 250,000 36.0% 5.75% 39.680% 4.973% 5.802% 6.631% 7.460% 8.289% 9.118% 9.947%
OVER 250,000 OVER 250,000 39.6% 5.75% 43.073% 5.270% 6.148% 7.027% 7.905% 8.783% 9.661% 10.540%
</TABLE>
*The taxable income brackets applicable to Virginia do not correspond to the
Federal taxable income brackets. Because Virginia imposes a maximum tax rate
of 5.75% on taxable income over $17,000, the taxable income brackets presented
in this table represent the breakpoints only for the Federal marginal tax rate
changes. When applying these brackets, Federal taxable income may be different
than Virginia taxable income. No state tax credits, exemptions, or local taxes
have been taken into account in arriving at the combined marginal tax rate.
The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state and local income taxes). If the standard deduction is
taken for Federal income tax purposes, the taxable equivalent yield required to
equal a specified tax-exempt yield is at least as great as that shown in the
table. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should consider that the benefit of
certain itemized deductions and the benefit of personal exemptions are limited
in the case of higher income individuals. For 1995, taxpayers with adjusted
gross income in excess of $111,800 are subject to an overall limitation on
certain itemized deductions, requiring a reduction in such deductions equal to
the lesser of (i) 3% of adjusted gross income excess of $118,800 or (ii) 80% of
the amount of such itemized deductions otherwise allowable. The benefit of
each personal exemption is phased out at the rate of two percentage points for
each $2,500 (or fraction thereof) of adjusted gross income in the phase-out
zone. For single taxpayers the range of adjusted gross income comprising the
phase-out zone for 1995 is from $111,800 to $234,301 and for married taxpayers
filing a joint return from $167,700 to $290,201. The Federal tax brackets, the
threshold amounts at which itemized deductions are subject to reduction, and
the range over which personal exemptions are phased out will be further
adjusted for inflation for each year after 1995.
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<PAGE> 84
TABLE 6
[TO BE INSERTED]
<PAGE> 85
MISCELLANEOUS. Yields on shares of a Portfolio may fluctuate daily
and do not provide a basis for determining future yields. Because such yields
will fluctuate, they cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. In comparing the yield of one fund to another,
consideration should be given to each fund's investment policies, including the
types of investments made, lengths of maturities of the portfolio securities,
and whether there are any special account charges which may reduce the
effective yield. The fees which may be imposed by Authorized Dealers, Service
Organizations and other institutions on their customers are not reflected in
the calculations of total returns or yields for the Portfolios.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Portfolio
investment are reinvested by being paid in additional Portfolio shares, any
future income or capital appreciation of a Portfolio would increase the value,
not only of the original investment in the Portfolio, but also of the
additional Portfolio shares received through reinvestment. The Fund may also
include discussions or illustrations of the potential investment goals of a
prospective investor, investment management techniques, policies or investment
suitability of a Portfolio, economic conditions, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Portfolio), as well as the views of the Portfolio's adviser and/or sub-adviser
as to current market, economy, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Portfolio. The Fund may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of a Portfolio. In
addition, advertisement or shareholder communications may include a discussion
of certain attributes or benefits to be derived by an investment in a
Portfolio. Such advertisements or communicators may include symbols, headlines
or other material which highlight or summarize the information discussed in
more detail therein.
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<PAGE> 86
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Prospectuses. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectuses is not intended
as a substitute for careful tax planning. Investors are urged to consult their
tax advisers with specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Portfolio
generally is exempt from Federal income tax on its net investment income and
realized capital gains that it distributes to shareholders, provided that it
distributes an amount equal to at least the sum of (a) 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gain over net long-term capital loss, if any, for the year) and (b) 90%
of its net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, each
Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies
(including, but not limited to, gains from forward foreign currency exchange
contacts), or from other income derived with respect to its business of
investment in such stock, securities, or currencies (the "Income Requirement")
and derive less than 30% of its gross income from the sale or other disposition
of stock, securities and certain other investments (including securities and
forward foreign currency exchange contracts, but only to the extent that such
contracts are not directly related to the Portfolio's principal business of
investing in stock or securities) held for less than three months (the
"Short-Short Gain Test"). Future Treasury regulations may provide that foreign
currency gains that are not "directly related" to a Portfolio's principal
business of investing in stock or securities will not satisfy the Income
Requirement. Interest (including original issue discount and "accrued market
discount") received by a Portfolio at maturity or upon disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or
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<PAGE> 87
other disposition of such security held for less than three months for purposes
of the Short-Short Gain Test. However, any other income that is attributable
to realized market appreciation will be treated as gross income from the sale
or other disposition of securities for this purpose.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer),
and no more than 25% of the value of each Portfolio's total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two
or more issuers which such Portfolio controls and which are engaged in the same
or similar trades or businesses.
Each of the Money and Non-Money Market Municipal Portfolios is
designed to provide investors with tax-exempt interest income. Shares of the
Money and Non-Money Market Municipal Portfolios would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Portfolio's dividends being
tax-exempt but also such dividends would be taxable when distributed to the
beneficiary. In addition, the Money and Non-Money Market Municipal Portfolios
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by private activity bonds or "related person" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business and (a) whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues
derived by all users of such facilities, (b) who occupies more than 5% of the
entire usable area of such facilities, or (c) for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Money and Non-Money Market Municipal Portfolios to
pay exempt interest dividends for any taxable year, at the close of each
quarter of the taxable year at least 50% of the value of each such Portfolio
must consist of exempt interest obligations. Exempt interest dividends
distributed to
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<PAGE> 88
shareholders are not included in the shareholder's gross income for regular
Federal income tax purposes. However, all shareholders required to file a
Federal income tax return are required to report the receipt of exempt interest
dividends and other exempt interest on their returns. Moreover, while such
dividends and interest are exempt from regular Federal income tax, they may be
subject to alternative minimum tax (currently imposed at the rates of 26% and
28% in the case of non-corporate taxpayers and at the rate of 20% in the case
of corporate taxpayers) in two circumstances. First, exempt interest dividends
derived from certain "private activity" bonds issued after August 7, 1986,
generally will constitute an item of tax preference for both corporate and
non-corporate taxpayers. Second, exempt interest dividends derived from all
bonds, regardless of the date of issue, must be taken into account by corporate
taxpayers in determining certain adjustments for alternative minimum tax
purposes. In addition, exempt interest dividends paid to corporate taxpayers
may in these two circumstances be subject to tax under the environmental tax
under Section 59A of the Code, which is imposed at the rate of 0.12% on the
excess of the modified alternative minimum taxable income of a corporate
taxpayer over $2 million for taxable years beginning before January 1996.
Receipt of exempt interest dividends may result in collateral Federal income
tax consequences to certain other taxpayers, including financial institutions,
property and casualty insurance companies, individual recipients of Social
Security or Railroad Retirement benefits, and foreign corporations engaged in
trade or business in the United States. Prospective investors should consult
their own tax advisors as to such consequences.
If a Money or Non-Money Market Municipal Portfolio distributes exempt
interest dividends during the shareholder's taxable year, no deduction
generally will be allowed for any interest expense on indebtedness incurred to
purchase or carry shares of such Portfolio.
The Ohio Municipal Money Market and Tax-Free Income Portfolios are not
subject to the Ohio personal income tax, school district income taxes in Ohio,
the Ohio corporation franchise tax, or the Ohio dealers intangibles tax,
provided that, with respect to the Ohio corporation franchise tax and the Ohio
dealers intangibles tax, the Fund timely files the annual report required by
Section 5733.09 of the Ohio Revised Code. Distributions with respect to the
Ohio Municipal Money Market and Tax-Free Income Portfolios properly
attributable to proceeds of insurance paid to those Portfolios that represent
maturing or matured interest on defaulted Obligations held by those Portfolios
and that are excluded from gross income for federal income tax purposes will
not be subject to Ohio personal income tax or municipal or school district
income taxes in Ohio if, and to the same extent as, such interest would not
have been subject
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to such taxes if paid in the normal course by the issuer of such defaulted
Obligations.
An investment in a Portfolio (including the North Carolina Municipal
Money Market Portfolio) by a corporation subject to the North Carolina
franchise tax will be included in the capital stock, surplus and undivided
profits base in computing the North Carolina franchise tax. Investors in a
Portfolio including, in particular, corporate investors which may be subject to
the North Carolina franchise tax, should consult their tax advisors with
respect to the effects on such tax of an investment in a Portfolio and with
respect to their North Carolina tax situation in general.
Distributions of investment company taxable income will be taxable
(other than interest on tax-exempt Municipal Obligations held by the Money
Market and Non-Money Market Municipal Portfolios and the possible allowance of
the dividends received deduction described below) to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
reinvested in shares. Shareholders receiving any distribution from a Portfolio
in the form of additional shares will be treated as receiving a taxable
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. The Money Market and
Non-Money Market Municipal Portfolios may each purchase securities that do not
bear Tax-Exempt Interest. Any income on such securities recognized by such a
Portfolio will be distributed and will be taxable to its shareholders.
Each Portfolio intends to distribute to shareholders any of its excess
of net long-term capital gain over net short-term capital loss ("net capital
gain") for each taxable year. Such gain is distributed as a capital gain
dividend and is taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares, whether such gain
was recognized by the Portfolio prior to the date on which a shareholder
acquired shares of the Portfolio and whether the distribution was paid in cash
or reinvested in shares.
In the case of corporate shareholders, distributions (other than
capital gain dividends) of a Non-Money Market Portfolio for any taxable year
generally qualify for the dividends received deduction to the extent of the
gross amount of "qualifying dividends" received by such Portfolio for the year.
Generally, a dividend will be treated as a "qualifying dividend" if it has been
received from a domestic corporation. Distributions of net investment income
from debt securities and of net realized short-term capital gains will be
taxable to shareholders as ordinary income and will not be treated as
"qualifying dividends" for purposes of the dividends received deduction.
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Ordinary income of individuals will be taxable at a maximum nominal
rate of 39.6%, but because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains will be taxable at a maximum rate of 28%. Capital
gains and ordinary income of corporate taxpayers are both taxed at a maximum
nominal rate of 35%, but at marginal rates of 39% for taxable income between
$100,000 and $335,000 and 38% for taxable income between $15,000,000 and
18,333,333. Investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain dividends have been
paid with respect to such shares.
Generally, futures contracts held by a Portfolio at the close of the
Portfolio's taxable year will be treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sale will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time a Portfolio holds the futures contract
("the 40-60 rule"). The amount of any capital gain or loss actually realized
by a Portfolio in a subsequent sale or other disposition of those futures
contracts will be adjusted to reflect any capital gain or loss taken into
account by the Portfolio in a prior year as a result of the constructive sale
of the contracts. With respect to futures contracts to sell, which will be
regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Portfolio, losses as
to such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for
the long-term holding period) be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts, deductions for
interest and carrying charges will not be allowed. Notwithstanding the rules
described above, with respect to futures contracts to sell which are properly
identified as such, a Portfolio may make an election which will exempt (in
whole or in part) those identified futures contracts from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Portfolio would be allowed
(in lieu of
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the foregoing) to elect either (1) to offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed
straddle to which such treatment applies, or (2) to establish a mixed straddle
account for which gains and losses would be recognized and offset on a periodic
basis during the taxable year. Under either election, the 40-60 rule will
apply to the net gain or loss attributable to the futures contracts, but in the
case of a mixed straddle account election, not more than 50% of any net gain
may be treated as long-term and no more than 40% of any net loss may be treated
as short-term. Options on futures contracts generally receive Federal tax
treatment similar to that described above.
Under the Federal income tax provisions applicable to regulated
investment companies, less than 30% of a company's gross income for a taxable
year must be derived from gains realized on the sale or other disposition of
securities held for less than three months. The Internal Revenue Service has
issued a private letter ruling with respect to certain other investment
companies to the following effect: gains realized from a futures contract to
purchase or to sell will be treated as being derived from a security held for
three months or more regardless of the actual period for which the contract is
held if the gain arises as a result of a constructive sale of the contract at
the end of the taxable year as described above, and will be treated as being
derived from a security held for less than three months only if the contract is
terminated (or transferred) during the taxable year (other than by reason of
mark-to-market) and less than three months elapses between the date the
contract is acquired and the termination date. Although private letter rulings
are not binding on the Internal Revenue Service with respect to the Portfolios,
the Fund believes that the Internal Revenue Service would take a comparable
position with respect to the Portfolios. In determining whether the 30% test
is met for a taxable year, increases and decreases in the value of a
Portfolio's futures contracts and securities that qualify as part of a
"designated hedge," as defined in the Code, may be netted.
Special rules govern the Federal income tax treatment of the portfolio
transactions of the International Equity, International Emerging Markets and
International Fixed Income Portfolios and certain transactions of the other
Portfolios that are denominated in terms of a currency other than the U.S.
dollar or determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by the special rules
include the following: (i) the acquisition of, or becoming the obligor under,
a bond or other debt instrument (including, to the extent provided in Treasury
regulations, certain preferred stock); (ii) the accruing of certain trade
receivables and payables; (iii) the entering into or acquisition of any forward
contract or similar financial instruments; and (iv) the entering into or
acquisition of any futures contract,
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option or similar financial instrument, if such instrument is not
marked-to-market. The disposition of a currency other than the U.S. dollar by
a U.S. taxpayer also is treated as a transaction subject to the special
currency rules. With respect to such transactions, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts that are capital assets in the hands
of the taxpayer and which are not part of a straddle ("Capital Asset
Election"). In accordance with Treasury regulations, certain transactions with
respect to which the taxpayer has not made the Capital Asset Election and that
are part of a "Section 988 hedging transaction" (as defined in the Code and the
Treasury regulations) are integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" (as identified by such Treasury regulations) are not subject to
the mark-to-market or loss deferral rules under the Code. Some of the non-U.S.
dollar-denominated investments that the Portfolios may make (such as non- U.S.
dollar-denominated debt securities and obligations and preferred stock) and
some of the foreign currency contracts the International Equity, International
Emerging Markets and International Fixed Income Portfolios may enter into will
be subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Portfolio which is not subject to the special currency rules (such as foreign
equity investments other than certain preferred stocks) will be treated as
capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction.
In addition, certain forward foreign currency contracts held by a
Portfolio at the close of the Fund's taxable year will be subject to
"mark-to-market" treatment. If the Fund makes the Capital Asset Election with
respect to such contracts, the contract will be subject to the 40-60 rule
described above. Otherwise, such gain or loss will be ordinary in nature. To
receive such Federal income tax treatment, a foreign currency contract must
meet the following conditions: (1) the contract must require delivery of a
foreign currency of a type in which regulated futures contracts are traded or
upon which the settlement value of the contract depends; (2) the contract must
be entered into at arm's length at a price determined by reference to the price
in the interbank market; and (3) the contract must be traded in the interbank
market. The Treasury Department has broad authority to issue regulations under
these provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information the Treasury has not issued any such
regulations. Forward foreign currency contracts entered into by the
International Equity, International Emerging Markets and International Fixed
Income Portfolios also may result
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in the creation of one or more straddles for Federal income tax purposes, in
which case certain loss deferral, short sales, and wash sales rules and
requirements to capitalize interest and carrying charges may apply.
If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
all distributions (including amounts derived from interest on Municipal
Obligations) will be taxable as ordinary dividends to the extent of such
Portfolio's current and accumulated earnings and profits. Such distributions
will be eligible for the dividends received deduction in the case of corporate
shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Portfolio intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of the each calendar year to avoid liability for this
excise tax.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend
income properly, or (iii) who has failed to certify to the Fund that he is not
subject to backup withholding or that he is an "exempt recipient."
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolios each year.
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
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located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
Shareholders should consult their tax advisors about state and local tax
consequences, which may differ from the Federal income tax consequences
described above.
ADDITIONAL INFORMATION CONCERNING SHARES
Shares of the Fund have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Fund's outstanding shares (irrespective of
class) may elect all of the trustees. Shares have no preemptive rights and
only such conversion and exchange rights as the Board may grant in its
discretion. When issued for payment as described in the Prospectus, shares
will be fully paid and non-assessable by the Fund.
There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as required by law. At that time,
the trustees then in office will call a shareholders' meeting to elect
trustees. Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. The Fund's Declaration of Trust
provides that meetings of the shareholders of the Fund shall be called by the
trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote.
The Funds' Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law), to:
(i) sell and convey the assets belonging to a class of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such class to be redeemed at a price which is equal to their net
asset value and which may be paid in cash or by distribution of the securities
or other consideration received from the sale and conveyance; (ii) sell and
convert the assets belonging to one or more classes of shares into money and,
in connection therewith, to cause all outstanding shares of such class to be
redeemed at their net asset value; or (iii) combine the assets belonging to a
class of shares with the assets belonging to one or more other classes of
shares if the Board of Trustees reasonably determines that such combination
will not have a material adverse effect on the shareholders of any class
participating in such combination and, in connection therewith, to cause all
outstanding shares of any such class to be redeemed or converted into shares of
another class of shares at their net asset value. However, the exercise of
such authority may be subject to certain restrictions under the 1940 Act. The
Board of Trustees may authorize the termination of any class of shares
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after the assets belonging to such class have been distributed to its
shareholders.
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath, PNB Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107- 3496, serves as the Fund's
counsel.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, L.L.P.,2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
FIVE PERCENT OWNERS. The name, address and percentage ownership of
each person that owned of record or beneficially on April 28, 1995 5% or more
of the outstanding shares of a Portfolio which had commenced operations as of
that date was as follows: [INSERT DATA]
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On April 28, 1995, PNC Bank held of record approximately __% of the
Fund's outstanding shares, and may be deemed a controlling person of the Fund
under the 1940 Act. PNC Bank is a national bank organized under the laws of
the United States. All of the capital stock of PNC Bank is owned by PNC
Bancorp, Inc. All of the capital stock of PNC Bancorp, Inc. is owned by PNC
Bank Corp., a publicly-held bank holding company.
BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956
or any bank or non-bank affiliate thereof from sponsoring, organizing,
controlling or distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares, and prohibit banks
generally from underwriting securities, but such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, administrator, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. PIMC, BlackRock, PCM, PEAC and
PNC Bank are subject to such banking laws and regulations.
PIMC, BlackRock, PCM, PEAC and PNC Bank believe they may perform the
services for the Fund contemplated by their respective agreements with the Fund
without violation of applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether bank and
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non-bank subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well
as further judicial or administrative decisions or interpretations of present
and future statutes and regulations, could prevent these companies from
continuing to perform such services for the Fund. If such were to occur, it is
expected that the Board of Trustees would recommend that the Fund enter into
new agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would be subject to shareholder approval.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
class, series or Portfolio means the lesser of (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
THE FUND'S NAME. PNC Bank Corp. is the owner of the registered
service mark "PNC." The Fund has entered into a licensing agreement with
respect to its non-exclusive use of "PNC," under which it has agreed not to
claim any interest to the name "PNC" except under the agreement. The license
will terminate if it is breached by the Fund or if neither PIMC nor any of PNC
Bank Corp.'s affiliates continues as the investment adviser or manager of the
Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended
September 30, 1994 (the "1994 Annual Report") and its Semi-Annual Report to
Shareholders dated March 31, 1995 (the "1995 Semi-Annual Report") are
incorporated by reference in this Statement of Additional Information. The
financial statements and notes thereto in the 1994 Annual Report and the 1995
Semi-Annual Report are incorporated in this Statement of Additional Information
by reference. The financial statements included in the 1994 Annual Report have
been audited by the Fund's independent accountants, Coopers & Lybrand, L.L.P.,
whose reports are incorporated herein by reference. Such financial statements
have been incorporated herein in reliance upon such report given upon their
authority as experts in accounting and auditing. Additional copies of the 1994
Annual Report and the 1995 Semi-Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-
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term promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "Duff 1," "Duff 2" and "Duff 3."
Duff & Phelps employs three designations, "Duff 1+," "Duff 1" and "Duff 1-,"
within the highest rating category. The following summarizes the rating
categories used by Duff & Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
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"Duff 4" - Debt possesses speculative investment
characteristics. Liquidity is not sufficient to ensure against disruption in
debt service. Operating factors and market access may be subject to a high
degree of variation.
"Duff 5" - Issuer has failed to meet scheduled principal
and/or interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by
a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-
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dealers. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
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CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The
"BB" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
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"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-6
<PAGE> 104
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating
category.
A-7
<PAGE> 105
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A-8
<PAGE> 106
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business,
A-9
<PAGE> 107
economic or financial conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non- United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long- term
A-10
<PAGE> 108
debt. Such issues are regarded as having speculative characteristics regarding
the likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades.
A-11
<PAGE> 109
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE> 110
APPENDIX B
THE FOLLOWING INFORMATION HAS BEEN PROVIDED TO THE FUND BY THE
DISTRIBUTOR.
Why the PNC Family of Funds?
The PNC Funds are guided by money managers whose philosophy and
discipline come with the 148-year tradition in money management of PNC
Bank Corp. and its affiliates. PNC Bank Corp. is one of the largest
banking institutions in the country, has a strong capital position,
and oversees assets of more than $170 billion as America's sixth
largest bank money manager.
Because of this size, depth and breadth of experience, the PNC Family
of Funds can offer portfolios guided by a variety of investment
philosophies -- from indexing to value to growth -- to help investors
with their goals.
For years, money managers in the PNC Bank Corp. Family have been the
investment advisor/manager for dozens of the world's major
institutions.
- - In 1993, more than 1,200 corporate investors turned to members
of the PNC Bank Corp. Family for the expertise they needed to
earn investment income in international markets.
- - During 1993, some of the world's largest investors turned to
members of the PNC Bank Corp. Family to help them earn
tax-exempt income on over $4 billion of assets.
- - In 1993, some of America's leading companies turned to members
of the PNC Bank Corp. Family to help them manage over $4
billion in employee retirement plans.
NOW THIS EXPERTISE IS AVAILABLE TO INDIVIDUAL INVESTORS.
Each PNC Fund portfolio focuses on specific client needs -- income,
growth, risk tolerance, tax bracket. Every portfolio is managed with
a sophisticated blend of discipline, experience and expertise.
In managing PNC Fund portfolios, the money managers utilize a
philosophy of "optimizing rather than maximizing." PNC Fund money
managers understand the risks of securities investments and believe
their philosophy helps to avoid taking unnecessary risks with
customers' money. Instead, PNC Fund money managers aim for
consistency and above-average results year in and year out.
B-1
<PAGE> 1
EXHIBIT (17)(h)
PROSPECTUS
THE COMPASS CAPITAL MUNICIPAL MONEY MARKET FUNDS
The Municipal Money Fund
The New Jersey Municipal Money Fund
The Pennsylvania Municipal Money Fund
JULY 1, 1995
- -------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP (the Group) is a family of 16 mutual funds that offers
you a convenient means of investing in one or more professionally managed
portfolios of securities. Three of the Group's Funds are described in this
prospectus: the diversified Municipal Money Fund and the non-diversified New
Jersey and Pennsylvania Municipal Money Funds (collectively, the Funds). Each
Fund seeks to maintain a stable net asset value of $1.00 per share, however,
each Fund has its own investment objective and policies. Shares of each Fund are
available through SEI Financial Services Company and through broker-dealers that
have established dealer agreements with SEI Financial Services Company. Shares
of the New Jersey Municipal Money Fund are offered and may be sold only in New
Jersey to New Jersey residents, and shares of the Pennsylvania Municipal Money
Fund are offered and may be sold only in Pennsylvania to Pennsylvania residents.
Please read this prospectus carefully before investing, and keep it on file for
future reference. It contains information that can help you decide if a Fund's
investment goals match your own. A Statement of Additional Information (SAI)
dated July 1, 1995 has been filed with the Securities and Exchange Commission
and is available free upon request by calling 1-800-451-8371. The SAI is
incorporated in its entirety into this prospectus by reference.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- -------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, 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.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING MIDLANTIC BANK, N.A. OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE GROUP'S SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 2
HOW TO READ THIS PROSPECTUS This prospectus gives you information that you
should know about the Funds before investing. Brief descriptions are also
provided throughout the prospectus to better explain certain key points. To find
these helpful guides, look for this symbol:-
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Funds at a Glance .................... 2 The Adviser ............................. 11
Shareholder Transaction Expenses ......... 4 The Administrator ........................ 12
Annual Operating Expenses ................ 4 The Distributor .......................... 12
Financial Highlights ..................... 5 Performance .............................. 12
Your Account and Doing Business with Taxes .................................... 13
the Group ............................... 6 Additional Information About Doing Business
Investment Objectives and Policies........ 8 with the Group ........................... 15
General Investment Policies .............. 9 General Information ....................... 16
Risk Factors and Special Considerations... 11 Description of Permitted Investments ...... 18
</TABLE>
THE FUNDS AT A GLANCE
- -------------------------------------------------------------------------------
The following summary provides basic information about the Funds. This summary
is qualified in its entirety by reference to the more detailed information
provided elsewhere in this prospectus and in the SAI.
INVESTMENT OBJECTIVES AND POLICIES The Municipal Money Fund seeks current income
that is exempt from federal taxation with preservation of capital and relative
stability of principal. The Fund invests primarily in short-term, high-quality,
fixed income securities, the income from which is exempt from federal income
taxation but with no regard to the federal alternative minimum tax. The New
Jersey Municipal Money Fund seeks current income that is exempt from federal and
New Jersey personal income taxation with preservation of capital and relative
stability of principal. The Fund invests primarily in short-term, high-quality,
fixed income securities, the income from which is exempt from federal and New
Jersey personal income taxation, but with no regard to the federal alternative
minimum tax. The Pennsylvania Municipal Money Fund seeks current income that is
exempt from federal and Pennsylvania personal income taxation with preservation
of capital and relative stability of principal. The Fund invests primarily in
short-term, high-quality, fixed income securities, the income from which is
exempt from federal and Pennsylvania personal income taxation, but with no
regard to the federal alternative minimum tax. See "Investment Objectives and
Policies" on page 8, "General Investment Policies" on page 9, and "Description
of Permitted Investments" on page 18.
UNDERSTANDING RISK While each Fund seeks to maintain a net asset value of $1.00
per share, there is no guarantee that a Fund will be able to maintain this $1.00
share price on a continuous basis. Investments in the New Jersey Municipal Money
Fund or the Pennsylvania Municipal Money Fund involve special risk
considerations. There is no assurance that a Fund will achieve its investment
objective. See "Investment Objectives and Policies" on page 8, "Risk Factors and
Special Considerations" on page 11 and "Description of Permitted Investments" on
page 18.
2
<PAGE> 3
MANAGEMENT PROFILE Midlantic Bank, N.A. (Midlantic) serves as the investment
adviser to each Fund. SEI Financial Management Corporation serves as the Group's
administrator (the Administrator). See "The Adviser" on page 11, and "The
Administrator" on page 12.
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP You may open an account with just
$2,500 and make additional investments with as little as $100. Shares are
offered at net asset value per share, which is expected to be maintained at a
constant value of $1.00 per share. Redemptions of a Fund's shares are made at
net asset value per share. See "Your Account and Doing Business with the Group"
on page 6.
DIVIDENDS The net investment income and any net short-term capital gains of each
Fund are declared daily and distributed monthly as dividends. Any net capital
gain income is distributed at least annually. Distributions are paid in
additional shares unless you elect to take the payment in cash. See "Dividends"
on page 17.
INFORMATION For more information about the Funds, call 1-800-451-8371.
3
<PAGE> 4
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY
FUND FUND FUND
------------- --------------- -----------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
None
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Advisory Fees..................................................... .40% .40% .40%
Other Expenses.................................................... .29% .29% .29%
Total Fund Operating Expenses(2).................................. .69% .69% .69%
</TABLE>
Example: You would pay the following expenses on a $1,000 investment in each of
the Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
MUNICIPAL NEW JERSEY PENNSYLVANIA
MONEY MUNICIPAL MUNICIPAL
FUND MONEY FUND MONEY FUND
------------- --------------- ---------------
<S> <C> <C> <C>
1 Year................................................................ $ 7 $ 7 $ 7
3 Years............................................................... $21 $21 $21
5 Years............................................................... $38 $38 $38
10 Years.............................................................. $85 $85 $85
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to help you understand the various costs and
expenses that an investor in each Fund will bear directly or indirectly.
Additional information may be found under "The Adviser" on page 11, "The
Administrator" on page 12, and "The Distributor" on page 12.
- ------------------
(1) Midlantic may charge account fees for automatic investment and other
investment or trust services provided to customer accounts that invest in
the Funds. There is a $7 charge for wiring redemption proceeds. See "Your
Account and Doing Business with the Group" on page 6.
(2) Total Fund Operating Expenses are restated for each Fund to reflect current
fees.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the per
share data and ratios for the Funds. This information has been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent public
accountants for the Group. Additional performance information is set forth in
the 1995 Annual Report to Shareholders and is available free upon request by
calling 1-800-451-8371.
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
NET
NET ASSET DISTRIBUTIONS ASSETS RATIO OF RATIO OF
VALUE NET FROM NET NET ASSET END OF EXPENSES TO NET INCOME
BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL PERIOD AVERAGE NET TO AVERAGE
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS NET ASSETS
----------- ----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------
MUNICIPAL MONEY FUND
- -------------------------
1995 $1.00 $0.03 $(0.03) $1.00 2.55% $45,252 $0.67% 2.53%
1994 1.00 0.02 (0.02) 1.00 1.98 47,407 0.62 1.94
1993 1.00 0.03 (0.03) 1.00 2.48 90,208 0.67 2.45
1992 1.00 0.04 (0.04) 1.00 3.95 56,932 0.67 4.05
1991 1.00 0.06 (0.06) 1.00 5.67 176,209 0.61 5.54
1990 1.00 0.06 (0.06) 1.00 6.17 127,419 0.65 6.00
19891 1.00 0.05 (0.05) 1.00 4.35* 123,300 0.57 5.03
<CAPTION>
- ---------------------------------------
NEW JERSEY MUNICIPAL MONEY FUND
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.02 $(0.02) $1.00 2.46% $43,610 0.63% 2.46%
1994 1.00 0.02 (0.02) 1.00 1.79 39,408 0.65 1.77
1993 1.00 0.02 (0.02) 1.00 2.19 38,836 0.73 2.17
19922 1.00 0.02 (0.02) 1.00 3.53* 35,005 0.47* 3.44*
<CAPTION>
- ----------------------------------------
PENNSYLVANIA MUNICIPAL MONEY FUND
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.71% $35,478 0.48% 2.68%
1994 1.00 0.02 (0.02) 1.00 2.25 26,654 0.22 2.35
1993 1.00 0.03 (0.03) 1.00 2.49 5,096 0.67 2.53
19923 1.00 0.02 (0.02) 1.00 3.72* 22,145 0.58* 3.42*
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
AVERAGE NET TO AVERAGE
ASSETS NET ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
----------- -----------
- -------------------------
MUNICIPAL MONEY FUND
- -------------------------
<S> <C> <C>
1995 0.67% 2.53%
1994 0.62 1.94
1993 0.67 2.45
1992 0.69 4.03
1991 0.63 5.52
1990 0.68 5.97
19891 0.66 4.94
<CAPTION>
- --------------------------
NEW JERSEY MUNICIPAL MONEY
- --------------------------
<S> <C> <C>
1995 0.70% 2.39%
1994 0.72 1.70
1993 0.76 2.14
19922 0.62* 3.29*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C>
1995 0.69% 2.47%
1994 0.80 1.77
1993 0.87 2.33
19923 0.62* 3.38*
</TABLE>
- ------------------
* Annualized.
(1) Commenced operations on March 1, 1988.
(2) Commenced operations on July 1, 1991.
(3) Commenced operations on August 15, 1991.
5
<PAGE> 6
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
Shares of the Funds are sold on a continuous basis and may be purchased directly
from the Group's Distributor, SEI Financial Services Company (the Distributor).
Shares may also be purchased through broker-dealers that have established a
dealer agreement with SEI Financial Services Company. For more information, see
"Additional Information About Doing Business with the Group" on page 15.
HOW TO BUY SHARES
OPENING AN ACCOUNT Application forms can be obtained by calling the Group's
Transfer Agent, State Street Bank & Trust Company (the Transfer Agent), at
1-800-451-8371.
BY CHECK You may buy shares of any of the Funds by completing and signing an
account application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "The Compass Capital (Fund Name)" to the
Transfer Agent, State Street Bank & Trust Company, at P.O. Box 8519, Boston, MA
02266-8519. You may purchase additional shares at any time by mailing payment to
the Transfer Agent. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees incurred.
BY TELEPHONE If your account application has been previously received, you may
buy shares by telephone by calling the Transfer Agent at 1-800-451-8371.
BY FED WIRE If you have an account with a commercial bank that is a member of
the Federal Reserve System and your account application has been previously
received, you may purchase shares by requesting your bank to transmit funds by
wire to: State Street Bank & Trust Co., ABA# 011000028, Attention: Compass Funds
for Account Number 99050569. Your name and the Compass Funds account number must
be specified in the wire. To buy shares by wire, call the Transfer Agent at
1-800-451-8371.
BY ACH You may buy shares of the Funds via Automated Clearing House (ACH). If
you plan to purchase shares via ACH, you should attach a voided check to your
account application.
AUTOMATIC INVESTMENT PLAN One easy way to pursue your financial goals is to
invest money regularly. You may arrange for periodic additional investment in
the Funds through automatic deductions from your checking or savings accounts.
You may purchase shares on a fixed monthly schedule (on the first or sixteenth
of each month) with amounts as low as $100, or as high as $100,000. The minimum
initial purchase amounts and minimum maintained balance requirements may be
waived for purchases under the Automatic Investment Plan.
HOW TO BUY, SELL, AND EXCHANGE SHARES THROUGH INTERMEDIARIES
- - WHAT IS AN INTERMEDIARY? Any broker-dealer or other financial institution
which has entered into an arrangement with the Distributor to sell shares
of the Funds to its customers.
To allow for processing and transmittal of orders to the Transfer Agent on the
same day, Intermediaries may impose earlier cut-off times for receipt of
purchase orders. Certain Intermediaries may charge customer account fees.
Information concerning shareholder services and any charges will be provided to
the customer by the Intermediary. Certain of these Intermediaries may be
required to register as broker/dealers under state law.
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<PAGE> 7
EXCHANGING SHARES
- - HOW DOES AN EXCHANGE TAKE PLACE? When making an exchange, you authorize the
sale of your shares of one Fund in order to purchase the shares of another
Fund. In other words, you are executing a sell order and then a buy order.
An exchange is a taxable event which could result in a taxable gain or
loss.
WHEN CAN YOU EXCHANGE SHARES? Once your account has been established, you may
exchange some or all of your shares for shares of any other Fund within the
Group at net asset value plus a sales charge, if applicable. The exchange
privilege may only be exercised in states where the exchange may legally be
made. Only residents of New Jersey may exchange their shares for shares of the
New Jersey Municipal Money Fund or the New Jersey Municipal Bond Fund, and only
residents of Pennsylvania may exchange their shares for shares of the
Pennsylvania Municipal Money Fund or the Pennsylvania Municipal Bond Fund. The
Group reserves the right to change the terms and conditions of the exchange
privilege or to terminate the exchange privilege, upon 60 days notice.
WHEN DO SALES CHARGES APPLY TO AN EXCHANGE? You will not have to pay a sales
charge to exchange your shares for shares of another money market Fund. However,
effective September 1, 1995, you will pay a sales charge to exchange money
market shares for shares of Funds that impose a sales charge. You must meet the
minimum account size requirements established by each Fund.
REQUESTING AN EXCHANGE OF SHARES Prior to exchanging shares, you must have
received a current prospectus of the Fund into which you wish to move your
investment. To request a prospectus for any of the Group's Funds, call
1-800-451-8371.
To request an exchange, you may contact the Transfer Agent by telephone at
1-800-451-8371 or provide written instructions to the Transfer Agent at P.O. Box
8519, Boston, MA 02266-8519. If an exchange request in good order is received by
the Transfer Agent by 12:00 noon Eastern Time on any Business Day, the exchange
will occur on that day. If your shares are held "of record" by Midlantic or
another Intermediary, you should contact Midlantic or the Intermediary, who will
effect the exchange on your behalf.
- - BUY, EXCHANGE, AND REDEMPTION REQUESTS ARE IN "GOOD ORDER" WHEN:
-- The account number and portfolio name are shown
-- The amount of the transaction is specified in dollars or shares
-- Signatures of all owners appear exactly as they are registered on
the account
-- Any required signature guarantees (if applicable) are included
-- Other supporting legal documents (as necessary) are present
HOW TO REDEEM SHARES
You can arrange to take money out of your Fund account at any time by redeeming
some or all of your shares. Shares may be redeemed by mail, by telephone, by
check, or by the Automatic Cash Withdrawal Plan. If your shares are held "of
record" by Midlantic or another Intermediary, you should contact Midlantic or
the Intermediary for information on how to redeem shares. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption.
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<PAGE> 8
- - WHAT IS A SIGNATURE GUARANTEE? A signature guarantee verifies the
authenticity of your signature and may be obtained from any of the
following: banks, brokers, dealers, certain credit unions, securities
exchanges or associations, clearing agencies, or savings associations. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
BY MAIL To redeem your shares by mail, a written request for redemption in good
order must be received by the Transfer Agent, P.O. Box 8519, Boston, MA
02266-8519. All shareholders of record must sign the redemption request. The
Transfer Agent may require that the signature on the written request be
guaranteed. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption is of $5,000 worth of shares or
less, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at the address of
record. You may also have the proceeds deposited directly in a checking or
savings account previously designated on the account application. There is no
charge for having redemption proceeds deposited directly to a designated bank
account.
BY TELEPHONE You may redeem your shares by telephone if you elected that option
on your account application. Telephone redemption requests may be made by
calling the Transfer Agent at 1-800-451-8371. You may have the proceeds mailed
to your address, or deposited directly in a checking or savings account
previously designated on your account application. There is a $7 charge for
wiring redemption proceeds. You may not close your account by telephone.
CHECK WRITING SERVICE You may redeem your shares by writing checks on your Fund
account for $250 or more. Once you have signed and returned a signature card,
you will receive a supply of checks. These checks may be made payable to any
person, and your account will continue to earn dividends until the check clears.
These checks are free, but your account will be charged a fee for stopping
payment of a check upon your request or if a check cannot be honored because of
insufficient funds or for other valid reasons. Because of the difficulty of
determining in advance the exact value of a Fund account, you may not use a
check to close your account.
AUTOMATIC CASH WITHDRAWAL PLAN You may establish an automatic cash withdrawal
plan for an account with at least a $10,000 minimum balance. Redemptions can be
automatically processed from accounts at regular intervals and the proceeds sent
to you, to a person named by you, or to your checking account. The minimum
redemption amount under the Automatic Cash Withdrawal Plan is $50. Automatic
Cash Withdrawal Plan application forms can be obtained by calling the Transfer
Agent at 1-800-451-8371.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
- - WHAT ARE INVESTMENT OBJECTIVES AND POLICIES? A Fund's investment objective
is a statement of what it seeks to achieve. It is important to make sure
that the investment objective matches your own financial needs and
circumstances. The investment policies section spells out the types of
securities in which each Fund invests.
Each Fund has its own investment objective and policies. The investment
objective with respect to each Fund may not be changed without a vote of the
holders of a majority of the outstanding shares of that Fund. There is no
assurance that a Fund will achieve its investment objective.
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<PAGE> 9
THE MUNICIPAL MONEY FUND seeks current income exempt from federal taxation with
preservation of capital and relative stability of principal. The assets of the
Fund are invested primarily in high-quality bonds and notes issued by or on
behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions, the interest on which is exempt
from federal income tax (Municipal Securities). Under normal market conditions,
the Municipal Money Fund invests at least 80% of its assets in Municipal
Securities. The federal alternative minimum tax is not a primary consideration
in managing the Fund.
THE NEW JERSEY MUNICIPAL MONEY FUND seeks current income exempt from federal and
New Jersey personal income taxation with preservation of capital and relative
stability of principal. The Fund invests primarily in Municipal Securities.
Under normal market conditions, at least 80% of the New Jersey Municipal Money
Fund's total assets are invested in Municipal Securities, and at least 80% of
the Fund's total assets are invested in Municipal Securities the interest on
which is exempt from New Jersey personal income tax (New Jersey Municipal
Securities) or direct obligations of the United States, its territories, and
certain of its agencies and instrumentalities (Federal Securities).
THE PENNSYLVANIA MUNICIPAL MONEY FUND seeks current income exempt from federal
and Pennsylvania personal income taxation with preservation of capital and
relative stability of principal by investing primarily in Municipal Securities.
Under normal market conditions, at least 80% of the Pennsylvania Municipal Money
Fund's total assets are invested in Municipal Securities, and at least 80% of
the Fund's total assets are invested in Municipal Securities, the interest on
which is exempt from Pennsylvania personal income tax (Pennsylvania Municipal
Securities).
It is a fundamental policy of the Pennsylvania Municipal Money Fund that its
portfolio securities may be varied only (i) to eliminate unsafe investments and
investments not consistent with the preservation of the Pennsylvania Municipal
Money Fund's capital or the tax status of its investments; (ii) to honor
redemption orders, meet anticipated redemption requirements, and negate gains
from discount purchases; (iii) to maintain a constant net asset value per unit
pursuant to, and in compliance with, an order or rule of the United States
Securities and Exchange Commission; (iv) to reinvest the earnings from
securities in like securities; or (v) to defray normal administrative expenses.
GENERAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
Each Fund invests only in those obligations which are determined by Midlantic to
present minimal credit risks under guidelines adopted by the Group's Trustees.
In addition, investments are limited to those obligations which, at the time of
purchase, (i) possess, in the case of single-rated securities, the highest
short-term rating from a nationally recognized statistical rating organization
(an NRSRO), such as Standard & Poor's Corporation (S&P) or Moody's Investors
Service, Inc. (Moody's); (ii) possess, in the case of other securities, the
highest short-term ratings accorded by at least two NRSROs; or (iii) do not
possess a rating (i.e., are unrated) but are determined by Midlantic to be of
comparable quality to the rated instruments eligible for purchase by a Fund
under guidelines adopted by the Trustees. The Pennsylvania Municipal Money Fund
may also hold securities of other investment companies. The Appendix to the SAI
contains a description of the ratings categories used by Moody's and S&P.
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<PAGE> 10
The New Jersey and Pennsylvania Municipal Money Funds each invest more than 25%
of its net assets in Municipal Securities whose issuers are located in New
Jersey or Pennsylvania, respectively, and the Municipal Money Fund may invest
more than 25% of its net assets in Municipal Securities whose issuers are
located in the same state. Each Fund may invest more than 25% of its net assets
in (i) Municipal Securities the interest on which is paid solely from revenues
of similar projects, and (ii) private activity bonds, although each Fund
currently limits investments in private activity bonds which are based on the
credit of private entities in any one industry to 25% or less of its net assets.
To the extent that a Fund's assets are so invested, such Fund will be subject to
the peculiar risks presented by the laws and economic conditions relating to
such states, projects, or bonds to a greater extent than it would be if its
assets were not so concentrated.
Under normal market conditions, the Municipal Money Fund may invest up to 20% of
its total assets in obligations, the interest on which is subject to regular
federal income taxation (Taxable Obligations). The New Jersey and Pennsylvania
Municipal Money Funds each may invest up to 20% of its total assets in Taxable
Obligations and Municipal Securities other than those in New Jersey and
Pennsylvania, respectively. There is no restriction on the percentage of each of
the Funds' assets that may be invested in obligations the interest on which is
treated as a preference item for individuals for purposes of the federal
alternative minimum tax. Taxable Obligations may include obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit and demand and time deposits of domestic banks and
savings and loan associations, bankers' acceptances issued by domestic banks,
and commercial paper issued by U.S. corporations (including variable amount
master demand notes). Each Fund may increase its investment in Taxable
Obligations to over 20% of its total assets if suitable tax-exempt obligations
are unavailable or for temporary defensive purposes, and may hold a portion of
its assets in cash. To the extent that a Fund's assets are so invested, they
will not be invested so as to meet such Fund's investment objective.
Each Fund may invest in "tender option bonds" and similar securities. Midlantic,
on behalf of a Fund, considers on an ongoing basis the creditworthiness of the
issuers of the underlying Municipal Securities, of any custodian, and of the
third party provider of the tender option. In certain instances and for certain
tender option bonds, the option may be terminable in the event of the default in
payment of principal or interest on the underlying Municipal Securities and for
other reasons. Receipts and tender option bonds are sold in private placements.
A Fund may not hold more than 10% of net assets in illiquid securities, which
would include tender option bonds as to which it cannot exercise the tender
feature on not more than 7 days notice if there is no secondary market.
All securities or instruments in which each Fund invests must have remaining
maturities of 13 months or less, although securities subject to repurchase
agreements and certain adjustable interest rate instruments may bear longer
maturities. The average dollar-weighted maturity of the securities in each Fund
will not exceed 90 days.
For additional information regarding a Fund's permitted investments, see
"Description of Permitted Investments" on page 18.
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<PAGE> 11
RISK FACTORS AND SPECIAL CONSIDERATIONS
- -------------------------------------------------------------------------------
FIXED INCOME INVESTMENTS
The market value of fixed income investments will generally change in response
to interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal will also
affect the value of these investments. Changes in the value of portfolio
securities will not affect cash income derived from these securities but will
affect a Fund's net asset value.
NEW JERSEY MUNICIPAL SECURITIES AND PENNSYLVANIA MUNICIPAL SECURITIES
Under normal market conditions, the New Jersey Municipal Money Market Fund and
Pennsylvania Municipal Money Market Fund are predominantly invested in New
Jersey and Pennsylvania Municipal Securities, respectively, and therefore the
value of shares in these funds may be especially affected by factors pertaining
to the state economy and other factors specifically affecting the ability of
issuers of New Jersey and Pennsylvania Municipal Securities to meet their
obligations. As a result, the value of these Funds' shares may fluctuate more
widely than the value of the shares of a portfolio investing in securities
relating to a number of different states. The ability of state, county, and
local governments to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available to
governmental issuers of New Jersey and Pennsylvania Municipal Securities may be
affected from time to time by economic, political, and demographic conditions
within the state. In addition, constitutional or statutory restrictions may
limit a government's power to raise revenues or increase taxes. Payments of
principal and interest on limited obligation securities will depend on the
economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by economic,
political, and demographic conditions in the state. Moreover, both the New
Jersey Municipal Money Market Fund and Pennsylvania Municipal Money Market Fund
are classified as "non-diversified" because they may invest in obligations of a
relatively limited number of issuers.
See "Special Risk Factors--New Jersey Municipal Securities and Pennsylvania
Municipal Securities" in the SAI.
THE ADVISER
- -------------------------------------------------------------------------------
- - INVESTMENT ADVISER. A Fund's adviser manages the investment activities and
is responsible for the performance of the Fund. The adviser conducts
investment research, executes investment strategies based on an assessment
of economic and market conditions, and determines which securities to buy,
hold, or sell.
Midlantic is the investment adviser of each Fund and has served as the
investment adviser to the Group since inception. Midlantic is the lead bank of
Midlantic Corporation, one of the 50 largest bank holding companies in the
United States, with $13 billion in assets as of December 31, 1994 and 324
banking offices located throughout
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<PAGE> 12
New Jersey and Southeastern Pennsylvania. Midlantic is the oldest bank in New
Jersey, having received its charter in 1804.
Fiduciary assets have been managed by Midlantic since 1927 and, as of December
31, 1994, Midlantic, together with its affiliate banks, was responsible for the
investment of $5 billion in personal trust, pension fund, investment advisory,
and cash management accounts. These accounts include tax-free as well as taxable
securities. Midlantic is experienced in the investment of equity, fixed income,
and money market instruments, and has been the investment manager for pooled
funds and investment portfolios similar to those of the Group for many years.
For the services provided and expenses incurred pursuant to its investment
advisory agreement with the Group, Midlantic receives a fee from each Fund,
computed daily and paid monthly. For each Fund, Midlantic receives a fee at the
annual rate of .40% of each Fund's average daily net assets. Midlantic may from
time to time waive all or a portion of its fee in order to limit the operating
expenses of a Fund. Any such waiver is voluntary and may be terminated at any
time in its sole discretion. During the Group's fiscal year ended February 28,
1995, Midlantic received investment advisory fees aggregating .40%, .40%, and
.28%, respectively, of the Municipal Money, New Jersey Municipal Money, and
Pennsylvania Municipal Money Funds' average daily net assets.
Midlantic believes that it possesses the legal authority to perform the
investment advisory services for the Funds contemplated by its investment
advisory agreement and by this prospectus without violating applicable banking
laws or regulations. See "Management of the Group--Glass-Steagall Act" in the
SAI.
THE ADMINISTRATOR
- -------------------------------------------------------------------------------
SEI Financial Management Corporation is the administrator for each Fund of the
Group. The Administrator generally assists in all aspects of each Fund's
administration and operation.
For expenses incurred and services provided as the Administrator pursuant to its
administration agreement with the Group, SEI Financial Management Corporation
receives a fee from each Fund, computed daily and paid periodically, at an
annual rate of .18% of such Fund's average daily net assets. The Administrator
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in the Administrator's sole discretion.
THE DISTRIBUTOR
- -------------------------------------------------------------------------------
Shares of the Group's Funds are sold on a continuous basis by SEI Financial
Services Company.
PERFORMANCE
- -------------------------------------------------------------------------------
Each Fund may advertise its yield, effective yield, and tax-equivalent yield.
Yield refers to the income generated by an investment in a Fund over a seven-day
period, expressed as an annual percentage rate. The effective yield is
calculated similarly, but, when annualized, the income earned by an investment
is assumed to be reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
Tax-equivalent yield is calculated by determining the rate of return that would
have been achieved
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<PAGE> 13
on a fully taxable investment to produce the after-tax equivalent of a Fund's
yield, assuming certain tax brackets for a shareholder. These figures will be
based on historical earnings and are not intended to indicate future
performance. No representation can be made concerning actual future yields. Fees
imposed upon customer accounts by Midlantic or Essex National Securities, Inc.
for investment management services are not reflected in a Fund's yield
calculations.
A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical)
or by financial and business publications and periodicals; broad groups of
comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and may
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or yields to a
benchmark while measures of benchmark correlation indicate how valid a
comparative benchmark might be. Measures of volatility and correlation are
calculated using averages of historical data and cannot be calculated precisely.
TAXES
- -------------------------------------------------------------------------------
As with any investment, you should consider how your investment in a Fund will
be taxed.
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their shareholders. Accordingly, you are urged to consult your tax adviser
regarding specific questions as to federal, state, and local income taxes. State
and local tax consequences of an investment in a Fund may differ from the
federal income tax consequences described below. Additional information
concerning taxes is set forth in the SAI.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Group's other portfolios. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended, so as to be
relieved of federal income tax on net investment company taxable income and net
capital gains (the excess of net long-term capital gain over net short-term
capital losses) distributed to shareholders.
- - DISTRIBUTIONS The Funds distribute income dividends and capital gains.
Income dividends represent the earnings from a Fund's investments; capital
gains distributions occur when investments are sold for more than the
original purchase price.
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<PAGE> 14
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including net short-term capital gains) and net capital gain to shareholders.
Distributions of net capital gains are taxable to shareholders as long-term
capital gains, regardless of the length of time you have owned shares in the
Fund. Each Fund will make annual reports to shareholders of the federal income
tax status of all distributions. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for
federal excise tax. Dividends declared by a Fund in October, November, or
December of any year and payable to shareholders of record on a date in such a
month will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if paid by a Fund at any time during
the following January. Sale, exchange, or redemption of a Fund's shares is a
taxable transaction to the shareholder.
NEW JERSEY TAX CONSIDERATIONS
Provided that the Fund meets the requirements for a qualified investment fund,
investors in the New Jersey Municipal Money Fund will not be subject to the New
Jersey gross income tax on distributions from the Fund attributable to interest
income from (and net gain, if any, from the disposition of) New Jersey Municipal
Securities or direct obligations of the United States, its territories, and
certain of its agencies and instrumentalities held by the Fund, or on gain on
the disposition of shares. Net income or gains and distributions derived from
other investments, and distributions from net realized capital gains in respect
of such investments, will be taxable.
PENNSYLVANIA TAX CONSIDERATIONS
Investors in the Pennsylvania Municipal Money Fund will not be subject to
Pennsylvania personal income tax or the Philadelphia School District Net Income
Tax imposed on Philadelphia residents on distributions from the Fund
attributable to interest income from Pennsylvania Municipal Securities held by
the Fund, and to interest or net gains on obligations of the United States, its
territories and certain of its agencies and instrumentalities. For purposes of
the Pennsylvania personal income tax and the School District Tax, distributions
derived from other investments and distributions from net realized capital gains
in respect of such investments will be taxable; except in the case of the School
District Tax, distributions qualifying as capital gains dividends for federal
income tax purposes are not taxable.
Shares purchased as an investment in the Pennsylvania Municipal Money Fund are
exempt from Pennsylvania county personal property taxes and (as to residents of
Pittsburgh) from personal property taxes imposed by the School District of
Pittsburgh to the extent that the fund's investments consist of obligations
which are themselves exempt from taxation in Pennsylvania.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Securities held by the Pennsylvania Municipal Money
Fund, such gain may be subject to the Pennsylvania personal income tax and the
School District Tax, except that gain realized with respect to a share held for
more than six months is not subject to the School District Tax.
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<PAGE> 15
ADDITIONAL INFORMATION ABOUT DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
BUSINESS DAYS
You may buy, sell, or exchange shares on days on which the New York Stock
Exchange is open for business (a Business Day). However, shares cannot be
purchased or redeemed by Federal Reserve wire on Federal holidays restricting
wire transfers.
All purchase, exchange, and redemption requests received in "good order" will be
effective as of the Business Day as long as the Transfer Agent receives the
order (and payment, if a purchase request) before 12:00 noon Eastern Time in the
case of purchase and redemption requests, and 12:00 noon Eastern Time in the
case of exchange requests. If an exchange request is received by the Transfer
Agent after 12:00 noon Eastern Time, the exchange request will not be effective
until the next Business Day.
An order to purchase shares will be deemed to have been received by the
Distributor only when federal funds with respect thereto are available to the
Custodian for investment. Federal funds are monies credited to a bank's account
with a Federal Reserve Bank.
MINIMUM INVESTMENTS
The minimum initial investment in a Fund is $2,500. All subsequent purchases
must be at least $100. The minimum investment may be waived if the purchases are
made in connection with gifts to minors, payroll deduction programs, or similar
plans or upon due notice from the Distributor. Each Fund reserves the right to
reject a purchase order in whole or in part.
MAINTAINING A MINIMUM ACCOUNT BALANCE
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your shares at net asset value if, because of
redemptions, your account in a Fund has a value of less than the minimum initial
purchase amount (normally $2,500). Accordingly, if you purchase shares of a Fund
in only the minimum investment amount, you may be subject to involuntary
redemption if you redeem any shares. Before a Fund exercises its right to redeem
your shares, you will be given notice that the value of the shares in your
account is less than the minimum amount and you will be allowed 60 days to make
an additional investment in the Fund in an amount which will increase the value
of the account to at least the minimum amount. Shares will not be redeemed
involuntarily as a result of a decline in account value due to a decline in net
asset value alone.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment. In such circumstances, the forwarding of proceeds may
be delayed for 15 or more days until payment has been collected for the purchase
of the shares, however, the shares will continue to accrue dividends until
payment has been collected and the redemption order has been processed. The
Funds intend to pay cash for all shares redeemed, but under abnormal conditions
that make payment in cash unwise, payment may be made wholly or partly in
portfolio securities with a market value equal to the redemption price. In such
cases, you may incur brokerage costs in converting such securities to cash.
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<PAGE> 16
NET ASSET VALUE
An order to buy shares will be executed at a per share price equal to the net
asset value next determined after the receipt of the purchase order by the
Transfer Agent (the offering price). Net asset value per share is determined as
of 12:00 noon and 4:00 p.m. Eastern Time on each Business Day. Payment to
shareholders for shares redeemed will be made within 7 days after receipt by the
Transfer Agent of the redemption order. However, to the greatest extent
possible, requests from shareholders for next day payments upon redemption of
shares will be honored if received by the Transfer Agent before 4:00 p.m.
Eastern Time on a Business Day.
HOW THE NET ASSET VALUE IS DETERMINED
The net asset value per share of each Fund is calculated by adding up the value
of the Fund's investments, cash, and other assets, subtracting its liabilities,
and then dividing the result by the number of outstanding shares of the Fund.
Portfolio securities are valued based upon the amortized cost method, which the
Group's Trustees believe accurately reflects fair value.
TELEPHONE INSTRUCTIONS
Redemption orders may be placed by telephone. Neither the Group nor the Transfer
Agent will be responsible for any loss, liability, cost, or expense for acting
upon telephone instructions that it reasonably believes to be genuine. The Group
and the Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
THE GROUP
The Compass Capital Group of Funds was organized as a Massachusetts business
trust under a Declaration of Trust dated October 1, 1987. Additional information
pertaining to the Group may be obtained by writing to SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling
1-800-451-8371.
The Group pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes, and organization expenses. See "Financial Highlights" on page 5 for more
information regarding the Group's expenses.
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<PAGE> 17
TRUSTEES OF THE GROUP
The management and affairs of the Group are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Group.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote, and a fractional
share entitles the shareholder to a proportionate fractional vote. Shareholders
will vote in the aggregate and not by Fund except as otherwise expressly
required by law. Each Fund will vote separately on matters relating solely to
that Fund. As a Massachusetts business trust, the Group is not required to hold
annual meetings of shareholders, but shareholders have the right to call a
meeting to elect or remove one or more of the Trustees of the Group or to be
assisted by the Trustees in communicating with other shareholders of the Group.
CONTROLLING PERSONS
The Group believes that as of April 7, 1995 Midlantic (499 Thornall Street,
Edison, NJ 08818) owned of record substantially all of the shares of the
Municipal Money Fund, the New Jersey Municipal Money Fund, and the Pennsylvania
Municipal Money Fund, but also believes that Midlantic did not possess, on
behalf of its underlying accounts, any voting or investment power with respect
to any of such shares.
REPORTING
The Group issues unaudited financial information semiannually and audited
financial statements annually. The Group furnishes proxy statements and other
reports to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Transfer Agent, State Street
Bank & Trust Company, P.O. Box 8519, Boston, MA 02266-8519 or may be made by
calling 1-800-451-8371.
DIVIDENDS
Net investment income and net short-term capital gains, if any, of each Fund are
declared as a dividend daily to shareholders of record as of the close of
business on such day and paid monthly on or about the last Business Day of each
month. Net capital gain income (the excess of net long-term capital gains over
net short-term capital losses) of each Fund, if any, is distributed at least
annually. Dividends will be paid or applied toward the purchase of additional
shares monthly, generally on the last Business Day of the month. You will
automatically receive all investment income dividends and capital gains
distributions in additional full and fractional shares at net asset value as of
the date of payment, unless you elect to receive dividends or distributions in
cash. Such election, or any revocation thereof, must be made in writing to the
Transfer Agent and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Dividends and distributions paid in additional shares receive the same tax
treatment as dividends and distributions paid in cash. Dividends are paid in
cash not later than 7 Business Days after a complete redemption of shares in a
Fund.
17
<PAGE> 18
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius serves as counsel to the Group. Coopers & Lybrand L.L.P.
serves as the independent accountants of the Group.
CUSTODIAN AND TRANSFER AGENT
Citibank, N.A., 111 Wall Street, New York, NY 10005 (the Custodian), serves as
custodian of the Group's assets. The Custodian holds cash, securities, and other
assets of the Group as required by the 1940 Act. State Street Bank & Trust
Company, P.O. Box 8519, Boston, MA 02266-8519, serves as transfer agent for each
Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
- -------------------------------------------------------------------------------
The following is a description of the permitted investments and investment
practices for the Funds.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations, and
other entities. Maturities on these issues vary from a few to 270 days.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities, and other borrowers.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes, construction loan notes, as well as participation interests in
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, and private activity and industrial development bonds,
as well as participation interests in municipal bonds.
TENDER OPTION BONDS -- A tender option bond is a municipal security having a
relatively long maturity and bearing interest at a fixed rate, coupled with the
agreement of a third party, such as a bank or brokerage firm, to accept tender
of the securities by their owners at periodic intervals for the face value
thereof. As consideration for providing this option, the third party receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent, at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt rate.
Additional information on other permitted investments can be found in the SAI.
18
<PAGE> 19
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
<PAGE> 20
- ------------------------------------------------------------------------------
COMPASS FUNDS(R)
INVESTMENT ADVISER
Midlantic Bank, N.A.
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Pennsylvania Center
Philadelphia, Pennsylvania 19103
THE COMPASS CAPITAL
GROUP OF FUNDS(R)
PERSON-TO-PERSON MUTUAL FUNDS
MUNICIPAL
MONEY
MARKET
FUNDS
- MUNICIPAL MONEY FUND
- NEW JERSEY MUNICIPAL MONEY FUND
- PENNSYLVANIA MUNICIPAL MONEY FUND
FOR TAX-FREE INVESTING
WITH STABILITY OF PRINCIPAL
PROSPECTUS DATED
JULY 1, 1995
Managed by
[MIDLANTIC LOGO]
Midlantic is a registered service mark of Midlantic Corporation
COM-F-004-08
- ------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT (17)(i)
PROSPECTUS
THE COMPASS CAPITAL MONEY MARKET FUNDS
The Cash Reserve Fund
The U.S. Treasury Fund
JULY 1, 1995
- -------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP (the Group) is a family of 16 mutual funds that offers
you a convenient means of investing in one or more professionally managed
portfolios of securities. Two of the Group's diversified Funds are described in
this prospectus: the Cash Reserve Fund and the U.S. Treasury Fund (together, the
Funds). These money market funds seek current income with liquidity and
stability of principal while maintaining a stable net asset value of $1.00 per
share. Shares of each Fund are available through SEI Financial Services Company
and through broker-dealers that have established dealer agreements with SEI
Financial Services Company.
Please read this prospectus carefully before investing, and keep it on file for
future reference. It contains information that can help you decide if a Fund's
investment goals match your own. A Statement of Additional Information (SAI)
dated July 1, 1995 has been filed with the Securities and Exchange Commission
and is available free upon request by calling 1-800-451-8371. The SAI is
incorporated in its entirety into this prospectus by reference.
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- -------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, 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.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING MIDLANTIC BANK, N.A. OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE GROUP'S SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 2
HOW TO READ THIS PROSPECTUS This prospectus gives you information that you
should know about the Funds before investing. Brief descriptions are also
provided throughout the prospectus to better explain certain key points. To find
these helpful guides, look for this symbol:-
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Funds at a Glance .................... 2 The Adviser ............................. 10
Shareholder Transaction Expenses ......... 4 The Administrator ........................ 11
Annual Operating Expenses ................ 4 The Distributor .......................... 11
Financial Highlights ..................... 5 Performance .............................. 11
Your Account and Doing Business with Taxes .................................... 12
the Group ............................... 6 Additional Information About Doing Business
Investment Objectives and Policies........ 8 with the Group ........................... 13
General Investment Policies .............. 9 General Information ....................... 14
Risk Factors and Special Considerations... 10 Description of Permitted Investments ...... 16
</TABLE>
TABLE OF CONTENTS
The following summary provides basic information about the Funds. This summary
is qualified in its entirety by reference to the more detailed information
provided elsewhere in this prospectus and in the SAI.
INVESTMENT OBJECTIVES AND POLICIES The Cash Reserve Fund and the U.S. Treasury
Fund each seek to produce current income with liquidity and stability of
principal. The Cash Reserve Fund invests in U.S. dollar-denominated,
high-quality, short-term debt instruments and the U.S. Treasury Fund invests
exclusively in U.S. dollar-denominated short-term obligations issued by the U.S.
Treasury and repurchase agreements involving such instruments. See "Investment
Objectives and Policies" on page 8, "General Investment Policies" on page 9, and
"Description of Permitted Investments" on page 16.
UNDERSTANDING RISK While each Fund seeks to maintain a net asset value of $1.00
per share, there is no guarantee that a Fund will be able to maintain this $1.00
share price on a continuous basis. Additionally, international investing carries
with it certain risks. There is no assurance that a Fund will achieve its
investment objective. See "Investment Objectives and Policies" on page 8, "Risk
Factors and Special Considerations" on page 10, and "Description of Permitted
Investments" on page 16.
MANAGEMENT PROFILE Midlantic Bank, N.A. (Midlantic) serves as the investment
adviser to each Fund. SEI Financial Management Corporation serves as the Group's
administrator (the Administrator). See "The Adviser" on page 10, and "The
Administrator" on page 11.
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP You may open an account with just
$2,500 ($500 if your account is opened in connection with an Individual
Retirement Account) and make additional investments with as little as $100.
Shares are offered at net asset value per share, which is expected to be
maintained at a constant value of $1.00 per share. Redemptions of a Fund's
shares are made at net asset value per share. See "Your Account and Doing
Business with the Group" on page 6.
2
<PAGE> 3
DIVIDENDS The net investment income and any net short-term capital gains of each
Fund are declared daily and distributed monthly as dividends. Any net capital
gain income is distributed at least annually. Distributions are paid in
additional shares unless you elect to take the payment in cash. See "Dividends"
on page 15.
INFORMATION For more information about the Funds, call 1-800-451-8371.
3
<PAGE> 4
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CASH U.S.
RESERVE TREASURY
FUND FUND
--------- ----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees.......................................... .35% .35%
Other Expenses......................................... .24% .24%
Total Fund Operating Expenses.......................... .59% .59%
</TABLE>
Example: You would pay the following expenses on a $1,000 investment in each of
the Funds, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
CASH U.S.
RESERVE TREASURY
FUND FUND
-------- --------
<S> <C> <C>
1 Year............................................ $ 6 $ 6
3 Years........................................... $ 19 $ 19
5 Years........................................... $ 33 $ 33
10 Years.......................................... $ 74 $ 74
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to help you understand the various costs and
expenses that an investor in each Fund will bear directly or indirectly.
Additional information may be found under "The Adviser" on page 10, "The
Administrator" on page 11, and "The Distributor" on page 11.
- -----------------
(1) Midlantic may charge account fees for automatic investment and other
investment or trust services provided to customer accounts that invest in
the Funds. There is a $7 charge for wiring redemption proceeds. See "Your
Account and Doing Business with the Group" on page 6.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the per
share data and ratios for the Funds. This information has been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent public
accountants for the Group. Additional performance information is set forth in
the 1995 Annual Report to Shareholders and is available free upon request by
calling 1-800-451-8371.
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
NET
NET ASSET DISTRIBUTIONS ASSETS RATIO OF RATIO OF
VALUE NET FROM NET NET ASSET END OF EXPENSES TO NET INCOME
BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL PERIOD AVERAGE NET TO AVERAGE
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS NET ASSETS
--------- ---------- ----------- --------- --------- ------- ---------- ----------
- ------------------
CASH RESERVE FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 1.00 $ 0.04 $ (0.04) $ 1.00 4.28% $ 435,323 0.59% 4.18%
1994 1.00 0.03 (0.03) 1.00 2.80 428,649 0.59 2.76
1993 1.00 0.03 (0.03) 1.00 3.30 456,652 0.59 3.24
1992 1.00 0.05 (0.05) 1.00 5.42 435,591 0.59 5.25
1991 1.00 0.08 (0.08) 1.00 7.84 408,815 0.58 7.57
1990 1.00 0.09 (0.09) 1.00 8.93 365,174 0.58 8.58
1989(1) 1.00 0.08 (0.08) 1.00 7.16* 381,082 0.47 7.49
<CAPTION>
- ------------------
U.S. TREASURY FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 1.00 $ 0.04 $ (0.04) $ 1.00 4.06% $ 365,516 0.59% 3.94%
1994 1.00 0.03 (0.03) 1.00 2.63 377,276 0.59 2.60
1993 1.00 0.03 (0.03) 1.00 3.00 346,388 0.62 3.10
1992 1.00 0.05 (0.05) 1.00 5.21 958,671 0.56 4.95
1991 1.00 0.07 (0.07) 1.00 7.50 434,436 0.56 7.25
1990 1.00 0.08 (0.08) 1.00 8.56 215,195 0.59 8.24
1989(2) 1.00 0.07 (0.07) 1.00 6.75* 129,971 0.50* 7.14*
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
AVERAGE NET TO AVERAGE
ASSETS NET ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
----------- -----------
- ------------------
CASH RESERVE FUND
- ------------------
<S> <C> <C>
1995 0.59% 4.18%
1994 0.59 2.76
1993 0.59 3.24
1992 0.59 5.25
1991 0.59 7.56
1990 0.60 8.56
1989(1) 0.56 7.40
<CAPTION>
- ------------------
U.S. TREASURY FUND
- ------------------
<S> <C> <C>
1995 0.59% 3.94%
1994 0.59 2.60
1993 0.62 3.10
1992 0.56 4.95
1991 0.57 7.24
1990 0.61 8.22
1989(2) 0.56* 7.08*
</TABLE>
- ---------------
* Annualized.
(1) Commenced operations on March 1, 1988.
(2) Commenced operations on March 24, 1988.
5
<PAGE> 6
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
Shares of the Funds are sold on a continuous basis and may be purchased directly
from the Group's Distributor, SEI Financial Services Company (the Distributor).
Shares may also be purchased through broker-dealers that have established a
dealer agreement with SEI Financial Services Company. For more information, see
"Additional Information About Doing Business with the Group" on page 13.
HOW TO BUY SHARES
OPENING AN ACCOUNT Application forms can be obtained by calling the Group's
Transfer Agent, State Street Bank & Trust Company (the Transfer Agent), at
1-800-451-8371.
BY CHECK You may buy shares of any of the Funds by completing and signing an
account application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "The Compass Capital (Fund Name)" to the
Transfer Agent, State Street Bank & Trust Company, at P.O. Box 8519, Boston, MA
02266-8519. You may purchase additional shares at any time by mailing payment to
the Transfer Agent. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees incurred.
BY TELEPHONE If your account application has been previously received, you may
buy shares by telephone by calling the Transfer Agent at 1-800-451-8371.
BY FED WIRE If you have an account with a commercial bank that is a member of
the Federal Reserve System and your account application has been previously
received, you may purchase shares by requesting your bank to transmit funds by
wire to: State Street Bank & Trust Co., ABA# 011000028, Attention: Compass Funds
for Account Number 99050569. Your name and the Compass Funds account number must
be specified in the wire. To buy shares by wire, call the Transfer Agent at
1-800-451-8371.
BY ACH You may buy shares of the Funds via Automated Clearing House (ACH). If
you plan to purchase shares via ACH, you should attach a voided check to your
account application.
AUTOMATIC INVESTMENT PLAN One easy way to pursue your financial goals is to
invest money regularly. You may arrange for periodic additional investment in
the Funds through automatic deductions from your checking or savings accounts.
You may purchase shares on a fixed monthly schedule (on the first or sixteenth
of each month) with amounts as low as $100, or as high as $100,000. The minimum
initial purchase amounts and minimum maintained balance requirements may be
waived for purchases under the Automatic Investment Plan.
HOW TO BUY, SELL, AND EXCHANGE SHARES THROUGH INTERMEDIARIES
- - WHAT IS AN INTERMEDIARY? Any broker-dealer or other financial institution
which has entered into an arrangement with the Distributor to sell shares
of the Funds to its customers.
To allow for processing and transmittal of orders to the Transfer Agent on the
same day, Intermediaries may impose earlier cut-off times for receipt of
purchase orders. Certain Intermediaries may charge customer account fees.
Information concerning shareholder services and any charges will be provided to
the customer by the Intermediary. Certain of these Intermediaries may be
required to register as broker/dealers under state law.
6
<PAGE> 7
EXCHANGING SHARES
- - HOW DOES AN EXCHANGE TAKE PLACE? When making an exchange, you authorize the
sale of your shares of one Fund in order to purchase the shares of another
Fund. In other words, you are executing a sell order and then a buy order.
An exchange is a taxable event which could result in a taxable gain or
loss.
WHEN CAN YOU EXCHANGE SHARES? Once your account has been established, you may
exchange some or all of your shares for shares of any other Fund within the
Group at net asset value plus a sales charge, if applicable. The exchange
privilege may only be exercised in states where the exchange may legally be
made. The Group reserves the right to change the terms and conditions of the
exchange privilege or to terminate the exchange privilege, upon 60 days notice.
WHEN DO SALES CHARGES APPLY TO AN EXCHANGE? You will not have to pay a sales
charge to exchange your shares for shares of another money market Fund. However,
effective September 1, 1995, you will pay a sales charge to exchange money
market shares for shares of Funds that impose a sales charge. You must meet the
minimum account size requirements established by each Fund.
REQUESTING AN EXCHANGE OF SHARES Prior to exchanging shares, you must have
received a current prospectus of the Fund into which you wish to move your
investment. To request a prospectus for any of the Group's Funds, call
1-800-451-8371.
To request an exchange, you may contact the Transfer Agent by telephone at
1-800-451-8371 or provide written instructions to the Transfer Agent at P.O. Box
8519, Boston, MA 02266-8519. If an exchange request in good order is received by
the Transfer Agent by 12:00 noon Eastern Time on any Business Day, the exchange
will occur on that day. If your shares are held "of record" by Midlantic or
another Intermediary, you should contact Midlantic or the Intermediary, who will
effect the exchange on your behalf.
- - BUY, EXCHANGE, AND REDEMPTION REQUESTS ARE IN "GOOD ORDER" WHEN:
-- The account number and portfolio name are shown
-- The amount of the transaction is specified in dollars or shares
-- Signatures of all owners appear exactly as they are registered on
the account
-- Any required signature guarantees (if applicable) are included
-- Other supporting legal documents (as necessary) are present
HOW TO REDEEM SHARES
You can arrange to take money out of your Fund account at any time by redeeming
some or all of your shares. Shares may be redeemed by mail, by telephone, by
check, or by the Automatic Cash Withdrawal Plan. If your shares are held "of
record" by Midlantic or another Intermediary, you should contact Midlantic or
the Intermediary for information on how to redeem shares. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption.
7
<PAGE> 8
- - WHAT IS A SIGNATURE GUARANTEE? A signature guarantee verifies the
authenticity of your signature and may be obtained from any of the
following: banks, brokers, dealers, certain credit unions, securities
exchanges or associations, clearing agencies, or savings associations. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
BY MAIL To redeem your shares by mail, a written request for redemption in good
order must be received by the Transfer Agent, P.O. Box 8519, Boston, MA
02266-8519. All shareholders of record must sign the redemption request. The
Transfer Agent may require that the signature on the written request be
guaranteed. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption is of $5,000 worth of shares or
less, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at the address of
record. You may also have the proceeds deposited directly in a checking or
savings account previously designated on the account application. There is no
charge for having redemption proceeds deposited directly to a designated bank
account.
BY TELEPHONE You may redeem your shares by telephone if you elected that option
on your account application. Telephone redemption requests may be made by
calling the Transfer Agent at 1-800-451-8371. You may have the proceeds mailed
to your address, or deposited directly in a checking or savings account
previously designated on your account application. There is a $7 charge for
wiring redemption proceeds. You may not close your account by telephone.
CHECK WRITING SERVICE You may redeem your shares by writing checks on your Fund
account for $250 or more. Once you have signed and returned a signature card,
you will receive a supply of checks. These checks may be made payable to any
person, and your account will continue to earn dividends until the check clears.
These checks are free, but your account will be charged a fee for stopping
payment of a check upon your request or if a check cannot be honored because of
insufficient funds or for other valid reasons. Because of the difficulty of
determining in advance the exact value of a Fund account, you may not use a
check to close your account.
AUTOMATIC CASH WITHDRAWAL PLAN You may establish an automatic cash withdrawal
plan for an account with at least a $10,000 minimum balance. Redemptions can be
automatically processed from accounts at regular intervals and the proceeds sent
to you, to a person named by you, or to your checking account. The minimum
redemption amount under the Automatic Cash Withdrawal Plan is $50. Automatic
Cash Withdrawal Plan application forms can be obtained by calling the Transfer
Agent at 1-800-451-8371.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
- - WHAT ARE INVESTMENT OBJECTIVES AND POLICIES? A Fund's investment objective
is a statement of what it seeks to achieve. It is important to make sure
that the investment objective matches your own financial needs and
circumstances. The investment policies section spells out the types of
securities in which each Fund invests.
The investment objective of each Fund is to produce current income with
liquidity and stability of principal. A Fund's investment objective may not be
changed without a vote of the holders of a majority of the outstanding shares of
that Fund. There is no assurance that a Fund will achieve its investment
objective.
8
<PAGE> 9
Each Fund may invest only in obligations which are determined by Midlantic to
present minimal credit risks under guidelines adopted by the Group's Trustees.
THE CASH RESERVE FUND invests in U.S. dollar-denominated, high-quality,
short-term debt instruments. Investments are limited to obligations that, at the
time of purchase, (i) possess the highest short-term rating from at least two
nationally recognized statistical rating organizations (an NRSRO) such as
Standard & Poor's Corporation (S&P) or Moody's Investors Service, Inc.
(Moody's), or (ii) do not possess a rating (i.e., are unrated) but are
determined by Midlantic to be of comparable quality to rated instruments
eligible for purchase by the Fund under the guidelines adopted by the Trustees.
For a description of the ratings categories used by Moody's and S&P, see the
Appendix to the SAI.
The Cash Reserve Fund may invest in the following short-term debt instruments:
U.S. Government Obligations, which include U.S. Treasury bills and notes,
obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Federal National Mortgage Association, the Student Loan
Marketing Association, the Federal Farm Credit Bank and the Federal Home Loan
Mortgage Corporation, commercial paper (including variable amount master demand
notes) issued by U.S. or foreign corporations, bankers' acceptances issued by
domestic and foreign banks, certificates of deposit and time deposits of
domestic and foreign banks and savings and loan associations, asset-backed
securities, guaranteed investment contracts (GICs) issued by insurance
companies, and municipal securities the interest on which is not exempt from
federal income tax. Credit support for asset-backed securities may be based on
the underlying assets and/or provided through credit enhancements by a third
party. There is no limit to the extent to which the Cash Reserve Fund may invest
in asset-backed securities.
See the SAI for further information concerning applicable rating and other
requirements governing the Cash Reserve Fund's investments.
THE U.S. TREASURY FUND invests exclusively in short-term U.S. dollar-denominated
obligations issued by the U.S. Treasury, some of which may be subject to
repurchase agreements.
GENERAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
Each Fund may enter into repurchase agreements including tri-party repurchase
agreements under which a designated custodian is authorized to hold securities
belonging to a Fund and to receive and transfer cash and other assets belonging
to that Fund.
Each Fund may hold a portion of its assets in cash. Under normal market
conditions, such holdings will not exceed 1% of a Fund's net assets. To the
extent that a Fund's assets are so invested, they will not be invested so as to
meet such Fund's investment objective.
All securities or instruments in which each Fund invests must have remaining
maturities of thirteen months or less, although securities subject to repurchase
agreements and certain adjustable interest rate instruments may bear longer
maturities. The average dollar-weighted maturity of the securities in each Fund
will not exceed 90 days.
In order to generate additional income, each of the Funds may lend its portfolio
securities to broker-dealers, banks, or institutional borrowers of securities.
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For additional information regarding a Fund's permitted investments, see
"Description of Permitted Investments" on page 16.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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FIXED INCOME INVESTMENTS
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal will also affect
the value of these investments. Changes in the value of portfolio securities
will not affect cash income derived from these securities but will affect a
Fund's net asset value.
THE ADVISER
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- - INVESTMENT ADVISER. A Fund's adviser manages the investment activities and
is responsible for the performance of the Fund. The adviser conducts
investment research, executes investment strategies based on an assessment
of economic and market conditions, and determines which securities to buy,
hold, or sell.
Midlantic is the investment adviser of each Fund and has served as the
investment adviser to the Group since inception. Midlantic is the lead bank of
Midlantic Corporation, one of the 50 largest bank holding companies in the
United States, with $13 billion in assets as of December 31, 1994 and 324
banking offices located throughout New Jersey and Southeastern Pennsylvania.
Midlantic is the oldest bank in New Jersey, having received its charter in 1804.
Fiduciary assets have been managed by Midlantic since 1927 and, as of December
31, 1994, Midlantic, together with its affiliate banks, was responsible for the
investment of $5 billion in personal trust, pension fund, investment advisory,
and cash management accounts. These accounts include tax-free as well as taxable
securities. Midlantic is experienced in the investment of equity, fixed income,
and money market instruments, and has been the investment manager for pooled
funds and investment portfolios similar to those of the Group for many years.
For the services provided and expenses incurred pursuant to its investment
advisory agreement with the Group, Midlantic receives a fee from each Fund,
computed daily and paid monthly at the annual rate of .35% of each Fund's
average daily net assets. Midlantic may from time to time waive all or a portion
of its fee in order to limit the operating expenses of a Fund. Any such waiver
is voluntary and may be terminated at any time in its sole discretion. During
the Group's fiscal year ended February 28, 1995, Midlantic received investment
advisory fees aggregating .35% and .35%, respectively, of the Cash Reserve and
U.S. Treasury Funds' average daily net assets.
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Midlantic believes that it possesses the legal authority to perform the
investment advisory services for the Funds contemplated by its investment
advisory agreement and by this prospectus without violating applicable banking
laws or regulations. See "Management of the Group -- Glass-Steagall Act" in the
SAI.
THE ADMINISTRATOR
- -------------------------------------------------------------------------------
SEI Financial Management Corporation is the administrator for each Fund of the
Group. The Administrator generally assists in all aspects of each Fund's
administration and operation.
For expenses incurred and services provided as the Administrator pursuant to its
administration agreement with the Group, SEI Financial Management Corporation
receives a fee from each Fund, computed daily and paid periodically, at an
annual rate of .18% of such Fund's average daily net assets. The Administrator
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in the Administrator's sole discretion.
THE DISTRIBUTOR
- -------------------------------------------------------------------------------
Shares of the Group's Funds are sold on a continuous basis by SEI Financial
Services Company.
PERFORMANCE
- -------------------------------------------------------------------------------
Each Fund may advertise its yield. Yield refers to the income generated by an
investment in a Fund over a seven-day period, expressed as an annual percentage
rate. These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields. Fees imposed upon customer accounts by Midlantic or Essex
National Securities, Inc. for investment management services are not reflected
in a Fund's yield calculation.
A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical)
or by financial and business publications and periodicals; broad groups of
comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and may
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
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<PAGE> 12
TAXES
- -------------------------------------------------------------------------------
As with any investment, you should consider how your investment in a Fund will
be taxed.
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their shareholders. Accordingly, you are urged to consult your tax adviser
regarding specific questions as to federal, state, and local income taxes. State
and local tax consequences of an investment in a Fund may differ from the
federal income tax consequences described below. Additional information
concerning taxes is set forth in the SAI.
- - TAXES You must pay taxes on your Fund's earnings, whether you take your
payments in cash or additional shares.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Group's other portfolios. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended, so as to be
relieved of federal income tax on net investment company taxable income and net
capital gains (the excess of net long-term capital gain over net short-term
capital losses) distributed to shareholders.
- - DISTRIBUTIONS The Funds distribute income dividends and capital gains.
Income dividends represent the earnings from a Fund's investments; capital
gains distributions occur when investments are sold for more than the
original purchase price.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including net short-term capital gains) and net capital gain to shareholders.
Distributions of net capital gains are taxable to shareholders as long-term
capital gains, regardless of the length of time you have owned shares in the
Fund. Each Fund will make annual reports to shareholders of the federal income
tax status of all distributions. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for
federal excise tax. Dividends declared by a Fund in October, November, or
December of any year and payable to shareholders of record on a date in such a
month will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if paid by a Fund at any time during
the following January.
Dividends received by an investor that are derived from a Fund's investments in
certain U.S. Government obligations may not be entitled to the exemptions from
state and local income taxes that would be available if the investor had
purchased U.S. Government obligations directly. You will be notified annually of
the percentage of dividends paid by the Fund that were derived from the Fund's
investments in U.S. Government obligations. Since substantially all of the net
investment income of the Funds is expected to be derived from earned interest,
it is anticipated that no part of either Fund's distributions will be eligible
for the intercorporate dividends-received deduction.
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Sale, exchange, or redemption of a Fund's shares is a taxable transaction to the
shareholder.
ADDITIONAL INFORMATION ABOUT DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
BUSINESS DAYS
You may buy, sell, or exchange shares on days on which the New York Stock
Exchange is open for business (a Business Day). However, shares cannot be
purchased or redeemed by Federal Reserve wire on Federal holidays restricting
wire transfers.
All purchase, exchange, and redemption requests received in "good order" will be
effective as of the Business Day as long as the Transfer Agent receives the
order (and payment, if a purchase request) before 12:00 noon Eastern Time. If an
exchange request is received by the Transfer Agent after 12:00 noon Eastern
Time, the exchange request will not be effective until the next Business Day.
An order to purchase shares will be deemed to have been received by SEI
Financial Services Company only when federal funds with respect thereto are
available to the Custodian for investment. Federal funds are monies credited to
a bank's account with a Federal Reserve Bank.
MINIMUM INVESTMENTS
The minimum initial investment in a Fund is $2,500 ($500 for purchases made in
connection with Individual Retirement Accounts (IRAs)). All subsequent purchases
must be at least $100. The minimum investment may be waived if the purchases are
made in connection with IRAs, Keoghs, gifts to minors, payroll deduction
programs, or similar plans or upon due notice from the Distributor. Each Fund
reserves the right to reject a purchase order in whole or in part.
MAINTAINING A MINIMUM ACCOUNT BALANCE
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your shares at net asset value if, because of
redemptions, your account in a Fund has a value of less than the minimum initial
purchase amount (normally $2,500; $500 for purchases made in connection with
IRAs). Accordingly, if you purchase shares of a Fund in only the minimum
investment amount, you may be subject to involuntary redemption if you redeem
any shares. Before a Fund exercises its right to redeem your shares, you will be
given notice that the value of the shares in your account is less than the
minimum amount and you will be allowed 60 days to make an additional investment
in the Fund in an amount which will increase the value of the account to at
least the minimum amount. Shares will not be redeemed involuntarily as a result
of a decline in account value due to a decline in net asset value alone.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment. In such circumstances, the forwarding of proceeds may
be delayed for 15 or more days until payment has been collected for the purchase
of the shares, however, the shares will continue to accrue dividends until
payment has been collected and the redemption order has been processed. The
Funds intend to pay cash for all shares redeemed, but under abnormal conditions
that make payment in cash unwise, payment may be made wholly or partly in
portfolio securities with a market value equal to the redemption price. In such
cases, you may incur brokerage costs in converting such securities to cash.
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<PAGE> 14
NET ASSET VALUE
An order to buy shares will be executed at a per share price equal to the net
asset value next determined after the receipt of the purchase order by the
Transfer Agent (the offering price). Net asset value per share is determined as
of 12:00 noon and 4:00 p.m. Eastern Time on each Business Day. Payment to
shareholders for shares redeemed will be made within 7 days after receipt by the
Transfer Agent of the redemption order. However, to the greatest extent
possible, requests from shareholders for next day payments upon redemption of
shares will be honored if received by the Transfer Agent before 4:00 p.m.
Eastern Time on a Business Day.
HOW THE NET ASSET VALUE IS DETERMINED
The net asset value per share of each Fund is calculated by adding up the value
of the Fund's investments, cash, and other assets, subtracting its liabilities,
and then dividing the result by the number of outstanding shares of the Fund.
Portfolio securities are valued based upon the amortized cost method, which the
Group's Trustees believe accurately reflects fair value.
TELEPHONE INSTRUCTIONS
Redemption orders may be placed by telephone. Neither the Group nor the Transfer
Agent will be responsible for any loss, liability, cost, or expense for acting
upon telephone instructions that it reasonably believes to be genuine. The Group
and the Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
THE GROUP
The Compass Capital Group of Funds was organized as a Massachusetts business
trust under a Declaration of Trust dated October 1, 1987. Additional information
pertaining to the Group may be obtained by writing to SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling
1-800-451-8371.
The Group pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes, and organization expenses. See "Financial Highlights" on page 5 for more
information regarding the Group's expenses.
TRUSTEES OF THE GROUP
The management and affairs of the Group are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Group.
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<PAGE> 15
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote, and a fractional
share entitles the shareholder to a proportionate fractional vote. Shareholders
will vote in the aggregate and not by Fund except as otherwise expressly
required by law. Each Fund will vote separately on matters relating solely to
that Fund. As a Massachusetts business trust, the Group is not required to hold
annual meetings of shareholders, but shareholders have the right to call a
meeting to elect or remove one or more of the Trustees of the Group or to be
assisted by the Trustees in communicating with other shareholders of the Group.
CONTROLLING PERSONS
The Group believes that as of April 7, 1995 Midlantic (499 Thornall Street,
Edison, NJ 08818) owned of record substantially all of the shares of the Cash
Reserve Fund and the U.S. Treasury Fund and that, as of the same date, Midlantic
possessed, on behalf of its underlying accounts, voting or investment power with
respect to 2.2% and 0% of the shares of the Cash Reserve Fund and the U.S.
Treasury Fund, respectively.
REPORTING
The Group issues unaudited financial information semiannually and audited
financial statements annually. The Group furnishes proxy statements and other
reports to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Transfer Agent, State Street
Bank & Trust Company, P.O. Box 8519, Boston, MA 02266-8519 or may be made by
calling 1-800-451-8371.
DIVIDENDS
Net investment income and net short-term capital gains, if any, of each Fund are
declared as a dividend daily to shareholders of record as of the close of
business on such day and paid monthly on or about the last Business Day of each
month. Net capital gain income (the excess of net long-term capital gains over
net short-term capital losses) of each Fund, if any, is distributed at least
annually. Dividends will be paid or applied toward the purchase of additional
shares monthly, generally on the last Business Day of the month. You will
automatically receive all dividends in additional full and fractional shares at
net asset value as of the date of payment, unless you elect to receive dividends
in cash. Such election, or any revocation thereof, must be made in writing to
the Transfer Agent and will become effective with respect to dividends having
record dates after its receipt by the Transfer Agent. Dividends paid in
additional shares receive the same tax treatment as dividends and distributions
paid in cash. Dividends are paid in cash not later than 7 Business Days after a
complete redemption of shares in a Fund.
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COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius serves as counsel to the Group. Coopers & Lybrand L.L.P.
serves as the independent accountants of the Group.
CUSTODIAN AND TRANSFER AGENT
Citibank, N.A., 111 Wall Street, New York, NY 10005 (the Custodian), serves as
custodian of the Group's assets. The Custodian holds cash, securities, and other
assets of the Group as required by the 1940 Act. State Street Bank & Trust
Company, P.O. Box 8519, Boston, MA 02266-8519, serves as transfer agent for each
Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
- -------------------------------------------------------------------------------
The following is a description of the permitted investments and investment
practices for the Funds.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases,
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain period by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
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COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations, and
other entities. Maturities on these issues vary from a few to 270 days.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities, and other borrowers.
FOREIGN INVESTMENTS -- Generally, investments in securities of foreign companies
involve greater risks than are present in U.S. investments. In making investment
decisions for the Funds, risks such as possible political and financial
instability abroad, as well as the illiquidity and volatility of foreign
investments, are considered. Canadian securities are not considered to have the
same risks as other nations' securities because Canadian and U.S. companies are
generally subject to similar auditing and accounting procedures and similar
governmental supervision and regulation. Also, Canadian securities are normally
more liquid than other non-U.S. securities.
Compared to U.S. and Canadian companies, there is generally less publicly
available information about foreign companies and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers, and listed
companies. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid, and their prices more volatile, than securities of
comparable U.S. companies. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the U.S., which could affect the
liquidity of a Fund's investment. In addition, with respect to some foreign
countries, there is the possibility of nationalization, expropriation, or
confiscatory taxation; limitations on the removal of securities, property, or
other assets of a Fund; political or social instability; increased difficulty in
obtaining legal judgments; or diplomatic developments which could affect U.S.
investments in those countries.
GUARANTEED INVESTMENT CONTRACTS (GICS) -- GICs are contracts issued by U.S.
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Fund on a monthly basis guaranteed
interest at either a fixed, variable, or floating rate. A GIC provides that this
guaranteed interest will not be less than a certain minimum rate. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
issuer, and the contract is paid at maturity from the general assets of the
issuer.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance company. For this reason, an active secondary market in GICs
does not currently exist, and GICs are considered to be illiquid investments.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing
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arrangement. The payment of principal and interest on private activity and
industrial development bonds generally is dependent solely on the ability of a
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes, and construction loan notes, as well as participation interests in
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, and private activity and industrial development bonds,
as well as participation interests in municipal bonds.
Taxable Municipal Securities: Taxable municipal securities are municipal
securities the interest on which is not exempt from federal income tax. Taxable
municipal securities include "private activity bonds" that are issued by or on
behalf of states or political subdivisions thereof to finance privately-owned or
operated facilities for business and manufacturing, housing, sports, and
pollution control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public facilities
such as airports, mass transit systems, ports, parking, and low income housing.
The payment of the principal and interest on private activity bonds is not
backed by a pledge of tax revenues and is dependent solely on the ability of the
facility's user to meet its financial obligations, and may be secured by a
pledge of real and personal property so financed. Interest on these bonds may
not be exempt from federal income tax.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. Repurchase agreements are considered loans under
the Investment Company Act of 1940.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market
fund are subject to limitations imposed under regulations adopted by the
Securities and Exchange Commission. Under these regulations, money market funds
may only acquire obligations that present minimal credit risk and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two nationally recognized security rating organizations
(one if it is the only organization rating such obligation) in the highest
rating category or, if unrated, determined to be of comparable quality (a first
tier security), or (ii) rated according to the foregoing criteria in the second
highest rating category or, if unrated, determined to be of comparable quality
(a second tier security). A security is not considered to be unrated if its
issuer has outstanding obligations of comparable priority and security that have
a short-term rating. In the case of taxable money market funds, investments in
second tier securities are subject to further constraints in that (i) no more
than 5% of a Fund's assets may be invested in second tier securities and (ii)
any investment in securities of any one such issuer is limited to the greater of
1% of the Fund's total assets or $1 million. A taxable money market fund may
also hold more than 5% of its assets in first tier securities of a single issuer
for three "business days" (that is, any day other than a Saturday, Sunday, or
customary business holiday).
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash or securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent.
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A Fund continues to receive interest on the securities lent while simultaneously
earning interest on the investment of cash collateral. Collateral is marked to
market daily. There may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially or become insolvent.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration, and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks, and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes,
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities (STRIPS).
Additional information on other permitted investments can be found in the SAI.
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- ------------------------------------------------------------------------------
COMPASS FUNDS(R)
INVESTMENT ADVISER
Midlantic Bank, N.A.
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Pennsylvania Center
Philadelphia, Pennsylvania 19103
THE COMPASS CAPITAL
GROUP OF FUNDS(R)
PERSON-TO-PERSON MUTUAL FUNDS
MONEY
MARKET
FUNDS
- CASH RESERVE FUND
- U.S. TREASURY FUND
FOR CONSERVATIVE INVESTORS
SEEKING CURRENT INCOME WITH
LIQUIDITY AND STABILITY OF PRINCIPAL
PROSPECTUS DATED
JULY 1, 1995
Managed by
[MIDLANTIC LOGO]
Midlantic is a registered service mark of Midlantic Corporation
COM-F-003-08
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<PAGE> 1
EXHIBIT (17)(j)
PROSPECTUS
THE COMPASS CAPITAL MUNICIPAL BOND FUNDS
The Municipal Bond Fund
The New Jersey Municipal Bond Fund
The Pennsylvania Municipal Bond Fund
JULY 1, 1995
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THE COMPASS CAPITAL GROUP (the Group) is a family of 16 mutual funds that offers
you a convenient means of investing in one or more professionally managed
portfolios of securities. Three of the Group's Funds are described in this
prospectus: the diversified Municipal Bond Fund and the non-diversified New
Jersey and Pennsylvania Municipal Bond Funds (collectively, the Funds). Each
Fund has its own investment objective and policies. Shares of each Fund are
available through SEI Financial Services Company and through broker-dealers that
have established dealer agreements with SEI Financial Services Company. Shares
of the New Jersey Municipal Bond Fund are offered and may be sold only in New
Jersey to New Jersey residents, and shares of the Pennsylvania Municipal Bond
Fund are offered and may be sold only in Pennsylvania to Pennsylvania residents.
Please read this prospectus carefully before investing, and keep it on file for
future reference. It contains information that can help you decide if a Fund's
investment goals match your own. A Statement of Additional Information (SAI)
dated July 1, 1995 has been filed with the Securities and Exchange Commission
and is available free upon request by calling 1-800-451-8371. The SAI is
incorporated in its entirety into this prospectus by reference.
- -------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, 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.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING MIDLANTIC BANK, N.A. OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE GROUP'S SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 2
HOW TO READ THIS PROSPECTUS This prospectus gives you information that you
should know about the Funds before investing. Brief descriptions are also
provided throughout the prospectus to better explain certain key points. To find
these helpful guides, look for this symbol:-
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Funds at a Glance .................... 2 The Adviser ............................. 12
Shareholder Transaction Expenses ......... 4 The Administrator ........................ 13
Annual Operating Expenses ................ 4 The Distributor .......................... 13
Financial Highlights ..................... 5 Performance .............................. 13
Your Account and Doing Business with Taxes .................................... 14
the Group ............................... 6 Additional Information About Doing Business
Investment Objectives and Policies........ 9 with the Group ........................... 16
General Investment Policies .............. 10 General Information ....................... 18
Risk Factors and Special Considerations... 11 Description of Permitted Investments ...... 19
</TABLE>
THE FUNDS AT A GLANCE
- -------------------------------------------------------------------------------
The following summary provides basic information about the Funds. This summary
is qualified in its entirety by reference to the more detailed information
provided elsewhere in this prospectus and in the SAI.
INVESTMENT OBJECTIVES AND POLICIES The Municipal Bond Fund seeks current income
that is exempt from federal taxation with preservation of capital by investing
primarily in high-grade, fixed income securities within a broad range of
maturities. The New Jersey Municipal Bond Fund seeks current income that is
exempt from federal and New Jersey income taxation with preservation of capital
by investing primarily in high-grade fixed income securities within a broad
range of maturities. The Pennsylvania Municipal Bond Fund seeks current income
that is exempt from federal and Pennsylvania income taxation with preservation
of capital by investing primarily in high-grade, fixed income securities within
a broad range of maturities. See "Investment Objectives and Policies" on page 9,
"General Investment Policies" on page 10, and "Description of Permitted
Investments" on page 19.
UNDERSTANDING RISK Shares of the Funds, like shares of any mutual fund, will
fluctuate in value, and when you sell your shares, they may be worth more or
less than what you paid for them. There is no assurance that a Fund will achieve
its investment objective. Investments in the New Jersey Municipal Bond and the
Pennsylvania Municipal Bond Funds involve special risk considerations. See
"Investment Objectives and Policies" on page 9, "Risk Factors and Special
Considerations" on page 11, and "Description of Permitted Investments" on page
19.
MANAGEMENT PROFILE Midlantic Bank, N.A. (Midlantic) serves as the investment
adviser to each Fund. SEI Financial Management Corporation serves as the Group's
administrator (the Administrator). See "The Adviser" on page 12, and "The
Administrator" on page 13.
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP You may open an account with just
$2,500 and make additional investments with as little as $100. Shares are
offered at net asset value per share plus a sales charge. Redemptions of a
Fund's shares are made at net asset value per share. See "Your Account and Doing
Business with the Group" on page 6.
2
<PAGE> 3
DIVIDENDS The net investment income of each Fund is declared and distributed
monthly as dividends. Any net capital gain income is distributed at least
annually. Distributions are paid in additional shares unless you elect to take
the payment in cash. See "Dividends" on page 19.
INFORMATION For more information about the Funds, call 1-800-451-8371.
3
<PAGE> 4
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MUNICIPAL NEW JERSEY PENNSYLVANIA
BOND MUNICIPAL MUNICIPAL
FUND BOND FUND BOND FUND
--------- ----------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases(2) 4.00% 4.00% 4.00%
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Advisory Fees........................................................ .60% .60% .60%
Other Expenses....................................................... .33% .28% .41%
Total Fund Operating Expenses(3)..................................... .93% .88% 1.01%
</TABLE>
Example: You would pay the following expenses on a $1,000 investment in each of
the Funds, assuming (1) imposition of the maximum sales load, (2) 5% annual
return, and (3) redemption at the end of each time period:
<TABLE>
<CAPTION>
MUNICIPAL NEW JERSEY PENNSYLVANIA
BOND MUNICIPAL MUNICIPAL
FUND BOND FUND BOND FUND
---------- ----------- -------------
<S> <C> <C> <C>
1 Year............................................................... $ 49 $ 49 $ 50
3 Years.............................................................. $ 68 $ 67 $ 71
5 Years.............................................................. $ 89 $ 87 $ 94
10 Years............................................................. $ 150 $ 144 $ 159
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to help you understand the various costs and
expenses that an investor in each Fund will bear directly or indirectly.
Additional information may be found under "The Adviser" on page 12, "The
Administrator" on page 13, and "The Distributor" on page 13.
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Your Account and Doing Business with the
Group" on page 6.
- --------------------
(1) Midlantic may charge account fees for automatic investment and other
investment or trust services provided to customer accounts that invest in
the Funds. There is a $7 charge for wiring redemption proceeds. See "Your
Account and Doing Business with the Group" on page 6.
(2) There is no sales charge imposed upon certain purchases of shares of the
Funds.
(3) Total Fund Operating Expenses are restated for each Fund to reflect current
fees.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the per
share data and ratios for the Funds. This information has been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent public
accountants for the Group. Additional performance information is set forth in
the 1995 Annual Report to Shareholders and is available free upon request by
calling 1-800-451-8371.
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
REALIZED DISTRIBUTIONS
AND -------------------------------------- NET
NET ASSET UNREALIZED IN EXCESS ASSETS
VALUE NET GAINS OR NET OF NET NET ASSET END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED VALUE END TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS OF PERIOD RETURN (000)
----------- --------- ----------- -------- ------- ---------- --------- --------- -------
- -------------------
MUNICIPAL BOND FUND
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 10.79 $ 0.49 $ (0.39) $ (0.49) $ (0.12) -- $ 10.28 1.17% $ 28,750
1994 11.06 0.51 (0.03) (0.51) (0.24) -- 10.79 4.35 35,556
1993 10.43 0.51 0.64 (0.52) -- -- 11.06 11.42 22,682
1992 10.25 0.60 0.19 (0.60) (0.01) -- 10.43 8.40 11,299
1991 9.99 0.64 0.23 (0.61) -- -- 10.25 8.96 7,516
1990(1) 10.00 0.14 (0.02) (0.13) -- -- 9.99 4.81* 2,620
<CAPTION>
- -------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 11.31 $ 0.51 $ (0.36) $ (0.51) $ (0.01) -- $ 10.94 1.49% $ 96,857
1994 11.30 0.54 0.04 (0.54) (0.03) -- 11.31 5.18 111,354
1993 10.46 0.52 0.85 (0.53) -- -- 11.30 13.48 47,169
1992(2) 10.00 0.34 0.45 (0.33) -- -- 10.46 12.33* 10,673
<CAPTION>
- --------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.87 $ 0.44 $ (0.28) $ (0.44) -- -- $ 9.59 1.81% $ 16,724
1994(3) 10.00 0.21 (0.13) (0.21) -- -- 9.87 1.53* 19,866
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
RATIO OF RATIO OF AVERAGE NET TO AVERAGE
EXPENSES TO NET INCOME ASSETS NET ASSETS PORTFOLIO
AVERAGE NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
----------- ---------- ------------ ----------- -----------
- -------------------
MUNICIPAL BOND FUND
- -------------------
<S> <C> <C> <C> <C> <C>
1995 0.75% 4.75% 0.93% 4.57% 60.86%
1994 0.69 4.66 0.96 4.39 80.70
1993 1.01 4.80 1.30 4.49 144.89
1992 0.75 5.81 1.31 5.25 114.78
1991 0.32 6.33 1.40 5.25 30.21
1990(1) 0.39* 5.85* 1.56* 4.68* 0.00
<CAPTION>
- -------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- -------------------------------
<S> <C> <C> <C> <C> <C>
1995 0.79% 4.71% 0.87% 4.63% 28.43%
1994 0.38 4.75 0.86 4.27 12.05
1993 0.48 5.04 1.04 4.48 16.09
1992(2) 0.52* 5.35* 1.29* 4.58* 0.00
<CAPTION>
- --------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- --------------------------------
<S> <C> <C> <C> <C> <C>
1995 0.65% 4.63% 1.01% 4.27% 48.91%
1994(3) 0.22* 4.27* 0.85* 3.64* 30.68
</TABLE>
- ----------------
* Annualized.
(1) Commenced operations on December 1, 1989.
(2) Commenced operations on July 1, 1991.
(3) Commenced operations on August 31, 1993.
5
<PAGE> 6
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
Shares of the Funds are sold on a continuous basis and may be purchased directly
from the Group's Distributor, SEI Financial Services Company (the Distributor).
Shares may also be purchased through broker-dealers that have established a
dealer agreement with SEI Financial Services Company. Shares of the New Jersey
Municipal Bond Fund are offered and may be sold only in New Jersey to New Jersey
residents, and shares of the Pennsylvania Municipal Bond Fund are offered and
may be sold only in Pennsylvania to Pennsylvania residents. For more
information, see "Additional Information About Doing Business with the Group" on
page 16.
HOW TO BUY SHARES
OPENING AN ACCOUNT Application forms can be obtained by calling the Group's
Transfer Agent, State Street Bank & Trust Company (the Transfer Agent), at
1-800-451-8371.
BY CHECK You may buy shares of any of the Funds by completing and signing an
account application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "The Compass Capital (Fund Name)" to the
Transfer Agent, State Street Bank & Trust Company, at P.O. Box 8519, Boston, MA
02266-8519. You may purchase additional shares at any time by mailing payment to
the Transfer Agent. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees incurred.
BY TELEPHONE If your account application has been previously received, you may
buy shares by telephone by calling the Transfer Agent at 1-800-451-8371.
BY FED WIRE If you have an account with a commercial bank that is a member of
the Federal Reserve System and your account application has been previously
received, you may purchase shares by requesting your bank to transmit funds by
wire to: State Street Bank & Trust Co., ABA# 011000028, Attention: Compass Funds
for Account Number 99050569. Your name and the Compass Funds account number must
be specified in the wire. To buy shares by wire, call the Transfer Agent at
1-800-451-8371.
BY ACH You may buy shares of the Funds via Automated Clearing House (ACH). If
you plan to purchase shares via ACH, you should attach a voided check to your
account application.
AUTOMATIC INVESTMENT PLAN One easy way to pursue your financial goals is to
invest money regularly. You may arrange for periodic additional investment in
the Funds through automatic deductions from your checking or savings accounts.
You may purchase shares on a fixed monthly schedule (on the first or sixteenth
of each month) with amounts as low as $100, or as high as $100,000. The minimum
initial purchase amounts and minimum maintained balance requirements may be
waived for purchases under the Automatic Investment Plan.
HOW TO BUY, SELL, AND EXCHANGE SHARES THROUGH INTERMEDIARIES
- - WHAT IS AN INTERMEDIARY? Any broker-dealer or other financial institution
which has entered into an arrangement with the Distributor to sell shares
of the Funds to its customers.
To allow for processing and transmittal of orders to the Transfer Agent on the
same day, Intermediaries may impose earlier cut-off times for receipt of
purchase orders. Certain Intermediaries may charge customer account
6
<PAGE> 7
fees. Information concerning shareholder services and any charges will be
provided to the customer by the Intermediary. Certain of these Intermediaries
may be required to register as broker/dealers under state law.
OTHER INFORMATION ABOUT BUYING SHARES
SALES CHARGES The public offering price of a share of each Fund equals its net
asset value plus a sales charge. Your sales charge will depend on the size of
your purchase. The following table shows the regular sales charges on shares of
the Funds to a "single purchaser." SEI Financial Services Company receives this
sales charge as Distributor and re-allows a portion of it as dealer discounts
and brokerage commissions.
<TABLE>
<CAPTION>
SALES CHARGE
SALES CHARGE REALLOWANCE
AS A PERCENTAGE SALES CHARGE AS A PERCENTAGE
OF OFFERING AS A PERCENTAGE OF OF OFFERING
AMOUNT OF PURCHASE PRICE NET AMOUNT INVESTED PRICE
- ------------------- --------------- -------------------- --------------
<S> <C> <C> <C>
Less than $25,000...................................... 4.00% 4.17% 3.60%
$25,000 but less than $100,000......................... 3.75% 3.90% 3.38%
$100,000 but less than $250,000........................ 3.25% 3.36% 2.93%
$250,000 but less than $500,000........................ 2.00% 2.04% 1.80%
$500,000 but less than $1,000,000...................... 1.00% 1.01% .90%
$1,000,000 and above................................... NONE NONE NONE
</TABLE>
RIGHT OF ACCUMULATION You may qualify for a reduced sales charge by combining a
current purchase of shares of any of the Funds with shares of other Funds of the
Group that are subject to a sales charge. The applicable sales charge is based
on the combined total of your current purchase and the value of the account on
the previous day.
LETTER OF INTENT A Letter of Intent allows you to purchase shares of a Fund over
a 13 month period at reduced sales charges based on the total amount intended to
be purchased plus the total net asset value of shares already owned of the Group
that are subject to a sales charge. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the intended
investment. If such amount is not invested within the period, you must pay the
difference between the sales charge applicable to the purchases made and the
charges previously paid.
SALES CHARGE WAIVER If you or a member of your immediate family have an existing
trust department relationship with Midlantic, the applicable sales charge will
be waived. A trust department relationship includes relationships in which
Midlantic acts in a fiduciary, advisory, custodial, or similar capacity on
behalf of persons maintaining qualified accounts at Midlantic. The Compass
Capital Group Individual Retirement Plan and Custody Account is not a trust
department relationship; however, the applicable sales charge will be waived for
the Compass Capital Group Individual Retirement Plan and Custody Account when a
trustee to trustee transfer is made from an employer plan having Midlantic as
the fiduciary. Sales charges are also waived for qualifying institutional
investors. Additional information concerning qualified investors is set forth in
the SAI.
In addition, the applicable sales charge will be waived if: (i) you or a member
of your immediate family is a present or retired employee of Midlantic; (ii) you
or a member of your immediate family is a present employee of SEI Financial
Services Company; (iii) you are a trustee or officer of the Group; or (iv) you
are a client of Essex
7
<PAGE> 8
National Securities, Inc. who has enrolled in asset allocation programs
sponsored or operated by Essex, including such programs that are part of an
individual retirement plan.
If you have previously redeemed shares of any Fund and you re-enter that Fund,
the sales charge will be waived so long as re-entry occurs within 12 months
following redemption and so long as you notify the Transfer Agent at the time of
the investment that the investment is a re-entry.
If you rely upon any of the categories of waivers of sales charges, you must
qualify such waiver with the Distributor prior to purchase.
EXCHANGING SHARES
- - HOW DOES AN EXCHANGE TAKE PLACE? When making an exchange, you authorize the
sale of your shares of one Fund in order to purchase the shares of another
Fund. In other words, you are executing a sell order and then a buy order.
An exchange is a taxable event which could result in a taxable gain or
loss.
WHEN CAN YOU EXCHANGE SHARES? Once your account has been established, you may
exchange some or all of your shares for shares of any other Fund within the
Group at net asset value. The exchange privilege may only be exercised in states
where the exchange may legally be made. Only residents of New Jersey may
exchange their shares for shares of the New Jersey Municipal Bond Fund or the
New Jersey Money Fund, and only residents of Pennsylvania may exchange their
shares for shares of the Pennsylvania Municipal Bond Fund or the Pennsylvania
Money Fund. The Group reserves the right to change the terms and conditions of
the exchange privilege or to terminate the exchange privilege, upon 60 days
notice.
WHEN DO SALES CHARGES APPLY TO AN EXCHANGE? You will not have to pay a sales
charge to exchange your shares. However, you must meet the minimum account size
requirements established by each Fund.
REQUESTING AN EXCHANGE OF SHARES Prior to exchanging shares, you must have
received a current prospectus of the Fund into which you wish to move your
investment. To request a prospectus for any of the Group's Funds, call
1-800-451-8371.
To request an exchange, you may contact the Transfer Agent by telephone at
1-800-451-8371 or provide written instructions to the Transfer Agent at P.O. Box
8519, Boston, MA 02266-8519. If an exchange request in good order is received by
the Transfer Agent by 4:00 p.m. Eastern Time on any Business Day, the exchange
will occur on that day. If your shares are held "of record" by Midlantic or
another Intermediary, you should contact Midlantic or the Intermediary, who will
effect the exchange on your behalf.
- - BUY, EXCHANGE, AND REDEMPTION REQUESTS ARE IN "GOOD ORDER" WHEN:
-- The account number and portfolio name are shown
-- The amount of the transaction is specified in dollars or shares
-- Signatures of all owners appear exactly as they are registered on
the account
-- Any required signature guarantees (if applicable) are included
-- Other supporting legal documents (as necessary) are present
8
<PAGE> 9
HOW TO REDEEM SHARES
You can arrange to take money out of your Fund account at any time by redeeming
some or all of your shares. Shares may be redeemed by mail, by telephone, or by
the Automatic Cash Withdrawal Plan. If your shares are held "of record" by
Midlantic or another Intermediary, you should contact Midlantic or the
Intermediary for information on how to redeem shares. Under most circumstances,
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption.
- - WHAT IS A SIGNATURE GUARANTEE? A signature guarantee verifies the
authenticity of your signature and may be obtained from any of the
following: banks, brokers, dealers, certain credit unions, securities
exchanges or associations, clearing agencies, or savings associations. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
BY MAIL To redeem your shares by mail, a written request for redemption in good
order must be received by the Transfer Agent, P.O. Box 8519, Boston, MA
02266-8519. All shareholders of record must sign the redemption request. The
Transfer Agent may require that the signature on the written request be
guaranteed. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption is of $5,000 worth of shares or
less, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at the address of
record. You may also have the proceeds deposited directly in a checking or
savings account previously designated on the account application. There is no
charge for having redemption proceeds deposited directly to a designated bank
account.
BY TELEPHONE You may redeem your shares by telephone if you elected that option
on your account application. Telephone redemption requests may be made by
calling the Transfer Agent at 1-800-451-8371. You may have the proceeds mailed
to your address, or deposited directly in a checking or savings account
previously designated on your account application. There is a $7 charge for
wiring redemption proceeds. You may not close your account by telephone.
AUTOMATIC CASH WITHDRAWAL PLAN You may establish an automatic cash withdrawal
plan for an account with at least a $10,000 minimum balance. Redemptions can be
automatically processed from accounts at regular intervals and the proceeds sent
to you, to a person named by you, or to your checking account. The minimum
redemption amount under the Automatic Cash Withdrawal Plan is $50. Automatic
Cash Withdrawal Plan application forms can be obtained by calling the Transfer
Agent at 1-800-451-8371.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
- - WHAT ARE INVESTMENT OBJECTIVES AND POLICIES? A Fund's investment objective
is a statement of what it seeks to achieve. It is important to make sure
that the investment objective matches your own financial needs and
circumstances. The investment policies section spells out the types of
securities in which each Fund invests.
Each Fund has its own investment objective and policies. The investment
objective with respect to each Fund may not be changed without a vote of the
holders of a majority of the outstanding shares of that Fund. There is no
assurance that a Fund will achieve its investment objective.
9
<PAGE> 10
THE MUNICIPAL BOND FUND seeks current income exempt from federal income taxation
with preservation of capital by investing primarily in a portfolio of high-grade
bonds, debentures, and notes (including variable and floating rate notes) issued
by or on behalf of states (including the District of Columbia), territories, and
possessions of the United States, and their respective authorities, agencies,
instrumentalities, and political subdivisions, the interest on which is exempt
from federal income tax (Municipal Securities). Under normal market conditions,
the Municipal Bond Fund invests at least 80% of its assets in Municipal
Securities. Federal alternative minimum tax is not a primary consideration in
managing the Fund. It is anticipated that the Municipal Bond Fund's dollar
weighted average portfolio maturity will range between five and eighteen years.
THE NEW JERSEY MUNICIPAL BOND FUND seeks current income exempt from federal and
New Jersey income taxation with preservation of capital by investing primarily
in a portfolio of high-grade Municipal Securities. Under normal market
conditions, at least 80% of the Fund's total assets are invested in Municipal
Securities, and at least 80% of the Fund's total assets are invested in
Municipal Securities the interest on which is exempt from regular federal income
tax and New Jersey personal income tax (New Jersey Municipal Securities) or
direct obligations of the United States, its territories, and certain of its
agencies and instrumentalities (Federal Securities). Federal alternative minimum
tax is not a primary consideration in managing the Fund. It is anticipated that
the New Jersey Municipal Bond Fund's dollar weighted average portfolio maturity
will range between five and eighteen years.
THE PENNSYLVANIA MUNICIPAL BOND FUND seeks current income exempt from federal
and Pennsylvania income taxation with preservation of capital by investing
primarily in Municipal Securities. Under normal market conditions, at least 80%
of the Fund's total assets are invested in Municipal Securities, and at least
80% of the Fund's total assets are invested in Municipal Securities the interest
on which is exempt from Pennsylvania personal income tax (Pennsylvania Municipal
Securities). Federal alternative minimum tax is not a primary consideration in
managing the Fund. It is anticipated that the Pennsylvania Municipal Bond Fund's
average weighted maturity will range between five and eighteen years.
It is a fundamental policy of the Pennsylvania Municipal Bond Fund that its
portfolio securities may be varied only (i) to eliminate unsafe investments and
investments not consistent with the preservation of the Pennsylvania Municipal
Bond Fund's capital or the tax status of its investments; (ii) to honor
redemption orders, meet anticipated redemption requirements, and negate gains
from discount purchases; (iii) to reinvest the earnings from securities in like
securities; or (iv) to defray normal administrative expenses. As a result of
these limitations, the Pennsylvania Municipal Bond Fund may have less
flexibility than other mutual funds in responding to market or interest rate
changes and to new investment opportunities.
GENERAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
Each Fund invests only in Municipal Securities and other obligations that are
rated at the time of purchase in the three highest rating groups assigned by
Moody's Investor Services, Inc. (Moody's) (e.g., Aaa, Aa, and A) or Standard &
Poor's Corporation (S&P), (e.g., AAA, AA, and A) in the case of bonds; rated
"SP-1" by S&P or "MIG-1" by Moody's in the case of notes; rated "A-1" or higher
by S&P or "Prime-1" by Moody's in the case of tax-exempt commercial paper; or
rated "VMIG-1" by Moody's in the case of variable rate demand obligations. Each
Fund may also purchase Municipal Securities which are unrated at the time of
purchase but are determined to be of comparable quality by Midlantic pursuant to
guidelines approved by the Group's Trustees. The Appendix to the SAI contains a
description of the ratings categories used by Moody's and S&P.
10
<PAGE> 11
In making investment decisions with respect to each Fund, Midlantic considers
factors other than current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity, and yield to maturity.
The New Jersey and Pennsylvania Municipal Bond Funds each invests more than 25%
of its net assets in Municipal Securities whose issuers are located in New
Jersey or Pennsylvania, respectively, and the Municipal Bond Fund may invest
more than 25% of its net assets in Municipal Securities whose issuers are
located in the same state. Each Fund may invest more than 25% of its net assets
in (i) Municipal Securities the interest on which is paid solely from revenues
of similar projects, and (ii) private activity bonds, although each Fund
currently limits investments in private activity bonds which are based on the
credit of private entities in any one industry to 25% or less of its net assets.
To the extent that a Fund's assets are so invested, such Fund will be subject to
the peculiar risks presented by the laws and economic conditions relating to
such states, projects, or bonds to a greater extent than it would be if its
assets were not so concentrated.
Under normal market conditions, the Municipal Bond Fund may invest up to 20% of
its total assets in obligations the interest on which is subject to regular
federal income taxation (Taxable Obligations). The New Jersey and Pennsylvania
Municipal Bond Funds each may invest up to 20% of its total assets in Taxable
Obligations and Municipal Securities other than those in New Jersey and
Pennsylvania, respectively. There is no restriction on the percentage of each of
the Funds' assets that may be invested in obligations the interest on which is
treated as a preference item for individuals for purposes of the federal
alternative minimum tax.
Each Fund may acquire "stand-by commitments" with respect to Municipal
Securities held in its portfolio to facilitate liquidity. Each Fund may acquire
zero coupon obligations and may purchase securities on a when-issued or
delayed-delivery basis. The Municipal Bond Fund and the Pennsylvania Municipal
Bond Fund may each also hold securities of other investment companies.
The Municipal Bond Fund and the Pennsylvania Municipal Bond Fund may purchase
put options on Municipal Securities, and the Funds may invest in tax-exempt
receipts which represent ownership of and the right to receive future payments
of interest, principal, or premium on specified municipal bonds that are issued
by banks or brokerage firms and are created by depositing municipal securities
into a special account at a custodial bank.
For additional information regarding a Fund's permitted investments, see
"Description of Permitted Investments" on page 19.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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FIXED INCOME INVESTMENTS
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal will also affect
the value of these investments. Changes in the value of portfolio securities
will not affect cash income derived from these securities but will affect a
Fund's net asset value.
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NEW JERSEY MUNICIPAL SECURITIES AND PENNSYLVANIA MUNICIPAL SECURITIES
Under normal market conditions, the New Jersey Municipal Bond Fund and
Pennsylvania Municipal Bond Fund are predominantly invested in New Jersey and
Pennsylvania Municipal Securities, respectively, and therefore the value of
shares in these Funds may be especially affected by factors pertaining to the
state economy and other factors specifically affecting the ability of issuers of
New Jersey and Pennsylvania Municipal Securities to meet their obligations. As a
result, the value of these Funds' shares may fluctuate more widely than the
value of the shares of a portfolio investing in securities relating to a number
of different states. The ability of state, county, and local governments to meet
their obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amount of tax and other revenues available to governmental issuers of New Jersey
and Pennsylvania Municipal Securities may be affected from time to time by
economic, political, and demographic conditions within the state. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. Payments of principal and interest on limited
obligation securities will depend on the economic condition of the facility or
specific revenue source from whose revenues the payments will be made, which in
turn could be affected by economic, political, and demographic conditions in the
state. Moreover, both the New Jersey Municipal Bond Fund and Pennsylvania
Municipal Bond Fund are classified as "non-diversified" because they may invest
in obligations of a relatively limited number of issuers.
See "Special Risk Factors--New Jersey Municipal Securities and Pennsylvania
Municipal Securities" in the SAI.
THE ADVISER
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- - INVESTMENT ADVISER. A Fund's adviser manages the investment activities and
is responsible for the performance of the Fund. The adviser conducts
investment research, executes investment strategies based on an assessment
of economic and market conditions, and determines which securities to buy,
hold, or sell.
Midlantic is the investment adviser of each Fund and has served as the
investment adviser to the Group since inception. Midlantic is the lead bank of
Midlantic Corporation, one of the 50 largest bank holding companies in the
United States, with $13 billion in assets as of December 31, 1994 and 324
banking offices located throughout New Jersey and Southeastern Pennsylvania.
Midlantic is the oldest bank in New Jersey, having received its charter in 1804.
Fiduciary assets have been managed by Midlantic since 1927 and, as of December
31, 1994, Midlantic, together with its affiliate banks, was responsible for the
investment of $5 billion in personal trust, pension fund, investment advisory,
and cash management accounts. These accounts include tax-free as well as taxable
securities. Midlantic is experienced in the investment of equity, fixed income,
and money market instruments, and has been the investment manager for pooled
funds and investment portfolios similar to those of the Group for many years.
S. Robert Cembor, Vice President of Midlantic has been the portfolio manager of
the Municipal Bond and New Jersey Municipal Bond Funds since October 1993 and
the Pennsylvania Municipal Bond Fund since June 1994. From 1991 to October, 1993
he served as Vice President and Controller of Janotta, Bray & Associates. From
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1985 to 1991 he served as Vice President and Manger of the Municipal Bond
Department for Harris Trust and Savings Bank in New York. He has over 20 years
experience in municipal bond finance activities.
For the services provided and expenses incurred pursuant to its investment
advisory agreement with the Group, Midlantic receives a fee from each Fund,
computed daily and paid monthly. For each Fund, Midlantic receives a fee at the
annual rate of .60% of each Fund's average daily net assets. Midlantic may from
time to time waive all or a portion of its fee in order to limit the operating
expenses of a Fund. Any such waiver is voluntary and may be terminated at any
time in its sole discretion. During the Group's fiscal year ended February 28,
1995, Midlantic received investment advisory fees aggregating .51%, .60%, and
.36%, respectively, of the Municipal Bond, New Jersey Municipal Bond, and
Pennsylvania Municipal Bond Funds' average daily net assets.
Midlantic believes that it possesses the legal authority to perform the
investment advisory services for the Funds contemplated by its investment
advisory agreement and by this prospectus without violating applicable banking
laws or regulations. See "Management of the Group -- Glass-Steagall Act" in the
SAI.
THE ADMINISTRATOR
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SEI Financial Management Corporation is the administrator for each Fund of the
Group. The Administrator generally assists in all aspects of each Fund's
administration and operation.
For expenses incurred and services provided as the Administrator pursuant to its
administration agreement with the Group, SEI Financial Management Corporation
receives a fee from each Fund, computed daily and paid periodically, at an
annual rate of .18% of such Fund's average daily net assets. The Administrator
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in the Administrator's sole discretion.
THE DISTRIBUTOR
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Shares of the Group's Funds are sold on a continuous basis by SEI Financial
Services Company.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs, which will be paid by the Distributor from
the sales charge it receives or from any other source available to it. Under any
such program, the Distributor will provide promotional incentives in the form of
cash or other compensation, including merchandise, airline vouchers, trips, and
vacation packages, to dealers selling shares of the Funds.
PERFORMANCE
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Each Fund may advertise its yield, tax-equivalent yield, and total return. Yield
is calculated by dividing the Fund's annualized net investment income per share
during a recent 30-day period by the Fund's net asset value per share on the
last day of the period. Tax-equivalent yield is calculated by determining the
rate of return that would have been achieved on a fully taxable investment to
produce the after-tax equivalent of a Fund's yield, assuming certain tax
brackets for a shareholder. Total return is the average compounded rate of
return on a hypothetical investment for designated time periods, assuming that
the entire investment is redeemed at the end of each period and assuming the
reinvestment of all dividend and capital gain distributions. These figures will
be
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based on historical earnings and are not intended to indicate future
performance. No representation can be made concerning actual future yields or
returns. Fees imposed upon customer accounts by Midlantic or Essex National
Securities, Inc. for investment management services are not reflected in a
Fund's yield and total return calculations.
A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
or by financial and business publications and periodicals; broad groups of
comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and may
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations, yields, or
total returns to a benchmark while measures of benchmark correlation indicate
how valid a comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical data and cannot be
calculated precisely.
TAXES
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As with any investment, you should consider how your investment in a Fund will
be taxed.
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their shareholders. Accordingly, you are urged to consult your tax adviser
regarding specific questions as to federal, state, and local income taxes. State
and local tax consequences of an investment in a Fund may differ from the
federal income tax consequences described below. Additional information
concerning taxes is set forth in the SAI.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Group's other portfolios. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code),
so as to be relieved of federal income tax on net investment company taxable
income and net capital gains (the excess of net long-term capital gain over net
short-term capital losses) distributed to shareholders.
- - DISTRIBUTIONS The Funds distribute income dividends and capital gains.
Income dividends represent the earnings from a Fund's investments; capital
gains distributions occur when investments are sold for more than the
original purchase price.
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TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including its net tax-exempt income and net short-term capital gains) and net
capital gain to shareholders. Distributions of net capital gains are taxable to
shareholders as long-term capital gains, regardless of the length of time you
have owned shares in the Fund. Each Fund will make annual reports to
shareholders of the federal income tax status of all distributions. Each Fund
intends to make sufficient distributions prior to the end of each calendar year
to avoid liability for federal excise tax. Dividends declared by a Fund in
October, November, or December of any year and payable to shareholders of record
on a date in such a month will be deemed to have been paid by the Fund and
received by the shareholders on December 31 of that year if paid by a Fund at
any time during the following January.
Dividends derived from a Fund's net exempt-interest income and designated by the
Fund as exempt-interest dividends may be treated by a Fund's investors as items
of interest excludable from their gross income for federal income tax purposes
if the Fund qualifies as a regulated investment company and if, at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its total
assets consists of securities the interest on which is excluded from gross
income. Although exempt-interest dividends are excludable from a shareholder's
gross income for regular income tax purposes, they may have collateral federal
income tax consequences, including alternative minimum tax consequences. See the
SAI. Such dividends may be taxable to investors under state or local law as
ordinary income even though all or a portion of the amounts may be derived from
interest on tax-exempt obligations which, if realized directly, would be exempt
from such taxes. In addition, the receipt of exempt-interest dividends may cause
persons receiving Social Security or Railroad Retirement benefits to be taxable
on a portion of such benefits. In determining net exempt-interest income,
expenses of each Fund are allocated to gross tax-exempt interest income in the
proportion that the gross amount of such interest income bears to the Fund's
total gross income, excluding net capital gains. Current federal tax law limits
the types and volume of bonds qualifying for the federal income tax exemption of
interest, which may have an effect on the ability of the Funds to purchase
sufficient amounts of tax-exempt securities to satisfy the Code's requirements
for the payment of exempt-interest dividends.
All or a portion of the interest on indebtedness incurred or continued by an
investor to purchase or carry shares is not deductible for federal income tax
purposes. Furthermore, entities or persons who are "substantial users" (or
persons related to substantial users) of facilities financed by "private
activity bonds" or "industrial development bonds" should consult their tax
advisers before purchasing shares of the Funds. See the SAI.
If you receive an exempt-interest dividend with respect to any share and such
share is held for six months or less, any loss on the sale or exchange of such
share will be disallowed to the extent of the amount of such exempt-interest
dividend.
To the extent, if any, that dividends paid to investors are derived from taxable
income, such dividends will be subject to federal income tax. Distributions of
net investment income and/or the excess, if any, of net short-term capital gains
over net long-term capital losses are taxable to investors as ordinary income.
Distributions of the excess, if any, of net long-term capital gains over net
short-term capital losses that are designated by the Fund as capital gain
dividends are taxable to investors as long-term capital gain, regardless of the
length of time the investor has owned shares in the Fund. If an investor
disposes of shares in a Fund at a loss before having held those shares for more
than six months, such loss will be treated as a long-term capital loss to the
extent of any capital gain dividend(s) received by the investor on the shares.
Since substantially all of the net investment
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income of each Fund is expected to be derived from earned interest, it is
anticipated that no part of a Fund's distributions will be eligible for the
intercorporate dividends-received deduction.
If the net asset value of a share in the Fund is reduced below the investor's
cost of that share by a distribution of income or gain realized on the sale of
securities, the distribution is taxable as described above, even though as an
economic matter, the distribution may be a return of capital.
NEW JERSEY TAX CONSIDERATIONS
Provided that the Fund meets the requirements for a qualified investment fund,
investors in the New Jersey Municipal Bond Fund will not be subject to the New
Jersey gross income tax on distributions from the Fund attributable to interest
income from (and net gain, if any, from the disposition of) New Jersey Municipal
Securities or direct obligations of the United States, its territories, and
certain of its agencies and instrumentalities held by the Fund, or on gain on
the disposition of shares. Net income or gains and distributions derived from
other investments, and distributions from net realized capital gains in respect
of such investments, will be taxable.
PENNSYLVANIA TAX CONSIDERATIONS
Investors in the Pennsylvania Municipal Bond Fund will not be subject to
Pennsylvania personal income tax or the Philadelphia School District Net Income
Tax imposed on Philadelphia residents on distributions from the Fund
attributable to interest income from Pennsylvania Municipal Securities held by
the Fund and to interest or net gains on obligations of the United States, its
territories and certain of its agencies and instrumentalities. For purposes of
the Pennsylvania personal income tax and the School District Tax, distributions
derived from other investments and distributions from net realized capital gains
in respect of such investments will be taxable; except in the case of the School
District Tax, distributions qualifying as capital gains dividends for federal
income tax purposes are not taxable.
Shares purchased as an investment in the Pennsylvania Municipal Money Fund are
exempt from Pennsylvania county personal property taxes and (as to residents of
Pittsburgh) from personal property taxes imposed by the School District of
Pittsburgh to the extent that the fund's investments consist of obligations
which are themselves exempt from taxation in Pennsylvania.
To the extent that gain on the disposition of a share represents gain realized
on Pennsylvania Municipal Securities held by the Pennsylvania Municipal Bond
Fund, such gain may be subject to the Pennsylvania personal income tax and the
School District Tax, except that gain realized with respect to a share held for
more than six months is not subject to the School District Tax.
ADDITIONAL INFORMATION ABOUT DOING BUSINESS WITH THE GROUP
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BUSINESS DAYS
You may buy, sell, or exchange shares on days on which the New York Stock
Exchange is open for business (a Business Day). However, shares cannot be
purchased or redeemed by Federal Reserve wire on Federal holidays restricting
wire transfers.
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All purchase, exchange, and redemption requests received in "good order" will be
effective as of the Business Day as long as the Transfer Agent receives the
order (and payment, if a purchase request) before 4:00 p.m. Eastern Time. If an
exchange request is received by the Transfer Agent after 4:00 p.m. Eastern Time,
the exchange request will not be effective until the next Business Day.
MINIMUM INVESTMENTS
The minimum initial investment in a Fund is $2,500. All subsequent purchases
must be at least $100. The minimum investment may be waived if the purchases are
made in connection with gifts to minors, payroll deduction programs, or similar
plans, or upon due notice from the Distributor. Each Fund reserves the right to
reject a purchase order in whole or in part.
MAINTAINING A MINIMUM ACCOUNT BALANCE
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your shares at net asset value if, because of
redemptions, your account in a Fund has a value of less than the minimum initial
purchase amount (normally $2,500). Accordingly, if you purchase shares of a Fund
in only the minimum investment amount, you may be subject to involuntary
redemption if you redeem any shares. Before a Fund exercises its right to redeem
your shares, you will be given notice that the value of the shares in your
account is less than the minimum amount and you will be allowed 60 days to make
an additional investment in the Fund in an amount which will increase the value
of the account to at least the minimum amount. Shares will not be redeemed
involuntarily as a result of a decline in account value due to a decline in net
asset value alone.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment. In such circumstances, the Group may withhold
redemption proceeds until the Group knows that your check has cleared (but not
more than 15 days). The Funds intend to pay cash for all shares redeemed, but
under abnormal conditions that make payment in cash unwise, payment may be made
wholly or partly in portfolio securities with a market value equal to the
redemption price. In such cases, you may incur brokerage costs in converting
such securities to cash.
NET ASSET VALUE
An order to buy shares will be executed at a per share price equal to the net
asset value next determined after the receipt of the purchase order by the
Transfer Agent plus any applicable sales charge (the offering price). Net asset
value per share is determined as of the close of business of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on any Business Day. Payment to
shareholders for shares redeemed will be made within 7 days after receipt by the
Transfer Agent of the redemption order. However, to the greatest extent
possible, requests from shareholders for next day payments upon redemption of
shares will be honored if received by the Transfer Agent before 4:00 p.m.
Eastern Time on a Business Day.
HOW THE NET ASSET VALUE IS DETERMINED
The net asset value per share of each Fund is calculated by adding up the value
of the Fund's investments, cash, and other assets, subtracting its liabilities,
and then dividing the result by the number of outstanding shares of the Fund.
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Portfolio securities are valued on the basis of market quotations. If market
quotations are not available, the securities will be valued by a method which
the Group's Trustees believe accurately reflects fair value. Debt securities
with remaining maturities of 60 days or less will be valued in accordance with
the amortized cost method where the Group's Trustees determine that amortized
cost is fair value.
TELEPHONE INSTRUCTIONS
Redemption orders may be placed by telephone. Neither the Group nor the Transfer
Agent will be responsible for any loss, liability, cost, or expense for acting
upon telephone instructions that it reasonably believes to be genuine. The Group
and the Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means.
GENERAL INFORMATION
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THE GROUP
The Compass Capital Group of Funds was organized as a Massachusetts business
trust under a Declaration of Trust dated October 1, 1987. Additional information
pertaining to the Group may be obtained by writing to SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling
1-800-451-8371.
The Group pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes, and organization expenses. See "Financial Highlights" on page 5 for more
information regarding the Group's expenses.
TRUSTEES OF THE GROUP
The management and affairs of the Group are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Group.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote, and a fractional
share entitles the shareholder to a proportionate fractional vote. Shareholders
will vote in the aggregate and not by Fund except as otherwise expressly
required by law. Each Fund will vote separately on matters relating solely to
that Fund. As a Massachusetts business trust, the Group is not required to hold
annual meetings of shareholders, but shareholders have the right to call a
meeting to elect or remove one or more of the Trustees of the Group or to be
assisted by the Trustees in communicating with other shareholders of the Group.
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CONTROLLING PERSONS
The Group believes that as of April 7, 1995 Midlantic (499 Thornall Street,
Edison, NJ 08818) owned of record 90.5%, 49.1%, and 81.2% of the outstanding
shares of the Municipal Bond Fund, New Jersey Municipal Bond Fund, and
Pennsylvania Municipal Bond Fund, but also believes that, as of the same date,
Midlantic did not possess, on behalf of its underlying accounts, any voting or
investment power with respect to any of such shares.
REPORTING
The Group issues unaudited financial information semiannually and audited
financial statements annually. The Group furnishes proxy statements and other
reports to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Transfer Agent, State Street
Bank & Trust Company, P.O. Box 8519, Boston, MA 02266-8519 or may be made by
calling 1-800-451-8371.
DIVIDENDS
Net investment income of each Fund is declared and paid monthly as a dividend to
shareholders at the close of business on or about the last Business Day of each
month. Net short-term and long-term capital gain income of each Fund is
distributed at least annually. You will automatically receive all investment
income dividends and capital gains distributions in additional full and
fractional shares at net asset value as of the date of payment, unless you elect
to receive dividends or distributions in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent and will become effective
with respect to dividends and distributions having record dates after its
receipt by the Transfer Agent. Dividends and distributions paid in additional
shares receive the same tax treatment as dividends and distributions paid in
cash.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius serves as counsel to the Group. Coopers & Lybrand L.L.P.
serves as the independent accountants of the Group.
CUSTODIAN AND TRANSFER AGENT
Citibank, N.A., 111 Wall Street, New York, NY 10005 (the Custodian), serves as
custodian of the Group's assets. The Custodian holds cash, securities, and other
assets of the Group as required by the 1940 Act. State Street Bank & Trust
Company, P.O. Box 8519, Boston, MA 02266-8519, serves as transfer agent for each
Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
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The following is a description of the permitted investments and investment
practices for the Funds.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations, and
other entities. Maturities on these issues vary from a few to 270 days.
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DEMAND INSTRUMENTS -- Certain instruments may entail a demand feature which
permits the holder to demand payment of the principal amount of the instrument.
Demand instruments include variable amount and variable rate demand notes.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities, and other borrowers.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair, or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes, and construction loan notes, as well as participation interests in
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, and private activity and industrial development bonds,
as well as participation interests in municipal bonds.
Taxable Municipal Securities: Taxable municipal securities are municipal
securities the interest on which is not exempt from federal income tax. Taxable
municipal securities include "private activity bonds" that are issued by or on
behalf of states or political subdivisions thereof to finance privately-owned or
operated facilities for business and manufacturing, housing, sports, and
pollution control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public facilities
such as airports, mass transit systems, ports, parking and low income housing.
The payment of the principal and interest on private activity bonds is not
backed by a pledge of tax revenues and is dependent solely on the ability of the
facility's user to meet its financial obligations, and may be secured by a
pledge of real and personal property so financed. Interest on these bonds may
not be exempt from federal income tax.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
TAX-EXEMPT RECEIPTS -- Tax-Exempt Receipts are receipts which represent
ownership of and the right to receive future payments of interest, principal or
premium on specified municipal bonds that are issued by banks or brokerage firms
and are created by depositing municipal securities into a special account at a
custodial bank.
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The custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts and arranges for the issuance
of the certificates or receipts evidencing ownership and maintains the register.
These receipts may be issued in connection with a variety of different
arrangements. An issuer or third party may deposit municipal securities with a
custodian which then issues classes of receipts with different interest rate
characteristics.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration, and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks, and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Fund's shares.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Fund will maintain with the custodian a separate account with liquid
high-grade debt securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates and it is possible that the market value at the time of settlement could
be higher or lower than the purchase price if the general level of interest
rates has changed. Although a Fund generally purchases securities on a
when-issued or forward commitment basis with the intention of actually acquiring
securities for its portfolio, a Fund may dispose of a when-issued security or
forward commitment prior to settlement if it deems appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accrued. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically. A Fund will invest in zero
coupon obligations only if the possible relative greater price volatility of
such zero coupon obligations would not be inconsistent with preservation of
capital and stability of principal.
Additional information on other permitted investments can be found in the SAI.
21
<PAGE> 22
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<PAGE> 23
[ THIS PAGE INTENTIONALLY LEFT BLANK ]
<PAGE> 24
- ------------------------------------------------------------------------------
COMPASS FUNDS(R)
INVESTMENT ADVISER
Midlantic Bank, N.A.
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Pennsylvania Center
Philadelphia, Pennsylvania 19103
THE COMPASS CAPITAL
GROUP OF FUNDS(R)
PERSON-TO-PERSON MUTUAL FUNDS
MUNICIPAL
BOND
FUNDS
- MUNICIPAL BOND FUND
- NEW JERSEY MUNICIPAL BOND FUND
- PENNSYLVANIA MUNICIPAL BOND FUND
FOR TAX-FREE INCOME
WITH PRESERVATION OF CAPITAL
PROSPECTUS DATED
JULY 1, 1995
Managed by
[MIDLANTIC LOGO]
Midlantic is a registered service mark of Midlantic Corporation
COM-F-006-08
- ------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT (17)(k)
PROSPECTUS
THE COMPASS CAPITAL BOND FUNDS
The Short/Intermediate Fund
The Fixed Income Fund
The International Fixed Income Fund
JULY 1, 1995
- -------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP (the Group) is a family of 16 mutual funds that offers
you a convenient means of investing in one or more professionally managed
portfolios of securities. Three of the Group's diversified Funds are described
in this prospectus: the Short/Intermediate, Fixed Income, and International
Fixed Income Funds (collectively, the Funds). Each Fund has its own investment
objective and policies. Shares of each Fund are available through SEI Financial
Services Company and through broker-dealers that have established dealer
agreements with SEI Financial Services Company.
Please read this prospectus carefully before investing, and keep it on file for
future reference. It contains information that can help you decide if a Fund's
investment goals match your own. A Statement of Additional Information (SAI)
dated July 1, 1995 has been filed with the Securities and Exchange Commission
and is available free upon request by calling 1-800-451-8371. The SAI is
incorporated in its entirety into this prospectus by reference.
- -------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, 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.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING MIDLANTIC BANK, N.A. OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE GROUP'S SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 2
HOW TO READ THIS PROSPECTUS This prospectus gives you information that you
should know about the Funds before investing. Brief descriptions are also
provided throughout the prospectus to better explain certain key points. To find
these helpful guides, look for this symbol:-
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Funds at a Glance ..................... 2 The Adviser ............................... 12
Shareholder Transaction Expenses .......... 4 The Sub-Adviser ........................... 13
Annual Operating Expenses ................. 4 The Administrator ......................... 14
Financial Highlights ...................... 5 The Distributor ........................... 14
Your Account and Doing Business with Performance ............................... 14
the Group ............................... 6 Taxes ..................................... 15
Investment Objectives and Policies ........ 9 Additional Information About Doing Business
General Investment Policies .............. 11 with the Group ........................... 16
Risk Factors and Special Considerations... 11 General Information ....................... 18
Description of Permitted Investments ...... 19
</TABLE>
THE FUNDS AT A GLANCE
- -------------------------------------------------------------------------------
The following summary provides basic information about the Funds. This summary
is qualified in its entirety by reference to the more detailed information
provided elsewhere in this prospectus and in the SAI.
INVESTMENT OBJECTIVES AND POLICIES The Short/Intermediate Fund and the Fixed
Income Fund each seek current income and preservation of capital by investing
primarily in fixed income securities. The International Fixed Income Fund seeks
current income and preservation of capital, consistent with reasonable
investment risk, by investing primarily in foreign fixed income securities,
primarily bonds, of foreign governments or their political subdivisions, foreign
companies, and supranational organizations, most of which are denominated in
foreign currencies. See "Investment Objectives and Policies" on page 9, "General
Investment Policies" on page 11, and "Description of Permitted Investments" on
page 19.
UNDERSTANDING RISK Shares of the Funds, like shares of any mutual fund, will
fluctuate in value, and when you sell your shares, they may be worth more or
less than what you paid for them. International investing carries with it
certain additional risks. There is no assurance that a Fund will achieve its
investment objective. See "Investment Objectives and Policies" on page 9, "Risk
Factors and Special Considerations" on page 11, and "Description of Permitted
Investments" on page 19.
MANAGEMENT PROFILE Midlantic Bank, N.A. (Midlantic) serves as the investment
adviser of all of the Funds, and has engaged Morgan Grenfell Investment Services
Limited to serve as sub-adviser to the International Fixed Income Fund. SEI
Financial Management Corporation serves as the Group's administrator (the
Administrator). See "The Adviser" on page 12, "The Sub-Adviser" on page 13, and
"The Administrator" on page 14.
2
<PAGE> 3
- - Believing that no single investment manager can deliver outstanding
performance in every investment category, Midlantic will on occasion select
sub-advisers who have distinguished themselves within their areas of
specialization to advise certain of the Funds.
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP You may open an account with just
$2,500 ($500 if your account is opened in connection with an Individual
Retirement Account) and make additional investments with as little as $100.
Shares are offered at net asset value per share plus a sales charge. Redemptions
of a Fund's shares are made at net asset value per share. See "Your Account and
Doing Business with the Group" on page 6.
DIVIDENDS The net investment income (exclusive of capital gains) of each Fund is
declared and distributed monthly as dividends, except for the International
Fixed Income Fund, for which net investment income is distributed twice
annually. Any realized net capital gain is distributed at least annually.
Distributions are paid in additional shares unless you elect to take the payment
in cash. See "Dividends" on page 19.
INFORMATION For more information about the Funds, call 1-800-451-8371.
3
<PAGE> 4
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT/ FIXED INTERNATIONAL
INTERMEDIATE INCOME FIXED INCOME
FUND FUND FUND
------------ ------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases(2)...... 4.00% 4.00% 4.00%
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Advisory Fees.................................... .60% .60% .80%
Other Expenses................................... .25% .25% .44%
Total Fund Operating Expenses.................... .85% .85% 1.24%
</TABLE>
Example: You would pay the following expenses on a $1,000 investment in each of
the Funds, assuming (1) imposition of the maximum sales load, (2) 5% annual
return, and (3) redemption at the end of each time period:
<TABLE>
<CAPTION>
SHORT/ FIXED INTERNATIONAL
INTERMEDIATE INCOME FIXED INCOME
FUND FUND FUND
------------ ------- ------------
<S> <C> <C> <C>
1 Year............................................ $ 48 $ 48 $ 52
3 Years........................................... $ 66 $ 66 $ 78
5 Years........................................... $ 85 $ 85 $105
10 Years.......................................... $141 $141 $184
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to help you understand the various costs and
expenses that an investor in each Fund will bear directly or indirectly.
Additional information may be found under "The Adviser" on page 12, "The
Administrator" on page 14, and "The Distributor" on page 14.
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Your Account and Doing Business with the
Group" on page 6.
- -------------
(1) Midlantic may charge account fees for automatic investment and other
zinvestment or trust services provided to customer accounts that invest in
the Funds. There is a $7 charge for wiring redemption proceeds. See "Your
Account and Doing Business with the Group" on page 6.
(2) There is no sales charge imposed upon certain purchases of shares of the
Funds.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the per
share data and ratios for the Funds. This information has been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent public
accountants for the Group. Additional performance information is set forth in
the 1995 Annual Report to Shareholders and is available free upon request by
calling 1-800-451-8371.
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
REALIZED DISTRIBUTIONS
AND ------------------------------ NET NET
NET ASSET UNREALIZED IN EXCESS ASSETS ASSETS
VALUE NET GAINS OR NET OF NET NET ASSET END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED VALUE END TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS OF PERIOD RETURN (000)
---------- ----------- ----------- ---------- -------- -------- --------- ------- -------
- -----------------------
SHORT/INTERMEDIATE FUND
- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.47 $0.55 $(0.33) $(0.55) $(0.02) -- $10.12 2.27% $201,774
1994 10.67 0.59 (0.14) (0.59) (0.06) -- 10.47 3.71 268,235
1993 10.47 0.67 0.32 (0.67) (0.12) -- 10.67 9.77 186,031
1992 10.17 0.70 0.34 (0.70) (0.04) -- 10.47 10.58 128,225
1991 9.96 0.75 0.20 (0.74) -- -- 10.17 9.89 77,996
1990(1) 10.00 0.56 (0.05) (0.55) -- -- 9.96 6.96* 25,695
<CAPTION>
- ------------------
FIXED INCOME FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.66 $0.61 $(0.56) $(0.61) $(0.04) -- $10.06 0.65% $244,138
1994 10.88 0.62 (0.01) (0.62) (0.21) -- 10.66 5.38 272,409
1993 10.52 0.71 0.66 (0.72) (0.29) -- 10.88 13.69 208,115
1992 10.11 0.76 0.47 (0.76) (0.06) -- 10.52 12.62 150,594
1991 9.84 0.79 0.26 (0.78) -- -- 10.11 11.18 110,935
1990(1) 10.00 0.53 (0.19) (0.50) -- -- 9.84 4.54* 71,228
<CAPTION>
- -------------------------------
INTERNATIONAL FIXED INCOME FUND
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.75 $0.62 $(0.48) $(0.13) $(0.24) $ -- $10.52 1.50% $45,657
1994 10.76 0.65 0.46 (0.90) (0.22) -- 10.75 10.24 46,888
1993 10.21 0.52 0.47 (0.30) (0.14) -- 10.76 9.55 38,257
1992(2) 10.00 0.31 0.26 -- (0.06) (0.30) 10.21 8.92* 27,744
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
RATIO OF RATIO OF AVERAGE NET TO AVERAGE
EXPENSES TO NET INCOME ASSETS NET ASSETS PORTFOLIO
AVERAGE NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
-------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
- -----------------------
SHORT/INTERMEDIATE FUND
- -----------------------
1995 0.85% 5.33% 0.85% 5.33% 53.66%
1994 0.84 5.02 0.84 5.02 58.80
1993 0.88 6.28 0.88 6.28 25.95
1992 0.85 6.90 0.85 6.90 57.81
1991 0.84 7.44 0.88 7.40 42.86
1990(1) 0.88* 7.41* 0.98* 7.31* 2.46
<CAPTION>
- ------------------
FIXED INCOME FUND
- ------------------
<S> <C> <C> <C> <C> <C>
1995 0.85% 6.02% 0.85% 6.02% 34.69%
1994 0.83 5.53 0.83 5.53 49.41
1993 0.87 6.62 0.87 6.62 36.88
1992 0.89 7.66 0.89 7.66 120.70
1991 0.82 7.97 0.86 7.93 63.33
19901(1) 0.82* 7.10* 0.98* 6.94* 12.97
<CAPTION>
- -------------------------------
INTERNATIONAL FIXED INCOME FUND
- -------------------------------
<S> <C> <C> <C> <C> <C>
1995 1.24% 5.96% 1.24% 5.96% 130.64%
1994 1.38 6.00 1.38 6.00 128.14
1993 1.30 6.31 1.30 6.31 115.25
1992(2) 1.33* 6.79* 1.37* 6.75* 110.13
</TABLE>
- ------------------
* Annualized.
(1) Commenced operations on May 31, 1989.
(2) Commenced operations on July 1, 1991.
5
<PAGE> 6
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
Shares of the Funds are sold on a continuous basis and may be purchased directly
from the Group's Distributor, SEI Financial Services Company (the Distributor).
Shares may also be purchased through broker-dealers that have established a
dealer agreement with SEI Financial Services Company. For more information, see
"Additional Information About Doing Business with the Group" on page 16.
HOW TO BUY SHARES
OPENING AN ACCOUNT Application forms can be obtained by calling the Group's
Transfer Agent, State Street Bank & Trust Company (the Transfer Agent), at
1-800-451-8371.
BY CHECK You may buy shares of any of the Funds by completing and signing an
account application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "The Compass Capital (Fund Name)" to the
Transfer Agent, State Street Bank & Trust Company, at P.O. Box 8519, Boston, MA
02266-8519. You may purchase additional shares at any time by mailing payment to
the Transfer Agent. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees incurred.
BY TELEPHONE If your account application has been previously received, you may
buy shares by telephone by calling the Transfer Agent at 1-800-451-8371.
BY FED WIRE If you have an account with a commercial bank that is a member of
the Federal Reserve System and your account application has been previously
received, you may purchase shares by requesting your bank to transmit funds by
wire to: State Street Bank & Trust Co., ABA# 011000028, Attention: Compass Funds
for Account Number 99050569. Your name and the Compass Funds account number must
be specified in the wire. To buy shares by wire, call the Transfer Agent at
1-800-451-8371.
BY ACH You may buy shares of the Funds via Automated Clearing House (ACH). If
you plan to purchase shares via ACH, you should attach a voided check to your
account application.
AUTOMATIC INVESTMENT PLAN One easy way to pursue your financial goals is to
invest money regularly. You may arrange for periodic additional investment in
the Funds through automatic deductions from your checking or savings accounts.
You may purchase shares on a fixed monthly schedule (on the first or sixteenth
of each month) with amounts as low as $100, or as high as $100,000. The minimum
initial purchase amounts and minimum maintained balance requirements may be
waived for purchases under the Automatic Investment Plan.
HOW TO BUY, SELL, AND EXCHANGE SHARES THROUGH INTERMEDIARIES
- - WHAT IS AN INTERMEDIARY? Any broker-dealer or other financial institution
which has entered into an arrangement with the Distributor to sell shares
of the Funds to its customers.
To allow for processing and transmittal of orders to the Transfer Agent on the
same day, Intermediaries may impose earlier cut-off times for receipt of
purchase orders. Certain Intermediaries may charge customer account fees.
Information concerning shareholder services and any charges will be provided to
the customer by the Intermediary. Certain of these Intermediaries may be
required to register as broker/dealers under state law.
6
<PAGE> 7
OTHER INFORMATION ABOUT BUYING SHARES
SALES CHARGES The public offering price of a share of each Fund equals its net
asset value plus a sales charge. Your sales charge will depend on the size of
your purchase. The following table shows the regular sales charges on shares of
the Funds to a "single purchaser." SEI Financial Services Company receives this
sales charge as Distributor and re-allows a portion of it as dealer discounts
and brokerage commissions.
<TABLE>
<CAPTION>
SALES CHARGE
SALES CHARGE SALES CHARGE REALLOWANCE
AS A PERCENTAGE AS A PERCENTAGE OF AS A PERCENTAGE
AMOUNT OF PURCHASE OF OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- ------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C>
Less than $25,000................................... 4.00% 4.17% 3.60%
$25,000 but less than $100,000...................... 3.75% 3.90% 3.38%
$100,000 but less than $250,000..................... 3.25% 3.36% 2.93%
$250,000 but less than $500,000..................... 2.00% 2.04% 1.80%
$500,000 but less than $1,000,000................... 1.00% 1.01% .90%
$1,000,000 and above................................ NONE NONE NONE
</TABLE>
RIGHT OF ACCUMULATION You may qualify for a reduced sales charge by combining a
current purchase of shares of any of the Funds with shares of other Funds of the
Group that are subject to a sales charge. The applicable sales charge is based
on the combined total of your current purchase and the value of the account on
the previous day.
LETTER OF INTENT A Letter of Intent allows you to purchase shares of a Fund over
a 13 month period at reduced sales charges based on the total amount intended to
be purchased plus the total net asset value of shares already owned of the Group
that are subject to a sales charge. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the intended
investment. If such amount is not invested within the period, the investor must
pay the difference between the sales charge applicable to the purchases made and
the charges previously paid.
SALES CHARGE WAIVER If you or a member of your immediate family have an existing
trust department relationship with Midlantic, the applicable sales charge will
be waived. A trust department relationship includes relationships in which
Midlantic acts in a fiduciary, advisory, custodial, or similar capacity on
behalf of persons maintaining qualified accounts at Midlantic. The Compass
Capital Group Individual Retirement Plan and Custody Account is not a trust
department relationship; however, the applicable sales charge will be waived for
the Compass Capital Group Individual Retirement Plan and Custody Account when a
trustee to trustee transfer is made from an employer plan having Midlantic as
the fiduciary. Sales charges are also waived for qualifying institutional
investors. Additional information concerning qualified investors is set forth in
the SAI.
In addition, the applicable sales charge will be waived if: (i) you or a member
of your immediate family is a present or retired employee of Midlantic; (ii) you
or a member of your immediate family is a present employee of SEI Financial
Services Company; (iii) you are a trustee or officer of the Group, or (iv) you
are a client of Essex National Securities, Inc. who has enrolled in asset
allocation programs sponsored or operated by Essex, including such programs that
are part of an individual retirement plan.
7
<PAGE> 8
If you have previously redeemed shares of any Fund and you re-enter that Fund,
the sales charge will be waived so long as re-entry occurs within 12 months
following redemption and so long as you notify the Transfer Agent at the time of
the investment that the investment is a re-entry.
If you rely upon any of the categories of waivers of sales charges, you must
qualify such waiver with the Distributor prior to purchase.
EXCHANGING SHARES
- - HOW DOES AN EXCHANGE TAKE PLACE? When making an exchange, you authorize the
sale of your shares of one Fund in order to purchase the shares of another
Fund. In other words, you are executing a sell order and then a buy order.
An exchange is a taxable event which could result in a taxable gain or
loss.
WHEN CAN YOU EXCHANGE SHARES? Once your account has been established, you may
exchange some or all of your shares for shares of any other Fund within the
Group at net asset value. The exchange privilege may only be exercised in states
where the exchange may legally be made. The Group reserves the right to change
the terms and conditions of the exchange privilege or to terminate the exchange
privilege, upon 60 days notice.
WHEN DO SALES CHARGES APPLY TO AN EXCHANGE? You will not have to pay a sales
charge to exchange your shares. However, you must meet the minimum account size
requirements established by each Fund.
REQUESTING AN EXCHANGE OF SHARES Prior to exchanging shares, you must have
received a current prospectus of the Fund into which you wish to move your
investment. To request a prospectus for any of the Group's Funds, call
1-800-451-8371.
To request an exchange, you may contact the Transfer Agent by telephone at
1-800-451-8371 or provide written instructions to the Transfer Agent at P.O. Box
8519, Boston, MA 02266-8519. If an exchange request in good order is received by
the Transfer Agent by 4:00 p.m. Eastern Time on any Business Day, the exchange
will occur on that day. If your shares are held "of record" by Midlantic or
another Intermediary, you should contact Midlantic or the Intermediary, who will
effect the exchange on your behalf.
- - BUY, EXCHANGE, AND REDEMPTION REQUESTS ARE IN "GOOD ORDER" WHEN:
-- The account number and portfolio name are shown
-- The amount of the transaction is specified in dollars or shares
-- Signatures of all owners appear exactly as they are registered on
the account
-- Any required signature guarantees (if applicable) are included
-- Other supporting legal documents (as necessary) are present
HOW TO REDEEM SHARES
You can arrange to take money out of your Fund account at any time by redeeming
some or all of your shares. Shares may be redeemed by mail, by telephone, or by
the Automatic Cash Withdrawal Plan. If your shares are held "of record" by
Midlantic or another Intermediary, you should contact Midlantic or the
Intermediary for information on how to redeem shares. Under most circumstances,
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption.
8
<PAGE> 9
- - WHAT IS A SIGNATURE GUARANTEE? A signature guarantee verifies the
authenticity of your signature and may be obtained from any of the
following: banks, brokers, dealers, certain credit unions, securities
exchanges or associations, clearing agencies, or savings associations. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
BY MAIL To redeem your shares by mail, a written request for redemption in good
order must be received by the Transfer Agent, P.O. Box 8519, Boston, MA
02266-8519. All shareholders of record must sign the redemption request. The
Transfer Agent may require that the signature on the written request be
guaranteed. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption is of $5,000 worth of shares or
less, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at the address of
record. You may also have the proceeds deposited directly in a checking or
savings account previously designated on the account application. There is no
charge for having redemption proceeds deposited directly to a designated bank
account.
BY TELEPHONE You may redeem your shares by telephone if you elected that option
on your account application. Telephone redemption requests may be made by
calling the Transfer Agent at 1-800-451-8371. You may have the proceeds mailed
to your address, or deposited directly in a checking or savings account
previously designated on your account application. There is a $7 charge for
wiring redemption proceeds. You may not close your account by telephone.
AUTOMATIC CASH WITHDRAWAL PLAN You may establish an automatic cash withdrawal
plan for an account with at least a $10,000 minimum balance. Redemptions can be
automatically processed from accounts at regular intervals and the proceeds sent
to you, to a person named by you, or to your checking account. The minimum
redemption amount under the Automatic Cash Withdrawal Plan is $50. Automatic
Cash Withdrawal Plan application forms can be obtained by calling the Transfer
Agent at 1-800-451-8371.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
- - WHAT ARE INVESTMENT OBJECTIVES AND POLICIES? A Fund's investment objective
is a statement of what it seeks to achieve. It is important to make sure
that the investment objective matches your own financial needs and
circumstances. The investment policies section spells out the types of
securities in which each Fund invests.
Each Fund has its own investment objective and policies. The investment
objective with respect to each Fund may not be changed without a vote of the
holders of a majority of the outstanding shares of that Fund. There is no
assurance that a Fund will achieve its investment objective.
THE SHORT/INTERMEDIATE FUND AND THE FIXED INCOME FUND each seek current income
as well as preservation of capital by investing primarily in a portfolio of
fixed income securities. Under normal market conditions, each Fund invests at
least 65% of the value of its total assets in bonds, which consist of
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and high-grade corporate obligations (which include Yankee,
Eurodollar, and supranational organization securities), such as bonds,
debentures, notes, equipment lease and trust certificates, and collateralized
mortgage obligations. The
9
<PAGE> 10
Short/Intermediate Fund and the Fixed Income Fund may also invest in municipal
securities the interest on which is not exempt from federal income tax.
The Short/Intermediate Fund's dollar weighted average portfolio maturity will
range between two and five years. The Fixed Income Fund's dollar weighted
average portfolio maturity will range between five and eighteen years.
The Short/Intermediate Fund and the Fixed Income Fund each may invest up to 35%
of its total assets in high-quality, short-term obligations (with maturities of
12 months or less), such as commercial paper issued by domestic and foreign
corporations, bankers' acceptances issued by domestic and foreign banks,
certificates of deposit and demand and time deposits of domestic and foreign
banks and savings and loan associations, and repurchase agreements
(collectively, short-term obligations), asset-backed securities, and fixed
income securities convertible into, or exchangeable for, common stocks. Some of
the securities in which the Short/Intermediate and Fixed Income Funds invest may
have warrants or options attached.
THE INTERNATIONAL FIXED INCOME FUND seeks current income and preservation of
capital consistent with reasonable investment risk by investing principally in
foreign fixed income securities, most of which are denominated in foreign
currencies. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in bonds of foreign governments or their political
subdivisions, foreign companies and supranational organizations, and will be
invested in at least three different countries (excluding the United States).
The Fund may invest in developing as well as developed countries.
Under normal market conditions, the International Fixed Income Fund's dollar
weighted average portfolio maturity will range between two and eighteen years.
The International Fixed Income Fund may also invest up to 35% of the value of
its total assets in short-term obligations, and obligations of any maturity
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
The International Fixed Income Fund may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future exchange
rates. The Fund expects to engage in foreign currency exchange transactions in
connection with the purchase and sale of portfolio securities (transaction
hedging) and to protect the value of specific portfolio positions (position
hedging). The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency, and
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts (futures contracts). The Fund may also purchase exchange-listed and
over-the-counter call and put options on futures contracts and on foreign
currencies, and may write covered call options on up to 100% of the currencies
in its portfolio.
The portfolio turnover rate for the International Fixed Income Fund for the
fiscal year ended February 28, 1995 was 131%. A high portfolio turnover rate
will involve greater expenses to a Fund (including brokerage commissions and
transaction costs) and may also result in the realization of taxable capital
gains, including short-term capital gains taxable at ordinary income rates.
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GENERAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
The Funds invest only in debt securities which have at the time of purchase one
of the three highest ratings assigned by Moody's Investors Service, Inc.
(Moody's) (Aaa, Aa, and A) or Standard & Poor's Corporation (S&P) (AAA, AA, and
A) or, if unrated, which Midlantic deems to be of comparable quality to the
rated securities. For a description of the ratings categories used by Moody's
and S&P, see the Appendix to the SAI.
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Each of the Funds may (i) enter into contracts for the future delivery of
securities and futures contracts based on a specific security, class of
securities or an index, (ii) purchase or sell options on any such futures
contracts or a specific security, class of securities or an index and engage in
related closing transactions, and (iii) write covered call options thereon.
There may be times when, in the opinion of Midlantic or the sub-adviser, unusual
market conditions warrant that, for defensive reasons, a significant portion of
a Fund's assets be temporarily invested in short-term obligations and, with
respect to the International Fixed Income Fund, securities of the United States
or a single foreign country. To the extent that a Fund's assets are so invested,
they will not be invested so as to meet such Fund's investment objective.
Each Fund may enter into repurchase agreements. In order to generate additional
income, each of the Funds may lend its portfolio securities to broker-dealers,
banks, or institutional borrowers of securities. Each Fund may invest in
securities of other investment companies, including other investment companies
advised by Midlantic or the sub-adviser.
In making investment decisions with respect to each Fund, Midlantic or the
sub-adviser considers factors other than current yield, including the
preservation of capital, the potential for realizing capital appreciation,
maturity, and yield to maturity.
For additional information regarding a Fund's permitted investments, see
"Description of Permitted Investments" on page 19.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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INTERNATIONAL INVESTMENTS
Generally, investments in securities of foreign companies involve greater risks
than are present in U.S. investments. In making investment decisions for the
Funds, risks such as possible political and financial instability abroad, as
well as the illiquidity and volatility of foreign investments, are considered.
Canadian securities are not considered to have the same risks as other nations'
securities because Canadian and U.S. companies are generally subject to similar
auditing and accounting procedures and similar governmental supervision and
regulation. Also, Canadian securities are normally more liquid than other
non-U.S. securities.
Compared to U.S. and Canadian companies, there is generally less publicly
available information about foreign companies and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers, and listed
companies. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid, and their prices more volatile, than securities of
comparable U.S.
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<PAGE> 12
companies. Settlement of transactions in some foreign markets may be delayed or
may be less frequent than in the U.S., which could affect the liquidity of a
Fund's investment. In addition, with respect to some foreign countries, there is
the possibility of nationalization, expropriation, or confiscatory taxation;
limitations on the removal of securities, property, or other assets of a Fund;
political or social instability; increased difficulty in obtaining legal
judgments; or diplomatic developments which could affect U.S. investments in
those countries.
Investing in developing countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Although
there is no established definition, a developing country is generally considered
to be a country which is in the initial stages of its industrialization cycle
with a per capita gross national product of less than $5,000. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries; however, securities traded in
such markets generally have provided high rates of return to investors over
time.
FIXED INCOME INVESTMENTS
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal will also affect
the value of these investments. Changes in the value of portfolio securities
will not affect cash income derived from these securities but will affect a
Fund's net asset value.
THE ADVISER
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- - INVESTMENT ADVISER. A Fund's adviser manages the investment activities and
is responsible for the performance of the Fund. The adviser conducts
investment research, executes investment strategies based on an assessment
of economic and market conditions, and determines which securities to buy,
hold, or sell. A sub-adviser may perform many of these investment
activities under Midlantic's supervision.
Midlantic is the investment adviser of each Fund and has served as the
investment adviser to the Group since inception. Midlantic is the lead bank of
Midlantic Corporation, one of the 50 largest bank holding companies in the
United States, with $13 billion in assets as of December 31, 1994 and 324
banking offices located throughout New Jersey and Southeastern Pennsylvania.
Midlantic is the oldest bank in New Jersey, having received its charter in 1804.
Fiduciary assets have been managed by Midlantic since 1927 and, as of December
31, 1994, Midlantic, together with its affiliate banks, was responsible for the
investment of $5 billion in personal trust, pension fund, investment advisory,
and cash management accounts. These accounts include tax-free as well as taxable
securities. Midlantic is experienced in the investment of equity, fixed income,
and money market instruments, and has been the investment manager for pooled
funds and investment portfolios similar to those of the Group for many years.
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<PAGE> 13
William H. Cevallos, Vice President of Midlantic has been the portfolio manager
of the Fixed Income and Short/Intermediate Funds since June 1992. For the past
five years he has been employed by Midlantic in portfolio management,
specializing in taxable fixed income securities.
For the services provided and expenses incurred pursuant to its investment
advisory agreement with the Group, Midlantic receives a fee from each Fund,
computed daily and paid monthly. For the Short/Intermediate Fund and the Fixed
Income Fund, Midlantic receives a fee at the annual rate of .60% of each Fund's
average daily net assets. For the International Fixed Income Fund, Midlantic
receives a fee at the annual rate of .80% of the Fund's average daily net
assets. The advisory fee paid by the International Fixed Income Fund is higher
than the advisory fee paid by most mutual funds, although the Trustees believe
such fee to be comparable to advisory fees paid by many funds having similar
objectives and policies. Midlantic may from time to time waive all or a portion
of its fee in order to limit the operating expenses of a Fund. Any such waiver
is voluntary and may be terminated at any time in its sole discretion. During
the Group's fiscal year ended February 28, 1995, Midlantic received investment
advisory fees aggregating .60%, .60%, and .80%, respectively, of the
Short/Intermediate, Fixed Income and International Fixed Income Funds" average
daily net assets.
Midlantic believes that it possesses the legal authority to perform the
investment advisory services for the Funds contemplated by its investment
advisory agreement and by this prospectus without violating applicable banking
laws or regulations. See "Management of the Group -- Glass-Steagall Act" in the
SAI.
THE SUB-ADVISER: INTERNATIONAL FIXED INCOME FUND
- -------------------------------------------------------------------------------
Subject to the general supervision of the Group's Trustees and the direct
supervision of Midlantic, and in accordance with the Fund's investment
objectives and restrictions, Morgan Grenfell Investment Services Limited (MGIS),
20 Finsbury Circus, London, England EC2M 1NB, serves as sub-investment adviser
to the International Fixed Income Fund. MGIS, a registered investment adviser,
is a subsidiary of Morgan Grenfell Asset Management (MGAM), which as of December
31, 1994 manages over $48 billion in pension and other fiduciary assets; MGAM is
a subsidiary of Morgan Grenfell Group, which is in turn a wholly-owned
subsidiary of Deutsche Bank A.G., a German financial services conglomerate. MGIS
serves as an investment adviser or sub-adviser to United States clients with
over $10 billion in total assets, the majority of which are United States"
institutional investors. MGIS provides an investment management program, makes
decisions with respect to and each places orders for all purchases and sales of
portfolio securities of the International Fixed Income Fund and maintains the
Fund's records relating to such purchases and sales.
For the services provided and expenses incurred pursuant to its investment
sub-advisory agreement with Midlantic, MGIS receives a fee from Midlantic at the
annual rate of .40% on the first $75 million of the International Fixed Income
Fund's average daily net assets and .35% on assets in excess of $75 million.
MGIS receives no fees directly from the International Fixed Income Fund, and may
periodically reduce its sub-advisory fee.
For the year ended February 28, 1995, MGIS received from Midlantic investment
advisory fees aggregating .40% of the International Fixed Income Fund's average
daily net assets.
Martin A. Hall, Director, MGIS, has been the portfolio manager of the
International Fixed Income Fund since July 1, 1991, its inception. For the past
five years he has been employed by MGIS as a fixed income specialist with
particular responsibilities for the European bond markets.
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<PAGE> 14
THE ADMINISTRATOR
- -------------------------------------------------------------------------------
SEI Financial Management Corporation is the administrator for each Fund of the
Group. The Administrator generally assists in all aspects of each Fund's
administration and operation.
For expenses incurred and services provided as the Administrator pursuant to its
administration agreement with the Group, SEI Financial Management Corporation
receives a fee from each Fund, computed daily and paid periodically, at an
annual rate of .18% of such Fund's average daily net assets. The Administrator
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in the Administrator's sole discretion.
THE DISTRIBUTOR
- -------------------------------------------------------------------------------
Shares of the Group's Funds are sold on a continuous basis by SEI Financial
Services Company.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs, which will be paid by the Distributor from
the sales charge it receives or from any other source available to it. Under any
such program, the Distributor will provide promotional incentives in the form of
cash or other compensation, including merchandise, airline vouchers, trips, and
vacation packages, to dealers selling shares of the Funds.
PERFORMANCE
- -------------------------------------------------------------------------------
Each Fund may advertise its yield and total return. Yield is calculated by
dividing the Fund's annualized net investment income per share during a recent
30-day period by the Fund's net asset value per share on the last day of the
period. Total return of a Fund is the average compounded rate of return on a
hypothetical investment for designated time periods, assuming that the entire
investment is redeemed at the end of each period and assuming the reinvestment
of all dividend and capital gain distributions. These figures will be based on
historical earnings and are not intended to indicate future performance. No
representation can be made concerning actual future yields or returns. Fees
imposed upon customer accounts by Midlantic or Essex National Securities, Inc.
for investment management services are not reflected in the Funds" yield and
total return calculations.
A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical)
or by financial and business publications and periodicals; broad groups of
comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and may
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price
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<PAGE> 15
fluctuations, yields, or total returns to a benchmark while measures of
benchmark correlation indicate how valid a comparative benchmark might be.
Measures of volatility and correlation are calculated using averages of
historical data and cannot be calculated precisely.
TAXES
- -------------------------------------------------------------------------------
As with any investment, you should consider how your investment in a Fund will
be taxed.
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their shareholders. Accordingly, you are urged to consult your tax adviser
regarding specific questions as to federal, state, and local income taxes. State
and local tax consequences of an investment in a Fund may differ from the
federal income tax consequences described below. Additional information
concerning taxes is set forth in the SAI.
- - TAXES You must pay taxes on your Fund's earnings, whether you take your
payments in cash or additional shares.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Group's other portfolios. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code),
so as to be relieved of federal income tax on net investment company taxable
income and net capital gains (the excess of net long-term capital gain over net
short-term capital losses) distributed to shareholders.
- - DISTRIBUTIONS The Funds distribute income dividends and capital gains.
Income dividends represent the earnings from a Fund's investments; capital
gains distributions occur when investments are sold for more than the
original purchase price.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including net short-term capital gains) and net capital gain to shareholders.
Distributions of net capital gains are taxable to shareholders as long-term
capital gains, regardless of the length of time you have owned shares in the
Fund. Each Fund will make annual reports to shareholders of the federal income
tax status of all distributions. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for
federal excise tax. Dividends declared by a Fund in October, November, or
December of any year and payable to shareholders of record on a date in such a
month will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if paid by a Fund at any time during
the following January.
Sale, exchange, or redemption of a Fund's shares is a taxable transaction to the
shareholder.
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Because dividends paid by foreign corporations do not qualify for the
dividends-received deduction, distributions paid by the International Fixed
Income Fund generally will not qualify for the dividends-received deduction.
Taxes may be imposed on the International Fixed Income Fund by foreign countries
with respect to income received on foreign securities. If more than 50% of the
value of the International Fixed Income Fund's assets as the close of its
taxable year consists of stocks or securities of foreign corporations and if the
International Fixed Income Fund qualifies for taxation as a regulated investment
company under the Code, the International Fixed Income Fund may elect to treat
foreign taxes it has paid as having been paid by its investors. In this case,
investors generally will be required to include in income their pro rata share
of such taxes, but will then be entitled to claim a credit or deduction for
their share of such taxes. However, a particular investor's ability to utilize
such a credit will be subject to certain limitations imposed by the Code. If the
International Fixed Income Fund elects to "pass through" any foreign taxes to
its investors, it will notify the investors annually of their proportionate
share of such foreign taxes and the portion of each dividend that represents
income derived from foreign sources.
ADDITIONAL INFORMATION ABOUT DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
BUSINESS DAYS
You may buy, sell, or exchange shares on days on which the New York Stock
Exchange is open for business (a Business Day). However, shares cannot be
purchased or redeemed by Federal Reserve wire on Federal holidays restricting
wire transfers.
All purchase, exchange, and redemption requests received in "good order" will be
effective as of the Business Day as long as the Transfer Agent receives the
order (and payment, if a purchase request) before 4:00 p.m. Eastern Time. If an
exchange request is received by the Transfer Agent after 4:00 p.m. Eastern Time,
the exchange request will not be effective until the next Business Day.
MINIMUM INVESTMENTS
The minimum initial investment in a Fund is $2,500 ($500 for purchases made in
connection with Individual Retirement Accounts (IRAs)). All subsequent purchases
must be at least $100. The minimum investment may be waived if the purchases are
made in connection with IRAs, Keoghs, gifts to minors, payroll deduction
programs, or similar plans or upon due notice from the Distributor. Each Fund
reserves the right to reject a purchase order in whole or in part.
MAINTAINING A MINIMUM ACCOUNT BALANCE
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your shares at net asset value if, because of
redemptions, your account in a Fund has a value of less than the minimum initial
purchase amount (normally $2,500; $500 for purchases made in connection with
IRAs). Accordingly, if you purchase shares of a Fund in only the minimum
investment amount, you may be subject to involuntary redemption if you redeem
any shares. Before a Fund exercises its right to redeem your shares, you will be
given notice that the value of the shares in your account is less than the
minimum amount and you will be allowed 60 days to make an additional investment
in the Fund in an amount which will increase the value of the account to at
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<PAGE> 17
least the minimum amount. Shares will not be redeemed involuntarily as a result
of a decline in account value due to a decline in net asset value alone.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment. In such circumstances, the Group may withhold
redemption proceeds until the Group knows that your check has cleared (but not
more than 15 days). The Funds intend to pay cash for all shares redeemed, but
under abnormal conditions that make payment in cash unwise, payment may be made
wholly or partly in portfolio securities with a market value equal to the
redemption price. In such cases, you may incur brokerage costs in converting
such securities to cash.
NET ASSET VALUE
An order to buy shares will be executed at a per share price equal to the net
asset value next determined after the receipt of the purchase order by the
Transfer Agent plus any applicable sales charge (the offering price). Net asset
value per share is determined as of the close of business of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on any Business Day. Payment to
shareholders for shares redeemed will be made within 7 days after receipt by the
Transfer Agent of the redemption order. However, to the greatest extent
possible, requests from shareholders for next day payments upon redemption of
shares will be honored if received by the Transfer Agent before 4:00 p.m.
Eastern Time on a Business Day.
HOW THE NET ASSET VALUE IS DETERMINED
The net asset value per share of each Fund is calculated by adding up the value
of the Fund's investments, cash, and other assets, subtracting its liabilities,
and then dividing the result by the number of outstanding shares of the Fund.
Portfolio securities are valued on the basis of market quotations. If market
quotations are not available, the securities will be valued by a method which
the Group's Trustees believe accurately reflects fair value. Debt securities
with remaining maturities of 60 days or less will be valued in accordance with
the amortized cost method where the Group's Trustees determine that amortized
cost is fair value. Foreign securities are valued based on quotations from the
primary market in which they are traded. These quotations are translated from
the local currency into U.S. dollars using current exchange rates.
TELEPHONE INSTRUCTIONS
Redemption orders may be placed by telephone. Neither the Group nor the Transfer
Agent will be responsible for any loss, liability, cost, or expense for acting
upon telephone instructions that it reasonably believes to be genuine. The Group
and the Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means.
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GENERAL INFORMATION
- -------------------------------------------------------------------------------
THE GROUP
The Compass Capital Group of Funds was organized as a Massachusetts business
trust under a Declaration of Trust dated October 1, 1987. Additional information
pertaining to the Group may be obtained by writing to SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling
1-800-451-8371.
The Group pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes, and organization expenses. See "Financial Highlights" on page 5 for more
information regarding the Group's expenses.
TRUSTEES OF THE GROUP
The management and affairs of the Group are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Group.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote, and a fractional
share entitles the shareholder to a proportionate fractional vote. Shareholders
will vote in the aggregate and not by Fund except as otherwise expressly
required by law. Each Fund will vote separately on matters relating solely to
that Fund. As a Massachusetts business trust, the Group is not required to hold
annual meetings of shareholders, but shareholders have the right to call a
meeting to elect or remove one or more of the Trustees of the Group or to be
assisted by the Trustees in communicating with other shareholders of the Group.
CONTROLLING PERSONS
The Group believes that as of April 7, 1995 Midlantic (499 Thornall Street,
Edison, NJ 08818) owned of record substantially all of the shares of each of the
Short/Intermediate, Fixed Income, and International Fixed Income Funds, and
that, as of the same date, Midlantic possessed, on behalf of its underlying
accounts, voting or investment power with respect to 17%, 29%, and 40% of the
shares of Short/Intermediate, Fixed Income, and International Fixed Income
Funds, respectively. As a consequence, Midlantic may be deemed to be a
"controlling person" of each Fund except the Short/Intermediate Fund within the
meaning of the 1940 Act.
REPORTING
The Group issues unaudited financial information semiannually and audited
financial statements annually. The Group furnishes proxy statements and other
reports to shareholders of record.
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SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Transfer Agent, State Street
Bank & Trust Company, P.O. Box 8519, Boston, MA 02266-8519 or may be made by
calling 1-800-451-8371.
DIVIDENDS
Net investment income of each Fund, except for the International Fixed Income
Fund, is declared and paid monthly as a dividend to shareholders at the close of
business on or about the last Business Day of each month. Net investment income
of the International Fixed Income Fund is declared and paid twice annually as a
dividend to shareholders. Net short-term and long-term capital gain income of
each Fund is distributed at least annually. You will automatically receive all
investment income dividends and capital gains distributions in additional full
and fractional shares at net asset value as of the date of payment, unless you
elect to receive dividends or distributions in cash. Such election, or any
revocation thereof, must be made in writing to the Transfer Agent and will
become effective with respect to dividends and distributions having record dates
after its receipt by the Transfer Agent. Dividends and distributions paid in
additional shares receive the same tax treatment as dividends and distributions
paid in cash.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius serves as counsel to the Group. Coopers & Lybrand L.L.P.
serves as the independent accountants of the Group.
CUSTODIAN AND TRANSFER AGENT
Citibank, N.A., 111 Wall Street, New York, NY 10005 (the Custodian), serves as
custodian of the Group's assets. The Custodian holds cash, securities, and other
assets of the Group as required by the 1940 Act. State Street Bank & Trust
Company, P.O. Box 8519, Boston, MA 02266-8519, serves as transfer agent for each
Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
- -------------------------------------------------------------------------------
The following is a description of the permitted investments and investment
practices for the Funds.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases,
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain period by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to
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support payments on those securities. Asset-backed securities entail prepayment
risk, which may vary depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed securities. In addition,
credit card receivables are unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations, and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
DEMAND INSTRUMENTS -- Certain instruments may entail a demand feature which
permits the holder to demand payment of the principal amount of the instrument.
Demand instruments include variable amount and variable rate demand notes.
EQUIPMENT LEASE AND TRUST CERTIFICATES -- Equipment lease and trust certificates
are bonds, usually issued by a transportation company such as a railroad or
shipping line, used to pay for new equipment. The certificate gives the
bondholder the first right to the equipment in the event that interest and
principal are not paid when due. Title to the equipment is held in the name of
the trustee, usually a bank, until the bond is paid off.
EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee bank
obligations are U.S. dollar denominated obligations issued in the United States
by foreign banks.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities, and other borrowers.
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. A Fund may also enter
into a contract to sell, for a fixed amount of U.S. dollars or other appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency.
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At the maturity of a forward contract, a Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
FUTURES AND OPTIONS ON FUTURES -- Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. An option on a
futures contract gives the purchaser the right, in exchange for a premium, to
assume a position in a futures contract at a specified exercise price during the
term of the option. Stock index futures are futures contracts for various stock
indices that are traded on registered securities exchanges. A stock index
futures contract obligates the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired or be disposed of, to
minimize fluctuations in foreign currencies, or to gain exposure to a particular
market or instrument. A Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures contracts which are
traded on national futures exchanges.
Risk Factors. Risks associated with these activities include: (1) the success of
a hedging strategy may depend on an ability to predict movements in the prices
of individual securities, fluctuations in markets, and movements in interest
rates, (2) there may be an imperfect or no correlation between the changes in
market value of the securities held by a Fund and the prices of futures and
options on futures, (3) there may not be a liquid secondary market for a futures
contract or option, (4) trading restrictions or limitations may be imposed by an
exchange, and (5) government regulations may restrict trading in futures
contracts and futures options.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Collateralized Mortgage Obligations (CMOs): CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government, or by private originators or investors in mortgage loans.
In a CMO, series of bonds or certificates are usually issued in multiple
classes. Principal and interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
Each class of a CMO, often referred to as a "tranche," is issued with a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
OPTIONS -- A put option gives the purchaser of the option the right to sell, and
the writer of the option the obligation to buy, the underlying security or
commodity at any time during the option period. A call option gives the
purchaser of the option the right to buy, and the writer of the option the
obligation to sell, the underlying
21
<PAGE> 22
security at any time during the option period. The initial purchase (sale) of an
option contract is an "opening transaction." In order to close out an option
position, a Fund may enter into a "closing transaction," which is simply the
sale (purchase) of an option contract on the same security with the same
exercise price and expiration date as the option contract originally opened. The
ability of a Fund to enter into closing transactions depends upon the existence
of a liquid secondary market for such transactions.
A Fund may purchase put and call options on securities to protect against a
decline in the market value of the securities in its portfolio or to protect
against an increase in the cost of securities that the Fund may seek to purchase
in the future. A Fund purchasing put and call options pays a premium therefor.
The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. If price movements in the underlying
securities are such that exercise of the options would not be profitable for the
Fund, loss of the premium paid may be offset by an increase in the value of the
Fund's securities or by a decrease in the cost of acquisition of securities by
the Fund.
A Fund may write covered put and call options on securities as a means of
increasing the yield on its portfolio and as a means of providing limited
protection against decreases in its market value. When a Fund writes an option,
if the underlying securities do not increase or decrease to a price level that
would make the exercise of the option profitable to the holder thereof, the
option generally will expire without being exercised and the Fund will realize
as profit the premium received for such option. When a call option written by a
Fund is exercised, the Fund will not participate in any increase in the price of
such securities above the exercise price. When a put option written by a Fund is
exercised, the Fund will be required to purchase the underlying securities at a
price, in excess of the market value of such securities.
An International Fund also may purchase and write put and call options on
foreign currencies to manage its exposure to exchange rates. Call options on
foreign currency written by a Fund will be "covered," which means that the Fund
will own an equal amount of the underlying foreign currency. When a Fund writes
a put option on foreign currencies, it will establish a segregated account
containing cash or liquid, high grade debt securities with its custodian in an
amount at least equal to the amount the Fund would be required to pay upon
exercise of the put.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid, high
grade debt securities with its custodian in an amount at least equal to the
market value of the option and will maintain the account while the option is
open or will otherwise cover the transaction.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options (OTC options) differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.
Risk Factors. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets, and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a
22
<PAGE> 23
Fund will receive a premium when it writes covered call options, it may not
participate fully in a rise in the market value of the underlying security.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. Repurchase agreements are considered loans under
the Investment Company Act of 1940.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash or securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration, and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks, and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Fund's shares.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Fund will maintain with the custodian a separate account with liquid
high-grade debt securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates and it is possible that the market value at the time of settlement could
be higher or lower than the purchase price if the general level of interest
rates has changed. Although a Fund generally purchases securities on a
when-issued or forward commitment basis with the intention of actually acquiring
securities for its portfolio, a Fund may dispose of a when-issued security or
forward commitment prior to settlement if it deems appropriate.
Additional information on other permitted investments can be found in the SAI.
23
<PAGE> 24
- ------------------------------------------------------------------------------
COMPASS FUNDS(R)
INVESTMENT ADVISER
Midlantic Bank, N.A.
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818
SUB-INVESTMENT ADVISER
(INTERNATIONAL FIXED INCOME FUND)
Morgan Grenfell INvestment Services Limited
20 Finsbury Circus
London, England EC2M1NB
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Pennsylvania Center
Philadelphia, Pennsylvania 19103
THE COMPASS CAPITAL
GROUP OF FUNDS(R)
PERSON-TO-PERSON MUTUAL FUNDS
BOND
FUNDS
- SHORT/INTERMEDIATE FUND
- FIXED INCOME FUND
- INTERNATIONAL FIXED INCOME FUND
FOR CURRENT INCOME AND
PRESERVATION OF CAPITAL FROM
FIXED INCOME INVESTMENTS
PROSPECTUS DATED
JULY 1, 1995
Managed by
[MIDLANTIC LOGO]
Midlantic is a registered service mark of Midlantic Corporation
COM-F-005-09
- ------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT (17)(l)
PROSPECTUS
THE COMPASS CAPITAL EQUITY AND BALANCED FUNDS
The Equity Income Fund
The Growth Fund
The Small Company Fund
The International Equity Fund
The Balanced Fund
JULY 1, 1995
- -------------------------------------------------------------------------------
THE COMPASS CAPITAL GROUP (the Group) is a family of 16 mutual funds that offers
you a convenient means of investing in one or more professionally managed
portfolios of securities. Five of the Group's diversified Funds are described in
this prospectus: the Equity Income, Growth, Small Company, and International
Equity Funds, as well as the Balanced Fund (collectively, the Funds). Each Fund
has its own investment objective and policies. Shares of each Fund are available
through SEI Financial Services Company and through broker-dealers that have
established dealer agreements with SEI Financial Services Company.
Please read this prospectus carefully before investing, and keep it on file for
future reference. It contains information that can help you decide if a Fund's
investment goals match your own. A Statement of Additional Information (SAI)
dated July 1, 1995 has been filed with the Securities and Exchange Commission
and is available free upon request by calling 1-800-451-8371. The SAI is
incorporated in its entirety into this prospectus by reference.
- -------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, 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.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING MIDLANTIC BANK, N.A. OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE GROUP'S SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 2
HOW TO READ THIS PROSPECTUS This prospectus gives you information that you
should know about the Funds before investing. Brief descriptions are also
provided throughout the prospectus to better explain certain key points. To find
these helpful guides, look for this symbol:
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<S> <C> <C>
The Funds at a Glance .............. 2 The Adviser...................... 13
Shareholder Transaction Expenses..... 4 The Sub-Advisers................. 14
Annual Operating Expenses............ 4 The Administrator................ 16
Financial Highlights................. 5 The Distributor ................. 16
Your Account and Doing Business Performance ..................... 16
with the Group...................... 6 Taxes............................ 17
Investment Objectives and Policies... 9 Additional Information About
General Investment Policies .........11 Doing Business with the Group... 18
Risk Factors and Special General Information.............. 20
Considerations .....................12 Description of Permitted
Investments .................... 21
</TABLE>
THE FUNDS AT A GLANCE
- -------------------------------------------------------------------------------
The following summary provides basic information about the Funds. This summary
is qualified in its entirety by reference to the more detailed information
provided elsewhere in this prospectus and in the SAI.
INVESTMENT OBJECTIVES AND POLICIES The Equity Income Fund seeks a combination of
current income and capital appreciation by investing in common stocks, preferred
stocks, and securities convertible into common stocks. The Growth Fund seeks
primarily capital appreciation by investing in common stocks and securities
convertible into common stocks. The Small Company Fund (formerly the Small Cap
Value Fund) seeks primarily capital appreciation by investing in common stocks
and securities convertible into common stocks of small market capitalization
companies. The International Equity Fund seeks primarily long-term capital
appreciation and, secondarily, income by investing principally in a portfolio of
equity securities of companies domiciled outside of the United States. The
Balanced Fund seeks to provide capital appreciation and current income by
investing in common and preferred stocks, securities convertible into common
stock and investment grade fixed income securities. See "Investment Objectives
and Policies" on page 9, "General Investment Policies" on page 11, and
"Description of Permitted Investments" on page 21.
UNDERSTANDING RISK Shares of the Funds, like shares of any mutual fund, will
fluctuate in value, and when you sell your shares, they may be worth more or
less than what you paid for them. International investing carries with it
certain additional risks. There is no assurance that a Fund will achieve its
investment objective. See "Investment Objectives and Policies" on page 9, "Risk
Factors and Special Considerations" on page 12, and "Description of Permitted
Investments" on page 21.
MANAGEMENT PROFILE Midlantic Bank, N.A. (Midlantic) serves as the investment
adviser of all of the Funds, and has engaged sub-advisers to carry out the
day-to-day management of the Equity Funds. Wellington Management Company serves
as sub-adviser to the Equity Income and Growth Funds; Wall Street Associates
serves as sub-adviser to the Small Company Fund; and Seligman Henderson Co.
serves as sub-adviser to the International
2
<PAGE> 3
Equity Fund. SEI Financial Management Corporation serves as the Group's
administrator (the Administrator). See "The Adviser" on page 13, "The
Sub-Advisers" on page 14, and "The Administrator" on page 16.
- - Believing that no single investment manager can deliver outstanding
performance in every investment category, Midlantic will on occasion select
sub-advisers who have distinguished themselves within their areas of
specialization to advise certain of the Funds.
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP You may open an account with just
$2,500 ($500 if your account is opened in connection with an Individual
Retirement Account) and make additional investments with as little as $100.
Shares are offered at net asset value per share plus a sales charge. Redemptions
of a Fund's shares are made at net asset value per share. See "Your Account and
Doing Business with the Group" on page 6.
DIVIDENDS The net investment income (exclusive of capital gains) of each of the
Funds is distributed periodically as dividends. Any realized net capital gain is
distributed at least annually. Distributions are paid in additional shares
unless you elect to take the payment in cash. See "Dividends" on page 21.
INFORMATION For more information about the Funds, call 1-800-451-8371.
3
<PAGE> 4
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
EQUITY SMALL
INCOME GROWTH COMPANY INTERNATIONAL BALANCED
FUND FUND FUND EQUITY FUND FUND
------ ------ ------- ------------- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases(2) ..... 4.50% 4.50% 4.50% 4.50% 4.50%
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Advisory Fees .................................. .70% .70% .90% .90% .70%
Other Expenses ................................. .25% .26% .40% .56% .40%
Total Fund Operating Expenses .................. .95% .96% 1.30% 1.46% 1.10%(3)
</TABLE>
Example: You would pay the following expenses on a $1,000 investment in each of
the Funds, assuming (1) imposition of the maximum sales load, (2) 5% annual
return, and (3) redemption at the end of each time period:
<TABLE>
<CAPTION>
EQUITY SMALL
INCOME GROWTH COMPANY INTERNATIONAL BALANCED
FUND FUND FUND EQUITY FUND FUND
------ ------ ------- ------------- --------
<S> <C> <C> <C> <C> <C>
1 Year ........................................... $ 54 $ 54 $ 58 $ 59 $ 56
3 Years .......................................... $ 74 $ 74 $ 84 $ 89 $ 78
5 Years .......................................... $ 95 $ 96 $113 $121 $103
10 Years ......................................... $156 $158 $195 $212 $173
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to help you understand the various costs and
expenses that an investor in each Fund will bear directly or indirectly.
Additional information may be found under "The Adviser" on page 13, "The
Administrator" on page 16, and "The Distributor" on page 16.
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Your Account and Doing Business with the
Group" on page 6.
- -----------------
(1) Midlantic may charge account fees for automatic investment and other
investment or trust services provided to customer accounts that invest in
the Funds. There is a $7 charge for wiring redemption proceeds. See "Your
Account and Doing Business with the Group" on page 6.
(2) There is no sales charge imposed upon certain purchases of shares of the
Funds.
(3) Total Fund Operating Expenses for the Balanced Fund are restated to reflect
current fees.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the per
share data and ratios for the Funds. This information has been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent public
accountants for the Group. Additional performance information is set forth in
the 1995 Annual Report to Shareholders and is available free upon request by
calling 1-800-451-8371.
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
REALIZED DISTRIBUTIONS RATIO OF
AND ---------------------------------- NET NET EXPENSES
NET ASSET UNREALIZED IN EXCESS ASSET ASSETS TO
VALUE NET GAINS OR NET OF NET VALUE END OF AVERAGE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL PERIOD NET
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN (000) ASSETS
--------- ---------- ----------- ---------- ------- --------- ------- ------ --------- --------
- ------------------
EQUITY INCOME FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.71 $0.30 $0.14 $(0.30) $(0.99) -- $11.86 3.87% $288,889 0.95%
1994 11.94 0.38 1.63 (0.39) (0.85) -- 12.71 16.78 282,144 0.93
1993 11.77 0.39 0.48 (0.39) (0.31) -- 11.94 7.71 197,039 1.00
1992 11.12 0.45 1.24 (0.46) (0.58) -- 11.77 16.07 142,052 0.96
1991 9.93 0.45 1.17 (0.43) -- -- 11.12 16.87 82,167 0.94
1990(1) 10.00 0.32 (0.07) (0.32) -- -- 9.93 7.79* 32,115 0.93*
<CAPTION>
- -----------
GROWTH FUND
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.31 $0.06 $0.22 $(0.06) $(0.27) $ -- $11.26 2.75% $139,339 0.96%
1994 11.19 0.05 0.46 (0.05) (0.30) (0.04) 11.31 4.74 150,602 0.94
1993 11.36 0.13 0.26 (0.13) (0.43) -- 11.19 3.49 153,876 0.98
1992 11.72 0.21 1.35 (0.21) (1.71) -- 11.36 14.93 115,473 1.00
1991 10.28 0.22 1.44 (0.22) -- -- 11.72 16.40 113,335 0.92
1990(1) 10.00 0.23 0.27 (0.22) -- -- 10.28 6.70* 81,998 0.90*
<CAPTION>
- --------------------------------------------------
SMALL COMPANY FUND (FORMERLY SMALL CAP VALUE FUND)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.33 $0.10 $(0.70) $(0.10) $(0.62) -- $11.01 (4.70)% $26,393 1.30%
1994 12.03 0.09 1.57 (0.09) (1.27) -- 12.33 14.50 22,280 1.31
1993 12.01 0.05 0.10 (0.04) (0.09) -- 12.03 1.42 19,300 1.38
1992(2) 10.00 0.04 2.01 (0.04) -- -- 12.01 32.73* 16,237 1.22*
<CAPTION>
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $13.79 $0.01 $(0.93) $ -- $(0.95) $ -- $11.92 (6.99)% $34,937 1.46%
1994 10.32 0.03 3.88 (0.03) (0.41) -- 13.79 38.19 33,223 1.59
1993 10.62 0.09 (0.34) (0.05) -- -- 10.32 (2.35) 13,463 1.63
1992(2) 10.00 0.02 0.63 -- -- (0.03) 10.62 9.88* 12,427 1.56*
<CAPTION>
- -------------
BALANCED FUND
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(3) $10.00 $0.27 $0.30 $(0.27) -- -- $10.30 8.94%* $23,933 0.70%*
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF RATIO OF
NET EXPENSES NET
INCOME TO INCOME TO
TO AVERAGE AVERAGE
AVERAGE NET ASSETS NET ASSETS PORTFOLIO
NET (EXCLUDING (EXCLUDING TURNOVER
ASSETS WAIVERS) WAIVERS) RATE
-------- ---------- ---------- ---------
- ------------------
EQUITY INCOME FUND
- ------------------
<S> <C> <C> <C> <C>
1995 2.47% 0.95% 2.47% 57.96%
1994 3.06 0.93 3.06 156.21
1993 3.33 1.00 3.33 70.84
1992 4.04 0.96 4.04 111.52
1991 4.65 0.98 4.61 98.75
1990(1) 4.29* 1.06* 4.16* 54.08
<CAPTION>
- -----------
GROWTH FUND
- -----------
<S> <C> <C> <C> <C>
1995 0.55% 0.96% 0.55% 46.28%
1994 0.56 0.94 0.56 153.03
1993 1.14 0.98 1.14 114.83
1992 1.80 1.00 1.80 144.16
1991 2.08 0.96 2.04 91.32
1990(1) 2.72* 1.00* 2.62* 41.69
<CAPTION>
- --------------------------------------------------
SMALL COMPANY FUND (FORMERLY SMALL CAP VALUE FUND)
- --------------------------------------------------
<S> <C> <C> <C> <C>
1995 0.86% 1.30% 0.86% 15.84%
1994 0.72 1.31 0.72 49.34
1993 0.45 1.38 0.45 43.00
1992(2) 0.65* 1.27* 0.60* 9.08
<CAPTION>
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
<S> <C> <C> <C> <C>
1995 0.07% 1.46% 0.07% 47.68%
1994 0.11 1.59 0.11 51.30
1993 0.91 1.63 0.91 80.72
1992(2) 0.25* 1.61* 0.20* 22.26
<CAPTION>
- -------------
BALANCED FUND
- -------------
<S> <C> <C> <C> <C>
1995(3) 4.10%* 1.15%* 3.65%* 30.63%
</TABLE>
- -------------------
* Annualized.
(1) Commenced operations on May 31, 1989.
(2) Commenced operations on July 1, 1991.
(3) Commenced operations on July 1, 1994.
5
<PAGE> 6
YOUR ACCOUNT AND DOING BUSINESS WITH THE GROUP
- --------------------------------------------------------------------------------
Shares of the Funds are sold on a continuous basis and may be purchased directly
from the Group's Distributor, SEI Financial Services Company (the Distributor).
Shares may also be purchased through broker-dealers that have established a
dealer agreement with SEI Financial Services Company. For more information, see
"Additional Information About Doing Business with the Group" on page 18.
HOW TO BUY SHARES
OPENING AN ACCOUNT Application forms can be obtained by calling the Group's
Transfer Agent, State Street Bank & Trust Company (the Transfer Agent), at
1-800-451-8371.
BY CHECK You may buy shares of any of the Funds by completing and signing an
account application and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "The Compass Capital (Fund Name)" to the
Transfer Agent, State Street Bank & Trust Company, at P.O. Box 8519, Boston, MA
02266-8519. You may purchase additional shares at any time by mailing payment to
the Transfer Agent. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees incurred.
BY TELEPHONE If your account application has been previously received, you may
buy shares by telephone by calling the Transfer Agent at 1-800-451-8371.
BY FED WIRE If you have an account with a commercial bank that is a member of
the Federal Reserve System and your account application has been previously
received, you may purchase shares by requesting your bank to transmit funds by
wire to: State Street Bank & Trust Co., ABA# 011000028, Attention: Compass Funds
for Account Number 99050569. Your name and the Compass Funds account number must
be specified in the wire. To buy shares by wire, call the Transfer Agent at
1-800-451-8371.
BY ACH You may buy shares of the Funds via Automated Clearing House (ACH). If
you plan to purchase shares via ACH, you should attach a voided check to your
account application.
AUTOMATIC INVESTMENT PLAN One easy way to pursue your financial goals is to
invest money regularly. You may arrange for periodic additional investment in
the Funds through automatic deductions from your checking or savings accounts.
You may purchase shares on a fixed monthly schedule (on the first or sixteenth
of each month) with amounts as low as $100, or as high as $100,000. The minimum
initial purchase amounts and minimum maintained balance requirements may be
waived for purchases under the Automatic Investment Plan.
HOW TO BUY, SELL, AND EXCHANGE SHARES THROUGH INTERMEDIARIES
- - WHAT IS AN INTERMEDIARY? Any broker-dealer or other financial institution
which has entered into an arrangement with the Distributor to sell shares
of the Funds to its customers.
To allow for processing and transmittal of orders to the Transfer Agent on the
same day, Intermediaries may impose earlier cut-off times for receipt of
purchase orders. Certain Intermediaries may charge customer account fees.
Information concerning shareholder services and any charges will be provided to
the customer by the Intermediary. Certain of these Intermediaries may be
required to register as broker/dealers under state law.
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<PAGE> 7
OTHER INFORMATION ABOUT BUYING SHARES
SALES CHARGES The public offering price of a share of each Fund equals its net
asset value plus a sales charge. Your sales charge will depend on the size of
your purchase. The following table shows the regular sales charges on shares of
the Funds to a "single purchaser." SEI Financial Services Company receives this
sales charge as Distributor and re-allows a portion of it as dealer discounts
and brokerage commissions.
<TABLE>
<CAPTION>
SALES CHARGE
SALES CHARGE SALES CHARGE REALLOWANCE
AS A PERCENTAGE AS A PERCENTAGE OF AS A PERCENTAGE
AMOUNT OF PURCHASE OF OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- ------------------ ----------------- ------------------- -----------------
<S> <C> <C> <C>
Less than $25,000 .......................... 4.50% 4.71% 4.05%
$25,000 but less than $100,000 ............. 4.00% 4.17% 3.60%
$100,000 but less than $250,000 ............ 3.25% 3.36% 2.93%
$250,000 but less than $500,000 ............ 2.00% 2.04% 1.80%
$500,000 but less than $1,000,000 .......... 1.00% 1.01% .90%
$1,000,000 and above. ...................... NONE NONE NONE
</TABLE>
RIGHT OF ACCUMULATION You may qualify for a reduced sales charge by combining a
current purchase of shares of any of the Funds with shares of other Funds of the
Group that are subject to a sales charge. The applicable sales charge is based
on the combined total of your current purchase and the value of the account on
the previous day.
LETTER OF INTENT A Letter of Intent allows you to purchase shares of a Fund over
a 13 month period at reduced sales charges based on the total amount intended to
be purchased plus the total net asset value of shares already owned of the Group
that are subject to a sales charge. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the intended
investment. If such amount is not invested within the period, you must pay the
difference between the sales charge applicable to the purchases made and the
charges previously paid.
SALES CHARGE WAIVER If you or a member of your immediate family have an existing
trust department relationship with Midlantic, the applicable sales charge will
be waived. A trust department relationship includes relationships in which
Midlantic acts in a fiduciary, advisory, custodial, or similar capacity on
behalf of persons maintaining qualified accounts at Midlantic. The Compass
Capital Group Individual Retirement Plan and Custody Account is not a trust
department relationship; however, the applicable sales charge will be waived for
the Compass Capital Group Individual Retirement Plan and Custody Account when a
trustee to trustee transfer is made from an employer plan having Midlantic as
the fiduciary. Sales charges are also waived for qualifying institutional
investors. Additional information concerning qualified investors is set forth in
the SAI.
In addition, the applicable sales charge will be waived if: (i) you or a member
of your immediate family is a present or retired employee of Midlantic; (ii) you
or a member of your immediate family is a present employee of SEI Financial
Services Company; (iii) you are a trustee or officer of the Group; or (iv) you
are a client of Essex National Securities, Inc. who has enrolled in asset
allocation programs sponsored or operated by Essex, including such programs that
are part of an individual retirement plan.
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<PAGE> 8
If you have previously redeemed shares of any Fund and you re-enter that Fund,
the sales charge will be waived so long as re-entry occurs within 12 months
following redemption and so long as you notify the Transfer Agent at the time of
the investment that the investment is a re-entry.
If you rely upon any of the categories of waivers of sales charges, you must
qualify such waiver in advance of the purchase.
EXCHANGING SHARES
- - HOW DOES AN EXCHANGE TAKE PLACE? When making an exchange, you authorize the
sale of your shares of one Fund in order to purchase the shares of another
Fund. In other words, you are executing a sell order and then a buy order.
An exchange is a taxable event which could result in a taxable gain or
loss.
WHEN CAN YOU EXCHANGE SHARES? Once your account has been established, you may
exchange some or all of your shares for shares of any other Fund within the
Group at net asset value. The exchange privilege may only be exercised in states
where the exchange may legally be made. The Group reserves the right to change
the terms and conditions of the exchange privilege or to terminate the exchange
privilege, upon 60 days notice.
WHEN DO SALES CHARGES APPLY TO AN EXCHANGE? You will not have to pay a sales
charge to exchange your shares. However, you must meet the minimum account size
requirements established by each Fund.
REQUESTING AN EXCHANGE OF SHARES Prior to exchanging shares, you must have
received a current prospectus of the Fund into which you wish to move your
investment. To request a prospectus for any of the Group's Funds, call
1-800-451-8371.
To request an exchange, you may contact the Transfer Agent by telephone at
1-800-451-8371 or provide written instructions to the Transfer Agent at P.O. Box
8519, Boston, MA 02266-8519. If an exchange request in good order is received by
the Transfer Agent by 4:00 p.m. Eastern Time on any Business Day, the exchange
will occur on that day. If your shares are held "of record" by Midlantic or
another Intermediary, you should contact Midlantic or the Intermediary, who will
effect the exchange on your behalf.
- - BUY, EXCHANGE, AND REDEMPTION REQUESTS ARE IN "GOOD ORDER" WHEN:
-- The account number and portfolio name are shown
-- The amount of the transaction is specified in dollars or shares
-- Signatures of all owners appear exactly as they are registered on
the account
-- Any required signature guarantees (if applicable) are included
-- Other supporting legal documents (as necessary) are present
HOW TO REDEEM SHARES
You can arrange to take money out of your Fund account at any time by redeeming
some or all of your shares. Shares may be redeemed by mail, by telephone, or by
the Automatic Cash Withdrawal Plan. If your shares are held "of record" by
Midlantic or another Intermediary, you should contact Midlantic or the
Intermediary for information on how to redeem shares. Under most circumstances,
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption.
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<PAGE> 9
- - WHAT IS A SIGNATURE GUARANTEE? A signature guarantee verifies the
authenticity of your signature and may be obtained from any of the
following: banks, brokers, dealers, certain credit unions, securities
exchanges or associations, clearing agencies, or savings associations. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
BY MAIL To redeem your shares by mail, a written request for redemption in good
order must be received by the Transfer Agent, P.O. Box 8519, Boston, MA
02266-8519. All shareholders of record must sign the redemption request. The
Transfer Agent may require that the signature on the written request be
guaranteed. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption is of $5,000 worth of shares or
less, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at the address of
record. You may also have the proceeds deposited directly in a checking or
savings account previously designated on the account application. There is no
charge for having redemption proceeds deposited directly to a designated bank
account.
BY TELEPHONE You may redeem your shares by telephone if you elected that option
on your account application. Telephone redemption requests may be made by
calling the Transfer Agent at 1-800-451-8371. You may have the proceeds mailed
to your address, or deposited directly in a checking or savings account
previously designated on your account application. There is a $7 charge for
wiring redemption proceeds. You may not close your account by telephone.
AUTOMATIC CASH WITHDRAWAL PLAN You may establish an automatic cash withdrawal
plan for an account with at least a $10,000 minimum balance. Redemptions can be
automatically processed from accounts at regular intervals and the proceeds sent
to you, to a person named by you, or to your checking account. The minimum
redemption amount under the Automatic Cash Withdrawal Plan is $50. Automatic
Cash Withdrawal Plan application forms can be obtained by calling the Transfer
Agent at 1-800-451-8371.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
- - WHAT ARE INVESTMENT OBJECTIVES AND POLICIES? A Fund's investment objective
is a statement of what it seeks to achieve. It is important to make sure
that the investment objective matches your own financial needs and
circumstances. The investment policies section spells out the types of
securities in which each Fund invests.
Each Fund has its own investment objective and policies. The investment
objective with respect to each Fund may not be changed without a vote of the
holders of a majority of the outstanding shares of that Fund. There is no
assurance that a Fund will achieve its investment objective.
THE EQUITY INCOME FUND seeks a combination of current income and capital
appreciation by investing at least 65% of the value of its total assets in
common stocks, including American Depositary Receipts (ADRs), and securities
convertible into common stocks. On average, stocks selected for the Fund have
higher than average dividend yields and the Fund's stocks can be expected to
provide a higher current yield than that of the general market, as characterized
by the S&P 500. Price-to-earnings and price-to-book ratios are also part of the
stock selection process, and the Fund normally ranks lower in these two
categories than the S&P 500 composite.
9
<PAGE> 10
Investments are generally limited to domestic companies with market
capitalizations in excess of $200 million, without regard to any specific
industry, region, or trading market.
The Equity Income Fund can be expected to produce more income but less capital
appreciation than either the Growth Fund or the Small Company Fund.
THE GROWTH FUND seeks primarily capital appreciation by investing at least 65%
of the value of its total assets in a portfolio of common stocks, including
ADRs, and securities convertible into common stocks. Income is a secondary
consideration. Emphasis is placed on companies that have demonstrated consistent
historical earnings growth. Recent earnings momentum and price-to-earnings
ratios are also factors considered in the stock selection process. Investments
are generally limited to companies considered to have favorable equity-to-debt
ratios and market capitalizations in excess of $200 million, without regard to
any specific industry, region, or trading market.
Because the Growth Fund seeks capital appreciation with some current income, the
Growth Fund usually provides more income than the Small Company Fund, but less
than the Equity Income Fund. Likewise, the capital growth of the Growth Fund
over a period of years is expected to be greater than that of the Equity Income
Fund, but less than that of the Small Company Fund.
THE SMALL COMPANY FUND (formerly the Small Cap Value Fund) seeks primarily
capital appreciation by investing, under normal market conditions, at least 65%
of the value of its total assets in common stocks, including ADRs, and
securities convertible into common stocks (such as convertible bonds, preferred
stock, rights, and warrants) of small-sized market capitalization companies.
Companies with market capitalizations of less than $1 billion are considered
small-sized market capitalization companies. Under normal market conditions, the
Fund may invest up to 35% of the value of its total assets in common stocks and
securities convertible into common stocks of larger-sized market capitalization
companies (i.e., those with market capitalizations above $1 billion), and may
invest more than 35% of the value of its total assets in such securities when
such companies' response to an economic cycle or their financial condition or
structure provides opportunities for capital appreciation.
Over a period of years, the Small Company Fund can be expected to produce more
capital appreciation but less income than either the Growth Fund or the Equity
Income Fund.
THE INTERNATIONAL EQUITY FUND seeks, primarily, long-term capital appreciation,
and, secondarily, income, by investing principally in a portfolio of equity
securities of companies domiciled outside of the United States (foreign
companies), most of which are denominated in foreign currencies, and some of
which are traded in the form of ADRs. Under normal market conditions, at least
65% of the value of the Fund's total assets are invested in common stocks and
securities convertible into common stocks (such as convertible bonds, preferred
stocks, rights, and warrants) of foreign companies across at least three
different countries (excluding the United States). Investments may be made in
securities of issuers in developed as well as developing countries.
The International Equity Fund may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future exchange
rates. The Fund expects to engage in foreign currency exchange transactions in
connection with the purchase and sale of portfolio securities (transaction
hedging) and to protect the value of specific portfolio positions (position
hedging). The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency, and
may also enter into contracts to purchase or sell foreign
10
<PAGE> 11
currencies at a future date (forward contracts) and purchase and sell foreign
currency futures contracts (futures contracts). The Fund may also purchase
exchange-listed and over-the-counter call and put options on futures contracts
and on foreign currencies, and may write covered call options on up to 100% of
the currencies in its portfolio.
THE BALANCED FUND seeks to provide capital appreciation and current income by
investing in common and preferred stocks, warrants, securities convertible into
common stock, and investment grade fixed income securities. The Fund may also
invest in U.S. dollar denominated securities of foreign issuers, including ADRs.
Under normal market circumstances, the Balanced Fund invests between 30% and 70%
of its total assets in common stocks and securities convertible into common
stocks. The Fund invests a minimum of 25% of the value of its total assets in
senior fixed income securities. The Fund's equity portfolio consists primarily
of equity securities of large-sized capitalization companies (i.e., those
companies with market capitalizations of over $1 billion). The Fund's fixed
income portfolio consists of corporate bonds and debentures rated BBB or better
by Standard & Poor's Corporation (S&P) or Baa or better by Moody's Investors
Service (Moody's), obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, equipment lease and trust certificates,
Yankee and Eurodollar obligations, obligations of supranational organizations,
and collateralized mortgage obligations. Bonds rated BBB by S&P are regarded as
having an adequate capacity to pay interest and repay principal. Whereas these
bonds normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal. Bonds rated Baa by Moody's are
considered to be medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds in
fact have speculative characteristics. For a description of the ratings
categories used by S&P and Moody's, see the Appendix to the SAI.
The average dollar weighted portfolio maturity of the fixed income portion of
the Balanced Fund will range between five and eighteen years. While the Fund
will remain primarily invested in equity and fixed income securities, it may,
for temporary defensive purposes invest, without limit, in high grade short-term
debt obligations.
GENERAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
The Equity Income, Growth, and Small Company Funds may invest up to 35% of the
value of their total assets in preferred stocks, high-quality corporate bonds,
notes, warrants, obligations issued by foreign branches of U.S. domestic and
foreign banks and high-quality, short-term obligations, such as commercial paper
issued by U.S. and foreign corporations, bankers' acceptances, certificates of
deposit and demand and time deposits of domestic and foreign banks and savings
and loan associations, repurchase agreements, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(collectively, short-term obligations). The International Equity Fund may invest
up to 35% of the value of its total assets in equity and investment grade fixed
income securities of companies domiciled in the United States and high-quality
short-term obligations.
In order to generate additional income, each of the Funds may lend its portfolio
securities to broker-dealers, banks, or institutional borrowers of securities.
Each Fund may purchase securities of other investment companies. The purchase of
investment company securities will result in the layering of expenses, and there
are legal limits on the amount of such securities that may be acquired by a
Fund. In addition, each Fund may purchase or write
11
<PAGE> 12
options, futures, and options on futures, may purchase securities on a
when-issued or delayed-delivery basis, and may purchase warrants.
There may be times when, in the opinion of Midlantic or a sub-adviser, unusual
market conditions warrant that, for defensive reasons, a significant portion of
a Fund's assets be temporarily invested in high-quality short-term obligations
and, with respect to the International Equity Fund, securities of companies
domiciled in the United States or a single foreign country. To the extent that a
Fund's assets are so invested, they will not be invested so as to meet such
Fund's investment objective.
For additional information regarding a Fund's permitted investments, see
"Description of Permitted Investments" on page 21.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- -------------------------------------------------------------------------------
FIXED INCOME INVESTMENTS
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal will also affect
the value of these investments. Changes in the value of portfolio securities
will not affect cash income derived from these securities but will affect a
Fund's net asset value.
INTERNATIONAL INVESTMENTS
Generally, investments in securities of foreign companies involve greater risks
than are present in U.S. investments. In making investment decisions for the
Funds, risks such as possible political and financial instability abroad, as
well as the illiquidity and volatility of foreign investments, are considered.
Canadian securities are not considered to have the same risks as other nations'
securities because Canadian and U.S. companies are generally subject to similar
auditing and accounting procedures and similar governmental supervision and
regulation. Also, Canadian securities are normally more liquid than other
non-U.S. securities.
Compared to U.S. and Canadian companies, there is generally less publicly
available information about foreign companies and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid, and their prices more volatile, than securities of
comparable U.S. companies. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the U.S., which could affect the
liquidity of a Fund's investment. In addition, with respect to some foreign
countries, there is the possibility of nationalization, expropriation, or
confiscatory taxation; limitations on the removal of securities, property, or
other assets of a Fund; political or social instability; increased difficulty in
obtaining legal judgments; or diplomatic developments which could affect U.S.
investments in those countries.
12
<PAGE> 13
Investing in developing countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Although
there is no established definition, a developing country is generally considered
to be a country which is in the initial stages of its industrialization cycle
with a per capita gross national product of less than $5,000. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries; however, securities traded in
such markets generally have provided high rates of return to investors over
time.
SMALL MARKET CAPITALIZATION COMPANIES
Small market capitalization companies may offer greater opportunities for
capital appreciation than larger, more established companies, but investments in
such companies may involve certain special risks. Small market capitalization
companies may have limited product lines, markets, or financial resources, and
may be dependent on a limited management group. The securities of small market
capitalization companies may lack the liquidity sufficient to enable the holder
to effect sales without a substantial drop in price. Such companies tend to have
fewer shares in the market, and holders may have difficulty selling at times
advantageous to them. Funds investing in such companies will also be subject to
a higher degree of price volatility because small market capitalization
companies are more vulnerable to the destabilizing influence of adverse market
factors.
THE ADVISER
- -------------------------------------------------------------------------------
- - INVESTMENT ADVISER. A Fund's adviser manages the investment activities and
is responsible for the performance of the Fund. The adviser conducts
investment research, executes investment strategies based on an assessment
of economic and market conditions, and determines which securities to buy,
hold, or sell. A sub-adviser may perform many of these investment
activities under Midlantic's supervision.
Midlantic is the investment adviser of each Fund and has served as the
investment adviser to the Group since inception. Midlantic is the lead bank of
Midlantic Corporation, one of the 50 largest bank holding companies in the
United States, with $13 billion in assets as of December 31, 1994 and 324
banking offices located throughout New Jersey and Southeastern Pennsylvania.
Midlantic is the oldest bank in New Jersey, having received its charter in 1804.
Fiduciary assets have been managed by Midlantic since 1927 and, as of December
31, 1994, Midlantic, together with its affiliate banks, was responsible for the
investment of $5 billion in personal trust, pension fund, investment advisory,
and cash management accounts. These accounts include tax-free as well as taxable
securities. Midlantic is experienced in the investment of equity, fixed income,
and money market instruments, and has been the investment manager for pooled
funds and investment portfolios similar to those of the Group for many years.
Alfred J. DiMatties and Dona L. Krieck of Midlantic serve as portfolio managers
for the equity portion and fixed income portion of the Balanced Fund,
respectively. They have served in this capacity since the Fund's inception. For
the past five years both individuals have been employed by Midlantic in
portfolio management positions. Mr. DiMatties is the Director, Trust Investments
for Midlantic and Ms. Krieck is a Fixed Income Portfolio Manager.
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<PAGE> 14
For the services provided and expenses incurred pursuant to its investment
advisory agreement with the Group, Midlantic receives a fee from each Fund,
computed daily and paid monthly. For the Equity Income, Growth and Balanced
Funds, Midlantic receives a fee at the annual rate of .70% of each Fund's
average daily net assets. For the Small Company and International Equity Funds,
Midlantic receives a fee at the annual rate of .90% of each Fund's average daily
net assets. The advisory fees paid by the Small Company Fund and the
International Equity Fund are higher than the advisory fees paid by most mutual
funds, although the Trustees believe such fees to be comparable to advisory fees
paid by many funds having similar objectives and policies. Midlantic may from
time to time waive all or a portion of its fee in order to limit the operating
expenses of a Fund. Any such waiver is voluntary and may be terminated at any
time in its sole discretion. During the Group's fiscal year ended February 28,
1995, Midlantic received investment advisory fees aggregating .70%, .70%, .90%,
.90%, and .37%, respectively, of the Equity Income, Growth, Small Company,
International Equity, and Balanced Funds' average daily net assets.
Midlantic believes that it possesses the legal authority to perform the
investment advisory services for the Funds contemplated by its investment
advisory agreement and by this prospectus without violating applicable banking
laws or regulations. See "Management of the Group--Glass-Steagall Act" in the
SAI.
THE SUB-ADVISERS
- -------------------------------------------------------------------------------
Subject to the general supervision of the Group's Trustees and the direct
supervision of Midlantic, and in accordance with their Fund's investment
objectives and restrictions, each sub-adviser provides an investment management
program, makes decisions with respect to and each places orders for all
purchases and sales of portfolio securities of their respective Funds, and
maintains such Fund's records relating to such purchases and sales.
EQUITY INCOME AND GROWTH FUNDS
Wellington Management Company (Wellington Management), 75 State Street, Boston,
MA 02109, serves as sub-adviser to the Equity Income and Growth Funds.
Wellington Management is a Massachusetts general partnership of which the
following are managing partners: Robert W. Doran, Duncan M. McFarland, and John
B. Neff. Wellington Management is a professional investment counseling firm
which provides investment services to investment companies, employee benefit
plans, endowments, foundations, and other institutions and individuals.
Wellington Management's predecessor organizations have provided investment
advisory services to investment companies since 1933 and to investment
counseling clients since 1960. As of March 31, 1995, Wellington Management had
discretionary management authority with respect to approximately $88.5 billion
of assets.
For the services provided and the expenses incurred pursuant to its investment
sub-advisory agreement with Midlantic, Wellington Management receives a fee from
Midlantic for the Equity Income Fund at the following annual rates: .40% of
average daily net assets up to $100 million, .30% of average daily assets
between $100 million and $200 million and .25% of average daily assets over $200
million. For the Growth Fund, Wellington Management receives a fee from
Midlantic at the following annual rate: .325% of average daily net assets up to
$50 million, .225% of average daily assets between $50 million and $150 million,
.20% of average daily net assets between $150 million and $500 million, and .15%
of average daily net assets over $500 million. For the year ended February 28,
1995 Wellington Management received from Midlantic investment advisory fees
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<PAGE> 15
aggregating .28% of the Equity Income Fund's average daily net assets and .25%
of the Growth Fund's average daily net assets.
Matthew E. Megargel, Senior Vice President, Wellington Management, has been the
portfolio manager for the Growth Fund since 1993. Arnold C. Schneider III,
Senior Vice President, Wellington Management, has been the portfolio manager for
the Equity Income Fund also since 1993. Messrs. Megargel and Schneider have been
investment professionals with Wellington Management since 1983.
SMALL COMPANY FUND
Wall Street Associates (WSA), 1200 Prospect Street, Suite 100, LaJolla, CA
90037, serves as sub-adviser to the Small Company Fund. WSA has been providing
investment advisory services since 1987, and as of March 31, 1995, had $655
million in assets under management, none of which was held by registered
investment companies. WSA has not previously served as an investment adviser to
a mutual fund.
For the services provided and expenses incurred pursuant to its investment
sub-advisory agreement with Midlantic, WSA receives a fee from Midlantic at the
annual rate of .50% of the Small Company Fund's average daily net assets.
Effective July 1, 1995, William Jeffrey, III, Kenneth F. McCain, and Richard S.
Coons became co-portfolio managers of the Small Company Fund. Each is a founding
principal of WSA, which was founded in 1987.
INTERNATIONAL EQUITY FUND
Seligman Henderson Co. (Seligman Henderson), 100 Park Avenue, New York, NY
10017, serves as sub-adviser to the International Equity Fund. Seligman
Henderson is a New York partnership, whose equal partners are J. & W. Seligman &
Co. Incorporated, a Delaware corporation and Henderson International, Inc., a
wholly-owned subsidiary of Henderson Administration Group PLC, one of the
largest independent publicly quoted investment management groups in the United
Kingdom. Seligman Henderson was created in 1991 to provide international and
global investment management services to institutional and individual investors
and investment companies in the United States and acts as investment sub-adviser
to series with assets of approximately $240 million at December 31, 1994, of
Seligman Henderson Global Fund Series, Inc., a registered investment company.
For the services provided and expenses incurred pursuant to its investment
sub-advisory agreement with Midlantic, Seligman Henderson receives a fee from
Midlantic at the annual rate of .45% on the first $100 million of the
International Equity Fund's average daily net assets and .40% on assets in
excess of $100 million. For the year ended February 28, 1995, Seligman Henderson
received from Midlantic investment advisory fees aggregating .45% of the
International Equity Fund's average daily net assets.
Iain C. Clark, Managing Director and Chief Investment Officer of Seligman
Henderson, has been the portfolio manager of the International Equity Fund since
January 1993. He is also a Director of Henderson and Secretary, Treasurer, and
Vice President of Henderson International Inc. Mr. Clark has been an investment
professional with Henderson since 1985.
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<PAGE> 16
THE ADMINISTRATOR
- -------------------------------------------------------------------------------
SEI Financial Management Corporation is the administrator for each Fund of the
Group. The Administrator generally assists in all aspects of each Fund's
administration and operation.
For expenses incurred and services provided as the Administrator pursuant to its
administration agreement with the Group, SEI Financial Management Corporation
receives a fee from each Fund, computed daily and paid periodically, at an
annual rate of .18% of such Fund's average daily net assets. The Administrator
may from time to time waive all or a portion of its fee in order to limit the
operating expenses of a Fund. Any such waiver is voluntary and may be terminated
at any time in the Administrator's sole discretion.
THE DISTRIBUTOR
- -------------------------------------------------------------------------------
Shares of the Group's Funds are sold on a continuous basis by SEI Financial
Services Company.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs, which will be paid by the Distributor from
the sales charge it receives or from any other source available to it. Under any
such program, the Distributor will provide promotional incentives in the form of
cash or other compensation, including merchandise, airline vouchers, trips, and
vacation packages, to dealers selling shares of the Funds.
PERFORMANCE
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Each Fund may advertise its total return. The total return of a Fund is the
average compounded rate of return on a hypothetical investment for designated
time periods, assuming that the entire investment is redeemed at the end of each
period and assuming the reinvestment of all dividend and capital gain
distributions. Fees imposed upon customer accounts by Midlantic or Essex
National Securities Inc. for investment management services are not reflected in
the Funds' total return calculations. These figures will be based on historical
earnings and are not intended to indicate future performance. No representation
can be made concerning actual future returns.
A Fund may periodically compare its performance to the performance of: other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical)
or by financial and business publications and periodicals; broad groups of
comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and may
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a
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comparative benchmark might be. Measures of volatility and correlation are
calculated using averages of historical data and cannot be calculated precisely.
TAXES
- -------------------------------------------------------------------------------
As with any investment, you should consider how your investment in a Fund will
be taxed.
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their shareholders. Accordingly, you are urged to consult your tax adviser
regarding specific questions as to federal, state, and local income taxes. State
and local tax consequences of an investment in a Fund may differ from the
federal income tax consequences described below. Additional information
concerning taxes is set forth in the SAI.
- - TAXES You must pay taxes on your Fund's earnings, whether you take your
payments in cash or additional shares.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Group's other portfolios. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code),
so as to be relieved of federal income tax on net investment company taxable
income and net capital gains (the excess of net long-term capital gain over net
short-term capital losses) distributed to shareholders.
- - DISTRIBUTIONS The Funds distribute income dividends and capital gains.
Income dividends represent the earnings from a Fund's investments; capital
gains distributions occur when investments are sold for more than the
original purchase price.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including net short-term capital gains) and net capital gain to shareholders.
Distributions of net capital gains are taxable to shareholders as long-term
capital gains, regardless of the length of time you have owned shares in the
Fund. Each Fund will make annual reports to shareholders of the federal income
tax status of all distributions. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for
federal excise tax. Dividends declared by a Fund in October, November, or
December of any year and payable to shareholders of record on a date in such a
month will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if paid by a Fund at any time during
the following January.
Sale, exchange, or redemption of a Fund's shares is a taxable transaction to the
shareholder.
Because dividends paid by foreign corporations do not qualify for the
dividends-received deduction, distributions paid by the International Equity
Fund generally will not qualify for the dividends-received deduction. Taxes may
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be imposed on the International Equity Fund by foreign countries with respect to
income received on foreign securities. If more than 50% of the value of the
International Equity Fund's assets as of the close of its taxable year consists
of stocks or securities of foreign corporations and if the International Equity
Fund qualifies for taxation as a regulated investment company under the Code,
the International Equity Fund may elect to treat foreign taxes it has paid as
having been paid by its investors. In this case, investors generally will be
required to include in income their pro rata share of such taxes, but will then
be entitled to claim a credit or deduction for their share of such taxes.
However, a particular investor's ability to utilize such a credit will be
subject to certain limitations imposed by the Code. If the International Equity
Fund elects to "pass through" any foreign taxes to its investors, it will notify
the investors annually of their proportionate share of such foreign taxes and
the portion of each dividend that represents income derived from foreign
sources.
ADDITIONAL INFORMATION ABOUT DOING BUSINESS WITH THE GROUP
- -------------------------------------------------------------------------------
BUSINESS DAYS
You may buy, sell, or exchange shares on days on which the New York Stock
Exchange is open for business (a Business Day). However, shares cannot be
purchased or redeemed by Federal Reserve wire on Federal holidays restricting
wire transfers.
All purchase, exchange, and redemption requests received in "good order" will be
effective as of the Business Day as long as the Transfer Agent receives the
order (and payment, if a purchase request) before 4:00 p.m. Eastern Time. If an
exchange request is received by the Transfer Agent after 4:00 p.m. Eastern Time,
the exchange request will not be effective until the next Business Day.
MINIMUM INVESTMENTS
The minimum initial investment in a Fund is $2,500 ($500 for purchases made in
connection with Individual Retirement Accounts (IRAs)). All subsequent purchases
must be at least $100. The minimum investment may be waived if the purchases are
made in connection with IRAs, Keoghs, gifts to minors, payroll deduction
programs, or similar plans or upon due notice from the Distributor. Each Fund
reserves the right to reject a purchase order in whole or in part.
MAINTAINING A MINIMUM ACCOUNT BALANCE
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your shares at net asset value if, because of
redemptions, your account in a Fund has a value of less than the minimum initial
purchase amount (normally $2,500; $500 for purchases made in connection with
IRAs). Accordingly, if you purchase shares of a Fund in only the minimum
investment amount, you may be subject to involuntary redemption if you redeem
any shares. Before a Fund exercises its right to redeem your shares, you will be
given notice that the value of the shares in your account is less than the
minimum amount and you will be allowed 60 days to make an additional investment
in the Fund in an amount which will increase the value of the account to at
least the minimum amount. Shares will not be redeemed involuntarily as a result
of a decline in account value due to a decline in net asset value alone.
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At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment. In such circumstances, the Group may withhold
redemption proceeds until the Group knows that your check has cleared (but not
more than 15 days). The Funds intend to pay cash for all shares redeemed, but
under abnormal conditions that make payment in cash unwise, payment may be made
wholly or partly in portfolio securities with a market value equal to the
redemption price. In such cases, you may incur brokerage costs in converting
such securities to cash.
NET ASSET VALUE
An order to buy shares will be executed at a per share price equal to the net
asset value next determined after the receipt of the purchase order by the
Transfer Agent plus any applicable sales charge (the offering price). Net asset
value per share is determined as of the close of business of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on any Business Day. Payment to
shareholders for shares redeemed will be made within 7 days after receipt by the
Transfer Agent of the redemption order. However, to the greatest extent
possible, requests from shareholders for next day payments upon redemption of
shares will be honored if received by the Transfer Agent before 4:00 p.m.
Eastern Time on a Business Day.
HOW THE NET ASSET VALUE IS DETERMINED
The net asset value per share of each Fund is calculated by adding up the value
of the Fund's investments, cash, and other assets, subtracting its liabilities,
and then dividing the result by the number of outstanding shares of the Fund.
Portfolio securities are valued on the basis of market quotations. If market
quotations are not available, the securities will be valued by a method which
the Group's Trustees believe accurately reflects fair value. Debt securities
with remaining maturities of 60 days or less will be valued in accordance with
the amortized cost method where the Group's Trustees determine that amortized
cost is fair value. Foreign securities are valued based on quotations from the
primary market in which they are traded. These quotations are translated from
the local currency into U.S. dollars using current exchange rates.
TELEPHONE INSTRUCTIONS
Redemption orders may be placed by telephone. Neither the Group nor the Transfer
Agent will be responsible for any loss, liability, cost, or expense for acting
upon telephone instructions that it reasonably believes to be genuine. The Group
and the Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and you
experience difficulties placing redemption orders by telephone, you may wish to
consider placing your order by other means.
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GENERAL INFORMATION
- -------------------------------------------------------------------------------
THE GROUP
The Compass Capital Group of Funds was organized as a Massachusetts business
trust under a Declaration of Trust dated October 1, 1987. Additional information
pertaining to the Group may be obtained by writing to SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling
1-800-451-8371.
The Group pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes, and organization expenses. See "Financial Highlights" on page 5 for more
information regarding the Group's expenses.
TRUSTEES OF THE GROUP
The management and affairs of the Group are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Group.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote, and a fractional
share entitles the shareholder to a proportionate fractional vote. Shareholders
will vote in the aggregate and not by Fund except as otherwise expressly
required by law. Each Fund will vote separately on matters relating solely to
that Fund. As a Massachusetts business trust, the Group is not required to hold
annual meetings of shareholders, but shareholders have the right to call a
meeting to elect or remove one or more of the Trustees of the Group or to be
assisted by the Trustees in communicating with other shareholders of the Group.
CONTROLLING PERSONS
The Group believes that as of April 7, 1995 Midlantic (499 Thornall Street,
Edison, NJ 08818) owned of record 89.3% of the Equity Income Fund, 76.5% of the
Small Company Fund, and substantially all of the shares of each of the Growth,
International Equity, and Balanced Funds, respectively, and that, as of the same
date, Midlantic possessed, on behalf of its underlying accounts, voting or
investment power with respect to 20.3%, 41.9%, 49.2%, 40.6%, and 43.7% of the
shares of Equity Income, Growth, Small Company, International Equity, and
Balanced Funds, respectively. As a consequence, Midlantic may be deemed to be a
"controlling person" of each Fund except the Equity Income Fund within the
meaning of the 1940 Act.
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REPORTING
The Group issues unaudited financial information semiannually and audited
financial statements annually. The Group furnishes proxy statements and other
reports to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Transfer Agent, State Street
Bank & Trust Company, P.O. Box 8519, Boston, MA 02266-8519 or may be made by
calling 1-800-451-8371.
DIVIDENDS
Net investment income of the Equity Income, Growth, and Balanced Funds is
declared and paid monthly as a dividend to shareholders at the close of business
on or about the last Business Day of each month. Net investment income of the
International Equity Fund is declared and paid twice annually as a dividend to
shareholders. Net investment income of the Small Company Fund is declared and
paid quarterly as a dividend to shareholders at the close of business on or
about the last Business Day of each calendar quarter. Net short-term and
long-term capital gain of each Fund is distributed at least annually. You will
automatically receive all investment income dividends and capital gains
distributions in additional full and fractional shares at net asset value as of
the date of payment, unless you elect to receive dividends or distributions in
cash. Such election, or any revocation thereof, must be made in writing to the
Transfer Agent and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Dividends and distributions paid in additional shares receive the same tax
treatment as dividends and distributions paid in cash.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius serves as counsel to the Group. Coopers & Lybrand L.L.P.
serves as the independent accountants of the Group.
CUSTODIAN AND TRANSFER AGENT
Citibank, N.A., 111 Wall Street, New York, NY 10005 (the Custodian), serves as
custodian of the Group's assets. The Custodian holds cash, securities, and other
assets of the Group as required by the 1940 Act. State Street Bank & Trust
Company, P.O. Box 8519, Boston, MA 02266-8519, serves as transfer agent for each
Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
- -------------------------------------------------------------------------------
The following is a description of the permitted investments and investment
practices for the Funds.
AMERICAN DEPOSITARY RECEIPTS (ADRS) -- ADRs are securities, typically issued by
a U.S. financial institution (a depositary), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts generally
bear all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute
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shareholder communications received from the issuer of the deposited security or
to pass through, to the holders of the receipts, voting rights with respect to
the deposited securities.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
CURRENCY HEDGING -- If permitted by its investment objectives and policies, a
Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currencies written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency or with respect to put options on foreign
currencies, the Fund will establish a segregated account consisting of cash or
liquid, high grade debt securities in an amount equal to the amount the Fund
would be required to pay upon exercise of the put.
EQUITY SECURITIES -- Equity securities represent ownership interests in a
company or corporation and include common stock, preferred stock, and warrants
and other rights to acquire such instruments. Investments in common stocks are
subject to market risks which may cause their prices to fluctuate over time.
Changes in the value of portfolio securities will not necessarily affect cash
income derived from these securities but will affect a Fund's net asset value.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities, and other borrowers.
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. A Fund may also enter
into a contract to sell, for a fixed amount of U.S. dollars or other appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency.
At the maturity of a forward contract, a Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
FUTURES AND OPTIONS ON FUTURES -- Futures contracts provide for the future sale
by one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. An option on a
futures contract gives the purchaser the right, in exchange for a premium, to
assume a position in a futures contract at a specified exercise price during the
term of the option. Stock index futures are futures contracts for various stock
indices that are traded on registered securities exchanges. A stock index
futures contract obligates the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be
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acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges.
Risk Factors. Risks associated with these activities include: (1) the success of
a hedging strategy may depend on an ability to predict movements in the prices
of individual securities, fluctuations in markets, and movements in interest
rates, (2) there may be an imperfect or no correlation between the changes in
market value of the securities held by a Fund and the prices of futures and
options on futures, (3) there may not be a liquid secondary market for a futures
contract or option, (4) trading restrictions or limitations may be imposed by an
exchange, and (5) government regulations may restrict trading in futures
contracts and futures options.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Collateralized Mortgage Obligations (CMOs): CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government, or by private originators or investors in mortgage loans.
In a CMO, series of bonds or certificates are usually issued in multiple
classes. Principal and interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
Each class of a CMO, often referred to as a "tranche," is issued with a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
OPTIONS -- A put option gives the purchaser of the option the right to sell, and
the writer of the option the obligation to buy, the underlying security,
commodity or index at any time during the option period. A call option gives the
purchaser of the option the right to buy, and the writer of the option the
obligation to sell, the underlying security at any time during the option
period. The initial purchase (sale) of an option contract is an "opening
transaction." In order to close out an option position, a Fund may enter into a
"closing transaction," which is simply the sale (purchase) of an option contract
on the same security with the same exercise price and expiration date as the
option contract originally opened. The ability of a Fund to enter into closing
transactions depends upon the existence of a liquid secondary market for such
transactions.
A Fund may purchase put and call options on securities to protect against a
decline in the market value of the securities in its portfolio or to protect
against an increase in the cost of securities that the Fund may seek to purchase
in the future. A Fund purchasing put and call options pays a premium therefor.
The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. If price movements in the underlying
securities are such that exercise of the options would not be profitable for the
Fund, loss of the premium paid may be offset by an increase in the value of the
Fund's securities or by a decrease in the cost of acquisition of securities by
the Fund.
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A Fund may write covered put and call options on securities as a means of
increasing the yield on its portfolio and as a means of providing limited
protection against decreases in its market value. When a Fund writes an option,
if the underlying securities do not increase or decrease to a price level that
would make the exercise of the option profitable to the holder thereof, the
option generally will expire without being exercised and the Fund will realize
as profit the premium received for such option. When a call option written by a
Fund is exercised, the Fund will not participate in any increase in the price of
such securities above the exercise price. When a put option written by a Fund is
exercised, the Fund will be required to purchase the underlying securities at a
price, in excess of the market value of such securities.
An International Fund also may purchase and write put and call options on
foreign currencies to manage its exposure to exchange rates. Call options on
foreign currencies written by a Fund will be "covered," which means that the
Fund will own an equal amount of the underlying foreign currency. When a Fund
writes a put option on foreign currencies, it will establish a segregated
account containing cash or liquid, high grade debt securities with its custodian
in an amount at least equal to the amount the Fund would be required to pay upon
exercise of the put.
Additionally, a Fund may purchase and write put and call options on indices and
enter into related closing transactions. Options on an index give the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the underlying index is greater than (or less than, in the case of
puts) the exercise price of the option. All settlements are in cash, and gain or
loss depends on price movements in the particular market represented by the
index generally, rather than the price movements in individual securities. All
options written on indices must be covered. When a Fund writes an option on an
index, it will establish a segregated account containing cash or liquid, high
grade debt securities with its custodian in an amount at least equal to the
market value of the option and will maintain the account while the option is
open or will otherwise cover the transaction.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options (OTC options) differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.
Risk Factors. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets, and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on
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<PAGE> 25
the sale of the collateral. Repurchase agreements are considered loans under the
Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS -- Reverse repurchase agreements are agreements by
which a Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, the Fund will
place liquid assets having a value equal to the repurchase price in a segregated
custodial account and monitor this account to ensure that equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash or securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive income on the securities lent while
simultaneously earning interest on the investment of cash collateral. Collateral
is marked to market daily. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially or become insolvent.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Fund will maintain with the custodian a separate account with liquid
high-grade debt securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates and it is possible that the market value at the time of settlement could
be higher or lower than the purchase price if the general level of interest
rates has changed. Although a Fund generally purchases securities on a
when-issued or forward commitment basis with the intention of actually acquiring
securities for its portfolio, a Fund may dispose of a when-issued security or
forward commitment prior to settlement if it deems appropriate.
Additional information on other permitted investments can be found in the SAI.
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- ------------------------------------------------------------------------------
COMPASS FUNDS(R)
INVESTMENT ADVISER
Midlantic Bank, N.A.
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818
SUB-INVESTMENT ADVISER
(EQUITY INCOME AND GROWTH FUNDS)
Wellington Management Corporation
75 State Street
Boston, Massachusetts 02109
SUB-INVESTMENT ADVISER
(SMALL COMPANY FUND)
Wall Street Associates
1200 Prospect Street, Suite 100
P.O. Box 8589
La Jolla, California 92038
SUB-INVESTMENT ADVISER
(INTERNATIONAL EQUITY FUND)
Seligman Henderson Co.
100 Park Avenue
New York, New York 10017
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Pennsylvania Center
Philadelphia, Pennsylvania 19103
THE COMPASS CAPITAL
GROUP OF FUNDS(R)
PERSON-TO-PERSON MUTUAL FUNDS
EQUITY
AND
BALANCED
FUNDS
- EQUITY INCOME FUND
- GROWTH FUND
- SMALL COMPANY FUND
- INTERNATIONAL EQUITY FUND
- BALANCED FUND
FOR CAPITAL APPRECIATION AND
VARYING DEGREES OF INCOME FROM
COMMON STOCK INVESTMENTS
PROSPECTUS DATED
JULY 1, 1995
Managed by
[MIDLANTIC LOGO]
Midlantic is a registered service mark of Midlantic Corporation
COM-F-002-08
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EXHIBIT (17)(m)
THE COMPASS CAPITAL GROUP
Statement of Additional Information
July 1, 1995
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectuses of The Compass Capital Money Market
Funds, The Compass Capital Municipal Money Market Funds, The Compass Capital
Municipal Bond Funds, The Compass Capital Bond Funds and The Compass Capital
Equity and Balanced Funds (the "Prospectuses"), each dated the same date as the
date hereof. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. Copies of the Prospectuses
may be obtained by writing The Compass Capital Group at 680 Swedesford Road,
Wayne, Pennsylvania 19087-1658, or by telephoning toll free (800) 451-8371.
COM-F-001-10
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TABLE OF CONTENTS
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THE COMPASS CAPITAL GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Information on Portfolio Instruments . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SPECIAL RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
New Jersey Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Pennsylvania Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . 32
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 40
Sales Charge Waivers for Qualified Institutional Investors . . . . . . . . . . . . . 40
Matters Affecting Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Automatic Cash Withdrawal Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Additional Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
MANAGEMENT OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Sub-Adviser, International Equity Fund . . . . . . . . . . . . . . . . . . . . . . . 52
Sub-Adviser, Small Company Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Sub-Adviser, International Fixed Income Fund . . . . . . . . . . . . . . . . . . . 53
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Glass-Steagall Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . 63
Calculation of Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . 75
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
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STATEMENT OF ADDITIONAL INFORMATION
THE COMPASS CAPITAL GROUP
The Compass Capital Group (the "Group") is a
non-diversified, open-end management investment company. The Group consists of
sixteen separately managed series of units of beneficial interest ("Shares"),
each representing interests in one of sixteen separate Funds, offered pursuant
to five separate Prospectuses as follows:
(1) The Compass Capital Money Market Funds, comprising the
- Cash Reserve Fund, and the
- U.S. Treasury Fund;
(2) The Compass Capital Municipal Money Market Funds,
comprising the
- Municipal Money Market Fund,
- New Jersey Municipal Money Fund (the "New Jersey
Money Fund"), and the
- Pennsylvania Municipal Money Fund (the "Pennsylvania
Money Fund");
(3) The Compass Capital Municipal Bond Funds, comprising the
- Municipal Bond Fund,
- New Jersey Municipal Bond Fund (the "New Jersey Bond
Fund"), and the
- Pennsylvania Municipal Bond Fund (the "Pennsylvania
Bond Fund");
(4) The Compass Capital Bond Funds, comprising the
- Short/Intermediate Fund,
- Fixed Income Fund, and the
- International Fixed Income Fund; and
(5) The Compass Capital Equity and Balanced Funds,
comprising the
- Equity Income Fund,
- Growth Fund,
- Small Company Fund (formerly the Small Cap Value
Fund),
- International Equity Fund, and the
- Balanced Fund
Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectuses.
Capitalized terms not defined herein are defined in the Prospectuses. No
investment in Shares of a Fund should be made without first reading that Fund's
Prospectus.
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INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment
objective and policies of each Fund of the Group as set forth in the respective
Prospectus for that Fund.
High Quality Investments With Regard to the Money Market
Funds and the Municipal Money Market Funds As noted in the Prospectuses for
the Money Market Funds and the Municipal Money Market Funds, each such Fund may
invest only in obligations determined by Midlantic Bank, N.A. to present
minimal credit risks under guidelines adopted by the Group's Trustees.
With regard to the Cash Reserve Fund investments will be
limited to those obligations which, at the time of purchase, (i) possess the
highest short-term ratings from at least two NRSROs; or (ii) do not possess a
rating (i.e., are unrated) but are determined by Midlantic Bank, N.A. to be of
comparable quality to the rated instruments eligible for purchase by the Fund
under guidelines adopted by the Trustees. With regard to each Municipal Money
Market Fund, investments will be limited to those obligations which, at the
time of purchase, (i) possess the highest short-term rating from an NRSRO; or
(ii) possess, in the case of multiple-rated securities, the highest short-term
ratings by at least two NRSROs; or (iii) do not possess a rating (i.e., are
unrated) but are determined by Midlantic Bank, N.A. to be of comparable quality
to the rated instruments eligible for purchase by a Fund under the guidelines
adopted by the Trustees. For purposes of these investment limitations, a
security that has not received a rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by Midlantic Bank, N.A. to be comparable in priority and security to
the obligation selected for purchase by a Fund. (The above-described
securities which may be purchased by the Cash Reserve Fund and each Municipal
Money Market Fund are hereinafter referred to as "Eligible Securities.")
A security subject to a tender or demand feature will be
considered an Eligible Security only if both the demand feature and the
underlying security possess a high quality rating or, if such do not possess a
rating, are determined by Midlantic Bank, N.A. to be of comparable quality;
provided, however, that where the demand feature would be readily exercisable
in the event of a default in payment of principal or interest on the underlying
security, the obligation may be acquired based on the rating possessed by the
demand feature or, if the demand feature does not possess a rating, a
determination of comparable quality by Midlantic Bank, N.A.. A security which
at the time of issuance had a maturity exceeding 397 days but, at the time of
purchase, has a remaining maturity of 397 days or less, is not considered an
Eligible Security if it does not possess a high quality rating and the
long-term rating, if any, is not within the two highest rating categories.
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The Cash Reserve Fund will not invest more than 5% of
its total assets in the securities of any one issuer, except that the Fund may
invest up to 25% of its total assets in the securities of a single issuer for a
period of up to three business days. If a percentage limitation is satisfied
at the time of purchase, a later increase in such percentage resulting from a
change in the Fund's net asset value or a subsequent change in a security's
qualification as an Eligible Security will not constitute a violation of the
limitation. In addition, there is no limit on the percentage of the Fund's
assets that may be invested in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities and repurchase agreements fully
collateralized by such obligations.
Under the guidelines adopted by the Group's Trustees and
in accordance with Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "Investment Company Act") Midlantic Bank, N.A. may be required to
promptly dispose of an obligation held in a Fund's portfolio in the event of
certain developments that indicate a diminishment of the instrument's credit
quality, such as where an NRSRO downgrades an obligation below the second
highest rating category, or in the event of a default relating to the financial
condition of the issuer.
The Appendix to this Statement of Additional Information
identifies each NRSRO which may be utilized by Midlantic Bank, N.A. with regard
to portfolio investments for the Funds and provides a description of relevant
ratings assigned by each such NRSRO. A rating by an NRSRO may be utilized only
where the NRSRO is neither controlling, controlled by, or under common control
with the issuer of, or any issuer, guarantor, or provider of credit support
for, the instrument.
Bank Obligations Each Fund, except for the U.S.
Treasury Fund, may invest in bankers' acceptances, certificates of deposit and
time deposits. Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. A time deposit is an account
with a commercial bank or a savings and loan association held by such financial
institution for a fixed term or with the understanding that the depositor can
make a withdrawal only after giving a specified notice.
Bankers' acceptances will be guaranteed by U.S.
commercial banks having, at the time of purchase, capital, surplus, and
undivided profits in excess of $100,000,000 (as of the bank's most recently
published financial statements). Investments in certificates of deposit and
time deposits will be those of domestic branches of U.S. banks or savings and
loan associations which (i) at the time of purchase have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the institution's most
recently published financial statements) or (ii) the principal amount of which
is insured by the Federal Deposit Insurance Corporation.
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The Cash Reserve Fund and each Bond and Equity Fund may
also invest in bankers' acceptances guaranteed by foreign banks and
certificates of deposit and time deposits of foreign banks and savings and loan
associations, including (i) Eurodollar Certificates of Deposits ("ECDs"), which
are U.S. dollar denominated certificates of deposit issued by offices of
foreign and domestic banks located outside the United States, (ii) Eurodollar
Time Deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank, (iii) Canadian Time Deposits ("CTDs"),
which are essentially the same as ETDs except they are issued by Canadian
offices of major Canadian banks, and (iv) Yankee Certificates of Deposit
("Yankee CDs"), which are certificates of deposit issued by a U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States. The
Cash Reserve Fund will not invest in excess of 10% of its total assets in time
deposits, including ETDs and CTDs, with maturities in excess of seven days
which are subject to penalties upon early withdrawal.
Commercial Paper Each Fund, except for the U.S.
Treasury Fund, may invest in commercial paper. Commercial paper consists of
unsecured promissory notes issued by domestic corporations or municipalities.
Issues of commercial paper normally have maturities of less than nine months
and fixed rates of return.
The Cash Reserve Fund and each Bond and Equity Fund may
also invest in (i) Canadian Commercial Paper, which is commercial paper issued
by a Canadian corporation or a Canadian counterpart of a U.S. corporation, and
(ii) Europaper, which is U.S. dollar-denominated commercial paper of an issuer
located in Europe.
U.S. Government Obligations With the exception of the
U.S. Treasury Fund, which may only invest in obligations issued by the U.S.
Treasury (some of which may be subject to repurchase agreements), each Fund may
invest in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. Obligations of certain agencies and instrumentalities of
the U.S. Government are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others are supported
only by the credit of the agency or instrumentality. 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.
Repurchase Agreements Securities held by each Fund may
be subject to repurchase agreements. Under the terms of a repurchase
agreement, a Fund would acquire securities from member banks of the Federal
Deposit Insurance Corporation with capital, surplus, and undivided profits of
not less than $100,000,000 (as of the date of their most recently published
financial statements) and from registered broker-dealers which the Fund's
investment adviser or, where applicable, sub-adviser deems creditworthy under
guidelines approved by the Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price
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paid by the Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to
maintain the value of collateral held pursuant to the agreement at not less
than the repurchase price (including accrued interest); the value of such
collateral will be monitored continuously by the Fund's investment adviser or,
where applicable, sub-adviser. If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by such seller or its
receiver or trustee in bankruptcy, to retain the underlying securities,
although the Trustees have been advised by counsel to the Group that, under the
regular procedures normally in effect for custody of a Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by the Group's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940 (the "Investment Company Act").
Additionally, repurchase agreements which may be entered
into by each Fund include tri-party repurchase agreements, under which a
designated custodian is authorized to hold securities belonging to a Fund and
receive and transfer cash and other assets belonging to that Fund.
Reverse Repurchase Agreements Each Fund may borrow for
temporary purposes by entering into reverse repurchase agreements in accordance
with the Fund's investment restrictions. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase the securities at a mutually
agreed-upon date and price. Each Fund intends to enter into reverse repurchase
agreements only to avoid otherwise selling securities during unfavorable market
conditions to meet redemptions. At the time a Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account assets
such as U.S. Government securities or other liquid, high-grade debt securities
consistent with the Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest), and will subsequently monitor
the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the price at which a Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the Investment Company Act.
When-issued Securities Each Fund, except for the Money
Market Funds, may purchase securities on a "when issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield). When
a Fund agrees to purchase securities on a "when-issued" basis,
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<PAGE> 8
the Fund's custodian will set aside cash or liquid portfolio securities equal
to the amount of the commitment in a separate account. Normally, the custodian
will set aside portfolio securities to satisfy the purchase commitment, and in
such a case, the Fund may be required subsequently to place additional assets
in the separate account in order to assure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
a Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. In addition, because a Fund will set aside cash or liquid portfolio
securities to satisfy its purchase commitments in the manner described above,
its liquidity and the ability of the investment adviser or, where applicable,
sub-adviser to manage the Fund might be affected in the event its commitments
to purchase "when-issued" securities ever exceeded 25% of the value of its
assets.
When a Fund engages in "when issued" transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so
may result in a Fund incurring a loss or missing the opportunity to obtain a
price considered to be advantageous. Funds which purchase securities on a
"when issued" basis do not intend to do so for speculative purposes but only in
furtherance of their respective investment objectives.
Variable Amount Master Demand Notes Variable amount
master demand notes, in which the Cash Reserve Fund and each Municipal Money
Market Fund may invest, are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. Although there is no secondary
market for these notes, a Fund may demand payment of principal and accrued
interest at any time and may seek to resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and a Fund could, for this or
other reasons, suffer a loss to the extent of the default. Where necessary to
ensure that a note is of "high-quality," a Fund will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. For purposes of a
Fund's investment policies, a variable amount master demand note will be deemed
to have a maturity equal to the longer of the period of time remaining until
the next readjustment of its interest rate or the period of time remaining
until the principal amount can be recovered from the issuer through demand.
Adjustable Interest Rate Notes Each Municipal Money
Market and Municipal Bond Fund and the Cash Reserve Fund, the
Short/Intermediate Fund, the Balanced Fund and the Fixed Income Fund may invest
in "adjustable interest rate notes," which include variable rate notes and
floating rate notes. With regard to the Municipal Money Market Funds and the
Municipal Bond Funds, such notes may be issued by or on behalf of states
(including the District of Columbia), territories and possessions of the United
States and their respective authorities, agencies, instrumentalities and
political subdivisions, and thus constitute a form of Municipal Securities (as
discussed below). A variable rate note is one whose terms
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provide for the adjustment of its interest rate on set dates and which, upon
such adjustment, can reasonably be expected to have a market value that
approximates its par value; the degree to which a variable rate note's market
value approximates its par value will depend on the frequency of the
readjustment of the note's interest rate and the length of time that must
elapse before the next readjustment. A floating rate note is one whose terms
provide for the adjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a
market value that approximates its par value. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, the Fund may seek to resell the note at any time to a
third party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit.
Variable and floating rate notes will be deemed to have
maturities as follows:
1. A variable rate note, the principal amount of which
is scheduled on the face of the instrument to be paid in thirteen months or
less, will be deemed by a Fund to have a maturity equal to the period remaining
until the next readjustment of the interest rate.
2. A variable rate note that is subject to a demand
feature will be deemed by a Fund to have a maturity equal to the longer of the
period remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
3. A floating rate note that is subject to a demand
feature will be deemed by a Fund to have a maturity equal to the period
remaining until the principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature"
where the Fund is entitled to receive the principal amount of the note either
at any time on no more than thirty days' notice or at specified intervals not
exceeding thirteen months and upon no more than thirty days notice.
Municipal Securities and Related Instruments and
Considerations
Municipal Securities. Under normal market conditions,
the Municipal Money Market Funds and Municipal Bond Funds will be primarily
invested in bonds (and, in the case of the Municipal Money Market Funds, notes)
issued by or on behalf of states (including the District of Columbia),
territories, and possessions of the United States and their respective
authorities, agencies, instrumentalities, and political subdivisions, the
interest on which is exempt from federal income tax ("Municipal Securities").
Under normal market conditions, the Municipal Money Fund and the Municipal Bond
Fund will invest at least 80% of their
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total assets in Municipal Securities the interest on which is not treated as a
preference item for purposes of the federal alternative minimum tax. Under
normal market conditions, at least 80% of each of the New Jersey Money Fund's
and the New Jersey Bond Fund's total assets will be invested in high-quality
Municipal Securities the interest on which is also exempt from New Jersey
personal income tax ("New Jersey Municipal Securities"), and at least 65% of
each of the Pennsylvania Money Fund's and the Pennsylvania Bond Fund's total
assets will be invested in high-quality Municipal Securities the interest on
which is also exempt from Pennsylvania personal income tax ("Pennsylvania
Municipal Securities"). The Short/Intermediate Fund and the Fixed Income Fund
may also invest in Municipal Securities, although it is not expected that these
Funds will invest in such Securities in amounts sufficient to permit the
pass-through of exempt interest to the Funds' shareholders.
As described in the Prospectuses of the Municipal Money
Market Funds and the Municipal Bond Funds, the two principal classifications of
Municipal Securities consist of "general obligation" and "revenue" issues.
General obligation issues are issues involving the credit of an issuer
possessing taxing power and are payable from the issuer's general unrestricted
revenues, although the characteristics and method of enforcement of general
obligation issues may vary according to the law applicable to the particular
issuer. Revenue issues are payable only from the revenues derived from a
particular facility or class of facilities or other specific revenue source. A
Fund permitted to invest in Municipal Securities may also invest in "moral
obligation" issues, which are normally issued by special purpose authorities.
Moral obligation issues are not backed by the full faith and credit of the
state and are generally backed by the agreement of the issuing authority to
request appropriations from the state legislative body. Municipal Securities
include debt obligations issued by governmental entities to obtain funds for
various public purposes, such as the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses, and the extension of loans to other public institutions and
facilities. Certain private activity bonds that are issued by or on behalf of
public authorities to finance various privately-owned or operated facilities
are included within the term "Municipal Securities." Private activity bonds
and industrial development bonds are generally revenue bonds, the credit and
quality of which are directly related to the credit of the private user of the
facilities.
Municipal Securities may also include general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, project notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term, tax-exempt loans. Such instruments
are issued with a short-term maturity in anticipation of the receipt of tax
funds, the proceeds of bond placements or other revenues. Project notes are
issued by a state or local housing agency and are sold by the Department of
Housing and Urban Development. While the issuing agency has the primary
obligation with respect to its project notes, they are also secured by the full
faith and credit of the United States through agreements with the issuing
authority which provide that, if required, the federal government will lend the
issuer an amount equal to the principal of and interest on the project notes.
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There are, of course, variations in the quality of
Municipal Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer (or other entity whose financial resources are supporting the
Municipal Securities), general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating(s)
of the issue. In this regard, it should be emphasized that the ratings of any
NRSRO are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating(s) may have
different yields, while Municipal Securities of the same maturity and interest
rate with different rating(s) may have the same yield.
An issuer's obligations under its Municipal Securities
are subject to the provisions of bankruptcy, insolvency, and other laws
affecting the rights and remedies of creditors, such as the federal bankruptcy
code, and laws, if any, which may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or imposing
other constraints upon the enforcement of such obligations or upon the ability
of municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Puts on Municipal Securities. With the exception of
the New Jersey Money Fund and the New Jersey Bond Fund, a Fund which is
permitted to acquire Municipal Securities may acquire "puts" with respect to
its acquisition of Municipal Securities. A put is a right to sell a specified
security (or securities) within a specified period of time at a specified
exercise price. A Fund which acquires a put on a Municipal Security may sell,
transfer, or assign the put only in conjunction with the sale, transfer, or
assignment of the underlying security or securities.
The amount payable upon the exercise of a "put" is
normally (i) the Fund's acquisition cost of the Municipal Securities (excluding
any accrued interest which the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period.
Puts on Municipal Securities may be acquired to
facilitate the liquidity of portfolio assets and the reinvestment of assets at
a rate of return more favorable than that of the underlying security. Puts
may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of
calculating the remaining maturity of those securities and the dollar weighted
average portfolio maturity of a Municipal Money Market Fund's assets pursuant
to Rule 2a-7 under the Investment Company Act. See "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Municipal Securities
and Related Instruments and Considerations--Variable and Floating Rate Notes"
and "NET ASSET VALUE" in this Statement of Additional Information.
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A Fund will generally acquire puts only where the puts
are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for puts either separately
in cash or by paying a higher price for portfolio securities which are acquired
subject to the puts (thus reducing the yield to maturity otherwise available
for the same securities).
A Fund intends to enter into puts only with dealers,
banks, and broker-dealers which, in the opinion of the investment adviser or,
where applicable, sub-adviser, present minimal credit risks.
Zero Coupon Obligations. Each Municipal Money Market
Fund and Municipal Bond Fund and the Short/Intermediate Fund and the Fixed
Income Fund may acquire Municipal Securities that do not pay interest but
instead are issued at a deep discount from par ("Zero Coupon Obligations").
The value of a Zero Coupon Obligation increases over time to reflect the
interest accredited. The value of such obligations may fluctuate more than
similar securities which are issued at par and pay interest periodically.
Taxable Municipal Securities. The Cash Reserve,
Short/Intermediate and Fixed Income Funds may acquire Municipal Securities,
such as certain private activity or industrial revenue bonds, the interest on
which is not tax-exempt for federal income tax purposes but which otherwise
meet the investment criteria for those Funds.
Taxable Obligations. As stated in the Prospectuses of
the Municipal Money Market Funds and the Municipal Bond Funds, under normal
market conditions, each Municipal Money Market Fund and Municipal Bond Fund may
invest up to 20% of its total assets in Taxable Obligations. Taxable
Obligations may include (1) obligations of the U.S. Treasury; (2) obligations
of agencies and instrumentalities of the U.S. Government; (3) U.S.
dollar-denominated high-quality, short-term debt instruments, such as
certificates of deposit issued by domestic banks, commercial paper, and
bankers' acceptances; and (4) taxable instruments subject to repurchase
agreements (agreements under which the seller agrees at the time of sale to
repurchase the securities it is selling at an agreed time and price).
Obligations of the U.S. Treasury and of U.S. Government agencies and
instrumentalities, certificates of deposit, commercial paper, bankers'
acceptances and repurchase agreements are described above.
Guaranteed Investment Contracts The Cash Reserve Fund
may invest in Guaranteed Investment Contracts ("GICs") issued by insurance
companies. Pursuant to such contracts, the Fund makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the acquiring Fund on a monthly basis guaranteed interest which
is based on an index. The GICs provide that this guaranteed interest will not
be less than a certain minimum rate. Because the principal amount of a GIC may
not be received from the insurance company on seven days' notice or less, the
GIC is considered to be an illiquid investment and, together with other
instruments in the Cash Reserve Fund which are not readily marketable, will not
exceed 10% of the Cash Reserve
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Fund's total assets. In determining average weighted portfolio maturity, a GIC
will be deemed to have a maturity equal to the period of time remaining until
the next readjustment of the guaranteed interest rate.
Foreign Securities Each Bond and Equity Fund and the
Balanced Fund may invest in foreign securities through the purchase of American
Depository Receipts and may also invest in securities issued by foreign
branches of U.S. banks and foreign banks. The International Fixed Income Fund
and the International Equity Fund will invest principally in foreign fixed
income and equity securities, respectively, most of which are denominated in
foreign currencies.
By investing in foreign securities, a Fund attempts to
take advantage of differences between both economic trends and the performance
of securities markets in the various countries, regions and geographic areas as
prescribed by the Fund's investment objective and policies. During certain
periods, the return on investments in some countries has exceeded the return of
similar investments in the United States, while at other times the return has
been less than that of similar U.S. investments. The Funds which invest in
foreign securities believe that it may be possible to obtain significant income
from a portfolio of foreign investments and to achieve increased
diversification in comparison to a mutual fund that invests solely in U.S.
securities by combining securities from various countries and geographic areas
that offer different investment opportunities and are affected by different
economic trends. The international investment of a Fund should reduce the
effect that events in any one country or geographic area will have on the
Fund's investment holdings. Of course, negative movement by one of the Fund's
investments in one foreign market represented in the Fund's investments may
offset potential gains from the Fund's investments in another country's
markets.
Investment in foreign securities is subject to special
risks, such as future adverse political and economic developments, possible
seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, or the adoption of other foreign
governmental restrictions.
Foreign Currency Transactions Under normal market
conditions, the International Fixed Income Fund and the International Equity
Fund (collectively, the "International Funds") may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future
exchange rates. As described more fully in the applicable Prospectus of each
International Fund, the International Funds expect to engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging"), and to protect the value of
specific portfolio positions ("position hedging"). The International Funds may
purchase or sell a foreign currency on a spot (or cash) basis at the prevailing
spot rate in connection with the settlement of transactions in portfolio
securities denominated in that foreign currency, and may also enter into
contracts to purchase or sell foreign currencies at a future date ("forward
contracts") and purchase or sell
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<PAGE> 14
foreign currency futures contracts ("futures contracts"). The International
Funds may also purchase domestic and foreign exchange-listed and
over-the-counter call and put options on foreign currencies and futures
contracts. Hedging transactions involve costs and may result in losses, and an
International Fund's ability to engage in hedging and related options
transactions may be limited by tax considerations. See "ADDITIONAL PURCHASE
AND REDEMPTION INFORMATION -- Additional Tax Information."
Securities Lending Each Fund, except the Municipal
Money and Municipal Bond Funds, may lend securities pursuant to agreements
requiring that the loans be continuously secured by cash, securities of the
U.S. Government or its agencies, or any combination of cash and such
securities, as collateral equal to at least 100% of the market value at all
times of the securities lent. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans for a Fund exceed
one-third of the value of the Fund's total assets taken at fair market value.
A Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in
U.S. Government securities. However, a Fund will normally pay lending fees to
such broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in the judgment of the Adviser, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Any loan
may be terminated by either party upon reasonable notice to the other party.
The Funds may use the Distributor or a broker-dealer affiliate of the Adviser
as a broker in these transactions.
Currency Forward and Futures Contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. Forward
contracts are traded in the interbank markets conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement and no commissions are
charged at any stage for trades.
A futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price set at the time of the contract. Futures contracts traded in the
United States are designed by and traded on exchanges regulated by the
Commodity Futures Trading Commission ("CFTC"), such as the New York Mercantile
Exchange. An International Fund would enter into futures contracts solely for
hedging or other appropriate risk management purposes as defined in CFTC
regulations.
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<PAGE> 15
Forward contracts differ from futures contracts in
certain respects. For example, the maturity date of a forward contract may be
any fixed number of days from the date of the contract agreed upon by the
parties, rather than a predetermined date in a given month. Forward contracts
may be in any amounts agreed upon by the parties rather than predetermined
amounts. Also, forward contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally requires no
margin or other deposit.
At the maturity of a forward or futures contract, an
International Fund may either accept or make delivery of the currency specified
in the contract, or at or prior to maturity enter into a closing transaction
involving the purchase or sale of an offsetting contract. Closing transactions
with respect to forward contracts are usually effected with the currency trader
who is a party to the original forward contract. Closing transactions with
respect to futures contracts are effected on a commodities exchange; a clearing
corporation associated with the exchange assumes responsibility for closing out
such contracts.
Positions in the futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market in such
contracts. Although each International Fund intends to purchase or sell
futures contracts only on exchanges or boards of trade where there appears to
be an active secondary market, there is no assurance that a secondary market on
an exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, an International Fund
would continue to be required to make daily cash payments of variation margin,
as described below.
General Characteristics of Currency Futures Contracts.
When an International Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash or U.S. Treasury bills
up to 5% of the amount of the futures contract. This amount is known as
"initial margin." The nature of initial margin is different from that of
margin in security transactions in that it does not involve borrowing money to
finance transactions. Rather, initial margin is similar to a performance bond
or good faith deposit that is returned to the International Fund upon
termination of the contract, assuming the International Fund satisfies its
contractual obligation.
Subsequent payments to and from the broker occur on a
daily basis in a process known as "marking to market." These payments are
called "variation margin" and are made as the value of the underlying futures
contract fluctuates. For example, when an International Fund sells a futures
contract and the price of the underlying currency rises above the delivery
price, the International Fund's position declines in value. The International
Fund then pays a broker a variation margin payment equal to the difference
between the delivery price of the futures contract and the market price of the
currency underlying the futures contract. Conversely, if the price of the
underlying currency falls below the delivery price of the contract, the Fund's
futures position increases in value. The broker then must make a
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<PAGE> 16
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the currency underlying the
futures contract.
When an International Fund terminates a position in a
futures contract, a final determination of variation margin is made, additional
cash is paid by or to the International Fund, and the International Fund
realizes a loss or gain. Such closing transactions involve additional
commission costs.
Foreign Currency Options. Options on foreign
currencies operate similarly to options on securities, and are traded primarily
in the over-the-counter market, although options on foreign currencies have
recently been listed on several exchanges. Such options will be purchased or
written only when the International Funds' investment adviser or sub-adviser
believes that a liquid secondary market exists for such options. There can be
no assurance that a liquid secondary market will exist for a particular option
at any specific time. Options on foreign currencies are affected by all of
those factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option is dependent
upon the value of the foreign currency and the U.S. dollar, and may have no
relationship to the investment merits of a foreign security. Because foreign
currency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale
information for foreign currencies and there is no regulatory requirement that
quotations available through dealer or other market sources be firm or revised
on a timely basis. Available quotation information is generally representative
of very large transactions in the interbank market and thus may not reflect
relatively smaller transactions (less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that cannot
be reflected in the options market.
Foreign Currency Conversion. Although foreign exchange
dealers do not charge a fee for currency conversion, they do realize a profit
based on the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to an International Fund at one rate, while offering a lesser rate of
exchange should the International Fund desire to resell that currency to the
dealer.
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<PAGE> 17
Options on Securities
In addition to the ability of the Municipal Money
Market and Municipal Bond Funds and the Short/Intermediate Fund and the Fixed
Income Fund to invest in puts on Municipal Securities as described under the
caption "INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on
Portfolio Instruments--Municipal Securities and Related Instruments and
Considerations--Puts on Municipal Securities" in this Statement of Additional
Information, each Bond and Equity Fund may engage in the following practices:
Writing Covered Options. Each Bond and Equity and the
Balanced Fund may write covered call options on securities held in its
portfolio when, in the opinion of its investment adviser or, where applicable,
sub-adviser, such transactions are consistent with the Fund's investment
objective and policies. Call options written by a Fund give the purchaser the
right to buy the underlying securities from the Fund at a stated exercise
price.
Each Bond and Equity Fund and the Balanced Fund may
write only covered options, which means that, so long as the Fund is obligated
as the writer of a call option, it will own the underlying securities subject
to the option (or comparable securities satisfying the cover requirements of
securities exchanges). In addition, each Bond and Equity Fund will be
considered to have covered a call option if and to the extent that it holds an
option that offsets some or all of the risk of the option it has written.
A Fund will receive a premium from writing a call
option, which increases the Fund's return on the underlying security if the
option expires unexercised or is closed out at a profit. The amount of the
premium reflects, among other things, the relationship between the exercise
price and the current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until expiration,
current interest rates, and the effect of supply and demand in the options
market and in the market for the underlying security. By writing a call
option, a Fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option but
continues to bear the risk of a decline in the value of the underlying
security.
A Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in
which it purchases an offsetting option. The Fund realizes a profit or loss
from a closing transaction if the cost of the transaction (option premium plus
transaction costs) is less or more than the premium received from writing the
option. Because increases in the market price of a call option generally
reflect increases in the market price of the security underlying the option,
any loss resulting from a closing purchase transaction may be offset in whole
or in part by unrealized appreciation of the underlying security.
Purchasing Put Options. Each Bond and Equity Fund and
the Balanced Fund may purchase put options to protect its portfolio holdings in
an underlying security against a decline in market value. Such hedge
protection is provided during the life of the put option
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<PAGE> 18
since the Fund, as holder of the put option, is able to sell the underlying
security at the put exercise price regardless of any decline in the underlying
security's market price. For a put option to be profitable, the market price
of the underlying security must decline sufficiently below the exercise price
to cover the premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have realized from
appreciation of the underlying security by the premium paid for the put option
and by transaction costs.
Purchasing Call Options. Each Bond and Equity Fund and
the Balanced Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Fund, as
holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs. These costs will reduce any profit the Fund
might have realized had it bought the underlying security at the time it
purchased the call option.
Risk Factors in Options Transactions. The successful
use of the Bond, Equity and Balanced Funds' options strategies depends on the
ability of their investment adviser or, where applicable, sub-adviser to
forecast interest rate and market movements correctly.
When it purchases an option, a Fund runs the risk that
it will lose its entire investment in the option in a relatively short period
of time, unless the Fund exercises the option or enters into a closing sale
transaction with respect to the option during the life of the option. If the
price of the underlying security does not rise (in the case of a call) or fall
(in the case of a put) to an extent sufficient to cover the option premium and
transaction costs, a Fund will lose part or all of its investment in the
option. This contrasts with an investment by a Fund in the underlying
securities, since the Fund may continue to hold its investment in those
securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on a Fund's
ability to terminate option positions at times when its investment adviser or,
where applicable, sub-adviser deems it desirable to do so. Although a Fund
will take an option position only if its investment adviser or, where
applicable, sub-adviser believes there is a liquid secondary market for the
option, there is no assurance that a Fund will be able to effect closing
transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become
unavailable, a Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the market for
particular options or series of options. A marketplace may discontinue trading
of a particular option or options generally. In addition, a market could
become temporarily unavailable if unusual events, such as volume in excess of
trading or clearing capability, were to interrupt normal market operations. A
marketplace may at times
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<PAGE> 19
find it necessary to impose restrictions on particular types of options
transactions, which may limit a Fund's ability to realize its profits or limit
its losses.
Disruptions in the markets for the securities
underlying options purchased or sold by a Fund could result in losses on the
options. If trading is interrupted in an underlying security, the trading of
options on that security is normally halted as well. As a result, a Fund as
purchaser or writer of an option will be unable to close out its positions
until options trading resumes, and it may be faced with losses if trading in
the security reopens at a substantially different price. In addition, the
Options Clearing Corporation (OCC) or other options markets may impose exercise
restrictions. If a prohibition on exercise is imposed at the time when trading
in the option has also been halted, a Fund as purchaser or writer of an option
will be locked into its position until one of the two restrictions has been
lifted. If a prohibition on exercise remains in effect until an option owned
by a Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally-traded
options. Because of time differences between the United States and the various
foreign countries, and because different holidays are observed in different
countries, foreign options markets may be open for trading during hours or on
days when U.S. markets are closed. As a result, option premiums may not
reflect the current prices of the underlying interest in the United States.
Futures Contracts on Securities and Related Options
Each Bond and Equity and the Balanced Fund may enter
into futures contracts on securities and written options on such futures
contracts.
Futures Contracts on Securities. A Fund will enter
into futures contracts on securities only when, in compliance with the SEC's
requirements, cash or equivalents equal in value to the securities' value (less
any applicable margin deposits) have been deposited in a segregated account of
the Fund's custodian.
A futures contract sale creates an obligation by the
seller to deliver the type of instrument called for in the contract in a
specified delivery month for a stated price. A futures contract purchase
creates an obligation by the purchaser to take delivery of the type of
instrument called for in the contract in a specified delivery month at a stated
price. The specific instruments delivered or taken at settlement date are not
determined until on or near that date. The determination is made in accordance
with the rules of the exchanges on which the futures contract was made.
Futures contracts are traded in the United States only on commodity exchange or
boards of trade, known as "contract markets," approved for such trading by the
Commodity Futures Trading Commission (CFTC), and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
contract market.
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Although futures contracts by their terms call for
actual delivery or acceptance of securities, the contracts usually are closed
out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument with the same delivery date. If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller
is paid the difference and realizes a gain. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering into a
futures contract sale. If the offsetting sale price exceeds the purchase
price, the purchaser realizes a gain, and if the purchase price exceeds the
offsetting sale price, the purchaser realizes a loss.
Unlike when a Fund purchases or sells a security, no
price is paid or received by the Fund upon the purchase or sale of a futures
contract, although the Fund is required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of cash and/or
U.S. Government securities. This amount is known as "initial margin." Similar
to margin requirements with respect to currency futures contracts discussed
under the caption "INVESTMENT OBJECTIVES AND POLICIES-- Additional Information
on Portfolio Investments--Foreign Currency Transactions--General
Characteristics of Currency Futures Contracts" above, the nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
Subsequent payments, called "variation margin", to and
from the broker (or the custodian) are made on a daily basis as the price of
the underlying security fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking to market."
A Bond or Equity Fund or the Balanced Fund may elect to
close some or all of its futures positions at any time prior to their
expiration. The purpose of making such a move would be to reduce or eliminate
the hedge position then currently held by the Fund. A Bond or Equity Fund or
the Balanced Fund may close its positions by taking opposite positions which
will operate to terminate the Fund's position in the futures contracts. Final
determinations of variation margin are then made, additional cash is required
to be paid by or released to the Fund, and the Fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
Options on Securities' Futures Contracts. A Bond or
Equity Fund or the Balanced Fund will enter into written options on securities'
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the securities' value (less any applicable margin
deposits) have been deposited in a segregated account of the Fund's custodian.
A Bond or Equity Fund may purchase and write call and put options on the
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<PAGE> 21
futures contracts it may buy or sell and enter into closing transactions with
respect to such options to terminate existing positions. A Bond or Equity Fund
or the Balanced Fund may use such options on futures contracts in lieu of
writing options directly on the underlying securities or purchasing and selling
the underlying futures contracts. Such options generally operate in the same
manner as options purchased or written directly on the underlying investments.
See "INVESTMENT OBJECTIVES AND POLICIES--Additional Information on Portfolio
Instruments--Options on Securities" in this Statement of Additional
Information.
As with options on securities, the holder or writer of
an option may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can be effected.
A Bond or Equity Fund or the Balanced Fund will be
required to deposit initial margin and maintenance margin with respect to put
and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above.
Aggregate initial margin deposits for futures contracts
(including futures contracts on securities, indices and currency) and premiums
paid for related options, may not exceed 5% of a Bond or Equity Fund's or the
Balanced Fund's total assets, and the value of securities that are the subject
of such futures and options (both for receipt and delivery) may not exceed 33%
of the market value of any such Fund's total assets.
Currency Hedging A Fund may purchase and write put and
call options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter markets) to manage its exposure to exchange rates. Call
options on foreign currency written by a Fund will be "covered," which means
that the Fund will own an equal amount of the underlying foreign currency or
with respect to put options on foreign currency, the Fund will establish a
segregated account consisting of cash or liquid, high grade debt securities in
an amount equal to the amount the Fund would be required to pay upon exercise
of the put.
When it engages in transaction hedging, the
International Fixed Income Fund enters into foreign currency transactions with
respect to specific receivables or payables of the International Fixed Income
Fund generally arising in connection with the purchase or sale of its portfolio
securities. The International Fixed Income Fund will engage in transaction
hedging when it desires to "lock in" the U.S. dollar price of a security it has
agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or
interest payment in a foreign currency. By transaction hedging the
International Fixed Income Fund will attempt to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which an interest
payment is declared, and the date on which such payments are made or received.
A put option on a futures contract gives the
International Fixed Income Fund the right to assume a short position in the
futures contract until expiration of the option. A put option
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<PAGE> 22
on currency gives the International Fixed Income Fund the right to sell a
currency at an exercise price until the expiration of the option. A call
option on a futures contract gives the International Fixed Income Fund the
right to assume a long position in the futures contract until the expiration of
the option. A call option on currency gives the International Fixed Income
Fund the right to purchase a currency at the exercise price until the
expiration of the option.
When it engages in position hedging, the International
Fixed Income Fund enters into foreign currency exchange transactions to protect
against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value of currency
for securities which the Fund expects to purchase, when the International Fixed
Income Fund holds cash or short-term investments). In connection with position
hedging, the International Fixed Income Fund may buy or sell forward contracts
and futures contracts and purchase put or call options on foreign currency and
futures contracts. The International Fixed Income Fund may also purchase or
sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency
exchange transactions and the value of the portfolio securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market
value of portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the International Fixed
Income Fund to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
International Fixed Income Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the
amount of foreign currency the International Fixed Income Fund is obligated to
deliver.
Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities which the International
Fixed Income Fund owns or expects to purchase or sell. They simply establish a
rate of exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk of loss due
to a decline in the value of the hedged currency, they tend to limit any
potential gain which might result from the increase in the value of such
currency.
Risk of Transactions in Securities' Futures Contracts
and Related Options. Successful use of securities' futures contracts by a Fund
is subject to the ability of its investment adviser or, where applicable,
sub-adviser to predict correctly movements in the direction of interest rates
and other factors affecting securities markets.
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Compared to the purchase or sale of futures contracts,
the purchase of call or put options on futures contracts involves less risk to
a Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to a Fund when the purchase or sale of a futures contract would not, such as
when there is no movement in the price of the hedged investments. The writing
of an option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts.
There is no assurance that higher than anticipated
trading activity or other unforeseen events will not, at times, render certain
market clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely execution
of customer orders.
To reduce or eliminate a hedge position held by a Fund
may seek to close out a position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or continue
to exist for a particular futures contract. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange
or a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of contracts or options (or a particular class or series of contracts or
options), in which event the secondary market on that exchange (or in the class
or series of contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Futures Contracts Indices and Related Options
Index Futures Contracts. Each Bond and Equity Fund and
the Balanced Fund may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective, and may purchase and sell options on such index futures contracts.
The Equity and Bond Funds and the Balanced Fund will not enter into any index
futures contract for the purpose of speculation, and will only enter into
contracts traded on national securities exchanges with standardized maturity
dates.
An index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the index
value at the close of trading of the contracts and the price at which the
futures contract is originally struck. No physical delivery of the securities
-21-
<PAGE> 24
comprising the index is made; generally contracts are closed out prior to the
expiration date of the contract. No price is paid upon entering into index
futures contracts. When a Fund purchases or sells an index futures contract,
it is required to make an initial margin deposit in the name of the futures
broker and to make variation margin deposits as the value of the contract
fluctuates, similar to the deposits made with respect to futures contracts on
securities described above under the caption "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments-Futures Contracts
on Securities and Related Options -- Futures Contracts on Securities."
Positions in index futures contracts may be closed only on an exchange or board
of trade providing a secondary market for such index futures contracts. The
value of the contract usually will vary in direct proportion to the total face
value.
A Fund's ability to effectively utilize index futures
contracts depends on several factors. First, it is possible that there will
not be a perfect price correlation between the index futures contracts and
their underlying index. Second, it is possible that a lack of liquidity for
index futures contracts could exist in the secondary market, resulting in the
Fund's inability to close a futures position prior to its maturity date.
Third, the purchase of an index futures contract involves the risk that the
Fund could lose more than the original margin deposit required to initiate a
futures transaction. In order to avoid leveraging and related risks, when a
Fund purchases an index futures contract, it will collateralize its position by
depositing an amount of cash or cash equivalents, equal to the market value of
the index futures positions held, less margin deposits, in a segregated account
with the Fund's custodian. Collateral equal to the current market value of the
index futures position will be maintained on a daily basis.
The extent to which a Bond or Equity Fund or the
Balanced Fund may enter into transactions involving index futures contracts may
be limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company and the Funds' intention to qualify as such. See
"ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Additional Tax Information."
Options on Index Futures Contracts. Options on index
futures contracts are similar to options on securities except that options on
index futures contracts gives the purchaser the right, in return for the
premium paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the option is a put),
at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of
the accumulated balance in the writer's futures margin account which represents
the amount by which the market price of the index futures contract, at
exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the index futures contract. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash equal to the difference
between the exercise price of the option and the closing level of the index
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<PAGE> 25
on which the future is based on the expiration date. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
Options on Indices. As an alternative to purchasing
call and put options on index futures contracts, a Bond or Equity Fund and the
Balanced Fund may purchase call and put options on the underlying indices
themselves. Such options could be used in a manner identical to the use of
options on index futures contracts.
Miscellaneous Securities
Each Bond and Equity Fund and the Balanced Fund may
invest in corporate obligations, including bonds, notes and debentures, meeting
such Fund's respective quality standards as described in that Fund's
Prospectus, and each Equity Fund and the Balanced Fund may invest in warrants
and preferred stocks. Bonds are long-term, and notes are short-term, corporate
debt instruments secured by some or all of the issuer's assets; debentures are
general corporate debt obligations backed only by the integrity of the
borrower; and warrants are instruments that entitle the holder to purchase a
certain amount of common stock at a specified price, which price is usually
higher than the current market price at the time of issuance. Preferred stocks
are instruments that combine qualities both of equity and debt securities.
Individual issues of preferred stock will have those rights and liabilities
that are spelled out in the governing document. Preferred stocks usually pay a
fixed dividend per quarter (or annum), and are senior to common stock in terms
of liquidation and dividend rights, and preferred stocks typically do not have
voting rights.
The Short/Intermediate, Balanced and Fixed Income Funds
may also invest in equipment lease and trust certificates, which represent
interests in a trust formed to acquire and lease capital equipment and which
provide a return based upon the income stream generated by the leases owned by
the trust. The Short/Intermediate and Fixed Income Funds and the Balanced Fund
may also invest in collateralized mortgage obligations ("CMO's"), which
represent interests in a trust that holds an undivided pool of mortgages to
secure the obligations. Income on CMO's is generated by payments received
under the mortgages held by the trust, but there is no way for a holder of a
CMO to foreclose on any specific mortgage (or mortgages) in order to recoup the
value of his or her investment.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment
restrictions that may be changed only by a vote of a majority of the
outstanding Shares of that Fund. As used in the Prospectuses and in this
Statement of Additional Information, a "vote of a majority of the outstanding
Shares" of the Group or a particular Fund means the affirmative vote, at a
meeting of Shareholders duly called, of the lesser of (a) 67% or more of the
votes of Shareholders of the Group or such Fund present at a meeting at which
the holders of more than 50% of the votes attributable to Shareholders of
record of the Group or such Fund are represented in
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<PAGE> 26
person or by proxy, or (b) the holders of more than 50% of the outstanding
votes of Shareholders of the Group or such Fund.
Pursuant to these investment restrictions, each of the
Funds will not:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities, if, immediately after such purchase, more than 5% of the
value of its total assets would be invested in any one issuer, or it would hold
more than 10% of any class of securities of such issuer or more than 10% of the
outstanding voting securities of such issuer, except that (i) with respect to
each Fund, except for the New Jersey Money Fund, the Pennsylvania Money Fund,
the New Jersey Bond Fund and the Pennsylvania Bond Fund, up to 25% of the value
of each Fund's total assets may be invested without regard to such limitations,
and (ii) with respect to the New Jersey Money Fund, the Pennsylvania Money
Fund, the New Jersey Bond Fund and the Pennsylvania Bond Fund only, up to 50%
of the value of each such Fund's total assets may be invested in as few as two
issuers. For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back
the security; with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user. For purposes of this limitation, all
debt securities are each considered as one class. (As indicated under the
caption "INVESTMENT OBJECTIVES AND POLICIES--Additional Information on
Portfolio Instruments--High Quality Investments" above, the Cash Reserve Fund
has adopted an investment policy which is more restrictive than this
fundamental investment limitation.)
2. Purchase any securities which would cause more than
25% of the value of its total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, domestic bank certificates of deposit or
bankers' acceptances, and repurchase agreements secured by such obligations;
(b) this limitation shall not apply to Municipal Securities or government
guarantees of Municipal Securities purchased by the Municipal Money Market
Funds or the Municipal Bond Funds; (c) 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 their parents; and (d)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
3. Borrow money or issue senior securities, except
that it may borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% 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 in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total assets
at the time of its borrowing. No Fund will purchase securities while its
borrowings (including
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<PAGE> 27
reverse repurchase agreements) exceed 5% of its total assets. For purposes of
this restriction, collateral arrangements with respect to margin for currency
futures contracts are not deemed to be a pledge of assets.
4. Make loans, except that it may lend portfolio
securities in accordance with its investment objective and policies, and may
enter into repurchase agreements.
5. Invest (except with respect to variable or floating
rate notes subject to a seven-day or less demand feature) more than 15% of its
total assets in illiquid securities including repurchase agreements providing
for settlement more than seven days after notice, and, with respect only to the
International Fixed Income and International Equity Funds, over-the-counter
hedging transactions. As a matter of non-fundamental policy, the Money Market
Funds will limit their investment in illiquid securities to 10%.
6. Purchase securities on margin, sell securities
short or maintain a short position, participate on a joint or joint and several
basis in any securities trading account, or underwrite the securities of other
issuers, except to the extent that a Fund may be deemed to be an underwriter
under certain securities laws in the disposition of "restricted securities"
acquired in accordance with such Fund's investment objective and policies.
7. Purchase or sell commodities, commodity contracts
(except, with respect to the Bond and Equity Funds, and the Balanced Fund,
futures contracts), oil, gas or mineral exploration or development programs or
leases, or real estate, including limited partnership interests (although
investments by a Fund in marketable securities of companies engaged in such
activities, and the investment in securities secured by real estate or
interests therein, are not hereby precluded to the extent appropriate to its
investment objective).
8. Invest in any issuer for purposes of exercising
control of management.
9. Purchase or retain securities of any issuer if the
officers or Trustees of the Group or the officers or directors of any of its
investment advisers or sub-advisers owning beneficially more than one-half of
1% of the securities of such issuer together own beneficially more than 5% of
such securities.
10. Invest more than 10% of its total assets in the
securities of issuers which together with any predecessors have a record of
less than three years of continuous operation.
11. Write or sell straddles, spreads or
combinations thereof.
A Municipal Money Market Fund will not:
1. Invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
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<PAGE> 28
2. Write or sell put or call options except that it
may acquire put options with respect to Municipal Securities in its portfolio
and sell those put options in conjunction with a sale of those Municipal
Securities.
3. Acquire a put if, immediately after such
acquisition, over 5% of the total amortized cost value of its assets would be
subject to puts from the same institution, except that (i) up to 25% of the
value of its total assets may be subject to puts without regard to such 5%
limitation, and (ii) the 5% limitation is inapplicable to puts that, by their
terms, would be readily exercisable in the event of a default in payment of
principal or interest on the underlying securities. In applying the
above-described limitation, a Fund will aggregate securities subject to puts
from any one institution with the Fund's investments, if any, in securities
issued or guaranteed by that institution. In addition, for the purpose of this
investment restriction and additional investment restriction No. 4 below, a put
will be considered to be from the party to whom the Fund will look for payment
of the exercise price.
4. Acquire a put that, by its terms, would be readily
exercisable in the event of a default in payment of principal and interest on
the underlying security or securities if, immediately after that acquisition,
the amortized cost value of the security or securities underlying that put,
when aggregated with the amortized cost value of any other securities issued or
guaranteed by the issuer of the put, would exceed 10% of the total amortized
cost value of its assets.
In addition, (i) a Money Market Fund will not write or
purchase put or call options or buy common stocks, voting securities or
Municipal Securities, (ii) the U.S. Treasury Fund will not purchase securities
other than bills, notes and bonds issued by the U.S. Treasury, certain of which
securities may be subject to repurchase agreements collateralized by the
underlying U.S. Treasury obligation, (iii) a Municipal Bond Fund will not write
or sell put or call options except that it may acquire put options with respect
to Municipal Securities in its portfolio and sell those put options in
conjunction with a sale of those Municipal Securities, and (iv) neither a Money
Market Fund, the New Jersey Money Fund, the New Jersey Bond Fund nor the
Municipal Money Market Fund will invest in securities of other investment
companies, except as such securities may be acquired as part of a merger,
consolidation, reorganization, or acquisition of assets. While each of the
Bond and Equity Funds, the Pennsylvania Money Fund, the Pennsylvania Bond Fund,
the Municipal Bond Fund and the Balanced Fund may invest in securities of other
investment companies, no such Fund will generally invest more than 5% of its
total assets in securities of other investment companies. This limitation is
not fundamental and may be changed by the Trustees without a vote of a majority
of the outstanding Shares.
The Group has also agreed with a state securities
administrator to certain non-fundamental investment restrictions that may be
changed by the Trustees without a vote of a majority of the outstanding Shares.
In particular, the Group has agreed on behalf of the Money Market Funds, the
Municipal Money Fund, the Equity Income Fund, the Growth
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<PAGE> 29
Fund, the Short/Intermediate Fund, the Fixed Income Fund, the Small Company
Fund, the International Equity Fund and the Municipal Bond Fund and the
Balanced Fund that (i) it will not make any loans of these Funds' portfolio
securities unless such loans are collateralized at no less than 100% of the
value of the securities on a daily basis; and (ii) it will limit its investment
in warrants to no more than 5% of these Funds' net assets and, of the 5%, no
more than 2% will be invested in warrants which are not listed on the New York
Stock Exchange or the American Stock Exchange; provided, however, that for
purposes of this limitation, warrants acquired in units or attached to other
securities will be deemed to be without value. In addition, the Group has also
agreed with a state securities administrator on behalf of all of the Funds,
except for the Money Market Funds, that each such Fund will not purchase
securities of any issuer, other than obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities and repurchase agreements
involving such securities, if, immediately after such purchase, such Fund would
hold more than 10% of its total assets in the voting securities of any one
issuer.
If any percentage restriction described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Group's
Funds is calculated by dividing the lesser of a Fund's purchases or sales of
portfolio securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities at the
time of acquisition were one year or less.
Portfolio turnover with respect to each of the Money
Market and Municipal Money Market Funds is expected to be zero percent due to
the manner in which portfolio turnover is required to be calculated under the
Investment Company Act. Actual portfolio turnover may vary greatly from year
to year as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares and, in the case of the Municipal Money
Market Funds, by requirements which enable such Funds to receive certain
favorable tax treatment. Portfolio turnover will not be a limiting factor in
making investment decisions.
Each of the Bond, Equity, Municipal Bond Funds, and the
Balanced Fund except for the Pennsylvania Bond Fund, may engage in short-term
trading, which involves selling securities held for a short time, in order to
increase the potential for capital appreciation and/or income of a Fund, or to
take advantage of what a Fund's investment adviser or, where applicable,
sub-adviser believes is a temporary disparity in the normal yield relationship
between two securities or changes in market industry or company conditions or
outlook. Any such trading would increase a Fund's turnover rate and its
transaction costs.
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<PAGE> 30
A Fund's ability to engage in short-term trading may be limited by tax
considerations. See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION --
Additional Tax Information."
The portfolio turnover rate for each of the Funds
(except the Money Market and Municipal Money Market Funds) for the Trust's past
three fiscal years were as follows:
<TABLE>
<CAPTION>
==================================================================================================================================
1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Income Fund 70.84% 156.21% 57.96%
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund 114.83% 153.05% 46.28%
- ----------------------------------------------------------------------------------------------------------------------------------
Small Company Fund 43.00% 49.34% 15.84%
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund 80.72% 51.30% 47.68%
- ----------------------------------------------------------------------------------------------------------------------------------
Short/Intermediate Fund 25.95% 58.80% 53.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund 36.88% 49.41% 34.69%
- ----------------------------------------------------------------------------------------------------------------------------------
International Fixed Income Fund 115.25% 128.14% 130.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund 144.89% 80.70% 60.86%
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Bond Fund 16.09% 12.05% 28.43%
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Bond Fund * 30.68%(1) 48.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund * * 30.63% (2)
==================================================================================================================================
</TABLE>
* not applicable
(1) Commenced operations on August 31, 1993
(2) Commenced operations on July 1, 1994
SPECIAL RISK FACTORS
New Jersey Municipal Securities
The concentration of investments in New Jersey
Municipal Securities by the New Jersey Money Fund and the New Jersey Bond Fund
raises special investment considerations. In particular, changes in the
economic condition and governmental policies of the State of New Jersey or its
municipalities could adversely affect the value of the Funds and the portfolio
securities held by them. This section briefly describes current economic
trends in New Jersey.
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<PAGE> 31
New Jersey is the most densely populated state in the
United States, but has experienced only slight growth in recent years. Between
1980 and 1990, the annual growth rose to 0.49 percent and between 1990 and
1993, accelerated to .59%. While this growth is less than that for the United
States, it compares favorably with other Middle Atlantic States.
Although the State has a diversified economic base, the
level of economic growth in New Jersey has slowed considerably during 1989 and
1990 in comparison with the previous six years. This slowdown is in response
to the State's tight labor market, a decline in construction demand and in the
rate of growth in consumer spending and softness in the State's manufacturing
sector. Since peaking in 1992, the unemployment rate in New Jersey has been in
a general downward trend. Just as New Jersey was hurt by the national
recession which officially began in July of 1990, evidence of New Jersey's
improving economy can be found in increased homebuilding, and other areas of
construction activity, rising consumer spending for new cars and light trucks,
substantial new job creation and the decline in the unemployment rate.
As a result of the State's fiscal weakness, S&P, in
July 1991, lowered its rating of the State's general obligation debt from AAA
to AA+.
The State utilizes the fund method of accounting.
Accordingly, the State prepares separate statements for the General Fund,
Special Revenue Funds, Debt Service Fund, Capital Project Funds, Trust and
Agency Funds, Enterprise Funds, University Funds, General Fixed Asset Account
Group and General Long-Term Debt Account Group. The General Fund is the fund
into which all state revenues not otherwise restricted by statute are deposited
and from which appropriations are made. The largest part of the total
financial operations of the State is accounted for in the General Fund.
Special Revenue Funds are used to account for resources legally restricted to
expenditure for specified purposes. Special Revenue Funds include the Casino
Control Fund, the Casino Revenue Fund, the Gubernatorial Elections Fund and the
Property Tax Relief Fund.
New Jersey operates on a fiscal year beginning July 1
and ending June 30. The State Constitution provides that budget appropriations
in any fiscal year cannot exceed the total amount of revenues on hand and
anticipated to be available for such fiscal year, as certified by the Governor.
There have been positive undesignated fund balances in the General Fund at the
end of each fiscal year from 1947 through 1994.
Estimated receipts from State taxes and revenues are
forecasts based on the best information available at the time of such
forecasts. The principal taxes in New Jersey are the Sales and Use Tax, the
Gross Income Tax, and the Corporation Business Tax. The fiscal year 1995
Appropriation Act forecasts Sales and Use Tax collections of $3,980 million, a
5.3% increase over receipts estimated in the Revised Revenue Estimates for
fiscal year 1994; Gross Income Tax collections of $4,582 million, a 2.4%
increase over receipts estimated in the revised estimates for the fiscal year
1994; and Corporation Business Tax collections of $915 million, a 14% increase
over receipts estimated in the Revised Revenue Estimates for
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<PAGE> 32
fiscal year 1994. Changes in economic activity in the State and the nation,
consumption of durable goods, corporate financial performance and other factors
that are difficult to predict may result in actual collections being more or
less than forecasted.
The State appropriated approximately $12,639 million
for fiscal year 1991, $14,960 million for fiscal year 1992 and $14,737 million
for fiscal year 1993. Estimated appropriations for fiscal years 1994 and 1995
total $15,492 million and $15,291 million, respectively. Of the estimated
$15,291.0 million appropriated in fiscal year 1995 from the General Fund, the
Property Tax Relief Fund, the Casino Control Fund, the Casino Revenue Fund, and
the Gubernatorial Elections Fund, $5,782.2 million (37.8%) is appropriated for
State aid to local governments, $3,761.6 million (24.6%) is appropriated for
grants-in-aid (payments to individuals or public or private agencies for
benefits to which a recipient is entitled to by law, or for the provision of
services on behalf of the State), $5,203.1 million (34.0%) for direct State
services, $103.5 million (0.7%) for debt service on State general obligation
bonds and $440.6 million (2.9%) for capital construction.
The primary method for State financing of capital
projects is through the sale of general obligation bonds of the State backed by
the full faith and credit of the State. General obligation debt must be
approved by voters. In addition to payment from bond proceeds, capital
construction can also be funded by appropriation of current revenues on a
pay-as-you-go basis. As of June 30, 1994, approximately $3.6 billion of State
general obligation bonds were outstanding. In addition, the State has entered
into a number of leases whereby the State leases real property and equipment
from State authorities (such as the Mercer County Improvement Authority and the
New Jersey Economic Development Authority) in return for lease payments
sufficient to pay debt service on bonds issued by the authorities to finance
the leased property.
Legislation provides for future appropriations for
State aid to local school districts equal to debt service on a maximum
principal amount of $280 million of bonds issued by local school districts for
construction and renovation of school facilities and for state aid to counties
equal to debt service on up to $80 million of bonds issued by counties for
construction of county college facilities. The State legislature is not
legally bound to make such future appropriations, but has done so to date on
all outstanding obligations issued under these laws. As of December 31, 1993,
a total of $274.1 million in bonds and notes had been issued by local school
districts of which $211.2 million have been retired and $62.8 million were
still outstanding. As of June 30, 1993, $81.9 million of county college bonds
or notes had been authorized and issued of which $42.0 million have been
retired.
The authorizing legislation for various State entities
provides that an appropriation is to be made in the amount of any deficiency in
a debt service reserve fund maintained to meet payments of debt service on the
obligations. However, the state legislature is not legally bound to make such
an appropriation. These are sometimes referred to as "moral obligation" bonds.
There is no statutory limitation on the amount of "moral obligation bonds" that
may be issued by eligible State entities. The New Jersey Housing and Mortgage
Finance Agency,
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<PAGE> 33
which had $576.6 million of bonds outstanding as of June 30, 1993, has not had
a deficiency in its debt service reserve fund as of the date of this Statement
of Additional Information. The State provided funds to the South Jersey Port
Corporation to cover operating deficiencies, which had $88.7 million in bonds
outstanding as of June 30, 1993, in each of the years 1986 through 1994.
The New Jersey Commission on Science and Technology had
approximately $26.5 million in bonds outstanding as of June 30, 1993 the
payment of debt service on which is dependent on receipt of State
appropriations. As of June 30, 1993, $147.9 million in bonds of the New Jersey
Sports and Exposition Authority were outstanding which are guaranteed by the
State. The New Jersey Transportation Trust Fund Authority was created as an
instrumentality of the State for the purpose of funding the State's share of
the cost of improvements to the State's transportation system. As of June 30,
1994, $906.1 million of Authority bonds were outstanding, which are special
obligations of the Authority payable from payments made by the State to the
Authority.
Other State-created entities have outstanding debt.
This debt is supported by revenues derived from or assets financed by such
entities and is not a debt or liability of the State. A combined total of
$12,306.1 million in bonds was outstanding as of June 30, 1993 issued by the
following entities: Casino Reinvestment Authority, Hackensack Meadowlands
Development Commission, New Jersey Development Authority for Small Business,
Minorities, and Women's Enterprises, New Jersey Economic Development Authority,
New Jersey Educational Facilities Authority, New Jersey Higher Education
Assistance Authority, New Jersey Health Care Facilities Financing Authority,
New Jersey Highway Authority, New Jersey Housing and Mortgage Finance Agency,
New Jersey Institute of Technology, New Jersey Sports and Exposition Authority,
New Jersey Transit Corporation, New Jersey Turnpike Authority, New Jersey Urban
Development Corporation, New Jersey Wastewater Treatment Trust, New Jersey
Water Supply Authority, South Jersey Port Corporation, South Jersey
Transportation Authority.
Certain litigation is pending or threatened in which
the State has the potential for either a significant loss of revenue or a
significant unanticipated expenditure.
The foregoing information as to certain New Jersey risk
factors has been provided in view of the New Jersey Money and Bond Funds'
policy of concentrating in New Jersey Municipal Securities. This information
constitutes only a brief summary, does not purport to be a complete description
of New Jersey risk factors and is principally drawn from official statements
related to securities offerings of the State of New Jersey that have come to
the Funds' attention and were available as of the date of this Statement of
Additional Information.
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<PAGE> 34
Pennsylvania Municipal Securities
The concentration of investments in Pennsylvania
Municipal Securities by the Pennsylvania Money Fund and the Pennsylvania Bond
Fund raises special investment considerations. In particular, changes in the
economic condition and governmental policies of the Commonwealth of
Pennsylvania and its municipalities could adversely affect the value of the
Funds and the portfolio securities held by them. This section briefly
describes current economic trends in Pennsylvania.
General. Pennsylvania has historically been dependent
on heavy industry although recent declines in the coal, steel and railroad
industries have led to diversification of the Commonwealth's economy. Recent
sources of economic growth in Pennsylvania are in the service sector, including
trade, medical and health services, education and financial institutions.
Agriculture continues to be an important component of the Commonwealth's
economic structure, with nearly one-fourth of the Commonwealth's total land
area devoted to cropland, pasture and farm woodlands.
In 1994, the population of Pennsylvania was 12.1
million people. According to the U.S. Bureau of the Census, Pennsylvania
experienced a slight increase from the 1984 estimate of 11.8 million.
Pennsylvania has a high proportion of persons 65 or older. The Commonwealth is
highly urbanized, with almost 85% of the 1990 census population residing in
metropolitan statistical areas. The cities of Philadelphia and Pittsburgh, the
Commonwealth's largest metropolitan statistical areas, together comprise
approximately 50% of the Commonwealth's total population.
Pennsylvania's average annual unemployment rate
remained below the national average between 1986 and 1990. Slower economic
growth caused the rate to rise to 6.9% in 1991 and 7.5% in 1992. The
resumption of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 7.1 percent in 1993. Seasonally adjusted
data for March 1995 shows an unemployment rate of 6.0% compared to an
unemployment rate of 5.5% for the United States as a whole.
Financial Accounting. Pennsylvania utilizes the fund
method of accounting and over 150 funds have been established for the purpose
of recording receipts and disbursements, of which the General Fund is the
largest. Most of the operating and administrative expenses are payable from
the General Fund. The Motor License Fund is a special revenue fund that
receives tax and fee revenues relating to motor fuels and vehicles (except
one-half cent per gallon of the liquid fuels tax which is deposited in the
Liquid Fuels Tax Fund for distribution to local municipalities) and all such
revenues are required to be used for highway purposes. Other special revenue
funds have been established to receive specified revenues appropriated to
specific departments, boards and/or commissions. Such funds include the Game,
Fish, Boat, Banking Department, Milk Marketing, State Farm Products Show, State
Racing and
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State Lottery Funds. The General Fund, all special revenue funds, the Debt
Service Funds and the Capital Project Funds combine to form the Governmental
Fund Types.
Enterprise funds are maintained for departments or
programs operated like private enterprises. The largest of the Enterprise
funds is the State Stores Fund, which is used for the receipts and
disbursements of the Commonwealth's liquor store system. Sale and distribution
of all liquor within Pennsylvania is a government enterprise.
Financial information for the funds is maintained on a
budgetary basis of accounting ("Budgetary"). Since 1984, the Commonwealth has
also prepared financial statements in accordance with generally accepted
accounting principles ("GAAP"). The GAAP statements have been audited jointly
by the Auditor General of the Commonwealth and an independent public accounting
firm. The Budgetary information is adjusted at fiscal year end to reflect
appropriate accruals for financial reporting in conformity with GAAP. The
Commonwealth maintains a June 30th fiscal year end.
The Constitution of Pennsylvania provides that
operating budget appropriations may not exceed the actual and estimated
revenues and available surplus in the fiscal year for which funds are
appropriated. Annual budgets are enacted for the General Fund and for certain
special revenue funds which represent the majority of expenditures of the
Commonwealth.
Revenues and Expenditures. Pennsylvania's Governmental
Fund Types receive over 57% of their revenues from taxes levied by the
Commonwealth. Interest earnings, licenses and fees, lottery ticket sales,
liquor store profits, miscellaneous revenues, augmentations and federal
government grants supply the balance of the receipts to these funds. Revenues
not required to be deposited in another fund are deposited in the General Fund.
The major tax sources for the General Fund are the 6% sales and use tax (33.7%
of General Fund revenues in fiscal 1994), the 2.8% personal income tax (32.0%
of General Fund revenues in fiscal 1994) and the 10.99% corporate net income
tax (10.2% of General Fund revenues in fiscal 1994). Tax and fee proceeds
relating to motor fuels and vehicles are constitutionally dedicated to highway
purposes and are deposited into the Motor License Fund. The major sources of
revenues for the Motor License Fund include the liquid fuels tax, the oil
company franchise tax, aviation taxes and revenues from fees levied on heavy
trucks. These revenues are restricted to the repair and construction of
highway bridges and aviation programs. Revenues from lottery ticket sales are
deposited in the State Lottery Fund and are reserved by statute for programs to
benefit senior citizens.
Pennsylvania's major expenditures include funding for
education ($6.4 billion of the fiscal 1994 expenditures and $6.9 billion of the
fiscal 1995 budget) and public health and human services ($11.7 billion of the
fiscal 1994 expenditures and $12.8 billion of the fiscal 1995 budget).
Governmental Fund Types: Financial Condition/Results of
Operations (GAAP Basis). Reduced revenue growth and increased expenses
contributed to negative
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unreserved-undesignated fund balances of the Governmental Fund Types at the end
of the 1990 and 1991 fiscal years, largely due to operating deficits in the
General Fund and State Lottery Fund during those years. Actions taken during
fiscal 1992 to bring the General Fund back into balance, including tax
increases and expenditure restraints, resulted in a $1.1 billion reduction to
the unreserved-undesignated fund deficit for combined Governmental Fund Types
and a return to a positive fund balance. Financial performance continued to
improve during the 1993 and 1994 fiscal years resulting in a positive
unreserved-undesignated balance for combined Governmental Fund Types at June
30, 1993 and June 30, 1994. These gains were produced by continued efforts to
control expenditure growth. At the end of fiscal 1993, the total (restated)
fund balance and other credits for all the Governmental Fund Types was $1,692.8
million.
General Fund: Financial Condition/Results of Operations.
Five Year Overview (GAAP Basis). The five year period
from fiscal 1990 through fiscal 1994 was marked by public health and welfare
costs growing at a rate double the growth rate for all the state expenditures.
Rising caseloads, increased utilization of services and rising prices joined to
produce the rapid rise of public health and welfare costs at a time when a
national recession caused tax revenues to stagnate and even decline. During
the period from fiscal 1990 through fiscal 1994, public health and welfare
costs rose by an average annual rate of 9.4% while tax revenues were growing at
an average annual rate of 5.8%. Consequently, spending on other budget
programs was restrained to a growth rate below 4.7% and sources of revenues
other than taxes became larger components of fund revenues. Among those
sources are transfers from other funds and hospital and nursing home pooling of
contributions to use as federal matching funds.
Tax revenues declined in fiscal 1991 as a result of the
recession in the economy. A $2.7 billion tax increase enacted for fiscal 1992
brought financial stability to the General Fund. That tax increase included
several taxes with retroactive effective dates which generated some one-time
revenues during fiscal 1992. The absence of those revenues in fiscal 1993
contributed to the decline in tax revenues for fiscal 1993.
During fiscal 1992 enactment of over $2.7 billion in
General Fund tax increases and implementation of expenditure control
initiatives helped the General Fund balance return to a surplus at June 30,
1992, of $87.5 million. The actions taken to increase revenues and restrain
expenditure growth were necessary to offset the effects on General Fund
finances of a period of slow economic growth including a national economic
recession. The recession caused tax revenues during fiscal 1991 to be below
the amount received during fiscal 1990 while spending, particularly for public
health and welfare programs to support needy individuals, increased
Fiscal 1993 Financial Results (GAAP Basis). The fund
balance of the General Fund increased by $611.4 million during the fiscal year,
led by an increase in the unreserved balance of $576.8 million over the prior
fiscal year balance. At June 30, 1993, the fund
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balance totaled $698.9 million and the unreserved-undesignated balance totaled
$64.4 million. A continuing recovery of the Commonwealth's financial condition
from the effects of the national economic recession of 1990 and 1991 is
demonstrated by this increase in the balance and a return to a positive
unreserved-undesignated balance. The previous positive unreserved-undesignated
balance was recorded in fiscal 1987.
Fiscal 1994 Financial Results (Budgetary Basis).
Commonwealth revenues during the 1994 fiscal year totaled $15,210.7 million,
$38.6 million above the fiscal year estimate, and 3.9 percent over commonwealth
revenues during the previous fiscal year. The sales tax was an important
contributor to the higher than estimated revenues. The strength of collections
from the sales tax offset the lower than budgeted performance of the personal
income tax which ended the fiscal year $74.4 million below estimate. The
shortfall in the personal income tax was largely due to shortfalls in income
not subject to withholding such as interest, dividends and other income. Tax
refunds in fiscal 1994 were reduced substantially below the amount provided in
fiscal 1993. Expenditures, excluding pooled financing expenditures, increased
by 7.2% over fiscal 1993 expenditures. Medical assistance and corrections
spending contributed to the rate of spending growth for the fiscal year. The
Commonwealth maintained an operating balance on a budgetary basis for fiscal
1994 producing a fiscal year ending unappropriated surplus of $335.8 million.
By state statute, ten percent ($33.6 million) of that surplus transferred to
the Tax Stabilization Reserve Fund and the remaining balance was carried over
into the 1995 fiscal year. The balance in the Tax Stabilization Reserve Fund
as of March 31, 1995, was $65.3 million.
Fiscal 1995 Budget: The fiscal 1994-95 budget was
approved by the Governor in June 1994 and provided for $15,665.7 million of
appropriations from commonwealth funds, an increase of 4.0% over
appropriations, including supplemental appropriations, for fiscal 1994.
Medical assistance expenditures represent the largest single increase in the
budget ($221 million) representing a 9.0% increase over the prior fiscal year.
Education subsidies to local school districts were increased by $132.2 million
to continue the increased funding for the poorest school districts in the
state.
The budget also includes tax reductions totaling an
estimated $166.4 million. A reduction to the corporate net income tax rate
from 12.25% to 9.99% to be phased in over a period of four years was enacted.
Several other tax changes to the sales tax, the inheritance tax and the capital
stock and franchise tax were also enacted.
The fiscal 1994-95 budget projects a $4 million fiscal
year-end unappropriated surplus based on estimates for fiscal 1994 and the
adopted budget. However, as of April 30, 1995, the General Fund had a surplus
of $442.9 million, or 3.4% above the official estimate. The fiscal 1995-96
budget is currently the subject of discussion and negotiations between the
Governor and the General Assembly.
Commonwealth Debt. Current constitutional provisions
permit Pennsylvania to issue the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by
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disaster, (ii) electorate approved debt, (iii) debt for capital projects
subject to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years, (iv) tax anticipation notes
payable in the fiscal year of issuance. All debt except tax anticipation notes
must be amortized in substantial and regular amounts.
General obligation debt totaled $5,075.8 million at
June 30, 1994. Over the 10-year period ended June 30, 1994, total outstanding
general obligation debt increased at an annual rate of 1.3% and for the five
years ended June 30, 1994, at an annual rate of 1.5%. All outstanding general
obligation bonds of the Commonwealth are rated AA- by Standard and Poor's
Corporation, A1 by Moody's Investors Service, and AA- by Fitch Investors
Service. The ratings reflect only the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund
expenses within a fiscal year through the sale of tax anticipation notes which
must mature within the fiscal year of issuance. The principal amount issued,
when added to that already outstanding, may not exceed in aggregate 20% of the
revenues estimated to accrue to the appropriate fund in the fiscal year. The
Commonwealth is not permitted to fund deficits between fiscal years with any
form of debt. All year-end deficit balances must be funded within the
succeeding fiscal year's budget. Pennsylvania issued a total of $600.0 million
of tax anticipation notes for the account of the General Fund in fiscal 1995,
all of which will mature on June 30, 1995, and will be paid from fiscal 1995
General Fund receipts.
Pending the issuance of bonds, Pennsylvania may issue
bond anticipation notes subject to the applicable statutory and constitutional
limitations generally imposed on bonds. The term of such borrowings may not
exceed three years. Currently, there are no bond anticipation notes
outstanding.
State-related Obligations. Certain state-created
agencies have statutory authorization to incur debt for which no legislation
providing for state appropriations to pay debt service thereon is required.
The debt of these agencies is supported by assets of, or revenues derived from,
the various projects financed and the debt of such agencies is not an
obligation of Pennsylvania although some of the agencies are indirectly
dependent on Commonwealth appropriations. The following agencies had debt
currently outstanding as of December 31, 1994: Delaware River Joint Toll
Bridge Commission ($56.3 million), Delaware River Port Authority ($233.9
million), Pennsylvania Economic Development Financing Authority ($659.9
million), Pennsylvania Energy Development Authority ($162.1 million),
Pennsylvania Higher Education Assistance Agency ($1,283.8 million),
Pennsylvania Higher Educational Facilities Authority ($1,965.8 million),
Pennsylvania Industrial Development Authority ($357.3 million), Pennsylvania
Infrastructure Investment Authority ($227.5 million), Pennsylvania Turnpike
Commission ($1,252.6 million), Philadelphia Regional Port Authority ($63.9
million) and the State Public School Building Authority ($286.8 million). In
addition, the Governor is statutorily required to place in the budget of the
Commonwealth an amount sufficient to make up any deficiency in the capital
reserve fund created for, or to avoid default on, bonds issued by the
Pennsylvania Housing Finance Agency ($2,060.0
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million of revenue bonds and $240.0 million of notes outstanding as of December
31, 1994), and an amount of funds sufficient to alleviate any deficiency that
may arise in the debt service reserve fund for bonds issued by The Hospitals
and Higher Education Facilities Authority of Philadelphia ($1.64 million of the
loan principal was outstanding as of December 31, 1994).
Litigation. Certain litigation is pending against the
Commonwealth that could adversely affect the ability of the Commonwealth to pay
debt service on its obligations, including suits relating to the following
matters: (a) Approximately 3,500 tort suits are pending against the
Commonwealth pursuant to the General Assembly's 1978 approval of a limited
waiver of sovereign immunity which permits recovery of damages for any loss up
to $250,000 per person and $1,000,000 per accident ($27 million was
appropriated from the Motor License Fund for fiscal 1995); (b) The ACLU filed
suit in April 1990 in federal court demanding additional funding for child
welfare services (no available estimates of potential liability), which the
Commonwealth is seeking to have dismissed based on, among other things, the
settlement in a similar Commonwealth court action that provided for more
funding in fiscal 1991 as well as a commitment to pay to counties $30.0 million
over 5 years. Upon reversal by the Third Circuit in December 1994, the
district court recently certified the ACLU's proposed class and the parties
have resumed discovery; (c) In 1987, the Supreme Court of Pennsylvania held
that the statutory scheme for county funding of the judicial system was in
conflict with the Pennsylvania Constitution but stayed judgment pending
enactment by the legislature of funding consistent with the opinion. The
legislature has yet to consider legislation implementing the judgment; (d) In
1991, a consortium of public interest law firms filed a class action suit
alleging that the Commonwealth had failed to comply with the 1989 federal
mandate with respect to certain services for Medicaid-eligible children under
the age of 21. The parties have reached a tentative settlement which has been
submitted to the court for approval; (e) Actions have been filed in both state
and federal court by an association of rural and small schools and several
individual school districts and parents challenging the constitutionality of
the Commonwealth's system for funding local school districts. The federal case
has been stayed pending resolution of the state case and the state case is in
the pre-trial discovery stage. The trial has not yet been scheduled, and there
is no available estimate of potential liability; (f) The Pennsylvania Medical
Society has challenged the state's reimbursement rates for outpatient services
provided to needy citizens under the Medical Assistance Program. The favorable
District Court decision received by the Commonwealth was reversed by the U.S.
Third Circuit Court and an appeal is under consideration. Estimated potential
costs to the Commonwealth approximate $50 million per year; and (g) In November
1993, the Commonwealth and Envirotest/Synterra Partners ("Envirotest"), entered
into a "Contract of Centralized Emissions Inspection Facilities." Thereafter,
Envirotest acquired certain land and constructed approximately 85 automobile
emissions inspection facilities throughout various regions of the Commonwealth.
By Act of the General Assembly in October 1994 (Act No. 1994-95), the emissions
testing program was suspended and the Department of Transportation was directed
to consider other alternatives to the centralized testing program and was
prohibited from expending funds to implement the program. Revised regulations
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from the Environmental Protection Agency are expected in August 1995. In April
1995, the parties entered into a Standstill Agreement which authorizes
Envirotest to file a Statement of Claim with the Pennsylvania Board of Claims
to preserve its position. Although a formal demand has not been submitted,
Envirotest estimates that it has expended approximately $200 million to date to
acquire land and construct and maintain the inspection facilities. The Office
of General Counsel believes it is premature at this time to estimate the nature
and size of Envirotest's potential claim in this matter.
Philadelphia. The City of Philadelphia is the largest
city in the Commonwealth, with an estimated population of 1,585,577 people
according to the 1990 Census. Philadelphia functions both as a city of the
first class and a county for the purpose of administering various governmental
programs.
Legislation providing for the establishment of the
Pennsylvania Intergovernmental Cooperation Authority ("PICA") to assist first
class cities in remedying fiscal emergencies was enacted by the General
Assembly and approved by the Governor in June 1991. PICA is designed to
provide assistance through the issuance of funding debt and to make factual
findings and recommendations to Philadelphia concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between
Philadelphia and PICA was approved by City Council and the PICA Board and
signed by the Mayor in January 1992. At this time, Philadelphia is operating
under a five year fiscal plan approved by PICA on May 2, 1994. The most recent
amended five year plan was presented to PICA by the Mayor in March 1995 and is
awaiting approval.
To date, PICA had issued $1,418,680,000 of its Special
Tax Revenue Bonds. This financial assistance has included the refunding of
certain general obligation bonds to fund capital projects and to liquidate the
Cumulative General Fund balance deficit as of June 30, 1992, of $224.9 million.
The audited General Fund balance as of June 30, 1994, showed a surplus of
approximately $15.4 million, up from the $3 million surplus as of June 30,
1993. No further bonds are to be issued by PICA for the purpose of financing a
capital project as the authority for such bond sales expired December 31, 1994.
PICA's authority to issue debt for the purpose of financing a cash flow deficit
expires on December 31, 1996.
The foregoing information as to certain Pennsylvania
risk factors has been provided in view of the Fund's policy of concentrating in
Pennsylvania Municipal Securities. This information constitutes only a brief
summary, does not purport to be a complete description of Pennsylvania risk
factors and is principally drawn from official statements relating to
securities offerings of the Commonwealth of Pennsylvania that have come to the
Fund's attention and were available as of the date of this Statement of
Additional Information.
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NET ASSET VALUE
As indicated in the Prospectuses, the net asset value
of each Fund is determined and the Shares of each Fund are priced as of the
Valuation Times on each Business Day of the Group. A "Business Day" shall be
any day on which the New York Stock Exchange is open for business. However
shares cannot be purchased or redeemed by Federal Reserve Wire on Federal
holidays restricting wire transfers. The New York Stock Exchange will not open
in observance of the following holidays: New Year's Day; Presidents' Day; Good
Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving; and Christmas.
The Group has elected to use the amortized cost method
of valuation pursuant to Rule 2a-7 under the Investment Company Act for valuing
the assets of the Money Market Funds and the Municipal Money Market Funds.
This involves valuing an instrument at its cost initially and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. This method may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Group would
receive if it sold the instrument. The value of securities in each of the
Group's Money Market and Municipal Money Market Funds can be expected to vary
inversely with changes in prevailing interest rates.
The Group's Trustees have undertaken to establish
procedures reasonably designed, taking into account current market conditions
and each Money Market and Municipal Money Market Fund's investment objective,
to stabilize the net asset value per Share of each Money Market and Municipal
Money Market Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
Share of each Money Market and Municipal Money Market Fund calculated by using
available market quotations deviates from $1.00 per Share. In the event such
deviation exceeds one-half of one percent, Rule 2a-7 requires that the Trustees
promptly consider what action, if any, should be initiated. If the Trustees
believe that the extent of any deviation from a Money Market or Municipal Money
Market Fund's $1.00 amortized cost price per Share may result in material
dilution or other unfair results to new or existing investors, they will take
such steps as they consider appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity, withholding or reducing dividends, reducing the number of a
Money Market or Municipal Money Market Fund's outstanding Shares without
monetary consideration, or utilizing a net asset value per Share determined by
using available market quotations.
The assets of the Municipal Bond, Bond and Equity Funds
and the Balanced Fund will be valued on the basis of market value when readily
available, by evaluating the range of
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published closing bid and asked prices, by obtaining quotations from at least
one broker-dealer, or by the good faith determination of the Board of Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
SALES CHARGE WAIVERS FOR QUALIFIED INSTITUTIONAL INVESTORS
As of the date hereof, "qualified" institutional
investors eligible for waiver of the applicable sales charges are retirement
plans with over $250,000 in assets, charities, and not-for-profit
organizations. Please contact the Distributor for further information.
MATTERS AFFECTING REDEMPTION
Shares in each of the Group's Funds are sold on a
continuous basis by SEI Financial Services Company, and SEI Financial Services
Company has agreed to use appropriate efforts to solicit all purchase orders.
In addition to purchasing Shares directly from SEI Financial Services Company,
Shares may be purchased through procedures established by SEI Financial
Services Company in connection with the requirements of accounts at Midlantic
Bank, N.A.. Customers purchasing Shares of the Group may include officers,
directors, or employees of Midlantic Bank, N.A.
The Group may suspend the right of redemption or
postpone the date of payment for Shares during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Securities and Exchange Commission, (b) the Exchange is
closed for other than customary weekend and holiday closings, (c) the
Securities and Exchange Commission has by order permitted such suspension, or
(d) an emergency exists as determined by the Securities and Exchange
Commission.
The Group may redeem Shares involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the
Investment Company Act. See "NET ASSET VALUE" in this Statement of Additional
Information.
AUTOMATIC CASH WITHDRAWAL PLAN
An investor who owns or buys shares of a Fund valued at
$10,000 or more at the current public offering price may open a Withdrawal Plan
and have a designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person. Shares are
deposited in a Withdrawal Plan account, and all distributions are reinvested in
additional shares at net asset value (except where the Withdrawal Plan is
utilized in connection with a charitable remainder trust). Shares in a
Withdrawal Plan account are then redeemed at net asset value to make each
withdrawal payment. Redemptions for the purpose of withdrawals are made on the
first business day of the month
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at that day's closing net asset value, and checks are mailed on the second
business day of the month. Payment will be made to any person the investor
designates; however, if shares are registered in the name of a trustee or other
fiduciary, payment will be made only to the fiduciary, except in the case of a
profit-sharing or pension plan where payment will be made to a designee. As
withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of Shares in connection with a Withdrawal Plan will result in a gain
or loss for tax purposes. Continued withdrawals in excess of income will
reduce and possibly exhaust invested principal, especially in the event of a
market decline. The maintenance of a Withdrawal Plan concurrently with
purchases of additional Shares of a Fund would be disadvantageous to the
investor if a sales charge became payable on such purchases. The cost of
administering the Automatic Cash Withdrawal Plan for the benefit of those
investors participating in the Plan is borne by each Fund as an expense of all
investors of such Fund. The Group may terminate or change the terms of the
Automatic Cash Withdrawal Plan at any time. An investor's Withdrawal Plan will
be terminated if communications mailed to the investor are returned as
undeliverable.
Investors should consider carefully with their own
financial advisers whether the Automatic Cash Withdrawal Plan and the specified
amounts to be withdrawn are appropriate in their circumstances. The Group
makes no recommendations or representations in this regard.
ADDITIONAL TAX INFORMATION
It is the policy of each of the Group's Funds to
qualify for the favorable tax treatment accorded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By following such policy, each of the Group's Funds expects to
eliminate or reduce to a nominal amount the federal taxes to which such Fund
may be subject.
In order to qualify as a regulated investment company
each Fund must, among other things, (1) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies;
or other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in stock, securities or
currencies; (2) derive less than 30% of its gross income from the sale or other
disposition of certain assets held for less than three months, including stock
and securities; options, futures or forward contracts (other than on foreign
currencies); or foreign currencies (including options, futures or forward
contracts) if not directly related to the Fund's principal business of
investing in stocks and securities; and (3) diversify its holdings so that at
the end of each quarter of its taxable year (i) at least 50% of the market
value of the Fund's total assets is represented by cash or cash items, United
States Government securities, securities of other regulated investment
companies, and other securities limited, in respect of any one issuer, to a
value not greater than 5% of the value of the Fund's total assets and 10% of
the
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outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
United States Government securities or securities of any other regulated
investment company) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Funds may engage in
short-term trading and in certain hedging transactions and may limit the range
of the Fund's investments. If a Fund qualifies as a regulated investment
company, it will not be subject to federal income tax on the part of its net
investment income and net realized capital gains, if any, which it distributes
each year to shareholders, provided the Fund distributes at least (a) 90% of
its "investment company taxable income" (as that term is defined by the Code)
and (b) 90% of the excess of (i) its tax-exempt interest income over (ii)
certain deductions attributable to that income.
If a Fund fails to distribute in a calendar year at
least the sum of 98% of its ordinary income for the year and 98% of its capital
gain net income for the one-year period ending October 31 of the year (and any
retained amount from the prior calendar year), the Fund will be subject to a 4%
federal excise tax on the undistributed amounts. Distributions declared in
October, November, or December to Shareholders of record during those months
and paid during the following January are treated as if they were received by
each Shareholder on December 31 of the prior year for tax purposes.
Each of the Group's Funds will be required in certain
cases to withhold and remit to the United States Treasury 31% of taxable
dividends and other distributions paid to any Shareholder who has provided
either an incorrect tax identification number or no number at all, who is
subject to withholding by the Internal Revenue Service for failure properly to
include on his return payments of interest or dividends, or who fails to
certify to the Group that such shareholder is not subject to backup
withholding. This backup withholding is not an additional tax, and any amounts
withheld may be credited against the Shareholder's ultimate U.S. tax liability.
A Fund's transactions in futures contracts, options,
forward contracts, foreign currencies, foreign debt securities, and certain
other investment and hedging activities will be subject to special tax rules.
In a given case, these rules may accelerate income to the Fund, defer losses to
the Fund, cause adjustments in the holding periods of the Fund's assets,
convert short-term capital losses into long-term capital losses, or otherwise
affect the character of the Fund's income. These rules could therefore affect
the amount, timing, and character of distributions to Shareholders. Each Fund
will endeavor to make any available elections pertaining to such transactions
in a manner believed to be in the best interest of the Fund.
Under the Code, dividends attributable to interest on
certain "private activity" bonds issued after August 7, 1986, will be included
in alternative minimum taxable income for the purpose of determining liability
(if any) for the alternative minimum tax for individuals and for corporations.
In the case of corporations, all tax-exempt interest dividends will be taken
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into account in determining "adjusted current earnings" (as defined for federal
income tax purposes) for the purpose of computing the alternative minimum tax
imposed on corporations.
Information set forth in the Prospectuses and this
Statement of Additional Information which relates to taxation is only a summary
of some of the important tax considerations generally affecting purchasers of
Shares of the Group's Funds. Further tax information regarding the Municipal
Money Market Funds and the Municipal Bond Funds and regarding the International
Fixed Income Fund and International Equity Fund is included in the immediately
following sections of this Statement of Additional Information. No attempt has
been made to present a detailed explanation of the income tax treatment of a
Fund or its Shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential purchasers of Shares of a
Fund are urged to consult their tax advisers with specific reference to their
own tax situation. In addition, the tax discussion in the Prospectuses and
this Statement of Additional Information is based on tax laws and regulations
which are in effect on the date of the Prospectuses and this Statement of
Additional Information; such laws and regulations may be changed by legislative
or administrative action.
The following tax information relates specifically to
certain of the Group's Funds.
Additional Tax Information Concerning the Municipal
Money Market Funds and the Municipal Bond Funds
As indicated in the Prospectuses of the Municipal Money
Market and Municipal Bond Funds, these Funds are designed to provide
Shareholders with current tax-exempt interest income and are not intended to
constitute a balanced investment program. In addition, the Municipal Money
Market Funds are not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Certain
recipients of Social Security and railroad retirement benefits may be required
to take into account income from the Municipal Money Market and Municipal Bond
Funds in determining the taxability of their benefits. In addition, the
Municipal Money Market and Municipal Bond Funds may not be appropriate
investments for Shareholders that are "substantial users" or persons related to
such users of facilities financed by private activity bonds or industrial
revenue bonds. A "substantial user" is defined generally to include certain
persons who regularly use a facility in their trade or business. Shareholders
should consult their tax advisers to determine the potential effect, if any, on
their tax liability of investing in a Municipal Money Market or Municipal Bond
Fund.
If, at the close of each quarter of its taxable year,
at least 50% of the value of a Fund's total assets consists of securities the
interest on which is excludable from gross income, the Fund may pay
"exempt-interest dividends" to its shareholders. The policy of each Municipal
Money Market and Municipal Bond Fund is to pay each year as dividends
substantially all of its interest income, net of certain deductions. An
exempt-interest dividend
-43-
<PAGE> 46
is any dividend or part thereof (other than a capital gain dividend) paid by a
Municipal Money Market or Municipal Bond Fund, and designated by the Fund as an
exempt-interest dividend in a written notice mailed to Shareholders after the
close of such Fund's taxable year. However, aggregate exempt-interest
dividends for the taxable year may not exceed the net interest from Municipal
Securities and other securities exempt from the regular federal income tax
received by the Fund during the taxable year. The percentage of the total
dividends paid for any taxable year which qualifies as federal exempt-interest
dividends will be the same for all Shareholders receiving dividends from a
Municipal Money Market or Municipal Bond Fund during such year, regardless of
the period for which the Shares were held.
Exempt-interest dividends may nevertheless be subject
to the alternative minimum tax (the "Alternative Minimum Tax") imposed by
section 55 of the Code or the environmental tax (the "Environmental Tax")
imposed by Section 59A of the Code. The Alternative Minimum Tax is imposed at
the rate of 26% (with a maximum rate of 28%) in the case of non-corporate
taxpayers and at the rate of 20% in the case of corporate taxpayers, to the
extent it exceeds the taxpayer's regular tax liability. The Environmental Tax
is imposed at the rate of 0.12% and applies only to corporate taxpayers. The
Alternative Minimum Tax and the Environmental Tax may be imposed in two
circumstances. First, exempt-interest dividends derived from certain "private
activity bonds" issued after August 7, 1986, will generally be an item of tax
preference (and therefore potentially subject to the Alternative Minimum Tax
and the Environmental Tax) for both corporate and non-corporate taxpayers.
Second, in the case of exempt-interest dividends received by corporate
shareholders, all exempt-interest dividends, regardless of when the bonds from
which they are derived were issued or whether they were derived from private
activity bonds, will be included in corporation's "adjusted current earnings,"
as defined in section 56(g) of the Code, in calculating the corporation's
alternative minimum taxable income for purposes of determining the Alternative
Minimum Tax and the Environmental Tax.
The deduction otherwise allowable to property and
casualty insurance companies for "losses incurred" will be reduced by an amount
equal to a portion of exempt-interest dividends received or accrued during the
taxable year. Certain foreign corporations engaged in a trade or business in
the United States will be subject to a "branch profits tax" on their "dividend
equivalent amount" for the taxable year, which will include exempt-interest
dividends. Certain Subchapter S corporations may also be subject to taxes on
their "passive investment income," which could include exempt-interest
dividends.
Issuers of bonds purchased by the Municipal Bond Fund
or the Municipal Money Fund (or the beneficiary of such bonds) may have made
certain representations or covenants in connection with the issuance of such
bonds to satisfy certain requirements of the Code that must be satisfied
subsequent to the issuance of such bonds. Investors should be aware that
exempt-interest dividends derived from such bonds may become subject to federal
income taxation retroactively to the date thereof if such representations are
determined to have been
-44-
<PAGE> 47
inaccurate or if the issuer of such bonds (or the beneficiary of such bonds)
fails to comply with the covenants.
Under the Code, if a Shareholder receives an
exempt-interest dividend with respect to any Share and such Share is held for
six months or less, any loss on the sale or exchange of such Share will be
disallowed to the extent of the amount of such exempt-interest dividend.
Any net realized long-term capital gains of a Fund will
be distributed annually. Each Fund will have no tax liability with respect to
such gains and the distributions will be taxable to Shareholders as long-term
capital gains, regardless of how long a Shareholder has held such Fund's
Shares. Such distributions will be designated as a capital gains dividend in a
written notice mailed to Shareholders after the close of such Fund's taxable
year. If a Shareholder disposes of Shares in a Fund at a loss before having
held those Shares for more than six months, such loss will be treated as a
long-term capital loss to the extent the Shareholder has received a long-term
capital gain distribution on the Shares. Although the Municipal Money Fund
does not expect to realize long-term capital gains, these rules will apply to
any such gains it does realize.
While the Municipal Money Market and Municipal Bond
Funds do not expect to earn any investment company taxable income (as defined
by the Code), any such taxable income earned by such Funds will be distributed
and will be taxable to Shareholders as ordinary income. In general,
"investment company taxable income" comprises taxable net investment income and
net short-term capital gains. A Municipal Money Market or Municipal Bond Fund
would be taxed on any undistributed investment company taxable income. Since
any such income will be distributed, it is anticipated that no such tax will be
paid by the Funds.
As indicated in the Prospectuses of the Municipal Money
Market and Municipal Bond Funds, these Funds may acquire puts with respect to
Municipal Securities held in their portfolios. See "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Puts on Municipal
Securities" in this Statement of Additional Information. The policy of these
Funds is to limit acquisitions of puts to those under which an acquiring Fund
will be treated for Federal income tax purposes as the owner of the Municipal
Securities acquired subject to the put and the interest on the Municipal
Securities will be tax-exempt to such Fund. Although the Internal Revenue
Service has issued a published ruling that provides some guidance regarding the
tax consequences of the purchase of puts, there is currently no guidance
available from the Internal Revenue Service that definitively establishes the
tax consequences of many of the types of puts that these Funds could acquire
under the Investment Company Act. Therefore, although the Municipal Money
Market and Municipal Bond Funds will only acquire a put after concluding that
it will have the tax consequences described above, the Internal Revenue Service
could reach a different conclusion. If a Tax Free or Municipal Bond Fund were
not treated as the owner of the Municipal Securities, income from such
securities would not be tax-exempt.
-45-
<PAGE> 48
Although the Municipal Money Market and Municipal Bond
Funds expect to qualify as "regulated investment companies" and to be relieved
of all or substantially all Federal income taxes, depending upon the extent of
their activities in states and localities in which their offices are
maintained, in which their agents or independent contractors are located, or in
which they are otherwise deemed to be conducting business, such Funds may be
subject to the tax laws of such states or localities. In addition, in those
states and localities which have income tax laws, the treatment of the
Municipal Money Market Funds and Municipal Bond Funds and their Shareholders
under such laws may differ from their treatment under Federal income tax laws.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
If for any taxable year a Municipal Money Market or
Municipal Bond Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
Federal tax at regular corporate rates (without any deduction for distributions
to its Shareholders). Moreover, upon distribution to Shareholders, the Fund's
income, including Municipal Securities interest income, will be taxable to
Shareholders to the extent of the Fund's current and/or accumulated earnings
and profits.
Additional Tax Information Relating to the
International Fixed Income Fund and the International
Equity Fund
Gains from foreign currency transactions (including
foreign currency options, foreign currency futures and foreign forward
contracts) generally will constitute qualifying income for purposes of the 90%
test. However, future Treasury Regulations may exclude from qualifying income
foreign currency gains not directly related to a Fund's principal business of
investing in stock or securities. Gain or loss from foreign currency
transactions will generally result in ordinary gain or loss for federal income
tax purposes.
Investment by the International Funds in certain
"passive foreign investment companies" could subject them to a U.S. federal
income tax or other charge on distributions received from such a company or the
sale of their investment in such a company, which tax cannot be eliminated by
making distributions to Shareholders. If an International Fund elects to treat
a passive foreign investment company as a "qualified electing fund," different
rules would apply, although the International Funds do not expect to be in the
position to make such elections.
The dividends-received deduction for corporations will
generally apply to an International Fund's dividends from investment income
only to the extent derived from dividends received by the International Fund
from domestic corporations.
An International Fund may be subject to foreign
withholding taxes on income and gains derived from foreign investments. Such
taxes would reduce the yield on such Fund's investments, but, as discussed in
the Prospectuses of the Bond and Equity Funds, may be taken as either a
deduction or a credit by U.S. citizens and corporations if such Fund makes the
election described in such Prospectuses.
-46-
<PAGE> 49
MANAGEMENT OF THE GROUP
Trustees and Officers
The Trustees and officers of each Fund of the Group,
their addresses, and principal occupations during the past five years are as
follows (If no address is listed, the address is 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658):
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Fund During Past 5 Years
- ---------------- ------------- ---------------------
<S> <C> <C>
Robert A. Nesher* Chairman of the Retired since 1994;
8 South Street Board of Trustees Director, Executive Vice
Kennebunkport, ME 04046 President of SEI Corporation
1986 to 1994. Director and
Executive Vice President of
SEI Financial Management
Corporation and SEI Financial
Services Company 1981 -1994.
Raymond J. Clark* Trustee From October, 1987 to present,
Princeton University Treasurer, Princeton
2 New South Bldg. University.
P.O. Box 35
Princeton, NJ 08540
Harold E. Kennedy Trustee From 1989 to the present,
Foster Wheeler Vice Chairman, Foster Wheeler
Corporation Corporation; from January 1987
Perryville Corporate Park to the present, Director, and
Clinton, NJ 08809 from 1984 to 1989, Executive
Vice President, Foster Wheeler Corporation; and,
since 1963, General Counsel, Foster Wheeler
Corporation.
Thomas B. Toohey Trustee From March, 1989 to present,
Country Club of the Poconos Member, Board of Directors,
Fairway Drive East, Lot 24 New Jersey Resource Corporation.
Marshall Creek, PA 18335 From January, 1987 to March,
1989, President and Chief
Operating Officer.
Donald Drakeman Trustee From 1987 to present, President
Medarex Incorporated and CEO of Medarex, Inc.
1545 Route 22 East
Annandale, NJ 08801-0953
</TABLE>
-47-
<PAGE> 50
<TABLE>
<S> <C> <C>
James McNamee Trustee President and CEO of Hooper Holmes, Inc.
170 Mt. Airy Road since 1985.
Basking Ridge, NJ 07920
David G. Lee President Senior Vice President, SEI
Financial Services Company.
Carmen V. Romeo Treasurer Director, Executive Vice President, Chief
Financial Officer and Treasurer of SEI. Director
and Treasurer of the Administrator and Distributor
since 1981.
Richard W. Grant Secretary Partner of Morgan, Lewis and
2000 One Logan Square Bockius (law firm) Counsel to SEI,
Philadelphia, PA 19103 the Trust, Administrator and
Distributor for the past five
years.
Jeffrey A. Cohen Controller CPA, Director, International and Domestic
Assistant Secretary Funds Accounting, SEI since 1991. Audit Manager,
Price Waterhouse prior to 1991.
Sandra K. Orlow Vice President Vice President & Assistant
Assistant Secretary Secretary, SEI Financial
Services Company.
Kevin P. Robins Vice President Senior Vice President,
Assistant Secretary General Counsel and Secretary
of SEI since 1994, Vice President and Assistant
Secretary of SEI from 1992 to 1994, Associate
Morgan, Lewis and Bockius (law firm) from 1988 -
1992.
Robert B. Carroll Vice President Vice President, Assistant
Assistant Secretary Secretary of SEI since 1994,
United States Securities and Exchange Commission,
Division of Investment Management, 1990-1994.
Associate, McGuire, Woods, Battle and Booth (law
firm).
Kathryn L. Stanton Vice President Vice President, Assistant
Assistant Secretary Secretary of SEI since 1994.
Associate, Morgan, Lewis and Bockius (law firm)
1989 - 1994.
</TABLE>
- -----------------------
* Indicates an "interested person" of the Group as defined in the Investment
Company Act.
-48-
<PAGE> 51
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of The SEI Corporation, SEI Financial Management
Corporation or SEI Financial Services Company receives any compensation from
the Group for acting as a Trustee or officer. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. SEI Financial Management Corporation receives fees from each
Fund for acting as Administrator. The following represents information
relating to such payments to Trustees and officers for the fiscal year ended
February 28, 1995.
<TABLE>
<CAPTION>
====================================================================================================================================
PENSION OR TOTAL
AGGREGATE RETIREMENT ESTIMATED COMPENSATION
COMPENSATION FROM BENEFITS ACCRUED ANNUAL BENEFITS FROM REGISTRANT
REGISTRANT FOR AS PART OF FUND UPON AND FUND COMPLEX
NAME OF PERSON FYE 1995 EXPENSES RETIREMENT PAID TO DIRECTORS
AND POSITION FOR FYE 2/28/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert A. Nesher, Trustee $0 N/A N/A $0 for services on 0 boards
- ------------------------------------------------------------------------------------------------------------------------------------
Raymond J. Clark, Trustee $18,000 N/A N/A $18,000 for services on 1 board
- ------------------------------------------------------------------------------------------------------------------------------------
Harold E. Kennedy, Trustee $18,000 N/A N/A $18,000 for services on 1 board
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas B. Toohey, Trustee $18,000 N/A N/A $18,000 for services on 1 board
- ------------------------------------------------------------------------------------------------------------------------------------
Donald Drakeman, Trustee $18,000 N/A N/A $18,000 for services on 1 board
- ------------------------------------------------------------------------------------------------------------------------------------
James McNamee, Trustee $0 N/A N/A $0 for services on 0 boards*
====================================================================================================================================
</TABLE>
* Was elected to the Board of Trustees after the fiscal year end 2/28/95.
INVESTMENT ADVISER
Investment advisory services are provided by Midlantic Bank, N.A.
to The Compass Capital Group pursuant to an Investment Advisory Agreement dated
March 1, 1989 (the "Investment Advisory Agreement").
-49-
<PAGE> 52
Under the Investment Advisory Agreement, Midlantic Bank, N.A. has
agreed to provide investment advisory services as described in the
Prospectuses. For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, each of the Group's Funds pays Midlantic Bank,
N.A. a fee, computed daily and paid monthly, as described in the Prospectuses.
Midlantic Bank, N.A. may periodically waive all or a portion of its advisory
fee with respect to any Fund to increase the net income of one or more of the
Funds available for distribution as dividends.
During the Group's fiscal years ended February 28, 1995, February
28, 1994, and February 28, 1993, Midlantic Bank, N.A. received the following
investment advisory fees:
<TABLE>
<CAPTION>
==================================================================================================================================
Advisory Fees Paid Advisory Fees Waived
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Reserve $1,494,954 $1,543,584 $1,381,737 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury $1,259,186 $1,236,329 $1,699,561 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Money $ 179,677 $ 252,158 $ 284,355 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey Money $ 158,240 $ 158,536 $ 139,596 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Money $ 109,047 $ 0 $ 31,489 $ 37,701 $ 58,909 $ 15,863
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Income $1,980,970 $1,717,317 $1,099,602 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Growth $ 939,431 $1,068,784 $ 874,278 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Small Company $ 217,501 $ 184,558 $ 148,425 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity $ 311,314 $ 188,759 $ 117,953 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Short/Intermediate $1,360,255 $1,509,856 $ 853,058 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed Income $1,510,610 $1,510,908 $ 984,192 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
International Fixed Income $ 361,620 $ 346,865 $ 265,549 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Bond $ 166,647 $ 125,316 $ 52,064 $ 30,962 $ 58,158 $ 27,874
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey Bond $ 607,485 $ 159,582 $ 37,159 $ 2,451 $318,099 $100,403
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Bond $ 67,344 $ 0 N/A $ 46,406 $ 40,295 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 37,962 N/A N/A $ 34,276 N/A N/A
==================================================================================================================================
</TABLE>
The Investment Advisory Agreement became effective as to the
Short/Intermediate Fund, the Fixed Income Fund, the Growth Fund and the Equity
Income Fund on March 17, 1989; as to the Money Market Funds and the Municipal
Money Fund on August 1, 1989; as to the Municipal Bond Fund in December 1989;
as to the Balanced Fund July 1, 1994; and as to all remaining Funds of the
Group on July 1, 1991. The Investment Advisory Agreement continued until July
31, 1994. Unless sooner terminated as provided therein, the
-50-
<PAGE> 53
Investment Advisory Agreement is renewed automatically for successive five-year
terms. Notwithstanding the foregoing, the Investment Advisory Agreement must
be approved at least annually by the Group's Trustees, provided that the
Investment Advisory Agreement is also approved by a majority of the Group's
Trustees who are not parties to the Investment Advisory Agreement or interested
persons (as defined in the Investment Company Act) of any party to the
Investment Advisory Agreement, by vote cast in person at a meeting called for
the purpose of approving the Investment Advisory Agreement. The Investment
Advisory Agreement is terminable with respect to a particular Fund on not less
than sixty days' notice by the Group's Trustees or by Midlantic Bank, N.A., and
is automatically terminated in the event of its assignment. Should a transfer
in the ownership of Midlantic Bank, N.A. or its parent, Midlantic Corporation,
occur, such transfer would be deemed an assignment of the Investment Advisory
Agreement, necessitating a new investment advisory agreement that would require
Shareholder approval.
The Investment Advisory Agreement provides that Midlantic Bank,
N.A. shall not be liable for any error of judgment or mistake of law or for any
loss suffered by the Group in connection with the performance of the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith, or gross negligence on the part of
Midlantic Bank, N.A., in the performance of its duties, or from reckless
disregard by Midlantic Bank, N.A. of its duties and obligations thereunder.
SUB-ADVISER, EQUITY INCOME AND GROWTH FUNDS
Wellington Management Company ("Wellington Management"), 75 State
Street, Boston, MA 02109, serves as sub-adviser to the Equity Income and Growth
Funds. Wellington Management, a registered investment adviser, is a
Massachusetts general partnership of which the following are managing partners:
Robert W. Doran, Duncan M. McFarland, and John B. Neff. Wellington Management
is a professional investment counseling firm which provides investment services
to investment companies, employee benefit plans, endowments, foundations, and
other institutions and individuals. Wellington Management's predecessor
organizations have provided investment advisory services to investment
companies since 1933 and to investment counseling clients since 1960. As of
March 31, 1995, Wellington Management had discretionary management authority
with respect to approximately $88.5 billion of assets.
Subject to the general supervision of the Group's Trustees and
Midlantic Bank, N.A. and in accordance with the investment objectives and
restrictions of the Equity Income and Growth Funds, Wellington Management
provides an investment management program for the Funds, making decisions with
respect to and placing orders for all purchases and sales of portfolio
securities and maintaining the Funds' records to such purchases and sales. For
the services provided and the expenses incurred pursuant to its investment
sub-advisory agreement with Midlantic Bank, N.A., Wellington Management
receives a fee from Midlantic Bank for the Equity Income Fund at the following
annual rates:
-51-
<PAGE> 54
<TABLE>
<CAPTION>
=====================================================================================
Annual Rate Average Daily Net Assets
-------------------------------------------------------------------------------------
<S> <C>
.40% Up to $100 million(1)
-------------------------------------------------------------------------------------
.30% $100 million - $200 million
-------------------------------------------------------------------------------------
.25% Over $200 million
=====================================================================================
</TABLE>
(1)Annual rate is based on the average daily net assets.
For the Growth Fund, Wellington Management receives a fee from Midlantic Bank,
N.A. at the following annual rate:
<TABLE>
<CAPTION>
=====================================================================================
Annual Rate Average Daily Net Assets
-------------------------------------------------------------------------------------
<S> <C>
.325% Up to $50 million
-------------------------------------------------------------------------------------
.225% $ 50 million - $150 million(1)
-------------------------------------------------------------------------------------
.15% Over $500 million
=====================================================================================
</TABLE>
(1)Annual rate is based on the average daily assets.
SUB-ADVISER, INTERNATIONAL EQUITY FUND
Seligman Henderson, Co. ("Seligman Henderson"), 100 Park Avenue,
New York, New York 10017, serves as sub-investment adviser to the International
Equity Fund. Seligman Henderson, a registered investment adviser, is a New
York partnership whose equal partners are Henderson International, Inc., a
wholly-owned subsidiary of Henderson Administration Group PLC ("Henderson
Administration") and J.& W. Seligman & Co. Incorporated, a Delaware corporation
("Seligman"). Henderson Administration, established in 1934, is one of the
largest independent publicly quoted investment management groups in the United
Kingdom. As of December 31, 1994, Henderson managed over $18.6 billion in
assets. As of December 31, 1994, Seligman served as investment manager of 18
investment companies with approximately $6.4 billion in assets, and also
provided investment management advice to individual and institutional accounts
having an aggregate value of approximately $4.4. Seligman Henderson was
created in 1991 to provide international and global investment management
services to institutional and individual investors and investment companies in
the United States.
Subject to the general supervision of the Group's Trustees and
Midlantic Bank, N.A., and in accordance with the investment objectives and
restrictions of the International Equity Fund, Seligman-Henderson provides an
investment management program for the Fund, making decisions with respect to
and placing orders for all purchases and sales of its portfolio securities, and
maintaining the Fund's records relating to such purchases and sales.
-52-
<PAGE> 55
For the services provided and expenses assumed pursuant to its investment
sub-advisory agreement with Midlantic Bank, N.A., Seligman-Henderson receives a
fee from Midlantic Bank, N.A. at the annual rate of .45% on the first $100
million of the International Equity Fund's average daily net assets and .40% on
assets in excess of $100 million. Seligman-Henderson receives no fees directly
from the International Equity Fund, and may periodically reduce its
sub-advisory fee.
SUB-ADVISER, SMALL COMPANY FUND
Wall Street Associates ("WSA"), 1200 Prospect Street, Suite 100,
LaJolla, California 92037, serves as sub-investment adviser to the Small
Company Fund. WSA has been providing investment advisory services since 1987
and as of March 31, 1995, had $655 million in assets under management, none of
which was held by registered investment companies.
Subject to the general supervision of the Group's Trustees and
Midlantic Bank, N.A., and in accordance with the investment objectives and
restrictions of the Small Company Fund, WSA provides an investment management
program for the Fund, making decisions with respect to and placing orders for
all purchases and sales of its portfolio securities, and maintaining the Fund's
records relating to such purchases and sales. For the services provided and
expenses assumed pursuant to its investment sub-advisory agreement with
Midlantic Bank, N.A., WSA receives a fee from Midlantic Bank, N.A. at the
annual rate of .50% of the Small Company Fund's average daily net assets.
SUB-ADVISER, INTERNATIONAL FIXED INCOME FUND
Morgan Grenfell Investment Services Limited ("MGIS"), 20 Finsbury
Circus, London, England EC2M 1NB, serves as sub-investment adviser to the
International Fixed Income Fund. MGIS, a registered investment adviser, is a
subsidiary of Morgan Grenfell Asset Management ("MGAM"), which as of December
31, 1994 manages over $48 billion in pension and other fiduciary assets; MGAM
is a subsidiary of Morgan Grenfell Group, which is in turn a wholly-owned
subsidiary of Deutsche Bank, A.G., a German financial services conglomerate.
MGIS serves as an investment adviser or sub-adviser to United States' clients
with over $10 billion in total assets as of December 31, 1994, the majority of
which are United States' institutional investors.
Subject to the general supervision of the Group's Trustees and
Midlantic Bank, N.A., and in accordance with the investment objectives and
restrictions of the International Fixed Income Fund, MGIS provides an
investment management program for the Fund, making decisions with respect to
and placing orders for all purchases and sales of its portfolio securities, and
maintaining the Fund's records relating to such purchases and sales. For the
services provided and expenses assumed pursuant to its investment sub-advisory
agreement with Midlantic Bank, N.A., MGIS receives a fee from Midlantic Bank,
N.A. at the annual rate of .40% on the first $75 million of the International
Fixed Income Fund's average daily
-53-
<PAGE> 56
net assets and .35% on assets in excess of $75 million. MGIS receives no fees
directly from the International Fixed Income Fund, and may periodically reduce
its sub-advisory fee.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement and each
Sub-Investment Advisory Agreement, Midlantic Bank, N.A. or, where applicable,
sub-adviser determine, subject to the general supervision of the Board of
Trustees of the Group and in accordance with each Fund's investment objective
and restrictions, which securities are to be purchased and sold by a Fund, and
which brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities of the Money Market Funds,
Municipal Money Market Funds, Municipal Bond Funds, the Short/Intermediate Fund
and the Fixed Income Fund and The International Fixed Income Fund usually are
principal transactions. Portfolio securities for the above-named Funds are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities, while portfolio securities for the remaining Funds of
the Group are normally purchased from an underwriter or a registered
broker-dealer. Purchases from underwriters and/or broker-dealers of portfolio
securities include a commission or concession paid by the issuer to the
underwriter or broker/dealer, and purchases from dealers serving as market
makers may include the spread between the bid and asked price. While Midlantic
Bank, N.A. generally seeks competitive spreads or commissions, the Group may
not necessarily pay the lowest spread or commission available on each
transaction, for reasons discussed below.
The aggregate brokerage commission paid by the Group for the last
three fiscal years were as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
TOTAL
% OF % OF TOTAL BROKERAGE
TOTAL TOTAL BROKERAGE COMMISSIONS TOTAL
TOTAL $ AMOUNT OF BROKERAGE TRANSACTIONS PAID TO SFS $ AMOUNT
$ AMOUNT BROKERAGE COMMISSIONS EFFECTED IN CONNECTION OF BROKERAGE
OF BROKERAGE COMMISSIONS PAID TO THROUGH WITH COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO AFFILIATED AFFILIATED REPURCHASE PAID
PAID AFFILIATES BROKERS BROKERS AGREEMENT FOR
IN LAST YEAR IN LAST YEAR FOR LAST YEAR FOR LAST YEAR TRANSACTIONS RESEARCH
FOR LAST YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Reserve N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury $ 2,275 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Money N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Money N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE> 57
<TABLE>
<CAPTION>
====================================================================================================================================
TOTAL
% OF % OF TOTAL BROKERAGE
TOTAL TOTAL BROKERAGE COMMISSIONS TOTAL
TOTAL $ AMOUNT OF BROKERAGE TRANSACTIONS PAID TO SFS $ AMOUNT
$ AMOUNT BROKERAGE COMMISSIONS EFFECTED IN CONNECTION OF BROKERAGE
OF BROKERAGE COMMISSIONS PAID TO THROUGH WITH COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO AFFILIATED AFFILIATED REPURCHASE PAID
PAID AFFILIATES BROKERS BROKERS AGREEMENT FOR
IN LAST YEAR IN LAST YEAR FOR LAST YEAR FOR LAST YEAR TRANSACTIONS RESEARCH
FOR LAST YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Money N/A N/A N/A N/A N/A N/A
Equity Income $ 566,728 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Growth $ 195,010 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Small Company $ 31,338 $4.37 1.39% 127,120.58% $437* N/A
- ------------------------------------------------------------------------------------------------------------------------------------
International $ 85,987 N/A N/A N/A N/A N/A
Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Short/Intermediate $ 7,656 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income $ 1,961 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
International Fixed N/A N/A N/A N/A N/A N/A
Income
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bond N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Bond N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Bond N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 21,301 N/A N/A N/A N/A N/A
====================================================================================================================================
</TABLE>
* Amount derived by aggregating the average month end daily balances and
multiplying by 5 basis point.
-55-
<PAGE> 58
<TABLE>
<CAPTION>
============================================================================================================
TOTAL $ TOTAL $
AMOUNT OF AMOUNT OF
BROKERAGE BROKERAGE
PORTFOLIO COMMISSIONS COMMISSIONS
PAID PAID TO AFFILIATES
1993-1994 IN 1993-1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Reserve N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
Municipal Money N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
New Jersey Money N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
Pennsylvania Money N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
Equity Income $264,910 $709,159 N/A N/A
- ------------------------------------------------------------------------------------------------------------
Growth $412,395 $402,062 N/A N/A
- ------------------------------------------------------------------------------------------------------------
Small Company $ 34,937 $ 41,742 $283,862,596 $325,693,650
- ------------------------------------------------------------------------------------------------------------
International Equity $ 61,544 $105,475 N/A N/A
- ------------------------------------------------------------------------------------------------------------
Short/Intermediate N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
Fixed Income N/A $313,000 N/A N/A
- ------------------------------------------------------------------------------------------------------------
International Fixed Income N/A N/A
N/A N/A
- ------------------------------------------------------------------------------------------------------------
Municipal Bond N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
New Jersey Bond N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
Pennsylvania Bond N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
Balanced Fund N/A N/A N/A N/A
============================================================================================================
</TABLE>
Allocation of transactions, including their frequency, to various
dealers is determined by Midlantic Bank, N.A. or a Sub-Adviser in its best
judgment and in a manner deemed fair and reasonable to Shareholders. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. Subject to this consideration, dealers who provide
supplemental investment research to Midlantic Bank, N.A. may receive orders for
transactions on behalf of the Group. Information so received is in addition to
and not in lieu of services required to be performed by Midlantic Bank, N.A.
and does not reduce the advisory fees payable to Midlantic Bank, N.A. by the
Group. Such information may be useful to Midlantic Bank, N.A. in serving both
the Group and other clients and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to Midlantic Bank,
N.A. in carrying out its obligations to the Group.
-56-
<PAGE> 59
The Group will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Midlantic Corporation
(Midlantic Bank, N.A.'s parent), the sub-advisers, or their affiliates, and
will not give preference to Midlantic Corporation's correspondents with respect
to such transactions, securities, savings deposits, repurchase agreements, and
reverse repurchase agreements.
Investment decisions for each Fund of the Group are made
independently from those for the other Funds or any other investment company or
account managed by Midlantic Bank, N.A., or by the sub-advisers. Any such
other investment company or account may also invest in the same securities as
the Group. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another Fund, investment
company or account, the transaction will be averaged as to price and available
investments will be allocated as to amount in a manner which Midlantic Bank,
N.A. or a Sub-Adviser believes to be equitable to the Fund(s) and such other
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained by a Fund. To the extent permitted by law, Midlantic Bank,
N.A. or a Sub-Adviser may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for the other Funds or for other
investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement, in making investment
recommendations for the Group, Midlantic Bank, N.A. will not inquire or take
into consideration whether an issuer of securities proposed for purchase or
sale by the Group is a customer of Midlantic Bank, N.A., its parent or its
subsidiaries or affiliates and, in dealing with its customers, Midlantic Bank,
N.A., its parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Group.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation
and interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies.
In the Board of
-57-
<PAGE> 60
Governors case, the Supreme Court also stated that if a national bank complied
with the restrictions imposed by the Board in its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to investment companies, a national bank performing
investment advisory services for an investment company would not violate the
Glass-Steagall Act.
Midlantic Bank, N.A. believes that it possesses the legal authority
to perform the services for each of the Group's Funds contemplated by the
Investment Advisory Agreement regarding those Funds and described in the
Group's Prospectuses and this Statement of Additional Information and has so
represented in its Investment Advisory Agreement with the Group. Future
changes in either Federal or state statutes and regulations relating to the
permissible activities of banks or bank holding companies and the subsidiaries
or affiliates of those entities, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent or restrict Midlantic Bank, N.A. from continuing to perform such
services for the Group. Depending upon the nature of any changes in the
services which could be provided by Midlantic Bank, N.A., the Board of Trustees
of the Group would review the Group's relationship with Midlantic Bank, N.A.
and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of Midlantic Bank, N.A. or
Midlantic Corporation in connection with Customer purchases of Shares of the
Group, the Banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that
any change in the Group's method of operations would affect its net asset value
per Share or result in financial losses to any Customer.
ADMINISTRATOR
SEI Financial Management Corporation serves as administrator (the
"Administrator") to the Group pursuant to a Management and Administration
Agreement dated as of March 8, 1991 (the "Administration Agreement").
The Administrator assists in supervising all operations of each
Fund (other than those performed by Midlantic Bank, N.A. under the Investment
Advisory Agreement).
Under the Administration Agreement, the Administrator has agreed to
furnish the Group statistical and research data, data processing, clerical,
accounting, and bookkeeping services, and certain other services required by
the Group. The Administrator prepares annual and semi-annual reports to the
Securities and Exchange Commission, prepares Federal and state tax returns,
prepares filings with state securities commissions, and generally assists in
all aspects of the Group's operations other than those performed by Midlantic
Bank, N.A. under the Investment Advisory Agreement, by Citibank under the
Custodian Agreement, and by State Street Bank and Trust Company under the
Transfer Agency Agreement. Under the
-58-
<PAGE> 61
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
calculated daily and paid periodically, at the annual rate of .18% of that
Fund's average daily net assets. The Administrator may periodically waive all
or a portion of its fee with respect to any Fund in order to increase the net
income of one or more of the Funds available for distribution as dividends.
During the Group's fiscal years ended February 28, 1995, February
28, 1994, and February 29, 1993, SEI Financial Management Corporation received
the following administrative fees:
<TABLE>
<CAPTION>
==================================================================================================================
Administrative Fees Paid Administrative Fees Waived
- ------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Reserve $768,836 $793,843 $710,607 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury $647,583 $635,827 $874,060 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Municipal Money $ 80,854 $113,471 $127,960 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
New Jersey Money $ 44,863 $ 43,497 $ 52,343 $26,345 $27,844 $10,475
- ------------------------------------------------------------------------------------------------------------------
Pennsylvania Money $ 35,970 $ 0 $ 13,466 $45,838 $26,509 $ 7,842
- ------------------------------------------------------------------------------------------------------------------
Equity Income $509,391 $441,595 $282,754 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Growth $241,568 $274,830 $224,814 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Small Company $ 43,500 $ 36,872 $ 29,685 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
International Equity $ 62,263 $ 37,752 $ 23,724 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Short/Intermediate $408,074 $452,957 $255,917 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Fixed Income $453,175 $453,273 $295,258 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
International Fixed $ 81,364 $ 78,033 $ 59,749 N/A N/A N/A
Income
- ------------------------------------------------------------------------------------------------------------------
Municipal Bond $ 33,327 $ 30,579 $ 13,041 $25,955 $24,463 $11,150
- ------------------------------------------------------------------------------------------------------------------
New Jersey Bond $105,029 $ 79,454 $15,884 $77,951 $63,850 $25,385
- ------------------------------------------------------------------------------------------------------------------
Pennsylvania Bond $ 12,513 $ 0 N/A $21,612 $12,088 N/A
- ------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 5,918 N/A N/A $12,657 N/A N/A
==================================================================================================================
</TABLE>
-59-
<PAGE> 62
The Administration Agreement became effective as to the Money
Market Funds, the Municipal Money Fund, the Municipal Bond Fund, the
Short/Intermediate Fund, the Fixed Income Fund, the Growth Fund and the Equity
Income Fund on August 1, 1991, as to the Balanced Fund on July 1, 1994 and as
to all remaining Funds of the Group on July 1, 1991. The Administration
Agreement will continue until July 31, 1997, and unless sooner terminated as
provided therein, shall be renewed automatically for successive one-year terms.
Notwithstanding the foregoing, the Administration Agreement will be reviewed
and ratified at least annually by the Group's Trustees or Shareholders, and the
Administration Agreement will also be reviewed and ratified by a majority of
the Group's Trustees who are not parties to the Administration Agreement or
interested persons (as defined in the Investment Company Act) of any party to
the Administration Agreement, by vote cast in person at a meeting called for
the purpose of reviewing the Administration Agreement. The Administration
Agreement is terminable with respect to a particular Fund for "cause" as
defined in the Administration Agreement.
The Administration Agreement provides that the Administrator shall
not be liable for any error of judgment or mistake of law or any loss suffered
by the Group in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
EXPENSES
If total expenses borne by any of the Funds in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
Midlantic Bank, N.A., the sub-advisers and the Administrator will bear such
excess expenses in proportion to their respective fees. As of the date of this
Statement of Additional Information, the most restrictive expense limitation
applicable to the Group limits each Fund's aggregate annual expenses, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of a
Fund's average net assets, 2.0% of the next $70 million of a Fund's average net
assets, and 1.5% of a Fund's remaining average net assets. Any expenses to be
borne by Midlantic Bank, N.A. and the Administrator will be estimated daily and
reconciled and paid on a monthly basis. Fees imposed upon customer accounts by
Midlantic Bank, N.A. for cash management and other investment or Trust services
are not included within Group expenses for purposes of any such expense
limitation.
DISTRIBUTOR
SEI Financial Services Company serves as distributor to the Group
pursuant to a Distribution Agreement dated as of March 8, 1991 (the
"Distribution Agreement"). The Distribution Agreement became effective as to
the Money Market Funds, the Municipal Money Fund, the Municipal Bond Fund, the
Short/Intermediate Fund, the Fixed Income Fund, the Growth Fund and the Equity
Income Fund on, August 1, 1991 as to the Balanced
-60-
<PAGE> 63
Fund on July 1, 1994 and as to all remaining Funds of the Group on July 1,
1991. Unless otherwise terminated as provided therein, the Distribution
Agreement will be in effect until July 31, 1994, and thereafter will continue
for successive one-year periods. Notwithstanding the foregoing, the
Distribution Agreement shall be reviewed and ratified at least annually (i) by
the Group's Trustees or by the vote of a majority of the outstanding Shares of
the Group, and (ii) by the vote of a majority of the Trustees of the Group who
are not parties to the Distribution Agreement or interested persons (as defined
in the Investment Company Act) of any party to the Distribution Agreement, cast
in person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement may be terminated in the event of any assignment, as
defined in the Investment Company Act, and is terminable with respect to a
particular Fund on not less than sixty days' notice by the Group's Trustees, by
vote of a majority of the outstanding Shares of such Fund or by the
Distributor. For the Group's fiscal years ended February 28, 1995, February
29, 1994, and February 28, 1993, SEI Financial Services Company did not receive
any fees pursuant to its Distribution Agreement with the Group.
CUSTODIAN AND TRANSFER AGENT
Cash and securities owned by each Fund of the Group are held by
Citibank, N.A. as custodian, and, with respect to the International Fixed
Income Fund and the International Equity Fund, certain foreign sub-custodians.
Citibank, N.A. serves as custodian to the Group's Funds pursuant to a Custodial
Services Agreement dated June 6, 1991 (the "Custodian Agreement"). Under the
Custodian Agreement, Citibank, N.A. (i) maintains a separate account or
accounts in the name of each Fund of the Group; (ii) makes receipts and
disbursements of money on behalf of each Fund of the Group; (iii) collects and
receives all income and other payments and distributions on account of the
Group's portfolio securities; (iv) responds to correspondence from security
brokers and others relating to its duties; and (v) makes periodic reports to
the Group's Trustees concerning the Group's operations. Citibank, N.A. may,
at its own expense, open and maintain a sub-custody account or accounts on
behalf of the Group, provided that Citibank, N.A. shall remain liable for the
performance of all of its duties under the Custodian Agreement.
State Street Bank and Trust Company serves as transfer agent and
dividend disbursing agent to the Group's Funds pursuant to a Transfer Agency
Agreement with the Group. Under the Transfer Agency Agreement, State Street
Bank and Trust Company has agreed (i) to issue and redeem Shares of the Group;
(ii) to address and mail all communications by the Group to its Shareholders,
including reports to Shareholders, dividend and distribution notices, and proxy
material for meetings of Shareholders; (iii) to respond to correspondence or
inquiries by Shareholders and others relating to its duties; (iv) to maintain
Shareholder accounts and certain sub-accounts; and (v) to make periodic reports
to the Group's Trustees concerning the Group's operations.
-61-
<PAGE> 64
AUDITORS
The Statements of Assets and Liabilities and Schedule of Portfolio
Investments of the Group at February 28, 1995 and the related Statements of
Operations and Changes in Net Assets and Schedules of Selected Per-Share Data
and Ratios for the periods then ended, which appear in this Statement of
Additional Information, have been audited by Coopers & Lybrand, independent
certified public accountants, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report and on the authority of
such firm as experts in auditing and accounting.
LEGAL COUNSEL
Morgan, Lewis & Bockius, 2000 One Logan Square, Philadelphia, PA
19103, are counsel to the Group.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Group is a Massachusetts business trust and was organized on
October 1, 1987; its Declaration of Trust was filed with the Secretary of State
of The Commonwealth of Massachusetts on October 2, 1987 and its Amended and
Restated Agreement and Declaration of Trust (the "Declaration of Trust") was
filed with the Secretary of State of The Commonwealth of Massachusetts on
December 31, 1987. The Declaration of Trust authorizes the Board of Trustees
to issue an unlimited number of Shares, which are units of beneficial interest.
The Group presently has sixteen series of Shares which represent interests in
the following Funds: the Cash Reserve Fund, the U.S. Treasury Fund, the
Municipal Money Fund, the New Jersey Money Fund, the Pennsylvania Money Fund,
the Equity Income Fund, the Growth Fund, the Small Company Fund, the
International Equity Fund, the Short/Intermediate Fund, the Fixed Income Fund,
the International Fixed Income Fund, the Municipal Bond Fund, the New Jersey
Municipal Bond Fund, the Pennsylvania Municipal Bond Fund and the Balanced
Fund, respectively. The Group's Declaration of Trust authorizes the Board of
Trustees to divide or redivide any unissued Shares of the Group into one or
more additional series.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Group's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
-62-
<PAGE> 65
As described in the text of the Prospectuses under the caption
"GENERAL INFORMATION--Voting Rights," Shares of the Group's Funds are entitled
to one vote per Share (with proportional voting for fractions of Shares) on
such matters as Shareholders are entitled to vote. Shareholders vote as a
single class on all matters except (i) when required by the Investment Company
Act, shares shall be voted by individual Fund, and (ii) when the Trustees have
determined that the matter affects only the interests of one or more Funds,
then only Shareholders of such Fund or Funds shall be entitled to vote thereon.
There will normally be no meetings of Shareholders for the purposes of electing
Trustees unless and until such time as less than a majority of the Trustees
have been elected by the Shareholders, at which time the Trustees then in
office will call a Shareholders' meeting for the election of Trustees. In
addition, Trustees may be removed from office by a written consent signed by
the holders of two-thirds of the outstanding Shares of the Group and filed with
the Group's custodian or by a vote of the holders of two-thirds of the
outstanding Shares of the Group at a meeting duly called for the purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding Shares. Upon written request by ten or more
Shareholders, who have been such for at least six months, and who hold Shares
constituting 1% of the outstanding Shares, stating that such Shareholders wish
to communicate with the other Shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a Trustee, the
Group will provide a list of Shareholders or disseminate appropriate materials
(at the expense of the requesting Shareholders). Except as set forth above,
the Trustees shall continue to hold office and may appoint their successors.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, the Group's Declaration of Trust
provides that Shareholders, and, absent wilful misfeasance, bad faith, gross
negligence or reckless disregard of duties involved in the conduct of the
Trustees, Trustees shall not be subject to any personal liability for the
obligations of the Group, and that every written agreement, obligation,
instrument, or undertaking made by the Group shall contain a provision to the
effect that the Shareholders and Trustees are not personally liable thereunder.
The Declaration of Trust provides for indemnification out of a Fund's property
of any Shareholder and, absent wilful misfeasance, bad faith, gross negligence
or reckless disregard of duties involved in the conduct of the Trustees, any
Trustee held personally liable solely by reason of his being or having been a
Shareholder or Trustee. Thus, the risk of a Shareholder or Trustee incurring
financial loss on account of Shareholder or Trustee liability is limited to
circumstances in which the Group itself would be unable to meet its obligations
or, in the case of Trustees, to circumstances involving wilful misfeasance, bad
faith, gross negligence or reckless disregard of Trustees' duties.
-63-
<PAGE> 66
CALCULATION OF PERFORMANCE DATA
COMPUTATION OF YIELD
Money Market Funds. From time to time each Money Market and Municipal Money
Market Fund advertises its "current yield" and "effective compound yield".
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of the Funds refers to the income
generated by an investment in a Fund 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. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in a Fund 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 current yield of the Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed
by determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains
and losses are not included in the calculation of the yield. The effective
yield of the Funds is determined by computing the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: Effective Yield = (Base
Period Return + 1) 365/7) - 1. The current and the effective yields reflect
the reinvestment of net income earned daily on portfolio assets.
The Municipal Money Market Funds may also calculate tax equivalent yield as
described under "Other Yields" below.
For the 7-day period ended February 28, 1995, the Money Market and Municipal
Money Market Funds' current, effective and tax-equivalent yields were as
follows:
-64-
<PAGE> 67
<TABLE>
<CAPTION>
===============================================================================================================
7-DAY
7-DAY 7-DAY TAX-EQUIVALENT
EFFECTIVE TAX-EQUIVALENT EFFECTIVE
PORTFOLIO 7-DAY YIELD YIELD YIELD YIELD
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Reserve Fund 5.64 5.80 N/A N/A
- ---------------------------------------------------------------------------------------------------------------
U.S. Treasury Fund 5.26 5.40 N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Municipal Money Fund 3.25 3.30 5.38 5.46
- ---------------------------------------------------------------------------------------------------------------
New Jersey Municipal Money Fund 3.21 3.27 5.30 5.42
- ---------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Money Fund 3.25 3.30 5.36 5.46
===============================================================================================================
</TABLE>
Other Yields. The Municipal Bond, Bond and Equity Funds may advertise a 30 day
yield. These figures will be based on historical earnings and are not intended
to indicate future performance. The yield of these Funds refers to the
annualized income generated by an investment in the Funds over a specified 30
day period. The yield is calculated by assuming that the income generated by
the investment during that period generated each period over one year and is
shown as a percentage of the investment. In particular, yield will be
calculated according to the following formula:
6
Yield = (2 (a-b/cd + 1) - 1) where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The tax equivalent yield for the Municipal Money Market Funds and the Municipal
Bond Funds is computed by dividing that portion of the Fund's yield which is
tax-exempt by one minus a stated Federal and/or state income tax rate and
adding the product to that portion, if any, of the Fund's yield that is not
tax-exempt. (Tax equivalent yields assume the payment of Federal income taxes
at a rate of 39.6% and, if applicable, New Jersey income taxes at a rate of
6.58% and Pennsylvania income taxes at a rate of 3%.)
Yields are one basis upon which investors may compare the Funds with other
funds; however, yields of other funds and other investment vehicles may not be
comparable because of the factors set forth above and differences in the
methods used in valuing portfolio instruments.
The yield of these Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
-65-
<PAGE> 68
For the 30 day period ended February 28, 1995, the yields on the Funds, other
than the Money Market and Municipal Money Funds, were as follows:
<TABLE>
<CAPTION>
===================================================================================================
30-DAY
PORTFOLIO 30-DAY TAX-EQUIVALENT
YIELD YIELD
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Income Fund 2.43 --
- ---------------------------------------------------------------------------------------------------
Growth Fund .76 --
- ---------------------------------------------------------------------------------------------------
Small Company Fund .88 --
- ---------------------------------------------------------------------------------------------------
International Equity Fund -- --
- ---------------------------------------------------------------------------------------------------
Balanced Fund 3.79 --
- ---------------------------------------------------------------------------------------------------
International Fixed Income Fund 5.27 --
- ---------------------------------------------------------------------------------------------------
Municipal Bond Fund 4.32 7.15
- ---------------------------------------------------------------------------------------------------
New Jersey Municipal Bond Fund 4.40 7.29
- ---------------------------------------------------------------------------------------------------
Pennsylvania Municipal Bond Fund 4.47 7.40
- ---------------------------------------------------------------------------------------------------
Short/Intermediate Fund 6.09 --
- ---------------------------------------------------------------------------------------------------
Fixed Income Fund 6.50 --
===================================================================================================
</TABLE>
CALCULATION OF TOTAL RETURN
From time to time, the Municipal Bond, Bond and Equity Funds may advertise
total return on an "average annual total return" basis and on an "aggregate
total return" basis for various periods. Average annual total return reflects
the average annual percentage change in the value of an investment in a Fund
over the particular measuring period. Aggregate total return reflects the
cumulative percentage change in value over the measuring period. Aggregate
total return is computed according to a formula prescribed by the SEC. The
n
formula can be expressed as follows: P (1 + T) = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period or the life of the fund. The formula for calculating aggregate
total return can be expressed as (ERV/P)-1.
The calculation of total return assumes reinvestment of all dividends and
capital gain distribution on the reinvestment dates during the period and that
the entire investment is redeemed at the end of the period. In addition the
maximum sales charge for each Fund is deducted from the initial $1000 payment.
Total return may also be shown without giving effect to any sales charges.
-66-
<PAGE> 69
Based on the foregoing, the aggregate total returns for the Funds from
inception through February 28, 1995 were as follows:
For the periods ending February 28, 1995:
<TABLE>
<CAPTION>
========================================================================================================================
Average Annual Total Return
-----------------------------------------------------------------------
One Five Ten Since
Portfolio Year Year Year Inception
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Income Fund - NAV 3.87% 12.13% -- 10.94%
- ------------------------------------------------------------------------------------------------------------------------
Equity Income Fund - w/Load (.06%) 11.27% -- 10.20%
- ------------------------------------------------------------------------------------------------------------------------
Growth Fund - NAV 2.75% 8.30% -- 8.09%
- ------------------------------------------------------------------------------------------------------------------------
Growth Fund - w/Load (1.10%) 7.48% -- 7.38%
- ------------------------------------------------------------------------------------------------------------------------
Small Company Fund - NAV (4.70%) -- -- 8.22%
- ------------------------------------------------------------------------------------------------------------------------
Small Company Fund - w/Load (8.27%) -- -- 7.09%
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund - NAV (6.99%) -- -- 8.23%
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund - w/Load (10.49%) -- -- 7.10%
- ------------------------------------------------------------------------------------------------------------------------
Balanced Fund - NAV -- -- -- 8.94%
- ------------------------------------------------------------------------------------------------------------------------
Balanced Fund - w/Load -- -- -- 2.83%
- ------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund - NAV 1.17% 6.80% -- 6.71%
- ------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund - w/Load 2.62% 5.98% -- 5.93%
- ------------------------------------------------------------------------------------------------------------------------
New Jersey Bond Fund - NAV 1.49% -- -- 7.59%
- ------------------------------------------------------------------------------------------------------------------------
New Jersey Bond Fund - w/Load (2.31%) -- -- 6.47%
- ------------------------------------------------------------------------------------------------------------------------
Pennsylvania Bond Fund - NAV 1.81% -- -- 1.73%
- ------------------------------------------------------------------------------------------------------------------------
Pennsylvania Bond Fund - w/Load (1.96%) -- -- (0.85%)
- ------------------------------------------------------------------------------------------------------------------------
International Fixed Income Fund - NAV 1.50% -- -- 7.40%
- ------------------------------------------------------------------------------------------------------------------------
International Fixed Income Fund - w/Load (2.32%) -- -- 6.28%
- ------------------------------------------------------------------------------------------------------------------------
Short/Intermediate Fund - NAV 2.27% 7.17% N/A 7.14%
- ------------------------------------------------------------------------------------------------------------------------
Short/Intermediate Fund - w/Load (1.59%) 6.35% N/A 6.43%
- ------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund - NAV .65% 8.59% N/A 8.05%
- ------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund - w/Load (3.16%) 7.77% N/A 7.34%
========================================================================================================================
</TABLE>
-67-
<PAGE> 70
The Cash Reserve Fund and Municipal Money Fund commenced operations on March 1,
1988. The U.S. Treasury Fund commenced operations on March 24, 1988. The
Equity Income Fund, Growth Fund, Short/Intermediate Fund and Fixed Income Fund
commenced operations on May 31, 1989. The Municipal Bond Fund commenced
operations on December 1, 1989. The International Equity Fund, Small Company
Fund, International Fixed Income Fund, New Jersey Municipal Bond Fund, and New
Jersey Municipal Money Fund commenced operations on July 1, 1991. The
Pennsylvania Municipal Money Fund commenced operations on August 15, 1991 and
the Pennsylvania Municipal Bond commenced operations on August 31, 1993. The
Balanced Fund commenced operations on July 1, 1994.
The Funds' performance may from time to time be compared to other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services),
financial and business publications and periodicals, to broad groups of
comparable mutual funds or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. The Funds may quote Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance. The Funds may quote
Ibbotson Associates of Chicago, Illinois, which provides historical returns of
the capitals markets in the U.S. The Funds may use long term performance of
these capital markets to demonstrate general long-term risk vs. reward
scenarios and could include the value of a hypothetical investment in any of
the capital markets. The Funds may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
MISCELLANEOUS
As used in the Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Group upon the issuance or sale of Shares in that Fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Group's
Trustees. The Board of Trustees may allocate such general assets in any manner
it deems fair and equitable. It is anticipated that the factor that will be
used by the Board of Trustees in making allocations of general assets to a
particular Fund will be the relative net asset values of the respective Fund at
the time of allocation. Assets belonging to a particular Fund are charged with
the direct
-68-
<PAGE> 71
liabilities and expenses in respect of that Fund, and with a share of the
general liabilities and expenses of the Group not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net asset values of the respective Fund at the time of allocation.
The timing of allocations of general assets and general liabilities and
expenses of the Group to a particular Fund will be determined by the Trustees
of the Group and will be in accordance with generally accepted accounting
principles. Determinations by the Trustees of the Group as to the timing of
the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular Fund are
conclusive.
The organizational expenses of the Group have been allocated to
each Fund and are being amortized over a period of five years from the
commencement of the public offering of Shares of such Fund. In the event any
of the initial Shares of the Group are redeemed during the amortization period,
the redemption proceeds will be reduced by a pro rata portion of any
unamortized organization expenses in the same proportion as the number of
initial Shares being redeemed bears to the total number of initial Shares
outstanding at the time of redemption. Investors purchasing Shares of the
Group subsequent to the date of the Prospectuses and this Statement of
Additional Information bear such expenses only as they are amortized against a
Fund's investment income.
The Group is registered with the Securities and Exchange Commission
as a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of the Group.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The Prospectuses and this Statement of Additional Information are
not an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
-69-
<PAGE> 72
As of April 7, 1995, Midlantic Bank, N.A. possessed the following
voting or investment power, on behalf of its underlying accounts:
<TABLE>
<CAPTION>
==============================================================================================
Voting or Investment Power
(% of shares)
- ----------------------------------------------------------------------------------------------
<S> <C>
Cash Reserve 2.2%
- ----------------------------------------------------------------------------------------------
U.S. Treasury 0%
- ----------------------------------------------------------------------------------------------
Municipal Money 0%
- ----------------------------------------------------------------------------------------------
New Jersey Money 0%
- ----------------------------------------------------------------------------------------------
Pennsylvania Money 0%
- ----------------------------------------------------------------------------------------------
Equity Income 20.3%
- ----------------------------------------------------------------------------------------------
Growth 41.9%
- ----------------------------------------------------------------------------------------------
Small Company 49.2%
- ----------------------------------------------------------------------------------------------
International Equity 40.6%
- ----------------------------------------------------------------------------------------------
Short/Intermediate 17.0%
- ----------------------------------------------------------------------------------------------
Fixed Income 29.0%
- ----------------------------------------------------------------------------------------------
International Fixed Income 39.8%
- ----------------------------------------------------------------------------------------------
Municipal Bond 0%
- ----------------------------------------------------------------------------------------------
New Jersey Bond 0%
- ----------------------------------------------------------------------------------------------
Pennsylvania Bond 0%
- ----------------------------------------------------------------------------------------------
Balanced Fund 43.7%
==============================================================================================
</TABLE>
Consequently, under the Investment Company Act, Midlantic Bank, N.A. may be
deemed to be a controlling person of the Equity Income, Growth, Fixed Income,
Small Company, International Fixed Income, and International Equity Funds.
The following table indicates each additional person known to the
Group to own beneficially 5 percent or more of the Shares of a Fund as of April
7, 1995:
-70-
<PAGE> 73
<TABLE>
<CAPTION>
CASH RESERVE FUND
-----------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Carrier - ILA Container Royalty 9.6%
One Evertrust Plaza 3rd Pl.
Jersey City, NJ 07302
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY FUND
--------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Jordan McGrath & Case 16.6%
445 Park Avenue
New York, NY 10022
Princeton Insurance Company 5.8%
746 Alexander Road
Princeton, NJ 08543
Martha Megerle Special 5.1%
4 Headquarters Plaza North
Morristown, NJ 07960
</TABLE>
<TABLE>
<CAPTION>
GROWTH FUND
-----------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Midlantic Retirement Plan 36.7%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Midlantic Retirement Plan 17.9%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
-71-
<PAGE> 74
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE FUND
-----------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Midlantic Retirement Plan 13.2%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME FUND
-----------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Midlantic Retirement Plan 27.4%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FIXED INCOME FUND
-------------------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Verona Construction Company 5.4%
1201 N. Market Street
Suite 1705
Wilmington, DE 19801
Huls Salaried Retirement 11.6%
Turner Place
P.O. Box 365
Piscataway, NJ 08854
Midlantic Retirement Plan 39.8%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
-72-
<PAGE> 75
<TABLE>
<CAPTION>
SMALL COMPANY FUND
------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Hatfield Quality Meats 7.2%
2700 Funks Road
P.O. Box 902
Hatfield, PA 19440
Midlantic Retirement Plan 49.2%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Midlantic Retirement Plan 40.6%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY MUNICIPAL MONEY FUND
-------------------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Wilson Kaplen 18.3%
100 Hugenot Avenue
Englewood, NJ 07631
Lillian Lewis 5.5%
1350 Hudson Road
Teaneck, NJ 07666
</TABLE>
-73-
<PAGE> 76
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY FUND
---------------------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Healthcare Services Group 16.9%
2643 Huntingdon Pike
Huntingdon Valley, PA 19006
Harold Honickman 16.2%
8275 US Rt. 130
Pennsauken, NJ 08110
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND
-------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Wood Press Profit Sharing Plan 9.3%
515 East 41st Street
Paterson, NJ 07509
Market Source 401K 8.7%
10 Abeel Road
Cranbury, NJ 08512
Midlantic Retirement Plan 43.7%
Midlantic Bank, N.A.
P.O. Box 600
Edison, NJ 08818
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL BOND FUND
--------------------------------
Percent
Name and Address of Fund
- ---------------- -------
<S> <C>
Helen Annette Segnere 5.7%
600 Rosedale Drive
Pottstown, PA 19464
Donald Z. Wade 5.3%
710 Delaware Drive
P.O. Box 145
Matamoras, PA 18336
</TABLE>
-74-
<PAGE> 77
To the Shareholders and Trustees of
The Compass Capital Group:
We have audited the accompanying statements of net assets of the Cash Reserve
Fund, the U.S. Treasury Fund, the Municipal Money Fund, the New Jersey
Municipal Money Fund, the Pennsylvania Municipal Money Fund, the Equity Income
Fund, the Growth Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund, the Fixed Income Fund, the Municipal Bond Fund, the
New Jersey Municipal Bond Fund, and the Pennsylvania Municipal Bond Fund, and
the schedules of investments and statements of assets and liabilities of the
Growth Fund, the International Equity Fund, and the International Fixed Income
Fund of the Compass Capital Group (the "Group"), as of February 28, 1995 and
the related statements of operations for the year then ended, and the statement
of changes in net assets and the financial highlights for each of the
respective periods presented. These financial statements and the financial
highlights are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995, by correspondence with the Fund's custodian and brokers, or
other auditing procedures where correspondence from brokers was not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds comprising the Compass Capital Group as of February 28,
1995, the results of their operations for the year then ended, the changes in
their net assets for each of the two years then ended and the financial
highlights for each of the respective periods presented in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ---------------------------
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 14, 1995
<PAGE> 78
STATEMENT OF NET ASSETS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
February 28, 1995
CASH RESERVE FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
COMMERCIAL PAPER (33.2%)
ABN/AMRO Canada, Schedule B
6.220%, 03/27/95.............. $ 5,000 $ 4,978
American Telephone & Telegraph
Capital
6.370%, 04/03/95.............. 10,000 9,943
Bowater PLC
6.150%, 05/12/95.............. 5,000 4,939
Broadway Capital
6.420%, 04/07/95.............. 12,000 11,922
Deutsche Bank Financial
5.860%, 05/01/95.............. 5,000 4,952
Ford Motor Credit
6.235%, 04/28/95.............. 9,500 9,406
General Electric Capital
6.480%, 04/13/95.............. 5,000 4,962
International Lease Finance
6.520%, 06/09/95.............. 10,000 9,824
International Nederlanden U.S.
Insurance Holdings
6.020%, 03/03/95.............. 5,000 4,998
6.057%, 04/24/95.............. 5,050 5,005
MCA Funding
6.605%, 07/25/95.............. 7,300 7,111
6.308%, 08/21/95.............. 5,500 5,338
New South Wales Treasury
6.010%, 03/09/95.............. 5,000 4,993
Queensland Alumina
6.030%, 03/13/95.............. 5,000 4,990
6.226%, 04/17/95.............. 10,000 9,920
South Australian Government
Financing Authority
6.215%, 03/23/95.............. 7,600 7,572
6.930%, 07/03/95.............. 11,000 10,746
Southland
6.400%, 03/14/95.............. 5,000 4,989
6.200%, 05/10/95.............. 5,000 4,941
Tasmanian Public Finance
6.360%, 03/30/95.............. 8,200 8,159
Toyota Motor Credit
6.230%, 04/03/95.............. 5,000 4,972
--------
Total Commercial Paper
(Cost $144,658,704)........... 144,660
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
CORPORATE BONDS (23.7%)
American Express Centurion Bank
6.125%, 03/23/95 (A)................. $10,000 $10,000
6.063%, 03/26/95 (A)................. 10,000 9,998
Associates
4.190%, 05/05/95..................... 2,000 1,997
Beta Finance
6.190%, 03/01/95 (A)................. 11,000 10,999
FCC National Bank, Delaware
6.110%, 03/07/95 (A)................. 10,000 10,000
General Electric Capital
6.400%, 03/01/95 (A)................. 10,000 9,998
Goldman Sachs Group
6.190%, 03/01/95 (A)................. 10,000 10,000
6.655%, 03/01/95 (A)................. 10,000 10,000
Nationsbank, North Carolina
5.650%, 07/21/95..................... 10,000 9,984
PNC Bank
6.010%, 03/07/95 (A)................. 10,000 9,999
Southtrust Bank, Alabama
6.125%, 05/03/95..................... 10,000 10,000
--------
Total Corporate Bonds
(Cost $102,975,481).................. 102,975
--------
ASSET BACKED SECURITIES (4.6%)
Steers
6.060%, 03/07/95 (A)................. 15,000 15,000
6.250%, 05/18/95 (A)................. 5,000 5,000
--------
Total Asset Backed Securities
(Cost $19,999,870)................... 20,000
--------
GUARANTEED INVESTMENT CONTRACT (2.3%)
Peoples Security Life
6.170%, 03/01/95 (A)................. 10,000 10,000
--------
Total Guaranteed Investment
Contract
(Cost $10,000,000)................... 10,000
--------
U.S. TREASURY OBLIGATION (1.2%)
U.S. Treasury Note
3.875%, 03/31/95..................... 5,000 4,997
--------
Total U.S. Treasury Obligation
(Cost $4,997,455).................... 4,997
--------
</TABLE>
Continued
15
<PAGE> 79
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
CASH RESERVE
FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (6.4%)
Federal National Mortgage
Association
5.360%, 03/20/95.............. $ 5,000 $4,986
6.730%, 07/11/95.............. 5,000 4,881
Small Business Administration
7.000%, 03/01/95 (A).......... 7,958 8,148
Student Loan Marketing
Association
5.315%, 06/30/95.............. 5,000 5,000
5.480%, 06/30/95 (A).......... 5,000 5,000
--------
Total U.S. Government Agency
Obligations
(Cost $28,015,029)............ 28,015
--------
TIME DEPOSIT (1.9%)
Dai Ichi Kangyo Bank, Toronto
6.156%, 03/24/95.............. 5,000 5,000
Morgan Toronto
6.063%, 03/29/95.............. 3,300 3,300
--------
Total Time Deposit
(Cost $8,300,000)............. 8,300
--------
CERTIFICATES OF DEPOSIT (9.2%)
Canadian Imperial Bank
6.250%, 03/21/95.............. 5,000 5,000
6.080%, 04/19/95.............. 10,000 10,000
Dai Ichi Kangyo Bank, New York
6.100%, 03/03/95.............. 10,000 10,000
National Westminster PLC,
New York
6.080%, 04/14/95.............. 5,000 5,000
Westdeutsche Landesbank
6.120%, 06/01/95.............. 10,000 10,000
--------
Total Certificates of Deposit
(Cost $40,000,129)............ 40,000
--------
BANKERS ACCEPTANCES (0.9%)
First National Bank, Chicago
5.560%, 03/14/95.............. 4,000 3,992
--------
Total Bankers Acceptances
(Cost $3,992,142)............. 3,992
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ ---------
<S> <C> <C>
REPURCHASE AGREEMENTS (14.8%)
First Boston, 6.1875%, dated 02/28/95,
matures 03/01/95, repurchase price
$32,505,586 (collateralized by U.S.
Coupon Strips, par value
$87,163,970, maturities ranging
from 05/15/97 to 11/15/12, market
value $33,164,798)..................................$32,500 $32,500
Merrill Lynch, 6.17%, dated 02/28/95,
matures 03/01/95, repurchase price
$31,904,467 (collateralized by
Federal Home Loan Bank Bond, par
value $10,000, 7.67%, 10/06/99,
market value $10,308, Collateralized
Mortgage Obligation Trust, par
value $12,270,000, 9.10%, 01/01/20,
market value $20,567,505, Federal
Home Loan Mortgage Corporation-
Government National Mortgage
Association Collateralized Mortgage
Obligations, par value $15,000,000,
coupons ranging from 7.00% to
7.50%, maturities ranging from
03/25/24 to 04/25/24, market value
$11,963,109)........................................ 31,899 31,899
---------
Total Repurchase Agreements
(Cost $64,399,000).................................. 64,399
---------
Total Investments (98.2%)
(Cost $427,337,810)................................. 427,338
---------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets and Liabilities, Net....................... 7,985
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 435,472,526 shares of beneficial
interest............................................ 435,473
Accumulated net realized loss on
investments......................................... (150)
---------
Total Net Assets: (100.0%)........................... $435,323
=========
Net Asset Value, Offering Price and
Redemption Price Per Share.......................... $1.00
=========
</TABLE>
- -----------------
(A) Variable Rate Security-the rate reflected on the Statement of Net Assets is
the rate in effect on February 28, 1995.
PLC-Public Limited Company
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 80
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
U.S. TREASURY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
U. S. TREASURY OBLIGATIONS (48.8%)
U.S. Treasury Bills
5.464%, 03/02/95.................. $20,000 $ 19,997
5.337%, 03/23/95.................. 20,000 19,936
5.809%, 04/13/95.................. 25,000 24,829
5.540%, 04/20/95.................. 15,000 14,888
5.963%, 05/11/95.................. 20,000 19,771
6.114%, 08/24/95.................. 30,000 29,130
U.S. Treasury Notes
3.875%, 03/31/95.................. 25,000 24,971
4.625%, 08/15/95.................. 25,000 24,793
--------
Total U. S. Treasury Obligations
(Cost $178,315,140)............... 178,315
--------
REPURCHASE AGREEMENTS (51.1%)
First Boston, 6.1875%, dated
02/28/95, matures 03/01/95,
repurchase price $87,515,039
(collateralized by U.S. Treasury
Coupon Strips, par value
$158,234,454, maturities ranging
from 05/15/96 to 05/15/11,
market value $89,454,428)......... 87,500 87,500
Goldman Sachs Group, 6.03%, dated
02/28/95, matures 03/01/95,
repurchase price $15,002,513
(collateralized by U.S. Treasury
Note, par value $15,213,000,
5.875%, maturing 05/31/96,
market value $15,300,850)......... 15,000 15,000
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
Merrill Lynch, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $84,472,194
(collateralized by U.S.
Treasury Note, par value
$85,130,000, 7.25%, maturing
02/15/98, market value
$86,150,166).................... $84,458 $ 84,458
--------
Total Repurchase Agreements
(Cost $186,958,000)............. 186,958
--------
Total Investments (99.9%)
(Cost $365,273,140)............. 365,273
--------
OTHER ASSETS AND LIABILITIES
(0.1%)
Other Assets and Liabilities,
Net............................. 243
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 365,510,980 shares of
beneficial interest............. 365,511
Accumulated net realized gain on
investments..................... 5
--------
Total Net Assets: (100.0%).......... $365,516
========
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $1.00
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 81
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (102.5%)
California (2.2%)
State, Series A, RAN
5.000%, 06/28/95.................... $1,000 $ 1,003
-------
Delaware (0.7%)
State, Housing Authority, RB, (FSA)
4.000%, 06/01/95.................... 330 330
-------
Florida (4.7%)
Bay County, Medical Center Project,
RB
3.850%, 03/06/95 (B) (C)............ 800 800
Dade County, Health Facilities
Authority, Miami Childrens
Hospital Project, VRDN, RB
4.050%, 03/01/95 (A) (B) (C)........ 300 300
State, Housing Finance Agency,
Multifamily Housing, VRDN, RB
4.200%, 03/07/95 (A) (B) (C)........ 1,000 1,000
-------
2,100
-------
Georgia (0.4%)
Turner County, Industrial
Development Authority, Coats
And Clark Project, VRDN, RB
4.100%, 03/01/95 (A) (B) (C)........ 200 200
-------
Hawaii (4.2%)
State, Department of Budget And
Finance, Kuakini Medical Center
Project, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)........ 1,900 1,900
-------
Idaho (3.3%)
State, Housing Finance Authority, RB
5.000%, 07/01/95 (C)................ 1,500 1,500
-------
Kansas (0.4%)
Butler County, Solid Waste
Disposal, Texaco Refining and
Marketing Project, VRDN, RB,
AMT
4.300%, 03/01/95 (A) (B)............ 200 200
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Louisiana (8.4%)
State, Recovery District Sales Tax,
VRDN, RB, (FGIC)
3.750%, 03/01/95 (A) (B)........... $ 700 $ 700
State, Recovery District Sales Tax,
VRDN, RB, (MBIA)
3.750%, 03/07/95 (A) (B)........... 1,500 1,500
West Baton Rouge Parish,
Industrial Development Authority,
Dow Chemical Project, Series B,
VRDN, RB
4.000%, 03/01/95 (A) (B)........... 1,600 1,600
-------
3,800
-------
Maryland (2.9%)
Howard County, Owen Brown
Project, VRDN, RB
3.700%, 03/01/95 (A) (B) (C)....... 300 300
State, Health And Higher Education
Authority, Hopkins Hospital
Project, TECP
3.750%, 03/03/95................... 1,000 1,000
-------
1,300
-------
Massachusetts (2.2%)
Bay Transportation Authority,
General Transportation Systems,
Series A, RB
3.750%, 03/01/95 (C)............... 1,000 1,000
-------
Michigan (14.6%)
Grand Rapids, Economic
Development Authority, Amway
Grand Project, Series 2, VRDN,
RB
4.150%, 03/07/95 (A) (B) (C)....... 1,500 1,500
Grand Rapids, Economic
Development Authority, Amway
Hotel Project, Series A, VRDN,
RB
4.300%, 03/07/95 (A) (B) (C)....... 2,000 1,999
Grand Rapids, Water Supply,
VRDN, RB
3.900%, 03/07/95 (A) (B) (C)....... 1,100 1,100
</TABLE>
Continued
18
<PAGE> 82
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -----
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Michigan, continued:
Midland County, Economic
Development Authority, Dow
Chemical Project, Series A,
VRDN, RB
4.200%, 03/01/95 (A) (B)........ $1,000 $ 1,000
State, Industrial Development
Authority, Allen Group
Incorporated Project, VRDN, RB
3.850%, 03/07/95 (A) (B) (C).... 1,000 1,000
-------
6,599
-------
Minnesota (2.2%)
Minneapolis-St. Paul, Housing
Finance Authority, Series B, RB
4.600%, 08/01/95................ 985 985
-------
Mississippi (1.1%)
Hinds County, GO, (MBIA)
3.700%, 03/01/95................ 475 475
-------
Missouri (7.3%)
Callaway County, Industrial
Development Authority, Callaway
Community Hospital, VRDN, RB
3.800%, 03/01/95 (A) (B)........ 800 800
Kansas City, Industrial
Development Authority, Coach
House II Project, VRDN, RB
4.000%, 03/01/95 (A) (B)........ 2,000 2,000
State, Environmental Improvement
Authority, RB
3.750%, 06/01/95 (C)............ 500 500
-------
3,300
-------
New Jersey (10.6%)
Berkeley Heights, BAN
4.750%, 11/09/95................ 2,765 2,770
Elizabeth, GO, (AMBAC)
4.300%, 08/15/95................ 535 535
Woodbridge Township, Sewer
Utility, BAN
4.480%, 10/06/95................ 1,500 1,500
-------
4,805
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
North Carolina (0.2%)
State, Health Care Facilities, Carol
Woods Project, VRDN, RB
4.000%, 03/01/95 (A) (B) (C)........ $ 100 $ 100
-------
Ohio (4.4%)
Montgomery County, BAN
4.000%, 04/27/95.................... 1,000 1,001
State, Highway Authority, Series Q,
GO
5.700%, 05/15/95.................... 1,000 1,004
-------
2,005
-------
Pennsylvania (12.0%)
Berks County, Sixth And Penn
Street Project, VRDN, RB
4.000%, 03/07/95 (A) (B) (C)........ 200 200
Delaware County, Industrial
Development Authority, United
Parcel Services Project, VRDN,
RB
3.750%, 03/01/95 (A) (B)............ 1,000 1,000
Lehigh County, Industrial
Development Authority, Pollution
Control, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)........ 900 900
Montour County, Health System
Authority, Geisinger Project,
Series 1992B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)........ 300 300
Philadelphia, Hospital And Higher
Education Facility Authority,
Community College Project,
Series A, RB, (MBIA)
3.750%, 05/01/95.................... 535 535
Sayre, Health Care Facility
Authority, Pennsylvania Capital
Financing Project, Series K,
VRDN, RB, (AMBAC)
4.050%, 03/07/95 (A) (B)............ 800 800
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)........ 1,100 1,100
</TABLE>
Continued
19
<PAGE> 83
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
FEBRUARY 28, 1995
MUNICIPAL MONEY
FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State, Higher Education Authority,
Series B, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)........ $ 400 $ 400
State, Higher Educational Facilities
Authority, Temple University
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)........ 200 200
-------
5,435
-------
Puerto Rico (2.2%)
Governmental Development Bank,
TECP
3.900%, 04/07/95.................... 1,000 1,000
-------
Texas (2.2%)
Fort Worth, Water And Sewer
Authority, RB
8.500%, 03/01/95.................... 600 600
Harris County, Industrial
Development Authority, Pollution
Control, Series A, VRDN, RB
3.900%, 03/01/95 (A) (B)............ 400 400
-------
1,000
-------
Utah (2.6%)
State, Housing Finance Agency,
Series D, RB, AMT
4.800%, 08/01/95.................... 1,160 1,160
-------
Virginia (4.4%)
Richmond, RAN
5.500%, 06/30/95 (C)................ 1,000 1,003
State, Commonwealth
Transportation Board, Series 95A,
RB
5.800%, 05/15/95.................... 1,000 1,003
-------
2,006
-------
West Virginia (4.0%)
Marion County, Community Solid
Waste Disposal Facility, VRDN,
RB, AMT
4.300%, 03/07/95 (A) (B) (C)........ 1,800 1,800
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Wisconsin (3.3%)
State, Housing And Economic
Development, Series B, RB, AMT,
(FSA)
4.600%, 04/01/95.................... $1,500 $ 1,500
-------
Wyoming (2.0%)
Lincoln County, Pollution Control,
Exxon Project, Series A, VRDN,
RB
3.900%, 03/01/95 (A) (B)............ 400 400
Lincoln County, Pollution Control,
Exxon Project, Series D, VRDN,
RB
3.900%, 03/01/95 (A) (B)............ 100 100
Platte County, Pollution Control,
VRDN, RB
4.000%, 03/01/95 (A) (B) (C)........ 400 400
-------
900
-------
Total Municipal Bonds
(Cost $46,403,157).................. 46,403
-------
Total Investments (102.5%)
(Cost $46,403,157).................. 46,403
-------
OTHER ASSETS AND LIABILITIES (-2.5%)
Other Assets and Liabilities, Net....... (1,151)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 45,291,867 outstanding
shares of beneficial interest....... 45,288
Accumulated net realized loss on
investments......................... (36)
-------
Total Net Assets: (100.0%)............ $45,252
=======
Net Asset Value, Offering Price and
Redemption Price Per Share.......... $ 1.00
=======
</TABLE>
- ---------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
Continued
20
<PAGE> 84
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
BAN-Bond Anticipation Note
GO-General Obligation
RAN-Revenue Anticipation Note
RB-Revenue Bond
TECP-Tax Exempt Commercial Paper
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
FSA-Financial Security Assurance
MBIA-Municipal Bond Insurance Association
NEW JERSEY MUNICIPAL
MONEY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (99.4%)
New Jersey (85.7%)
Cherry Hill Township, GO
7.000%, 08/01/95 (C)............ $1,000 $ 1,008
Essex County, Series A, BAN
5.500%, 12/12/95................ 875 878
Hackensack, BAN
5.500%, 12/20/95................ 850 855
Jersey City, BAN
5.250%, 11/17/95................ 2,000 2,007
Middlesex County, GO,
Prerefunded @ 102
7.050%, 03/15/95 (B) (C)........ 500 511
Morristown, GO
5.000%, 08/01/95 (C)............ 695 696
Port Authority, Versatile Struc-
ture Obligation, Series 1,
VRDN,
RB, AMT
3.900%, 03/01/95 (A) (B) (C).... 3,100 3,100
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
Princeton Borough, BAN
3.340%, 04/14/95 (C)........... $1,000 $ 1,000
Salem County, Pollution Control
Project, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)... 500 500
State Economic Development
Authority, TECP
3.500%, 03/07/95 (C)........... 1,000 1,000
4.000%, 04/13/95 (C)........... 1,000 1,000
State Economic Development
Authority, 400 International
Drive Partners Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)... 700 700
State Economic Development
Authority, Crowle Shipping
Project, VRDN, RB
3.550%, 03/01/95 (A) (B) (C)... 2,000 2,000
State Economic Development
Authority, Data Tac Industries
Incorporated Project, Series
W, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 1,115 1,115
State Economic Development
Authority, Dates-Tru Project,
VRDN, RB
3.450%, 03/01/95 (A) (B) (C)... 900 900
State Economic Development
Authority, Economic Growth
Bonds, Series C-1, VRDN,
RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 590 590
State Economic Development
Authority, Eldorado Terminal
Project, Series 1984 B,
VRDN, GO
3.900%, 03/01/95 (A) (B)....... 2,800 2,800
State Economic Development
Authority, Eldorado Terminal
Project, Series 1984 B,
VRDN, RB
3.900%, 03/01/95 (A) (B)....... 1,100 1,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 85
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
MONEY FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State Economic Development
Authority, First Management
Fellowship Project, Series B,
VRDN, RB
4.000%, 03/07/95 (A) (B) (C).. $1,000 $ 1,000
State Economic Development
Authority, Jersey Avenue
Project, VRDN, RB
3.900%, 03/07/95 (A) (B) (C).. 800 800
State Economic Development
Authority, Makita U.S.A.
Incorporated Project,
VRDN, RB
4.050%, 03/07/95 (A) (B) (C).. 600 600
State Economic Development
Authority, Russell Berrie
Project, VRDN, RB
4.250%, 03/07/95 (A) (B) (C).. 200 200
State Economic Development
Authority, Series A, VRDN, GO
4.200%, 03/07/95 (A) (B) (C).. 300 300
State Economic Development
Authority, Series J, VRDN,
RB, AMT
4.200%, 03/07/95 (A) (B) (C).. 650 650
State Educational Facility
Authority, College And
University Equipment Project,
Series A, VRDN, RB, (FGIC)
3.850%, 03/07/95 (A) (B)...... 550 550
State Health Care Facilities
Financing Authority, Hospital
And Nursing Home
Improvement Project,
VRDN, RB
3.850%, 03/07/95 (A) (B) (C).. 200 200
State Health Care Facilities
Financing Authority, Hospital
Capital Asset Financing
Project, Series A,
VRDN, RB
3.850%, 03/07/95 (A) (B) (C).. 600 600
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
State Health Care Facilities
Financing Authority, Hospital
Capital Asset Financing, Series
D, VRDN, RB
3.850%, 03/07/95 (A) (B) (C)....... $ 200 $ 200
State Healthcare Facilities Financ-
ing Authority, Jersey Shore
Medical Center Project, RB,
(AMBAC)
5.000%, 07/01/95 (C)............... 710 712
State Turnpike Authority, Series
D, VRDN, RB, (FGIC)
3.750%, 03/07/95 (A) (B)........... 2,000 2,000
State, TECP
3.400%, 03/02/95 (C)............... 2,000 2,000
State, Governmental,
Series 501 C 3, GO
5.800%, 08/01/95................... 1,000 1,007
State, Series A, TRAN
5.000%, 06/15/95................... 2,000 2,006
Union County, Industrial Pollution
Control Financing Authority,
Exxon Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)....... 1,300 1,300
Woodbridge Township, Sewer
Utilities, BAN
4.480%, 10/06/95................... 1,500 1,500
-------
37,385
-------
Pennsylvania (2.3%)
State, Transportation Trust Fund,
Series A, RB
4.500%, 12/15/95................... 1,000 998
-------
Puerto Rico (11.4%)
Commonwealth Public Finance
Agency, Series A, RB
4.750%, 07/01/95................... 2,000 2,005
Commonwealth Public Finance
Authority, RB
6.350%, 07/01/95 (C)............... 960 966
</TABLE>
Continued
22
<PAGE> 86
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Puerto Rico, continued:
Governmental Development Bank,
TECP
3.900%, 04/07/95................... $2,000 $ 2,000
-------
4,971
-------
Total Municipal Bonds
(Cost $43,354,348)................. 43,354
-------
Total Investments (99.4%)
(Cost $43,354,348)................. 43,354
-------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets and Liabilities, Net...... 256
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 43,617,629 outstanding
shares of beneficial interest...... 43,617
Accumulated net realized loss on
investments........................ (7)
-------
Total Net Assets: (100.0%)........... $43,610
=======
Net Asset Value, Offering Price
and Redemption Price Per
Share.............................. $1.00
=======
</TABLE>
- ---------------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
BAN-Bond Anticipation Note
GO-General Obligation
RB-Revenue Bond
TECP-Tax-Exempt Commercial Paper
TRAN-Tax and Revenue Anticipation Note
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
PENNSYLVANIA MUNICIPAL
MONEY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
MUNICIPAL BONDS (104.8%)
Pennsylvania (104.8%)
Allegheny County, Mortgage
Backed Security Program,
Series F, RB
3.700%, 06/01/95 (C)............ $ 1,075 $ 1,075
Allegheny County, Port
Authority, GAN
4.100%, 07/03/95 (C)............ 1,000 1,000
Beaver County, Industrial
Development Authority,
Duquesne Light Project,
Series B, VRDN, RB
4.050%, 03/07/95 (A) (B) (C).... 600 600
Beaver County, Industrial
Development Authority,
Duquesne Light Project,
Series A, VRDN, RB
4.050%, 03/07/95 (A) (B) (C).... 500 500
Berks County, Industrial
Development Authority, VRDN,
RB
3.850%, 03/01/95 (A) (B) (C).... 700 700
Chartiers Valley, Industrial and
Commercial Development
Authority, William Penn Place
Project, VRDN, RB
4.000%, 03/01/95 (A) (B) (C).... 200 200
Conneaut, School District
Authority, GO, (AMBAC)
9.750%, 05/01/95................ 1,000 1,009
Delaware County, Industrial
Development Authority, BP Oil
Project, VRDN, RB
3.600%, 03/07/95 (A) (B)........ 200 200
Delaware County, Industrial
Development Authority,
Pollution Control, TECP, (FGIC)
3.700%, 03/01/95................ 1,800 1,800
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series A, VRDN,
RB
4.100%, 03/07/95 (A) (B) (C).... 1,000 1,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 87
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
PENNSYLVANIA MUNICIPAL
MONEY FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, continued:
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series C, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)..... $900 $900
Delaware County, Industrial
Development Authority, United
Parcel Services Project, VRDN,
RB
3.750%, 03/01/95 (A) (B) (C)..... 900 900
Emmaus, VRDN, GO
4.050%, 03/07/95 (A) (B) (C)..... 1,100 1,100
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C,
VRDN, RB
3.750%, 03/01/95 (A) (B) (C)..... 600 600
Lehigh County, Industrial
Development Authority,
Pollution Control, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)..... 900 900
Montgomery County, Industrial
Development Authority, TECP
4.250%, 05/04/95 (C)............. 2,000 2,000
Montgomery County, Industrial
Development Authority, Quaker
Chemical Project, VRDN, RB
3.850%, 03/01/95 (A) (B) (C)..... 500 500
Montour County, Health System
Authority, Geisinger Project,
Series B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 800 800
Northeastern, Hospital Authority,
TECP, (MBIA)
4.100%, 04/13/95................. 600 600
Philadelphia, Hospital And Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 100 100
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Philadelphia, Hospitals And
Higher Education Facility
Authority, Community College
Project, Series B, RB, (MBIA)
3.750%, 05/01/95............... $ 390 $ 390
Philadelphia, School District,
Series B, GO, (AMBAC)
3.750%, 07/01/95............... 1,000 999
Philadelphia, School District,
TRAN
4.750%, 06/30/95............... 1,000 1,001
Philadelphia, TRAN
4.750%, 06/15/95 (C)........... 1,000 1,003
Quakertown, Hospital Authority,
HPS Group Pooled Financing
Project, VRDN, RB
3.800%, 03/07/95 (A) (B) (C)... 300 300
Reading, School District
Authority, GO, (MBIA)
6.600%, 03/01/95............... 1,140 1,140
Sayre, Health Care Facilities
Authority, Capital Financing
Project, Series H, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B)....... 290 290
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series A, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B) (C)... 1,200 1,200
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series D, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B)....... 800 800
Schuylkill County, Industrial
Development Authority,
Northeastern Power Project,
Series B, VRDN, RB
4.000%, 03/01/95 (A) (B) (C)... 1,500 1,500
</TABLE>
Continued
24
<PAGE> 88
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)... $1,100 $ 1,100
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 100 100
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 510 510
State, Energy Development
Authority, Piney Creek Project,
Series A, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 100 100
State, GO
5.700%, 08/01/95............... 625 626
5.500%, 11/15/95............... 1,000 1,007
State, Higher Education
Authority, Drexel University
Project, RB, (MBIA)
6.500%, 05/01/95............... 250 251
State, Higher Education
Authority, Lasalle University
Project, RB, (MBIA)
6.400%, 05/01/95............... 585 588
State, Higher Education
Authority, Series B, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 3,100 3,098
State, Higher Education
Authority, University of
Pennsylvania Project, Series 1,
VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 1,000 1,000
State, Highway Authority,
Series T, GO
5.700%, 08/01/95............... 375 376
State, Housing Finance Agency,
Series 35A, RB
3.800%, 04/01/95............... 500 500
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
State, Series 1, GO
3.000%, 05/01/95.................... $ 825 $ 824
State, Series 1, TRAN
4.750%, 06/30/95.................... 2,000 2,005
-------
37,192
-------
Total Municipal Bonds
(Cost $37,192,314).................. 37,192
-------
Total Investments (104.8%)
(Cost $37,192,314).................. 37,192
-------
OTHER ASSETS AND LIABILITIES (-4.8%)
Other Assets and Liabilities, Net....... (1,714)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 35,480,795 outstanding
shares of beneficial interest....... 35,481
Accumulated net realized loss on
investments......................... (3)
-------
Total Net Assets: (100.0%)............ $35,478
=======
Net Asset Value, Offering Price
and Redemption Price Per
Share............................... $ 1.00
=======
</TABLE>
- ---------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand Features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
GAN-Grant Anticipation Note
GO-General Obligation
RB-Revenue Bond
TECP-Tax-Exempt Commercial Paper
TRAN-Tax and Revenue Anticipation Note
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets.
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 89
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
EQUITY INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS (93.2%)
Air Conditioning (0.7%)
York International.............. 53,200 $ 2,048
--------
Air Transportation (0.2%)
AMR*............................ 8,000 489
--------
Aircraft (2.2%)
BE Aerospace*................... 239,800 1,319
Boeing.......................... 48,700 2,246
Sequa, Class A.................. 94,900 2,669
--------
6,234
--------
Aluminum (5.8%)
Alcan Aluminum................ 100,000 2,425
Aluminum of America........... 369,400 14,407
--------
16,832
--------
Amusement & Recreation (0.0%)
Speedway Motorsports*......... 8,100 146
--------
Automotive (3.0%)
Borg Warner Automotive*....... 75,000 488
General Motors................ 191,800 8,175
--------
8,663
--------
Banks (9.7%)
Astoria Financial*............ 88,000 2,750
Bankamerica................... 276,793 13,321
California Federal Bank*...... 143,462 1,560
Coast Savings Financial*...... 63,600 938
Keycorp....................... 122,200 3,544
Long Island Bancorp*.......... 100,000 1,625
Mellon Bank................... 23,850 909
Union Bank/San Francisco...... 101,600 3,404
--------
28,051
--------
Building & Construction (2.5%)
Centex Construction*.......... 251,000 3,106
Ryland Group.................. 113,500 1,632
Southdown*.................... 144,300 2,381
--------
7,119
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
Chemicals (0.7%)
Rhone Poulenc SA, ADR........... 30,400 $ 726
Technip ADS 144A*............... 55,700 1,406
--------
2,132
--------
Communications Equipment (0.3%)
Alcatel Alsthom................. 61,500 999
--------
Computers & Services (0.7%)
BMC Software.................... 30,400 1,953
--------
Drilling Oil & Gas Wells (1.6%)
Noble Drilling*................. 236,400 1,300
Sonat Offshore Drilling......... 165,100 3,447
--------
4,747
--------
Electric Utilities (3.9%)
Central Maine Power............. 139,400 1,952
Central Vermont Public Service.. 50,000 694
CMS Energy...................... 65,300 1,567
New York State Electric & Gas... 49,100 1,056
Niagara Mohawk Power............ 168,200 2,502
Unicom.......................... 141,900 3,618
--------
11,389
--------
Electronic and Other Electrical
Equipment (1.2%)
Raychem......................... 83,700 3,379
--------
Energy & Power (0.6%)
Entergy......................... 72,100 1,613
--------
Environmental Services (1.1%)
WMX Technologies................ 118,100 3,115
--------
Financial Services (3.3%)
American Express................ 59,800 2,018
Brascan Limited, Class A........ 101,700 1,335
Green Point Financial........... 100,000 2,338
Lehman Brothers Holding......... 213,560 3,870
--------
9,561
--------
Food, Beverage & Tobacco (4.9%)
Chiquita Brands International... 13,000 174
Interstate Bakeries............. 253,600 3,867
</TABLE>
Continued
26
<PAGE> 90
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Food, Beverage & Tobacco, continued:
Seagram............................. 49,000 $ 1,507
Universal-Virginia.................. 428,600 8,518
--------
14,066
--------
Forestry (0.3%)
Rayonier............................ 25,900 777
--------
Gas/Natural Gas (1.8%)
Columbia Gas System................. 14,600 380
Enserch............................. 55,100 771
National Fuel Gas................... 25,000 681
Seagull Energy*..................... 197,800 3,338
--------
5,170
--------
Insurance (12.3%)
Ace Limited......................... 234,200 5,796
Aetna Life & Casualty............... 107,400 5,773
Alexander & Alexander Services...... 92,100 2,003
American Premier Underwriter........ 40,000 985
Brierley Investments, ADR........... 625,000 900
Chubb............................... 89,100 7,007
Cigna............................... 75,000 5,681
Loews............................... 10,000 971
Old Republic International.......... 110,000 2,723
Reinsurance Group of America........ 19,200 535
Unitrin............................. 64,000 3,136
--------
35,510
--------
Lumber & Wood Products (0.5%)
Georgia-Pacific..................... 19,000 1,423
--------
Machinery (3.7%)
Black & Decker...................... 266,400 7,126
Cooper Industries................... 59,100 2,320
Keystone International.............. 63,000 1,173
--------
10,619
--------
Marine Transportation (1.4%)
Alexander & Baldwin................. 92,800 2,018
London And Overseas Freighter,
ADR................................. 82,400 948
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
OMI*.................................. 168,200 $ 883
Overseas Shipholding Group............ 6,900 160
--------
4,009
--------
Medical Products & Services (0.1%)
Haemonetics*.......................... 20,000 318
--------
Metals & Mining (0.2%)
Potash of Saskatchewan................ 17,300 618
--------
Miscellaneous Business Services (0.7%)
Policy Management Systems*............ 44,200 1,995
--------
Paper & Paper Products (7.7%)
Boise Cascade......................... 50,200 1,613
International Paper................... 150,800 11,517
Kimberly-Clark........................ 15,000 780
Temple-Inland......................... 102,500 5,010
Willamette Industries................. 63,200 3,397
--------
22,317
--------
Petroleum (10.6%)
Amerada Hess.......................... 60,000 2,940
Atlantic Richfield.................... 14,100 1,546
Burlington Resources.................. 87,100 3,353
Imperial Oil.......................... 45,500 1,547
Nordsk Hydro A.S., ADR................ 66,000 2,492
Occidental Petroleum.................. 5,000 99
Oryx Energy........................... 268,000 2,948
Petroleum Heat And Power,
Class A............................. 406,200 2,742
Phillips Petroleum.................... 116,600 3,892
Unocal................................ 153,000 4,341
USX-Marathon Group.................... 284,500 4,623
--------
30,523
--------
Photographic Equipment & Supplies (2.1%)
Eastman Kodak......................... 121,000 6,171
--------
Railroads (0.4%)
Canadian Pacific...................... 91,300 1,278
--------
Real Estate (4.1%)
American Real Estate Partners*........ 125,100 985
Equity Inns........................... 20,000 213
Essex Property Trust.................. 161,000 2,595
</TABLE>
Continued
27
<PAGE> 91
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
February 28, 1995
EQUITY INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- ----------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Real Estate, continued:
Gables Residential Trust....... 56,100 $ 1,066
Koger Equity*.................. 163,500 1,206
Newhall Land & Farming......... 74,200 1,085
Storage Equities............... 163,800 2,416
Sun Communities................ 104,200 2,358
----------
11,924
----------
Retail (0.7%)
Hills Department Stores*....... 36,100 736
Kmart.......................... 100,700 1,283
----------
2,019
----------
Telephones & Telecommunication
(4.2%)
BCE............................ 249,900 7,716
Comsat......................... 122,500 2,174
LDDS Communications*........... 95,614 2,241
----------
12,131
----------
Total Common Stocks
(Cost $257,077,989)............ 269,338
----------
CONVERTIBLE PREFERRED STOCKS (3.8%)
Boise Cascade, 7.48% Series G.. 99,800 2,732
Glendale Federal Savings Bank,
8.75% Series E................. 211,450 5,841
Reynolds Metals, 7.00% Series.. 30,600 1,461
Santa Fe Energy Resources,
Series A....................... 100,000 900
----------
Total Convertible Preferred
Stocks (Cost $9,715,335)....... 10,934
----------
WARRANTS (0.1%)
Glendale Federal Savings Bank
Warrants*...................... 130,480 326
----------
Total Warrants
(Cost $369,912)................ 326
----------
CONVERTIBLE BONDS (1.6%)
AMR 6.125%, 11/01/24........... $4,775 4,309
Riverwood International
6.750%, 09/15/03............... 360 391
----------
Total Convertible Bonds
(Cost $4,849,913).............. 4,700
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ ---------
<S> <C> <C>
REPURCHASE AGREEMENT (1.0%)
JP Morgan, 6.05%, dated 02/28/95,
matures 03/01/95, repurchase
price $2,766,465 (collateralized by
United States Treasury Bonds,
par value $2,805,000, 5.125%,
11/15/95, market value
$2,779,580)........................ $2,766 $ 2,766
--------
Total Repurchase Agreement
(Cost $2,766,000).................. 2,766
--------
Total Investments (99.7%)
(Cost $274,779,149)................ 288,064
--------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets and Liabilities, Net...... 825
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,355,658 outstanding
shares of beneficial interest...... 277,951
Accumulated net realized loss on
investments........................ (2,408)
Net unrealized appreciation on
investments........................ 13,284
Undistributed net investment
income............................. 62
--------
Total Net Assets: (100.0%)........... $288,889
========
Net Asset Value and Redemption
Price Per Share.................... $11.86
========
Maximum Public Offering Price Per
Share ($11.86/96.25%).............. $12.32
========
</TABLE>
- ---------
*Non-income producing security
ADR-American Depository Receipt
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 92
SCHEDULE OF INVESTMENTS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GROWTH FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS (91.7%)
Air Conditioning (1.1%)
York International.................. 38,700 $1,490
--------
Autoparts (1.7%)
Autozone*........................... 90,100 2,388
--------
Broadcasting, Newspapers &
Advertising (1.7%)
Comcast Corporation Special,
Class A........................... 150,000 2,363
--------
Building & Construction (1.1%)
Foster Wheeler...................... 44,900 1,470
--------
Chemical & Allied Products (6.1%)
Albemarle........................... 130,000 1,853
Engelhard........................... 111,000 2,928
Loctite............................. 17,100 787
Zeneca Group PLC, ADR............... 72,000 2,978
--------
8,546
--------
Commercial Banks (3.9%)
JP Morgan........................... 34,000 2,193
Republic New York................... 66,000 3,292
--------
5,485
--------
Communications Equipment (1.5%)
Motorola............................ 37,000 2,128
--------
Computer and Office Equipment (6.8%)
Cisco Systems*...................... 69,000 2,329
Computer Sciences*.................. 50,000 2,456
Hewlett Packard..................... 24,000 2,760
Microsoft*.......................... 30,000 1,890
TGV Software........................ 1,300 21
--------
9,456
--------
Electronic Components (3.5%)
AMP................................. 36,000 2,700
General Instrument*................. 68,000 2,159
--------
4,859
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
Food & Beverage (4.1%)
General Mills..................... 22,600 $ 1,370
Pepsico........................... 73,000 2,856
Sara Lee.......................... 58,000 1,523
--------
5,749
--------
Insurance (6.9%)
Ace Limited....................... 126,000 3,119
American International Group...... 26,500 2,749
American Re Insurance*............ 67,200 2,293
Value Health*..................... 38,300 1,427
--------
9,588
--------
Miscellaneous Business Services (6.5%)
Automatic Data Processing......... 42,000 2,583
Dun & Bradstreet.................. 32,000 1,652
Fiserv*........................... 107,000 2,808
Policy Management Systems*........ 44,000 1,986
--------
9,029
--------
Miscellaneous Manufacturing (1.1%)
International Game Technology..... 107,000 1,498
--------
Mortgage Bankers (2.2%)
Federal National Mortgage
Association....................... 40,000 3,085
--------
Nursing Care Facilities (1.0%)
Beverly Enterprises*.............. 109,000 1,417
--------
Oil Service (1.4%)
Schlumberger...................... 34,500 1,962
--------
Paper & Paper Products (3.3%)
International Paper............... 21,900 1,673
Kimberly-Clark.................... 50,000 2,600
--------
4,273
--------
Petroleum (6.4%)
Amoco............................. 54,000 3,199
Burlington Resources.............. 35,000 1,348
Kerr McGee........................ 32,000 1,612
Unocal............................ 99,000 2,809
--------
8,968
--------
</TABLE>
Continued
29
<PAGE> 93
SCHEDULE OF INVESTMENTS/STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCK, CONCLUDED:
Pharmeceuticals (10.6%)
Abbott Laboratories............. 77,000 $ 2,734
Biogen*......................... 25,000 1,031
Boston Scientific*.............. 134,600 2,910
Genetics Institute*............. 42,000 1,512
Hafslund Nycomed-Cl B ADR....... 80,300 1,596
Perrigo*........................ 100,000 1,388
Pfizer.......................... 43,000 3,555
--------
14,726
--------
Printing & Publishing (4.4%)
Knight-Ridder................... 26,800 1,471
Scholastic*..................... 51,700 2,611
Washington Post, Class B........ 8,000 2,026
--------
6,108
--------
Pumps and Pumping Equipment (1.5%)
Duriron......................... 120,000 2,250
--------
Retail (1.4%)
Wal-Mart Stores................. 85,000 2,019
--------
Rubber & Plastic (3.3%)
Illinois Tool Works............. 70,000 3,141
Rubbermaid...................... 46,000 1,455
--------
4,596
--------
Steel & Steel Works (0.8%)
LTV*............................ 74,000 1,138
--------
Telephones & Telecommunication
(7.3%)
AT&T............................ 36,500 1,889
Ericsson (L.M.) Telephone, ADR.. 50,000 2,843
MCI Communications.............. 90,000 1,811
Telefonos de Mexico, Class L,
ADR........................... 49,600 1,370
Vodafone Group, ADR............. 75,000 2,288
--------
10,201
--------
Trucking (2.1%)
M.S. Carriers*.................. 120,200 2,945
--------
Total Common Stocks
(Cost $117,054,965)........... 127,737
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
PREFERRED STOCKS (0.9%)
Petroleum Refining (0.9%)
Nokia Pfd, ADR.................. 16,500 $ 1,242
--------
Total Preferred Stocks
(Cost $666,188)............... 1,242
--------
REPURCHASE AGREEMENT (1.6%)
JP Morgan, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $2,302,387
(collateralized by United States
Treasury Bonds par value
$2,335,000, 5.125%, 11/15/95,
market value $2,313,839)........ $2,302 2,302
--------
Total Repurchase Agreement
(Cost $2,302,000)............... 2,302
--------
Total Investments (94.2%)
(Cost $120,023,153)............. 131,281
--------
</TABLE>
- ---------------
*Non-income producing security
ADR-American Depository Receipt
PLC-Public Limited Company
SMALL CAP VALUE FUND
<TABLE>
<S> <C> <C>
COMMON STOCKS (99.0%)
Aerospace & Defense (4.4%)
AAR.......................... 31,500 $ 434
Thiokol...................... 15,400 398
Watkins Johnson.............. 9,300 339
--------
1,171
--------
Air Transportation (1.3%)
Alaska Airgroup*............. 22,600 347
--------
Aircraft (1.5%)
UNC*......................... 71,800 404
--------
Amusement & Recreation (2.9%)
Huffy........................ 23,400 360
Outboard Marine.............. 18,800 395
--------
755
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE> 94
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Apparel/Textiles (4.5%)
Delta Woodside Industries....... 30,600 $ 333
Guilford Mills.................. 19,000 423
Interface....................... 30,700 433
-------
1,189
-------
Automotive (1.3%)
Arvin Industries................ 15,200 346
-------
Building & Construction (1.2%)
CRSS............................ 11,900 115
Morrison Knudsen................ 26,000 201
-------
316
-------
Building & Construction Supplies
(0.7%)
Southdown*...................... 11,000 182
-------
Computers & Services (4.2%)
Cray Research*.................. 20,700 349
Egghead*........................ 25,000 263
Intergraph*..................... 40,700 498
-------
1,110
-------
Environmental Services (0.8%)
Mid-American Waste.............. 38,300 215
-------
Financial Services (2.8%)
Capstead Mortgage............... 11,400 278
Morgan Keegan................... 29,850 448
-------
726
-------
Food, Beverage & Tobacco (3.4%)
Adolph Coors, Class B........... 15,300 249
Chiquita Brands International... 23,100 309
Rykoff-Sexton................... 21,625 332
-------
890
-------
Footwear (1.4%)
Brown Group..................... 8,800 284
L.A. Gear*...................... 18,700 72
-------
356
-------
Information Services (1.2%)
Primark*........................ 21,900 318
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
Insurance (6.4%)
Guaranty National................. 19,500 $ 336
John Alden Financial.............. 10,800 311
Ohio Casualty..................... 11,100 374
Provident Life & Accident
Insurance, Class B................ 14,800 348
Reliastar Financial............... 9,200 314
-------
1,683
-------
Leasing & Renting (1.5%)
Comdisco.......................... 4,600 117
PHH............................... 7,600 285
-------
402
-------
Machinery (4.0%)
Nacco Industries, Class A......... 7,200 370
SPX............................... 18,600 284
Toro.............................. 14,000 404
-------
1,058
-------
Measuring Devices (0.8%)
Tektronix......................... 6,200 212
-------
Medical Products & Services (3.5%)
Continental Medical Systems*...... 30,900 193
Spacelabs Medical*................ 17,000 412
Universal Health Services,
Class B*.......................... 12,600 315
-------
920
-------
Metals & Mining (2.2%)
Magma Copper*..................... 21,000 330
Terra Industries.................. 23,600 260
-------
590
-------
Metals Fabrication (1.4%)
Amcast Industrial................. 19,000 359
-------
Miscellaneous Business Services
(1.7%)
National Service Industries....... 9,600 258
Pinkerton's*...................... 10,700 190
-------
448
-------
Miscellaneous Consumer Services
(1.1%)
CPI............................... 19,000 285
-------
</TABLE>
Continued
31
<PAGE> 95
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
SMALL CAP VALUE FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Natural Gas (3.9%)
Energen...................... 19,000 $ 418
Enserch...................... 21,800 305
UGI.......................... 14,500 294
-------
1,017
-------
Paper & Paper Products (3.6%)
Nashua....................... 14,500 286
Pope And Talbot.............. 21,000 347
Stone Container.............. 13,000 304
-------
937
-------
Petroleum (3.4%)
Diamond Shamrock R&M......... 12,200 305
Pool Energy Services*........ 39,700 303
Quaker State................. 20,700 300
-------
908
-------
Printing & Publishing (2.9%)
Bowne........................ 21,300 364
Gibson Greetings............. 23,100 217
Western Publishing Group*.... 20,500 195
-------
776
-------
Real Estate (1.6%)
Pulte........................ 18,300 421
-------
Retail (11.8%)
Caldor*...................... 13,900 318
Fred's....................... 30,000 300
General Host................. 26,250 167
Genesco*..................... 53,100 126
Good Guys*................... 30,100 357
Hechinger, Class A........... 39,000 452
Ross Stores.................. 25,600 299
Ruddick...................... 19,200 391
Sizzler International........ 57,300 365
United States Shoe........... 18,100 344
-------
3,119
-------
Rubber & Plastic (0.4%)
Furon........................ 5,100 101
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
Semi-Conductors/Instruments (4.1%)
Applied Magnetics*................. 31,500 $ 95
M/A Communications*................ 35,600 245
Pioneer Standard Electronics....... 24,200 423
Quantum*........................... 22,300 329
-------
1,092
-------
Steel & Steel Works (2.3%)
Geneva Steel, Class A*............. 17,700 230
Quanex............................. 16,500 388
-------
618
-------
Trucking (1.2%)
Carolina Freight................... 27,300 324
-------
Utilities (3.6%)
IES Industries..................... 10,100 276
United Illuminating................ 11,000 366
Washington Water Power............. 20,600 309
-------
951
-------
Wholesale (6.0%)
Bergen Brunswig, Class A........... 25,095 684
Handleman.......................... 34,500 367
Marshall Industries*............... 12,400 322
Universal-Virginia................. 10,200 203
-------
1,576
-------
Total Common Stocks
(Cost $25,965,711)................. 26,122
-------
Total Investments (99.0%)
(Cost $25,965,711)................. 26,122
-------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities, Net...... 271
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 2,397,825 outstanding shares
of beneficial interest............. 25,719
Accumulated net realized gain on
investments........................ 479
Net unrealized appreciation on
investments........................ 156
</TABLE>
Continued
32
<PAGE> 96
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C>
NET ASSETS, CONCLUDED:
Undistributed net investment
income........................ $39
-------
Total Net Assets: (100.0%).... $26,393
-------
Net Asset Value and Redemption
Price Per Share............... $11.01
-------
Maximum Public Offering Price
Per Share ($11.01/96.25%)..... $11.44
-------
</TABLE>
- ------------------
*Non-income producing security
BALANCED FUND
<TABLE>
<S> <C> <C>
COMMON STOCKS (48.5%)
Aerospace & Defense (1.0%)
Raytheon...................... 3,500 $247
-------
Aircraft (0.8%)
United Technologies........... 3,000 199
-------
Automotive (1.6%)
Dana.......................... 7,500 185
Ford Motor.................... 8,000 209
-------
394
-------
Banks (3.8%)
Comerica...................... 6,500 183
JP Morgan..................... 3,000 192
Keycorp....................... 6,400 186
Mellon Bank................... 5,000 191
PNC Financial................. 6,000 153
-------
905
-------
Chemicals (3.1%)
Crompton & Knowles............ 10,000 169
E.I. Dupont de Nemours........ 4,000 224
Engelhard..................... 7,000 185
Witco......................... 5,800 166
-------
744
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
Communications Equipment (0.8%)
Harris............................. 4,000 $180
-------
Computers & Services (1.4%)
Novell*............................ 8,200 167
Pitney Bowes....................... 5,000 177
-------
344
-------
Drugs (3.1%)
Bristol Myers Squibb............... 4,000 248
Merck.............................. 4,300 182
Schering Plough.................... 1,700 133
Warner Lambert..................... 2,500 191
-------
754
-------
Electrical Equipment (1.0%)
Grainger (W.W.).................... 4,000 245
-------
Electronic Equipment (2.2%)
General Electric................... 6,000 329
Texas Instruments.................. 2,500 197
-------
526
-------
Environmental Services (1.2%)
Wheelabrator Technologies.......... 10,000 138
WMX Technologies................... 5,800 152
-------
290
-------
Financial Services (0.8%)
Federal National Mortgage
Association........................ 2,500 193
-------
Food, Beverage & Tobacco (3.0%)
Anheuser Busch..................... 2,800 158
Archer Daniels Midland............. 9,000 171
Pepsico............................ 5,000 196
Philip Morris Companies............ 3,000 182
-------
707
-------
Holding Company, Diversified (0.7%)
Hanson PLC, ADR.................... 8,500 159
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 97
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
BALANCED FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Household Furniture & Fixtures (0.7%)
Masco................................ 6,200 $156
-------
Insurance (1.5%)
Lincoln National..................... 4,700 190
Loews................................ 1,700 165
-------
355
-------
Machinery (1.4%)
BW/IP, Inc........................... 7,000 112
Ingersoll Rand....................... 7,000 223
-------
335
-------
Miscellaneous Manufacturing (1.8%)
Duracell International............... 4,000 167
Minnesota Mining and
Manufacturing........................ 5,000 273
-------
440
-------
Oil Services (0.8%)
Schlumberger......................... 3,500 199
-------
Paper & Paper Products (1.8%)
Kimberly-Clark....................... 5,000 260
Weyerhaeuser......................... 4,000 163
-------
423
-------
Petroleum (3.4%)
Atlantic Richfield................... 2,000 219
Burlington Resources................. 5,500 212
Chevron.............................. 3,800 181
Texaco............................... 3,000 191
-------
803
-------
Professional Services (0.8%)
Dun & Bradstreet..................... 3,800 196
-------
Railroads (1.6%)
Norfolk Southern..................... 3,000 198
Union Pacific........................ 3,500 183
-------
381
-------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
Restaurants (0.6%)
McDonald's........................... 4,200 $ 140
-------
Retail (3.1%)
J. C. Penney......................... 4,000 172
May Department Stores................ 6,000 219
Toys "R" Us*......................... 6,500 181
Wal-Mart Stores...................... 7,200 171
-------
743
-------
Semi-Conductors/Instruments (1.0%)
Avnet................................ 6,000 233
-------
Telephones & Telecommunication (3.5%)
Airtouch Communications*............. 5,500 150
American Telephone & Telegraph....... 5,500 284
Bell Atlantic........................ 4,000 215
GTE.................................. 5,800 194
-------
843
-------
Utilities (2.0%)
Dominion Resources of Virginia....... 4,500 171
General Public Utilities............. 4,000 121
Pacific Gas and Electric............. 7,000 179
-------
471
-------
Total Common Stocks
(Cost $11,120,096)................... 11,605
-------
CORPORATE BONDS (6.6%)
Associates, N.A.
7.250%, 05/15/98.................... $200 199
Ford Motor Credit
7.500%, 06/15/04.................... 250 243
General Electric Capital
8.000%, 01/15/98.................... 200 204
Pepsico
6.250%, 09/01/99.................... 200 191
Southern California Edison
5.875%, 02/01/98.................... 200 191
Wal-Mart Stores
8.000%, 09/15/06.................... 300 303
WMX Technologies
8.250%, 11/15/99.................... 250 257
-------
Total Corporate Bonds
(Cost $1,569,957).................... 1,588
-------
</TABLE>
Continued
34
<PAGE> 98
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
CONVERTIBLE BONDS (0.9%)
Time Warner
8.750%, 01/10/15................ $200 $ 201
-------
Total Convertible Bonds
(Cost $200,156).................. 201
-------
ASSET BACKED SECURITIES (1.0%)
American Express Master Trust
7.150%, 08/15/99................ 250 246
-------
Total Asset Backed Securities
(Cost $244,922).................. 246
-------
U.S. TREASURY OBLIGATIONS (30.2%)
U.S. Treasury Bonds
7.250%, 05/15/16................ 500 483
7.500%, 11/15/16................ 500 495
8.125%, 08/15/19................ 500 529
U.S. Treasury Notes
5.500%, 04/30/96................ 500 494
6.000%, 06/30/96................ 200 198
6.125%, 07/31/96................ 150 149
7.250%, 08/31/96................ 500 504
7.500%, 01/31/97................ 300 304
6.750%, 02/28/97................ 250 250
6.750%, 05/31/97................ 250 249
7.375%, 11/15/97................ 500 505
7.250%, 02/15/98................ 400 403
7.500%, 10/31/99................ 500 508
6.375%, 01/15/00................ 250 243
7.500%, 11/15/01................ 650 664
7.500%, 05/15/02................ 500 510
6.375%, 08/15/02................ 250 238
7.250%, 05/15/04................ 250 250
7.875%, 11/15/04................ 250 261
-------
Total U. S. Treasury Obligations
(Cost $7,157,533)................ 7,237
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS (1.3%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................. 300 299
-------
Total U.S. Government Agency
Obligations (Cost $296,344)...... 299
-------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)/SHARES (000)
------------ -------
<S> <C> <C>
SHORT TERM INVESTMENTS (10.8%)
Chemical Bank Repurchase
Agreement, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $1,645,276
(collateralized by U.S.
Treasury Note, par value
$1,660,000, 7.25%, maturing
02/15/98, market value
$1,679,893)................... $1,645 $1,645
Temp Cash Fund................ 942 942
-------
Total Short Term Investments
(Cost $2,587,000)............. 2,587
-------
Total Investments (99.3%)
(Cost $23,176,008)............ 23,763
-------
OTHER ASSETS AND LIABILITIES (0.7%)
Other Assets and Liabilities,
Net........................... 170
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,323,146
outstanding shares of
beneficial interest........... 23,216
Accumulated net realized gain
on investments................ 130
Net unrealized appreciation on
investments................... 587
-------
Total Net Assets: (100.0%)...... $23,933
=======
Net Asset Value and
Redemption Price Per Share.... $10.30
=======
Maximum Public Offering Price
Per Share ($10.30/96.25%)..... $10.70
=======
</TABLE>
- ---------
*Non-income producing security.
ADR-American Depository Receipt
PLC-Public Limited Company
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 99
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
SHORT/INTERMEDIATE FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
CORPORATE BONDS (36.2%)
Automobile, Finance (5.9%)
Ford Capital BV
9.50%, 07/01/01.................... $2,000 $ 2,160
Ford Motor Credit
8.00%, 01/15/99.................... 1,000 1,011
8.40%, 03/26/99.................... 5,000 5,118
General Motors Acceptance
8.60%, 07/17/95.................... 2,500 2,519
9.40%, 06/07/95.................... 1,000 1,008
--------
11,816
--------
Banks (2.0%)
Republic National Bank
New York
6.40%, 04/15/95.................... 4,000 4,000
--------
Beverages (6.5%)
Coca Cola
7.875%, 09/15/98................... 6,000 6,135
Pepsico
5.625%, 07/01/95................... 2,000 1,998
6.125%, 01/15/98................... 2,000 1,950
7.00%, 11/15/96.................... 3,000 3,004
--------
13,087
--------
Chemical & Allied Products (1.8%)
E.I. Dupont de Nemours
8.45%, 10/15/96.................... 3,500 3,574
--------
Electric Utility (3.4%)
Duke Power
7.50%, 04/01/99.................... 4,000 4,015
Southern California Edison
5.90%, 01/15/97.................... 3,000 2,936
--------
6,951
--------
Personal Credit Institutions (4.7%)
Associates Corporation of North
America
5.300%, 09/04/95................... 1,000 994
6.375%, 04/15/95................... 2,000 2,000
7.625%, 04/15/98................... 2,400 2,424
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
Beta Finance
6.19%, 04/20/95 (A).............. $2,000 $ 1,999
Household Finance
7.80%, 11/01/96.................. 2,000 2,015
--------
9,432
--------
Petroleum Refining (4.5%)
Texaco Capital
7.875%, 05/01/95................. 3,000 3,008
8.530%, 08/15/97................. 1,350 1,385
9.000%, 11/15/96................. 1,500 1,551
9.000%, 12/15/99................. 3,000 3,187
--------
9,131
--------
Retail (3.9%)
Bass America
6.75%, 08/01/99.................. 5,000 4,856
Wal-Mart Stores
8.00%, 05/01/96.................. 3,000 3,034
--------
7,890
--------
Security Brokers & Dealers (3.5%)
Goldman Sachs 4.77%, 10/16/95.... 3,000 2,966
Merrill Lynch 6.75%, 03/15/95.... 4,000 4,000
--------
6,966
--------
Total Corporate Bonds
(Cost $73,770,137)............... 72,847
--------
Collateralized Mortgage
Obligations (1.9%)
Federal Home Loan Mortgage
6.750%, 09/15/16................. 4,000 3,871
--------
Total Collateralized Mortgage
Obligations
(Cost $4,033,750)................ 3,871
--------
Asset Backed Securities (15.7%)
American Express Master Trust
7.150%, 08/15/99................. 4,750 4,682
Caterpillar Finance
6.100%, 03/17/95................. 5,000 5,000
Chase Manhattan Master Trust
8.750%, 08/15/99................. 2,000 2,040
</TABLE>
Continued
36
<PAGE> 100
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<Caption
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
ASSET BACKED SECURITIES, CONCLUDED:
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................. $1,172 $ 1,153
Merrill Lynch Asset Backed
5.500%, 05/15/98................. 1,837 1,818
5.125%, 07/15/98................. 1,654 1,630
Premier Auto Trust
4.900%, 10/15/98................. 804 784
4.650%, 11/02/99................. 5,527 5,328
Standard Credit Card Master Trust
8.875%, 09/07/99................. 5,000 5,225
7.875%, 01/07/00................. 4,000 4,064
--------
Total Asset Backed Securities
(Cost $31,970,403)............... 31,724
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (2.0%)
Federal Home Loan Mortgage
7.860%, 01/21/97................. 2,000 2,030
Tennessee Valley Authority
8.375%, 10/01/99................. 2,000 2,080
--------
Total U.S. Government Agency
Obligations (Cost $4,004,410).... 4,110
--------
U. S. TREASURY OBLIGATIONS (41.9%)
U.S. Treasury Notes
5.125%, 11/15/95................. 2,000 1,983
8.500%, 11/15/95................. 2,000 2,027
7.500%, 01/31/96................. 8,000 8,073
4.625%, 02/15/96................. 5,000 4,915
5.125%, 03/31/96................. 3,000 2,956
4.250%, 05/15/96................. 3,000 2,919
7.375%, 05/15/96................. 2,000 2,018
7.250%, 08/31/96................. 1,000 1,008
6.500%, 11/30/96................. 1,000 996
7.250%, 11/30/96................. 2,000 2,016
6.250%, 01/31/97................. 3,000 2,972
6.750%, 02/28/97................. 2,000 1,999
6.875%, 04/30/97................. 10,000 10,008
6.500%, 05/15/97................. 5,000 4,963
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------ ---------
<S> <C> <C>
6.750%, 05/31/97................... $8,000 $ 7,981
5.625%, 08/31/97................... 8,000 7,774
5.750%, 10/31/97................... 3,000 2,916
6.000%, 11/30/97................... 5,000 4,887
7.875%, 01/15/98................... 4,000 4,096
7.250%, 02/15/98................... 4,000 4,034
5.125%, 02/28/98................... 1,000 951
8.000%, 08/15/99................... 3,000 3,108
---------
Total U. S. Treasury Obligations
(Cost $86,193,884)................. 84,600
---------
SHORT TERM INVESTMENTS (1.1%)
Temp Cash Fund..................... 2,141 2,141
---------
Total Short Term Investments
(Cost $2,141,028).................. 2,141
---------
Total Investments (98.8%)
(Cost $202,113,612)................ 199,293
---------
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets and Liabilities, Net...... 2,481
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 19,936,683 outstanding
shares of beneficial interest...... 207,856
Accumulated net realized loss on
investments........................ (3,296)
Net unrealized depreciation on
investments........................ (2,821)
Undistributed net investment
income............................. 35
---------
Total Net Assets: (100.0%)........... $201,774
---------
Net Asset Value and Redemption
Price Per Share.................... $10.12
---------
Maximum Public Offering Price
Per Share ($10.12/96.25%).......... $10.51
---------
</TABLE>
- -----------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 101
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
FIXED INCOME FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
CORPORATE BONDS (41.9%)
Auto Finance (3.1%)
Ford Capital BV
9.50%, 07/01/01................ $ 1,000 $ 1,080
Ford Motor Credit
6.75%, 08/15/08................ 5,000 4,475
8.00%, 01/15/99................ 2,000 2,023
--------
7,578
--------
Banks (3.0%)
Banque Nationale de Paris
9.875%, 05/25/98............... 1,000 1,074
National Westminster Bank,
New York
9.45%, 05/01/01................ 4,000 4,334
Toronto Dominion Bank,
New York
7.875%, 08/15/04............... 2,000 1,968
--------
7,376
--------
Commercial Printing (3.9%)
R.R. Donnelley & Sons
7.00%, 01/01/03................ 2,000 1,933
8.875%, 04/15/21............... 7,000 7,656
--------
9,589
--------
Electric Utility (1.2%)
Southern California Edison
5.90%, 01/15/97................ 2,000 1,957
Teco Energy
9.25%, 06/19/97................ 1,000 1,044
--------
3,001
--------
Financial Services (1.4%)
Beta Finance
6.19%, 04/20/95 (A)............ 3,500 3,499
--------
Food, Beverage & Tobacco (6.5%)
Anheuser Busch
9.00%, 12/01/09................ 4,000 4,374
Archer Daniels Midland
7.125%, 03/01/13............... 3,000 2,764
Coca Cola
7.875%, 09/15/98............... 1,955 1,999
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
Grand Metropolitan Investment
7.125%, 09/15/04................... $ 5,000 $ 4,791
Pepsico
6.125%, 01/15/98................... 2,000 1,950
--------
15,878
--------
Paper & Allied Products (3.2%)
Kimberly-Clark, Callable
02/01/13 @ 100
7.875%, 02/01/23................... 3,750 3,684
Weyerhaeuser
8.84%, 04/12/99.................... 4,000 4,200
--------
7,884
--------
Personal Credit Institutions (1.7%)
Associates Corporation of North
America
8.625%, 06/15/97................... 3,000 3,083
Associates Corporation of North
America, Callable
04/15/96 @100
7.625%, 04/15/98................... 1,000 1,010
--------
4,093
--------
Petroleum Refining (2.6%)
Texaco Capital
8.50%, 02/15/03.................... 5,000 5,225
9.00%, 11/15/96.................... 1,000 1,034
--------
6,259
--------
Railroads (1.8%)
Norfolk Southern
9.00%, 03/01/21.................... 4,000 4,365
--------
Retail-Department Stores (1.3%)
J.C. Penney, Callable
07/12/00 @ 100
9.45%, 07/15/02.................... 3,000 3,218
--------
Retail-Eating Places (2.8%)
Bass America
6.625%, 03/01/03................... 1,000 930
6.75%, 08/01/99.................... 4,000 3,885
McDonald's
7.375%, 07/15/02................... 2,000 1,998
--------
6,813
--------
</TABLE>
Continued
38
<PAGE> 102
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
CORPORATE BONDS, CONCLUDED:
Retail-Grocery Stores (2.1%)
Albertsons
4.82%, 03/25/96.................. $ 5,000 $ 4,894
--------
Retail-Variety Stores (0.8%)
Wal-Mart Stores
8.00%, 05/01/96.................. 2,000 2,023
--------
Security Brokers & Dealers (2.7%)
Merrill Lynch
7.00%, 04/27/08.................. 3,000 2,692
8.30%, 11/01/02.................. 2,000 2,030
Merrill Lynch,
Callable 04/15/98 @ 100
7.05%, 05/15/03.................. 2,000 1,868
--------
6,590
--------
Soap (0.8%)
Procter and Gamble
7.375%, 03/01/23................. 2,000 1,858
--------
Trucking (3.0%)
United Parcel Service
8.375%, 04/01/20................. 7,000 7,324
--------
Total Corporate Bonds
(Cost $104,818,508).............. 102,242
--------
COLLATERALIZED MORTGAGE
OBLIGATIONS (3.4%)
Federal Home Loan Mortgage
Corporation
8.000%, 03/15/05................. 1,773 1,786
6.750%, 09/15/16................. 6,000 5,807
Federal National Mortgage
Association
9.500%, 09/25/18................. 789 802
--------
Total Collateralized Mortgage
Obligations
(Cost $8,505,143)................ 8,395
--------
Asset Backed Securities (4.7%)
American Express Master Trust
7.150%, 08/15/99................. 2,000 1,971
Chase Manhattan Master Credit
Card Trust
8.750%, 08/15/99................. 3,000 3,060
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98............. $ 703 $ 692
Merrill Lynch
5.500%, 05/15/98............. 1,102 1,091
5.125%, 07/15/98............. 1,654 1,630
Premier Auto Trust
4.900%, 10/15/98............. 3,218 3,135
--------
Total Asset Backed Securities
(Cost $11,775,461)........... 11,579
--------
GOVERNMENT POOLED MORTGAGES (1.3%)
Government National Mortgage
Association
9.000%, 09/15/16............. 539 559
9.000%, 10/15/19............. 334 346
9.000%, 11/15/19............. 544 564
9.000%, 12/15/19............. 273 283
8.500%, 03/15/20............. 208 211
8.500%, 04/15/20............. 1,255 1,276
--------
Total Government Pooled
Mortgages (Cost $3,025,554).. 3,239
--------
U.S. TREASURY OBLIGATIONS (37.9%)
U.S. Treasury Bond, Callable
02/15/02 @ 100
7.625%, 02/15/07............. 2,000 2,021
U.S. Treasury Bonds
7.250%, 05/15/16............. 10,000 9,656
8.750%, 05/15/17............. 2,000 2,243
8.125%, 08/15/19............. 6,000 6,343
7.875%, 02/15/21............. 1,000 1,030
6.250%, 08/15/23............. 5,000 4,256
U.S. Treasury Notes
5.125%, 11/15/95............. 3,000 2,974
4.250%, 12/31/95............. 5,000 4,911
4.625%, 02/15/96............. 7,500 7,372
5.125%, 03/31/96............. 2,000 1,971
7.375%, 05/15/96............. 1,000 1,009
4.375%, 11/15/96............. 3,000 2,887
6.500%, 11/30/96............. 2,000 1,992
6.500%, 05/15/97............. 2,000 1,985
6.750%, 05/31/97............. 3,000 2,993
</TABLE>
Continued
39
<PAGE> 103
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
FIXED INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------- --------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS, CONCLUDED:
U.S. Treasury Notes, continued:
6.500%, 08/15/97............... $ 1,000 $ 992
5.625%, 08/31/97............... 2,000 1,944
5.750%, 10/31/97............... 2,000 1,944
6.000%, 11/30/97............... 3,000 2,932
7.250%, 02/15/98............... 4,000 4,034
5.125%, 02/28/98............... 2,000 1,903
5.125%, 03/31/98............... 7,000 6,648
8.250%, 07/15/98............... 2,000 2,074
7.125%, 10/15/98............... 2,000 2,013
5.125%, 11/30/98............... 2,000 1,876
6.375%, 01/15/99............... 2,000 1,956
7.000%, 04/15/99............... 2,000 2,000
8.500%, 11/15/00............... 6,000 6,388
7.750%, 02/15/01............... 2,000 2,062
--------
Total U.S. Treasury Obligations
(Cost $95,074,699)............. 92,409
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (1.2%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99............... 3,000 2,989
--------
Total U.S. Government Agency
Obligations
(Cost $2,989,800).............. 2,989
--------
YANKEE BONDS (3.4%)
Hydro Quebec
9.400%, 02/01/21............... 3,000 3,236
Province of Ontario
8.000%, 10/17/01............... 5,000 5,088
--------
Total Yankee Bonds
(Cost $8,156,580).............. 8,324
--------
SHORT TERM INVESTMENTS (5.0%)
Temp Cash Fund................. 12,134 12,134
--------
Total Short Term Investments
(Cost $12,134,069)............. 12,134
--------
Total Investments (98.8%)
(Cost $246,479,814)............ 241,311
--------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ ---------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets and Liabilities, Net.. $ 2,827
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,271,783
outstanding shares of
beneficial interest................ 252,500
Accumulated net realized loss on
investments........................ (3,224)
Net unrealized depreciation on
investments........................ (5,168)
Undistributed net investment
income............................. 30
---------
Total Net Assets: (100.0%)......... $244,138
=========
Net Asset Value and Redemption
Price Per Share.................... $10.06
=========
Maximum Public Offering Price
Per Share ($10.06/96.25%).......... $10.45
=========
</TABLE>
- -------------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
MUNICIPAL BOND FUND
<TABLE>
<S> <C> <C>
MUNICIPAL BONDS (96.5%)
Arizona (3.5%)
Salt River Project, Series A, RB
5.300%, 01/01/03................... $ 500 $ 503
Scottsdale, Municipal Property
Corporation, RB, (FGIC),
Callable 11/01/02 @ 100
6.250%, 11/01/10................... 500 506
---------
1,009
---------
California (6.0%)
Azusa, Unified School District,
GO, (AMBAC)
5.100%, 05/01/07................... 830 784
</TABLE>
The accompanying notes are an integral part of the finanial statements.
40
<PAGE> 104
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
California, continued
State Public Power Authority,
San Juan Power Project,
Series A, RB, (MBIA), Callable
01/01/05 @ 100
5.375%, 01/01/10.............. $1,000 $ 945
-------
1,729
-------
Florida (1.9%)
Palm Beach County, Solid Waste
Authority, RB, Callable
07/01/97 @ 103
8.625%, 07/01/04.............. 500 553
-------
Hawaii (7.6%)
Honolulu, Series C, GO,
Prerefunded @ 101
7.150%, 06/01/00 (B).......... 1,000 1,102
State, Series BR, GO,
Prerefunded @ 100
7.000%, 06/01/00 (B).......... 1,000 1,086
-------
2,188
-------
Illinois (12.3%)
Chicago, School Finance
Authority, Series B, GO,
(MBIA), Callable
06/01/96 @ 102
7.600%, 06/01/02.............. 250 263
Kane County, Elgin Community
College Project, Series A, RB,
(FGIC)
5.300%, 12/01/09.............. 1,000 979
State Education Facilities
Authority, Shedd Aquarium
Society, Series A, RB,
Mandatory Put @ 102
8.625%, 09/26/97 (B) (C)...... 560 607
State Education Facilities
Authority, Wesleyan University
Project, RB
5.600%, 09/01/11 (C).......... 1,260 1,172
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Winnebago and Boone Counties,
Rockford School District,
Series C, GO, (FGIC)
5.900%, 02/01/05.................. $ 500 $ 512
-------
3,533
-------
Kentucky (1.8%)
Jefferson County, Capital Project,
Series A, RB
5.650%, 08/15/03.................. 500 506
-------
Louisiana (1.7%)
State Recovery District Sales Tax
Revenue, VRDN, RB, (MBIA)
3.750%, 03/01/95 (A) (B).......... 500 500
-------
Michigan (3.2%)
State Municipal Bond Authority,
Revolving Fund, RB
5.400%, 10/01/14.................. 1,015 920
-------
Minnesota (3.3%)
State, GO
5.000%, 08/01/05.................. 1,000 956
-------
Nebraska (1.8%)
State Public Power Supply
Systems, RB, Callable
01/01/03 @ 102
6.000%, 01/01/08.................. 500 503
-------
New Hampshire (2.0%)
State Turnpike Authority,
Series A, RB, (FGIC), Callable
11/01/03 @ 100
7.000%, 11/01/06.................. 500 563
-------
Ohio (4.5%)
Columbus, Refuse Coal Fired
Plant, GO
6.625%, 09/15/01.................. 265 285
State Water Development
Authority, RB, (AMBAC),
Callable 12/01/02 @ 102
6.000%, 12/01/08.................. 1,000 1,015
-------
1,300
-------
</TABLE>
Continued
41
<PAGE> 105
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
MUNICIPAL BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania (16.7%)
Geisinger Health System,
Series B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... $ 500 $ 500
Philadelphia, Hospital and Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 600 600
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)..... 700 699
Schuylkill County, Redevelopment
Authority, Commonwealth
Lease, Series A, RB, (FGIC),
Callable 06/01/03 @ 100
6.950%, 06/01/04................. 500 546
Solanco School District, GO,
(FGIC), Callable
02/15/04 @ 100
6.300%, 02/15/14................. 1,000 1,006
State Higher Education
Authority, Student Loan
Assistance Agency, Series A,
RB, (FGIC)
6.800%, 12/01/00................. 630 672
State Public School Building
Authority, Series D, RB,
(FGIC), Callable
07/01/02 @ 102
6.250%, 01/01/07................. 500 519
Westmoreland County, GO,
(AMBAC)
6.050%, 06/01/97................. 250 255
-------
4,797
-------
Puerto Rico (2.1%)
Telecom Authority, RB, (MBIA)
5.250%, 01/01/05................. 500 493
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
University of Puerto Rico,
Series L, RB, Callable
06/01/96 @ 102
7.750%, 06/01/07 (C)............. $ 100 $ 105
-------
598
-------
South Carolina (1.8%)
Piedmont, Municipal Power
Agency, RB, (MBIA)
6.250%, 01/01/09................. 500 525
-------
South Dakota (1.8%)
State Building Lease Authority,
Series A, RB, (CGIC)
6.375%, 09/01/05................. 500 529
-------
Tennessee (3.7%)
State, Series B, GO, Callable
06/01/01 @ 101.5
6.850%, 06/01/10................. 1,000 1,073
-------
Texas (3.8%)
Harris County, GO, Callable
08/01/01 @ 102
7.000%, 08/01/09................. 500 539
University of Texas, Series A,
RB, Callable 08/15/01 @ 102
7.000%, 08/15/07................. 500 546
-------
1,085
-------
Utah (1.7%)
Salt Lake City, Motor Fuel Excise
Tax, Series A, RB
5.400%, 02/01/03................. 500 487
-------
Vermont (7.4%)
Burlington, Waterworks Systems,
Series A, RB, (FGIC), Callable
07/01/97 @ 102
6.875%, 07/01/12................. 1,000 1,046
State, Series A, GO,
Prerefunded @ 102
6.750%, 02/01/00 (B)............. 1,000 1,087
-------
2,133
-------
</TABLE>
Continued
42
<PAGE> 106
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------ --------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Virginia (3.5%)
Loudoun County, Industrial
Development Authority,
Marriott Project, VRDN, RB
4.050%, 03/01/95 (A) (B) (C)....... $ 500 $ 500
State Housing Development
Authority, Series A, RB, AMT
6.700%, 07/01/05 (C)............... 500 518
--------
1,018
--------
Washington (1.8%)
Port of Seattle, Series A, RB,
Callable 11/01/02 @ 102
6.250%, 11/01/10................... 500 510
--------
Washington, D.C. (1.7%)
District of Columbia, Series C,
GO, (AMBAC),
Prerefunded @ 102
7.600%, 06/01/98 (B)............... 450 492
--------
Wisconsin (0.9%)
Milwaukee, Sewer District, GO
6.125%, 10/01/03................... 250 259
--------
Total Municipal Bonds
(Cost $28,048,080)................. 27,766
--------
SHORT TERM INVESTMENTS (3.6%)
SEI Institutional Tax-Free
Portfolio
3.93%, 03/07/95.................... 1,026 1,026
--------
Total Short Term Investment
(Cost $1,026,246).................. 1,026
--------
Total Investments (100.1%)
(Cost $29,074,326)................. 28,792
--------
OTHER ASSETS AND LIABILITIES (-0.1%)
Other Assets and Liabilities, Net.... (42)
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited authorization-no
par value) based on 2,796,278 outstanding
shares of beneficial interest............... $30,114
Accumulated net realized loss on
investments................................. (1,091)
Net unrealized depreciation on investments.... (282)
Distributions in excess of net investment
income...................................... 9
--------
Total Net Assets: (100.0%).................... $28,750
========
Net Asset Value and Redemption Price Per
Share....................................... $ 10.28
========
Maximum Public Offering Price Per
Share ($10.28/96.25%)....................... $ 10.68
========
</TABLE>
- -----------------------------------------------------
(A) Variable Rate Security-the rate reflected on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
CGIC-Capital Guaranty Insurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
43
<PAGE> 107
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (99.4%)
Kansas (0.4%)
Butler County, Solid Waste
Disposal, VRDN, RB, AMT
4.300%, 03/01/95 (A) (B) (C)..... $ 400 $ 400
-------
New Jersey (98.0%)
Absecon, Board of Education,
COP, (MBIA)
5.625%, 12/15/02................. 770 788
Bayshore, Bayshore Regional
Sewer Authority, Series A, RB,
(MBIA)
5.250%, 05/01/06................. 1,000 963
Bergen County, Utility Authority,
Series A, RB, (FGIC), Callable
06/15/02 @ 100
5.500%, 06/15/13................. 1,000 961
Bordentown, Sewage Authority,
Series D, RB, (MBIA)
5.100%, 12/01/05................. 635 609
Borough of Roselle, Fiscal Year
Adjustment Bonds, Series 1993,
GO, (MBIA)
4.850%, 10/15/05................. 1,000 920
Brick Township, Municipal
Utilities Authority, RB
6.750%, 12/01/16................. 1,000 1,089
Brigantine, GO, (MBIA), Callable
08/01/02 @ 101
6.250%, 08/01/03................. 730 778
Burlington County, Bridge
Commission, RB
5.150%, 10/01/05 (C)............. 1,000 975
Camden County, Improvement
Authority Lease, RB
5.700%, 12/01/05 (C)............. 500 499
Camden County, Improvement
Authority Lease, RB, Callable
12/01/02 @ 101
6.000%, 12/01/12 (C)............. 500 501
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Camden County, Improvement
Authority, Health Services
Center Project, Series B, RB,
(AMBAC)
4.900%, 12/01/05................ $1,000 $ 935
Camden, Board of Education, GO,
(FSA)
5.000%, 10/01/05................ 450 428
Cape May County, Bridge
Commission, RB
6.500%, 06/01/00................ 350 364
Cape May County, Municipal
Utilities Authority, Series B,
RB, (FGIC)
4.900%, 01/01/09................ 1,000 909
Carteret, GO, (FGIC)
5.050%, 10/01/05................ 925 890
5.250%, 10/01/07................ 980 940
5.450%, 10/01/09................ 500 481
Cherry Hill Township, GO
6.000%, 06/01/06................ 500 514
Delaware River Joint Toll Bridge
Commission, RB, (FGIC)
6.250%, 07/01/12................ 400 412
Dover Township, GO, (AMBAC),
Callable 10/15/02 @ 102
6.000%, 10/15/03................ 1,000 1,050
Edison Township, GO
6.500%, 06/01/04................ 500 539
Edison Township, GO, (AMBAC)
4.800%, 01/01/05................ 750 696
5.000%, 01/01/07................ 1,000 918
Edison Township, School
Authority, GO
6.500%, 06/01/03................ 1,000 1,073
Essex County, Correctional
Facility Improvement,
RB, (AMBAC), Callable
12/01/06 @ 100
6.900%, 12/01/14................ 500 533
</TABLE>
Continued
44
<PAGE> 108
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Essex County, Improvement
Authority, Lease Capital
Equipment Program,
Series C, RB
7.000%, 09/01/98 (C)........... $ 310 $ 326
Essex County, Improvement
Authority, RB, (AMBAC)
5.300%, 12/01/06............... 1,000 968
Essex County, Series A, GO,
(MBIA)
4.600%, 10/01/03............... 1,500 1,412
Evesham Township, Municipal
Utilities Authority, Series B,
RB, (MBIA),
Callable 07/01/97 @ 100
6.800%, 07/01/01............... 1,010 1,054
6.850%, 07/01/02............... 1,080 1,126
Flemington-Raritan, GO
6.250%, 02/01/12 (C)........... 500 518
Gloucester County, Housing
Authority, RB
6.200%, 09/15/11 (C)........... 500 498
Hillside Township, GO, (MBIA)
6.600%, 02/15/07............... 1,000 1,061
Irvington Township, School
District Refunding Bonds,
Series 1993, GO, (FSA)
5.000%, 10/01/11............... 1,000 906
Knowlton Township, Board of
Education, GO
6.600%, 08/15/10............... 170 183
6.600%, 08/15/11............... 169 182
Lacey Township, Municipal
Utilities Authority, RB, (MBIA)
6.000%, 12/01/12............... 1,000 1,000
Landis, Sewer Authority,
RB, (FGIC)
5.400%, 10/01/06............... 500 486
Manchester Township, Board of
Education, COP, (MBIA)
5.300%, 12/15/07............... 500 476
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Medford Township, Board of
Education, GO, (FGIC),
Callable 02/01/05 @ 100
5.950%, 02/01/11............... $ 500 $ 501
Mercer County, Hamilton Board
of Education Lease Project,
RB, (MBIA)
5.250%, 12/15/14............... 1,000 913
Mercer County, Improvement
Authority, Hamilton Township
Board of Education Project,
RB, (MBIA)
5.900%, 06/01/03............... 500 516
Mercer County, Improvement
Revenue Government Lease
Program, RB,
Prerefunded @ 101
7.250%, 12/01/98 (B)........... 985 1,067
Middletown Township, Sewer
Authority, Series A, RB, (FGIC)
5.000%, 01/01/06............... 1,000 933
5.050%, 01/01/07............... 1,095 1,017
5.100%, 01/01/08............... 1,750 1,609
Monmouth County, Utility
Authority, GO,
Callable 08/01/00 @ 102
7.000%, 08/01/06............... 1,000 1,081
Moorestown, School District,
GO, (AMBAC)
6.600%, 06/01/05............... 450 488
Morris Township, GO,
6.550%, 07/01/01............... 500 533
Morristown, GO, (FSA)
6.400%, 08/01/14............... 500 520
North Arlington, GO, (AMBAC)
4.800%, 02/01/12............... 600 527
4.800%, 02/01/13............... 441 386
North Bergen Township,
GO, (FSA)
5.900%, 08/15/01............... 500 519
North Bergen Township,
Municipal Utilities Authority,
RB, (FGIC)
5.200%, 12/15/07............... 1,000 956
</TABLE>
Continued
45
<PAGE> 109
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Northwest Bergen County,
Utilities Authority, RB, (MBIA)
5.900%, 07/15/06................ $ 755 $ 782
Nutley, GO
7.000%, 08/01/98................ 400 407
Ocean County, General
Improvement, GO
6.300%, 04/15/97................ 1,000 1,028
5.125%, 07/01/06................ 800 759
5.150%, 07/01/09................ 1,000 926
5.150%, 07/01/10................ 1,250 1,147
Ocean County, Series A, GO
6.250%, 10/01/01................ 1,280 1,347
Ocean County, Series A, GO,
Callable 10/01/01 @102
6.250%, 10/01/05................ 1,050 1,108
Ocean County, Utility Authority,
Series A, RB,
Callable 01/01/07 @ 100
6.300%, 01/01/12 (C)............ 1,005 1,039
Parsippany Troy Hills
Township, GO
4.700%, 12/01/04................ 1,000 928
Passaic Valley, Water
Commission, Series A,
RB, (FGIC)
5.950%, 12/15/02................ 500 529
Piscataway Township, School
District, COP, (FSA)
5.150%, 06/15/06................ 500 483
Point Pleasant, GO, (MBIA)
5.700%, 12/01/03................ 500 511
Port Authority, RB
5.200%, 09/01/13 (C)............ 1,000 914
Port Authority, RB,
Callable 04/01/96 @ 102
7.250%, 04/01/14 (C)............ 1,500 1,544
Scotch Plains Township, Senior
Citizen Housing, RB
5.625%, 09/01/13 (C)............ 500 470
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
South Plainfield, Board of
Education, COP, (MBIA),
Callable 06/15/02 @ 100
6.500%, 12/15/07............... $ 780 $ 824
South Plainfield, GO, (AMBAC)
4.750%, 09/01/08............... 1,030 937
State Building Authority, RB
7.150%, 06/15/99............... 200 217
State Building Authority, RB,
Prerefunded @ 102
7.200%, 06/15/99 (B)........... 1,200 1,316
State Economic Development
Authority, Trenton Office
Complex Project, RB
6.625%, 06/15/01............... 1,050 1,130
State Health Care Facility, St.
Clares-Riverside Medical
Center, RB, (MBIA)
5.750%, 07/01/14............... 500 489
State Highway Authority, Garden
State Parkway Project, RB
4.900%, 01/01/05 (C)........... 1,000 961
6.200%, 01/01/10............... 750 773
6.250%, 01/01/14............... 500 507
State Highway Authority, Garden
State Parkway Project, RB,
Callable 01/01/02 @ 102
6.000%, 01/01/05............... 1,350 1,401
State Housing Finance Agency,
Series A, RB
6.700%, 05/01/05 (C)........... 500 527
State Housing Finance Agency,
Series A, RB,
Callable 05/01/02 @ 102
6.700%, 11/01/05 (C)........... 1,000 1,054
6.950%, 11/01/13 (C)........... 750 783
State Sports & Exposition
Authority, State Contract
Bonds, Series A, RB
5.300%, 09/01/09............... 955 899
</TABLE>
Continued
46
<PAGE> 110
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State Transportation Authority,
Series A, RB
5.400%, 06/15/97............... $ 500 $ 508
6.000%, 06/15/00............... 1,030 1,069
State Turnpike Authority,
Series A, RB
6.400%, 01/01/02............... 250 265
State Turnpike Authority,
Series A, RB,
Callable 01/01/96 @ 100
6.900%, 01/01/14............... 970 983
State Turnpike Authority,
Series C, RB
6.500%, 01/01/16............... 500 528
State Turnpike Authority,
Series C, RB, (AMBAC)
6.250%, 01/01/10............... 1,350 1,380
State Wastewater Authority,
Series B, RB
7.000%, 05/15/04............... 950 1,022
State Wastewater Authority,
Treatment Trust,
RB, (AMBAC)
4.600%, 03/01/06............... 1,500 1,343
4.800%, 03/01/13............... 1,590 1,355
State Water Supply District
Authority, Wanaque North
Project, Series A, RB, (MBIA)
6.500%, 11/15/06............... 510 547
State, GO
7.000%, 04/01/97............... 1,350 1,404
6.250%, 09/15/01............... 1,000 1,063
State, GO, Callable
04/01/01 @ 100.50
7.000%, 04/01/03............... 500 544
State, GO,
Prerefunded @ 101.50
7.400%, 04/15/97 (B)........... 820 872
State, Port Authority Marine
Terminal, Series G, RB
5.500%, 01/01/15 (C)........... 2,280 2,152
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
State, Series C, GO, Callable
01/15/99 @ 101.5
6.500%, 01/15/08................. $1,000 $ 1,046
State, Series C, GO, Callable
01/15/99 @ 101.50
6.500%, 01/15/05................. 500 525
Stony Brook, Regional Sewer
Authority, Series B, RB
5.200%, 12/01/06 (C)............. 500 482
Tinton Falls, Board of Education,
GO, (MBIA), Callable
10/15/04 @ 100
5.875%, 10/15/09................. 1,010 1,009
Union County, Pollution Control
Financing Authority, Exxon
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 500 500
Wanaque Valley, Regional Sewer
Authority, Series B, RB,
(AMBAC)
5.650%, 09/01/08................. 585 581
Warren County, GO, (AMBAC)
4.650%, 09/15/06................. 500 464
Warren County, Pollution Control
Finance Authority, Resource
Recovery, RB, (MBIA), Callable
12/01/02 @ 102
6.350%, 12/01/04................. 500 542
Warren County, Pollution Control
Finance Authority, Series B,
RB, (MBIA)
5.700%, 12/01/03................. 500 518
Warren Hills, Regional School
District, COP, (FSA)
4.800%, 12/15/03................. 685 653
4.900%, 12/15/04................. 710 675
Warren Township, Sewer
Authority, RB
6.450%, 12/01/05................. 275 295
Weehawken, GO, (FSA)
6.150%, 07/01/04................. 350 371
</TABLE>
Continued
47
<PAGE> 111
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
New Jersey, continued:
West Long Branch, Board of
Education, COP, (MBIA)
5.000%, 12/15/09................... $1,380 $ 1,259
West Windsor Plainsboro,
Regional Board of Education,
Series 1993, COP, (MBIA)
5.800%, 03/15/06................... 1,000 1,024
Winslow Township, GO, (FGIC),
Callable 10/01/02 @ 102
6.400%, 10/01/05................... 870 914
Woodbridge Township, GO
5.800%, 08/15/03................... 500 514
6.050%, 08/15/05................... 500 521
Woodbridge Township, Series C,
GO
5.000%, 09/15/11................... 1,000 884
Woodbridge Township, Sewer
Utility, Series B, GO
5.000%, 09/15/10................... 965 858
-------
94,937
-------
Puerto Rico (1.0%)
University of Puerto Rico,
Series L, RB, Callable
06/01/96 @ 102
7.750%, 06/01/07 (C)............... 915 964
-------
Total Municipal Bonds
(Cost $97,958,123)................. 96,301
-------
Total Investments (99.4%)
(Cost $97,958,123)................. 96,301
-------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets and Liabilities, Net.. 556
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited authorization-no
par value) based on 8,857,006 outstanding
shares of beneficial interest............... $98,940
Accumulated net realized loss on
investments................................. (433)
Net unrealized depreciation on investments.... (1,657)
Undistributed net investment income........... 7
--------
Total Net Assets: (100.0%).................... $96,857
========
Net Asset Value and Redemption Price Per
Share....................................... $10.94
========
Maximum Public Offering Price Per Share
($10.94/96.25%)............................. $11.37
========
</TABLE>
- ----------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
COP-Certificate of Participation
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
FSA-Financial Security Assurance
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
48
<PAGE> 112
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (104.3%)
Pennsylvania (104.3%)
Allegheny County, Children's
Hospital, Series A, RB, (MBIA),
Callable 07/01/98 @ 102
7.000%, 07/01/06................... $ 500 $ 531
Allegheny County, Series C-40,
GO, (AMBAC), Callable
05/01/02 @ 102
5.900%, 05/01/07................... 500 504
Allegheny County, Series C-42, GO
5.000%, 10/01/10................... 500 446
Beaver County, Industrial
Development Authority, J&L
Specialty Products Corporation,
RB, Callable 09/01/97 @ 100
6.600%, 09/01/10 (C)............... 500 508
Berks County, Second Series, GO,
(FGIC)
5.000%, 05/15/10................... 500 456
Bristol Township, School District,
Series A, GO, (MBIA)
5.000%, 02/15/07................... 500 465
Central Bucks, School District,
Series A, GO, (MBIA)
5.300%, 05/15/11................... 500 469
Deer Lakes, School District, GO,
(MBIA), Callable
01/15/04 @ 100
6.450%, 01/15/19 (B)............... 500 508
Lackawanna County, GO,
(AMBAC)
5.100%, 12/01/08................... 250 231
Lancaster, Parking Authority,
RB, Callable 01/01/96 @ 100
9.375%, 01/01/05................... 450 466
Manheim, Central School District,
GO, (FGIC)
6.100%, 05/15/14................... 1,000 1,000
North Penn, School District,
Series AA, GO
5.100%, 09/01/09................... 500 461
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Philadelphia, Authority for
Industrial Development,
National Board of Medical
Examiners Project, RB,
Callable 05/01/02 @ 102
6.750%, 05/01/12................. $ 500 $ 516
Philadelphia, Hospitals and
Higher Education Facilities
Authority, Willis Eye Hospital
Project, RB
5.500%, 07/01/05................. 500 474
Pittsburgh, Series D, GO,
(AMBAC)
6.125%, 09/01/17................. 500 503
Pittsburgh, Urban
Redevelopment Authority,
Series A, RB
5.500%, 10/01/10................. 500 464
Pocono Mountain, School District,
Series AA, GO, (AMBAC),
Callable 04/01/02 @ 100
5.750%, 10/01/09 (B)............. 500 491
Seneca Valley, School District,
Series A, GO, (FGIC), Callable
07/01/02 @ 100
5.750%, 07/01/10................. 500 488
Southeastern Pennsylvania
Transportation Authority, RB
5.750%, 12/01/04................. 500 502
State Financing Authority, RB,
Callable 11/01/03 @ 102
6.600%, 11/01/09................. 500 507
State Higher Education
Authority, Drexel University
Project, RB, (MBIA), Callable
05/01/00 @ 100
7.250%, 05/01/10................. 500 529
State Higher Education
Authority, Susquehanna
University Project, RB,
(AMBAC), Callable
03/01/98 @ 101
6.900%, 03/01/02................. 750 787
</TABLE>
Continued
49
<PAGE> 113
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------
February 28, 1995
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State Higher Education
Authority, Temple University
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)... $ 200 $ 200
State Higher Education
Authority, Thomas Jefferson
University Hospital Project,
RB, Callable 11/01/95 @ 102
9.100%, 07/01/01............... 200 209
State Higher Education
Authority, Thomas Jefferson
University Project, RB,
Prerefunded @ 102
7.550%, 11/01/00 (B)........... 500 566
State Higher Education
Authority, Trustees University
Project, Series A, RB, Callable
1/1/97 @ 100
6.625%, 01/01/17............... 250 252
State Housing Finance Agency,
Rental Housing Projects, Series
C, RB, Callable 07/01/04 @ 100
6.400%, 07/01/12 (C)........... 500 504
State Housing Finance Agency,
Single Family Mortgage
Revenue, Series 36, RB
5.250%, 04/01/07............... 500 466
State Intergovernmental
Cooperation Authority, City of
Philadelphia Funding Program,
RB, (MBIA)
5.600%, 06/15/15............... 500 472
State Turnpike Commission, Oil
Franchise Tax Project,
Series A, RB, (AMBAC)
5.875%, 12/01/08............... 500 494
State Turnpike Commission,
Series P, RB, (AMBAC)
6.000%, 12/01/09............... 500 505
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
Wattsburg Area, School District,
GO, (AMBAC), Callable
04/01/02 @ 100
6.350%, 04/01/15 (B)............... $ 500 $ 507
Wayne Highlands, School
District, GO, (FGIC), Callable
10/01/99 @ 100
6.000%, 04/01/12................... 500 497
West Chester, School District, GO
6.200%, 09/01/14................... 1,000 1,003
West View, Municipal Authority,
GO
9.000%, 05/15/99 (C)............... 400 460
--------
Total Municipal Bonds
(Cost $17,943,764)................. 17,441
--------
Total Investments (104.3%)
(Cost $17,943,764)................. 17,441
--------
OTHER ASSETS AND LIABILITIES (-4.3%)
Other Assets and Liabilities, Net.. (717)
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 1,743,326 outstanding
shares of beneficial interest...... 17,726
Accumulated net realized loss on
investments........................ (499)
Net unrealized depreciation on
investments........................ (503)
--------
Total Net Assets: (100.0%)......... $16,724
========
Net Asset Value and Redemption
Price Per Share.................... $9.59
========
Maximum Public Offering Price
Per Share ($9.59/96.25%)........... $9.96
========
</TABLE>
- ---------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
Continued
50
<PAGE> 114
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets.
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- -------
<S> <C> <C>
FOREIGN STOCKS (91.1%)
Argentina (0.8%)
YPF Sociedad Anonima ADR....... 14,000 $ 266
-------
Australia (3.0%)
Broken Hill Proprietary........ 33,565 462
Mim Holdings................... 130,000 200
News Corporation............... 83,294 371
-------
1,033
-------
Brazil (0.4%)
Acesita SA ADR*................ 7,000 139
-------
Chile (0.7%)
Five Arrow Chile Fund PC....... 100,000 250
Five Arrow Chile Fund Warrants,
Expire 05/31/99 *............ 20,000 9
-------
259
-------
Denmark (1.0%)
Tele Denmark A/S "B"........... 6,500 332
-------
Finland (0.7%)
Nokia AB....................... 1,700 256
-------
France (6.7%)
Alcatel Alsthom................ 2,442 197
AXA SA......................... 7,200 311
Carrefour...................... 880 359
Eaux Generale.................. 2,500 231
Groupe Danone.................. 2,250 324
L'Oreal........................ 1,500 334
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- -------
<S> <C> <C>
Lafarge-Coppee................... 3,378 $ 218
Societe Nationale Elf Aquitaine.. 5,068 364
-------
2,338
-------
Germany (4.3%)
Bayer AG......................... 1,300 321
Commerzbank AG................... 1,800 417
Karstadt AG...................... 1,000 404
Lufthansa AG *................... 2,500 347
-------
1,489
-------
Hong Kong (2.2%)
Hong Kong Telecommunications..... 170,000 306
Swire Pacific "A"................ 67,000 470
-------
776
-------
India (1.2%)
Hindalco Units................... 15,000 397
-------
Indonesia (1.0%)
Gadjah Tungal.................... 308,000 379
-------
Italy (1.5%)
Assicurazioni Generali SPA....... 11,450 259
Credito Italiano................. 222,368 239
Credito Italiano Warrants, Expire
12/31/97 *....................... 34,624 9
-------
507
-------
Japan (32.0%)
CSK................................ 21,000 574
Daiwa House Industries............. 39,000 570
East Japan Railway................. 267 1,178
Fuji Bank.......................... 42,000 904
KAO................................ 33,000 359
Mitsubishi Rayon................... 300,000 1,019
Nippon Paper Company............... 96,000 606
Nippon Telegraph & Telephone....... 160 1,143
Nippon Television Network.......... 2,660 546
NSK................................ 8,000 49
Pioneer Electronics................ 54,000 1,152
Sumitomo Trust & Banking........... 53,000 615
Toshiba Corporation................ 177,000 1,120
Toyo Ink Manufacturing............. 29,000 166
Yamaha Corporation................. 108,000 1,199
-------
11,200
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE> 115
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------
February 28, 1995
INTERNATIONAL EQUITY
FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
FOREIGN STOCKS, CONTINUED:
Malaysia (1.8%)
Malayan Banking.................. 34,500 $ 229
Perusahaan Otomobil.............. 63,000 222
Telekom Malaysia................. 27,000 189
-------
640
-------
Mexico (0.5%)
Grupo Carso SA ADR*.............. 25,000 162
Grupo Tribasa SA ADR*............ 3,000 18
-------
180
-------
Netherlands (3.9%)
ABN-Amro Holdings................ 8,532 311
Akzo NV.......................... 2,700 316
Elsevier NV...................... 39,000 382
International Nederlanden Group.. 7,147 350
-------
1,359
-------
Norway (0.7%)
Kvaerner AS Series B............. 5,467 237
-------
Singapore (2.5%)
City Developments................ 35,500 174
Jurong Shipyard.................. 38,000 317
United Overseas Bank............. 40,775 397
-------
888
-------
Spain (1.4%)
Banco de Santander............... 6,150 221
Banco de Santander New*.......... 1,466 52
Repsol Petroleum SA.............. 8,200 233
-------
506
-------
Sweden (1.8%)
Skandia Forrestry................ 15,000 265
Stora Kopparberg "B"............. 5,650 365
-------
630
-------
Switzerland (4.4%)
BBC Brown Boveri AG.............. 400 349
CS Holdings...................... 493 205
Nestle SA........................ 385 372
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- -------
<S> <C> <C>
Roche Holdings AG.................... 70 $ 388
Zurich Versicherung.................. 220 211
-------
1,525
-------
Taiwan (0.8%)
President Enterprise GDR*............ 2,171 40
Tuntex Distinct GDR*................. 20,004 240
-------
280
-------
Thailand (1.8%)
Siam Commercial Bank................. 34,000 295
TPI Polene......................... 44,250 344
-------
639
-------
United Kingdom (16.0%)
B.A.T. Industries.................... 72,545 478
British Petroleum.................... 81,000 508
BTR.................................. 103,830 515
BTR Warrants, Expire 11/26/98........ 1,146 1
Delta Group.......................... 33,500 240
Farnell Electronic................... 45,000 387
FKI.................................. 140,000 300
Granada Group........................ 64,000 516
Legal & General Group................ 60,000 420
Lloyds Bank.......................... 35,000 317
Reuters Holdings..................... 72,000 505
Tesco................................ 130,000 515
Unilever............................. 28,000 518
WPP Group............................ 215,000 369
-------
5,589
-------
Total Foreign Stocks
(Cost $30,983,755)................. 31,844
-------
CONVERTIBLE PREFERRED STOCKS (0.6%)
Australia (0.6%)
News Corporation..................... 47,647 189
-------
Netherlands (0.0%)
ABN-Amro Holdings.................... 349 12
-------
Total Convertible Preferred Stocks
(Cost $210,875).................... 201
-------
</TABLE>
Continued
52
<PAGE> 116
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
<S> <C> <C>
FOREIGN BONDS (1.2%)
South Korea (0.8%)
Daewoo Corporation,
6.568%, 12/31/04............. 525 $ 281
-------
Taiwan (0.4%)
Tecom Electronics & Machinery
2.750%, 04/15/04............. 170 142
-------
Total Foreign Bonds
(Cost $670,376).............. 423
-------
Total Investments
(92.9% of Net Assets)
(Cost $31,865,006)........... $32,468
-------
</TABLE>
- ---------
* Non-income producing security
ADR-American Depository Receipt
GDR-Global Depository Receipt
PC-Participating Certificate
(1) In local currency
INTERNATIONAL FIXED
INCOME FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
--------- -------
<S> <C> <C>
FOREIGN BONDS (91.3%)
Austria (2.2%)
Austria Republic
6.250%, 10/16/03..... 85,000 $ 987
-------
Canada (4.9%)
Canadian Government
9.750%, 12/01/01..... 2,900 2,240
-------
France (14.0%)
Credit Foncier
6.750%, 03/30/99..... 3,000 2,044
Government of France
7.000%, 11/12/99..... 12,000 2,339
8.500%, 04/25/03..... 10,000 2,017
-------
6,400
-------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
--------- -------
<S> <C> <C>
Germany (30.9%)
African Development Bank
7.250%, 10/21/99.............. 2,000 $ 1,389
Deutschland Republic
6.250%, 01/04/24.............. 1,600 907
European Economic Community
6.500%, 03/10/00.............. 2,700 1,820
German Unity Fund
8.000%, 01/21/02.............. 3,000 2,129
KFW International Finance
7.250%, 12/03/97.............. 3,000 2,098
LKB Baden Wurt
6.000%, 05/10/99.............. 3,000 1,989
Norddeutsche Landesbank
6.000%, 01/05/04.............. 3,000 1,841
Westdeutsche Landesbank
6.250%, 09/15/03.............. 3,000 1,902
-------
14,075
-------
Italy (8.4%)
Republic of Italy
8.500%, 01/01/99.............. 3,750,000 1,993
Societe Nationale Chemin
11.500%, 10/18/99............. 3,100,000 1,840
-------
3,833
-------
Japan (17.9%)
Asian Development Bank
5.000%, 02/05/03.............. 190,000 2,029
Interamerican Development Bank
6.000%, 10/30/01.............. 180,000 2,036
Japanese Development Bank
6.500%, 09/20/01.............. 190,000 2,209
World Bank
4.500%, 03/20/03.............. 180,000 1,877
-------
8,151
-------
New Zealand (4.2%)
New Zealand Treasury,
8.224%, 03/08/95.............. 3,060 1,935
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE> 117
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
February 28, 1995
INTERNATIONAL FIXED
INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
<S> <C> <C>
FOREIGN BONDS, CONCLUDED:
United Kingdom (8.8%)
Abbey National Treasury
8.000%, 04/02/03......... 600 $877
National Power
10.625%, 03/26/01........ 600 1,003
United Kingdom Treasury
9.500%, 10/25/04......... 1,300 2,157
-------
4,037
-------
Total Foreign Bonds
(Cost $40,191,475)....... 41,658
-------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
<S> <C> <C>
FOREIGN CURRENCY OPTIONS (0.0%)
United States (0.0%)
Deutsche Mark Put
06/08/95....................... 2,280 $4
-------
Total Foreign Currency Options
(Cost $61,674)................. 4
-------
Total Investments (91.3% of Net
Assets) (Cost $40,253,149)..... $41,662
=======
</TABLE>
- ---------
(1) In local currency
The accompanying notes are an integral part of the financial statements.
54
<PAGE> 118
STATEMENT OF ASSETS AND LIABILITIES THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GROWTH FUND
<TABLE>
<CAPTION>
VALUE
(000)
--------
<S> <C>
ASSETS:
Investment Securities (Cost $120,023,153).................................. $131,281
Receivable-Accrued Income.................................................. 171
Receivable-Portfolio Securities Sold....................................... 8,486
Receivable-Capital Shares Sold............................................. 18
Other Assets............................................................... 29
--------
Total Assets............................................................. 139,985
--------
LIABILITIES:
Payable-Portfolio Securities Purchased..................................... (460)
Payable-Accrued Expenses................................................... (147)
Other liabilities.......................................................... (39)
--------
Total Liabilities........................................................ (646)
--------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 12,374,749
outstanding shares of beneficial interest................................ 130,313
Accumulated net realized loss on investments............................... (2,299)
Net unrealized appreciation on investments................................. 11,258
Undistributed net investment income........................................ 67
--------
Total Net Assets................................................... $139,339
========
Net Asset Value and Redemption Price Per Share................................. $11.26
========
Maximum Public Offering Price Per Share ($11.26/96.25%)........................ $11.70
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE> 119
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------
February 28, 1995
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
ASSETS:
Investment Securities (Cost $31,865,006)........................................ $32,468
Cash............................................................................ 3,207
Other Assets.................................................................... 107
-------
Total Assets................................................................ 35,782
-------
LIABILITIES:
Payable-Portfolio Securities Purchased.......................................... (677)
Other Liabilities............................................................... (168)
-------
Total Liabilities........................................................... (845)
-------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 2,930,999
outstanding shares of beneficial interest..................................... 34,494
Accumulated net realized loss on foreign currency transactions.................. (68)
Net unrealized depreciation on forward foreign currency contracts, foreign
currency and translation of other assets and liabilities in foreign currency.. (82)
Net unrealized appreciation on investments...................................... 593*
-------
Total Net Assets............................................................ $34,937
=======
Net Asset Value and Redemption Price Per Share...................................... $11.92
=======
Maximum Public Offering Price Per Share ($11.92/96.25%)............................. $12.38
=======
</TABLE>
- ---------
* Net of $10,000 accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
56
<PAGE> 120
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
ASSETS:
Investment Securities (Cost $40,253,149).......................................... $41,662
Cash.............................................................................. 3,476
Receivable-Accrued Income......................................................... 1,257
Other Assets...................................................................... 6
-------
Total Assets.................................................................. 46,401
-------
LIABILITIES:
Other Liabilities................................................................. (744)
-------
Total Liabilities............................................................. (744)
-------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 4,341,116
outstanding shares of beneficial interest....................................... 45,195
Accumulated net realized loss on investments...................................... (827)
Net unrealized depreciation on forward foreign currency contracts, foreign
currency and translation of other assets and liabilities in foreign currency.... (617)
Net unrealized appreciation on investments........................................ 1,409
Undistributed net investment income............................................... 497
-------
Total Net Assets.............................................................. $45,657
=======
Net Asset Value and Redemption Price Per Share........................................ $ 10.52
=======
Maximum Public Offering Price Per Share ($10.52/96.25%)............................... $ 10.93
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE> 121
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------
February 28, 1995
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
CASH U.S. MUNICIPAL MUNICIPAL MUNICIPAL EQUITY
RESERVE TREASURY MONEY MONEY MONEY INCOME
FUND FUND FUND FUND FUND FUND
-------- -------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest income................................... $20,385 $16,299 $1,438 $1,224 $1,244 $ 325
Dividend income................................... - - - - - 9,344
Less: foreign taxes withheld...................... - - - - - -
------- -------- --------- ---------- ------------ ---------
Total investment income....................... 20,385 16,299 1,438 1,224 1,244 9,669
------- -------- --------- ---------- ------------ ---------
Expenses:
Administration fees............................... 769 648 81 71 82 509
Waiver of administration fees..................... - - - (26) (46) -
Investment advisory fees.......................... 1,495 1,259 180 158 147 1,981
Waiver of investment advisory fees................ - - - - (38) -
Custodian/Transfer agent fees..................... 90 69 19 28 26 88
Pricing fees...................................... 3 3 3 1 2 20
Professional fees................................. 69 53 8 7 5 42
Registration fees................................. 20 7 3 1 1 7
Trustee fees...................................... 13 12 1 1 1 8
Printing expenses................................. 51 40 5 4 2 24
Amortization of deferred organizational
costs........................................... - - - 4 5 -
Insurance and other fees.......................... 21 36 1 - 1 10
------- -------- --------- ---------- ------------ ---------
Total expenses................................ 2,531 2,127 301 249 188 2,689
------- -------- --------- ---------- ------------ ---------
Net investment income................................. 17,854 14,172 1,137 975 1,056 6,980
------- -------- --------- ---------- ------------ ---------
Net realized gain (loss) on securities sold........... (1,037) 3 (15) (7) (2) (2,336)
------- -------- --------- ---------- ------------ ---------
Net realized loss on forward foreign currency
contracts and foreign currency transactions......... - - - - - -
------- -------- --------- ---------- ------------ ---------
Change in unrealized appreciation on forward
foreign currency contracts, foreign currency
and translation of other assets and liabilities in
foreign currency.................................... - - - - - -
------- -------- --------- ---------- ------------ ---------
Change in unrealized appreciation (depreciation)
on investment securities............................ - - - - - 5,135
------- -------- --------- ---------- ------------ ---------
Net gain (loss) on investments........................ (1,037) 3 (15) (7) (2) 2,799
------- -------- --------- ---------- ------------ ---------
Increase (decrease) in net assets resulting from
operations.......................................... $16,817 $14,175 $1,122 $ 968 $1,054 $9,779
------- -------- --------- ---------- ------------ ---------
</TABLE>
- ---------
(1) Commenced operations on July 1, 1994.
* Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
58
<PAGE> 122
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERNATIONAL
SMALL CAP SHORT/ FIXED MUNICIPAL MUNICIPAL MUNICIPAL INTERNATIONAL FIXED
GROWTH VALUE BALANCED INTERMEDIATE INCOME BOND BOND BOND EQUITY INCOME
FUND FUND FUND(1) FUND FUND FUND FUND FUND FUND FUND
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 188 $ 40 $ 329 $ 14,002 $ 17,273 $ 1,810 $ 5,583 $1,002 $ 90 $ 3,270
1,836 482 169 - - - - - 502 -
- - - - - - - - (63) (15)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
2,024 522 498 14,002 17,273 1,810 5,583 1,002 529 3,255
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
242 44 19 408 453 59 183 34 62 81
- - (13) - - (26) (78) (22) - -
939 217 72 1,360 1,511 198 610 114 311 362
- - (34) - - (31) (2) (47) - -
56 41 19 62 66 34 46 29 85 86
8 1 - 13 16 3 6 2 14 6
21 3 2 36 40 5 16 3 7 7
3 1 4 7 6 1 2 1 8 3
2 1 - 8 7 1 3 1 1 1
12 2 2 23 25 3 10 2 4 3
- 4 1 - - - 4 6 5 5
5 - - 7 8 1 2 1 8 6
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,288 314 72 1,924 2,132 248 802 124 505 560
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
736 208 426 12,078 15,141 1,562 4,781 878 24 2,695
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,391 970 144 (3,296) (3,223) (1,090) (431) (481) 2,720 (827)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
- - - - - - - - (357) (2,318)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
- - - - - - - - 124* 32
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,259 (2,226) 587 (4,916) (11,359) (353) (3,631) (238) (5,307) 1,113
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
2,650 (1,256) 731 (8,212) (14,582) (1,443) (4,062) (719) (2,820) (2,000)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
$3,386 $(1,048) $1,157 $ 3,866 $ 559 $ 119 $ 719 $ 159 $(2,796) $ 695
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
</TABLE>
59
<PAGE> 123
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
For the years ended February 28,
<TABLE>
<CAPTION>
CASH RESERVE FUND U.S. TREASURY FUND
----------------------------- -----------------------
1995 1994 1995 1994
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income........................ $ 17,854 $ 12,186 $ 14,172 $ 9,185
Net realized gain (loss) on securities sold.. (1,037) 2 2 3
---------- ------------ ---------- -----------
Increase in net assets resulting from
investment operations.................. 16,817 12,188 14,174 9,188
---------- ------------ ---------- -----------
DISTRIBUTIONS:
Net investment income........................ (17,854) (12,186) (14,172) (9,185)
---------- ------------ ---------- -----------
Total distributions...................... (17,854) (12,186) (14,172) (9,185)
---------- ------------ ---------- -----------
SHARE TRANSACTIONS:
Shares issued................................ 749,041 997,057 904,680 1,266,098
Shares reinvested in lieu of cash
distributions.............................. 440 184 203 90
Shares redeemed.............................. (742,657) (1,025,246) (916,643) (1,235,303)
---------- ------------ ---------- -----------
Increase (decrease) in net assets from
capital share transactions............. 6,824 (28,005) (11,762) 30,885
---------- ------------ ---------- -----------
Contribution of capital from affiliate... 887 - - -
---------- ------------ ---------- -----------
Total increase (decrease) in net assets.. 6,674 (28,003) (11,760) 30,888
---------- ------------ ---------- -----------
NET ASSETS:
Beginning of period...................... 428,649 456,652 377,276 346,388
---------- ------------ ---------- -----------
End of period............................ $ 435,323 $ 428,649 $ 365,516 $ 377,276
========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE> 124
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
MUNICIPAL MONEY MUNICIPAL MONEY MUNICIPAL MONEY
FUND FUND FUND
- ----------------------- --------------------- ---------------------
1995 1994 1995 1994 1995 1994
- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 1,137 $ 1,223 $ 975 $ 703 $ 1,056 $ 348
(15) (21) (7) - (2) -
- ----------- ----------- ---------- ---------- ---------- ----------
1,122 1,202 968 703 1,054 348
- ----------- ----------- ---------- ---------- ---------- ----------
(1,137) (1,223) (975) (703) (1,056) (348)
- ----------- ----------- ---------- ---------- ---------- ----------
(1,137) (1,223) (975) (703) (1,056) (348)
- ----------- ----------- ---------- ---------- ---------- ----------
117,594 382,594 70,309 53,796 94,308 52,320
10 11 64 31 17 5
(119,744) (425,385) (66,164) (53,255) (85,499) (30,767)
- ----------- ----------- ---------- ---------- ---------- ----------
(2,140) (42,780) 4,209 572 8,826 21,558
- ----------- ----------- ---------- ---------- ---------- ----------
- - - - - -
- ----------- ----------- ---------- ---------- ---------- ----------
(2,155) (42,801) 4,202 572 8,824 21,558
- ----------- ----------- ---------- ---------- ---------- ----------
47,407 90,208 39,408 38,836 26,654 5,096
- ----------- ----------- ---------- ---------- ---------- ----------
$ 45,252 $ 47,407 $ 43,610 $ 39,408 $ 35,478 $ 26,654
=========== =========== ========== ========== ========== ==========
</TABLE>
61
<PAGE> 125
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
For the years ended February 28,
<TABLE>
<CAPTION>
EQUITY INCOME GROWTH SMALL CAP VALUE BALANCED
FUND FUND FUND(1) FUND(2)
------------------- ------------------- -------------------- --------
1995 1994 1995 1994 1995 1994 1995
--------- --------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income............................. $ 6,980 $ 7,515 $ 736 $ 855 $ 208 $ 148 $ 426
Net realized gain (loss) on securities sold....... (2,336) 41,208 1,391 3,193 970 2,567 144
Change in unrealized appreciation (depreciation)
on investment securities........................ 5,135 (10,640) 1,259 2,905 (2,226) 123 587
--------- --------- --------- --------- ---------- --------- --------
Increase (decrease) in net assets from
operations.................................... 9,779 38,083 3,386 6,953 (1,048) 2,838 1,157
--------- --------- --------- --------- ---------- --------- --------
DISTRIBUTIONS:
Net investment income............................. (6,918) (7,523) (789) (734) (210) (153) (426)
Net realized gains................................ (23,258) (16,519) (3,216) (4,165) (1,457) (2,095) (14)
In excess of net realized gains................... - - - (480) - - -
--------- --------- --------- --------- ---------- --------- --------
Total distributions............................. (30,176) (24,042) (4,005) (5,379) (1,667) (2,248) (440)
--------- --------- --------- --------- ---------- --------- --------
SHARE TRANSACTIONS:
Proceeds from shares issued....................... 64,959 93,961 35,581 38,391 27,932 16,075 23,513
Dividends reinvested in lieu of cash
distributions................................... 24,070 18,186 3,390 4,735 1,390 1,882 103
Value of shares redeemed.......................... (61,887) (41,083) (49,615) (47,974) (22,494) (15,567) (400)
--------- --------- --------- --------- ---------- --------- --------
Increase (decrease) in net assets from share
transactions.................................. 27,142 71,064 (10,644) (4,848) 6,828 2,390 23,216
--------- --------- --------- --------- ---------- --------- --------
Total increase (decrease) in net assets......... 6,745 85,105 (11,263) (3,274) 4,113 2,980 23,933
--------- --------- --------- --------- ---------- --------- --------
NET ASSETS:
Beginning of period............................... 282,144 197,039 150,602 153,876 22,280 19,300 -
--------- --------- --------- --------- ---------- --------- --------
End of period..................................... $288,889 $282,144 $139,339 $150,602 $ 26,393 $ 22,280 $23,933
========= ========= ========= ========= ========== ========= ========
SHARE ISSUED AND REDEEMED:
Shares issued............................... 5,236 7,483 3,258 3,454 2,413 1,301 2,353
Shares issued in dividend
reinvestment.............................. 2,089 1,472 324 433 129 158 10
Shares redeemed............................. (5,163) (3,260) (4,518) (4,331) (1,950) (1,257) (40)
--------- --------- --------- --------- ---------- --------- --------
Net shares issued (redeemed)................ 2,162 5,695 (936) (444) 592 202 2,323
========= ========= ========= ========= ========== ========= ========
</TABLE>
(1) Formerly the Aggressive Equity Fund
(2) Commenced operations on July 1, 1994
(3) Commenced operations on August 31, 1993
The accompanying notes are an integral part of the financial statements.
62
<PAGE> 126
The Compass Capital Group
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
SHORT/INTERMEDIATE FIXED INCOME MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND FUND FUND(3)
- ------------------- ------------------- ------------------ ------------------- -----------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12,078 $ 12,640 $ 15,141 $ 13,917 $ 1,562 $ 1,424 $ 4,781 $ 3,784 $ 878 $ 338
(3,296) 1,541 (3,223) 4,806 (1,090) 823 (431) 108 (481) (17)
(4,916) (5,373) (11,359) (6,300) (353) (1,000) (3,631) (513) (238) (265)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
3,866 8,808 559 12,423 119 1,247 719 3,379 159 56
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(12,044) (12,640) (15,108) (13,917) (1,558) (1,421) (4,773) (3,784) (879) (342)
(470) (1,200) (968) (4,715) (376) (723) (73) (187) - -
- - - - - - - - - -
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(12,514) (13,840) (16,076) (18,632) (1,934) (2,144) (4,846) (3,971) (879) (342)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
34,390 132,070 31,547 93,524 8,262 18,362 21,923 73,255 4,515 21,895
6,046 8,757 4,989 8,275 475 710 1,934 1,729 101 30
(98,249) (53,591) (49,290) (31,296) (13,728) (5,301) (34,227) (10,207) (7,038) (1,773)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(57,813) 87,236 (12,754) 70,503 (4,991) 13,771 (10,370) 64,777 (2,422) 20,152
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(66,461) 82,204 (28,271) 64,294 (6,806) 12,874 (14,497) 64,185 (3,142) 19,866
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
268,235 186,031 272,409 208,115 35,556 22,682 111,354 47,169 19,866 -
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
$201,774 $268,235 $244,138 $272,409 $ 28,750 $35,556 $ 96,857 $111,354 $16,724 $19,866
========= ========= ========= ========= ========= ======== ========= ========= ======== ========
3,361 12,377 3,114 8,506 808 1,658 2,019 6,417 473 2,186
597 823 499 757 48 64 180 152 11 3
(9,629) (5,034) (4,890) (2,843) (1,355) (478) (3,191) (895) (753) (176)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(5,671) 8,166 (1,277) 6,420 (499) 1,244 (992) 5,674 (269) 2,013
========= ========= ========= ========= ========= ======== ========= ========= ======== ========
</TABLE>
63
<PAGE> 127
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUIT FIXED INCOME
FUND FUND
------------------ ---------------------
1995 1994 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income.......................................................... $ 24 $ 23 $2,695 $2,608
Net realized gain (loss) on securities sold.................................... 2,720 1,516 (827) 1,909
Net realized gain (loss) on forward foreign currency contracts and foreign
currency transactions........................................................ (357) (148) (2,318) 1,001
Change in unrealized appreciation (depreciation) on forward foreign currency
contracts, foreign currency, and translation of other assets and liabilities
in foreign currency.......................................................... 124* (208) 32 (1,315)
Change in unrealized appreciation (depreciation) on investment securities...... (5,307) 5,136 1,113 (130)
--------- -------- -------- --------
Increase (decrease) in net assets from operations.......................... (2,796) 6,319 695 4,073
--------- -------- -------- --------
DISTRIBUTIONS:
Net investment income.......................................................... - (30) (570) (3,474)
Net realized gains............................................................. (2,565) (778) (1,055) (850)
--------- -------- -------- --------
Total distributions........................................................ (2,565) (808) (1,625) (4,324)
--------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from shares issued.................................................... 11,521 16,452 7,438 11,860
Dividends reinvested in lieu of cash distributions............................. 2,543 765 1,240 2,385
Value of shares redeemed....................................................... (6,989) (2,968) (8,979) (5,363)
--------- -------- -------- --------
Increase (decrease) in net assets from share transactions.................. 7,075 14,249 (301) 8,882
--------- -------- -------- --------
Total increase (decrease) in net assets.................................... 1,714 19,760 (1,231) 8,631
--------- -------- -------- --------
NET ASSETS:
Beginning of period............................................................ 33,223 13,463 46,888 38,257
--------- -------- -------- --------
End of period.................................................................. $34,937 $33,223 $45,657 $46,888
========= ======== ======== ========
SHARE ISSUED AND REDEEMED:
Shares issued.............................................................. 837 1,270 717 1,068
Shares issued in dividend reinvestment..................................... 203 59 122 215
Shares redeemed............................................................ (518) (224) (861) (474)
--------- -------- -------- --------
Net shares issued (redeemed)............................................... 522 1,105 (22) 809
========= ======== ======== ========
</TABLE>
- ---------
* Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
64
<PAGE> 128
FINANCIAL HIGHLIGHTS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET DISTRIBUTIONS NET NET EXPENSES INCOME AVERAGE AVERAGE
ASSET FROM ASSET ASSETS TO TO NET NET
VALUE NET NET VALUE END OF AVERAGE AVERAGE ASSETS ASSETS
BEGINNING INVESTMENT INVESTMENT END TOTAL PERIOD NET NET (EXCLUDING (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS ASSETS WAIVERS) WAIVERS)
--------- ---------- ------------- --------- ------ -------- -------- ------- ---------- ----------
- ---------------------------------
CASH RESERVE FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.04 $(0.04) $1.00 4.28% $435,323 0.59% 4.18% 0.59% 4.18%
1994 1.00 0.03 (0.03) 1.00 2.80 428,649 0.59 2.76 0.59 2.76
1993 1.00 0.03 (0.03) 1.00 3.30 456,652 0.59 3.24 0.59 3.24
1992 1.00 0.05 (0.05) 1.00 5.42 435,591 0.59 5.25 0.59 5.25
1991 1.00 0.08 (0.08) 1.00 7.84 408,815 0.58 7.57 0.59 7.56
1990 1.00 0.09 (0.09) 1.00 8.93 365,174 0.58 8.58 0.60 8.56
1989(1) 1.00 0.08 (0.08) 1.00 7.16* 381,082 0.47 7.49 0.56 7.40
<CAPTION>
- ---------------------------------
U.S. TREASURY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.04 $(0.04) $1.00 4.06% $365,516 0.59% 3.94% 0.59% 3.94%
1994 1.00 0.03 (0.03) 1.00 2.63 377,276 0.59 2.60 0.59 2.60
1993 1.00 0.03 (0.03) 1.00 3.00 346,388 0.62 3.10 0.62 3.10
1992 1.00 0.05 (0.05) 1.00 5.21 958,671 0.56 4.95 0.56 4.95
1991 1.00 0.07 (0.07) 1.00 7.50 434,436 0.56 7.25 0.57 7.24
1990 1.00 0.08 (0.08) 1.00 8.56 215,195 0.59 8.24 0.61 8.22
1989(2) 1.00 0.07 (0.07) 1.00 6.75* 129,971 0.50* 7.14* 0.56* 7.08*
<CAPTION>
- ---------------------------------
MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.55% $45,252 0.67% 2.53% 0.67% 2.53%
1994 1.00 0.02 (0.02) 1.00 1.98 47,407 0.62 1.94 0.62 1.94
1993 1.00 0.03 (0.03) 1.00 2.48 90,208 0.67 2.45 0.67 2.45
1992 1.00 0.04 (0.04) 1.00 3.95 56,932 0.67 4.05 0.69 4.03
1991 1.00 0.06 (0.06) 1.00 5.67 176,209 0.61 5.54 0.63 5.52
1990 1.00 0.06 (0.06) 1.00 6.17 127,419 0.65 6.00 0.68 5.97
1989(1) 1.00 0.05 (0.05) 1.00 4.35* 123,300 0.57 5.03 0.66 4.94
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.02 $(0.02) $1.00 2.46% $43,610 0.63% 2.46% 0.70% 2.39%
1994 1.00 0.02 (0.02) 1.00 1.79 39,408 0.65 1.77 0.72 1.70
1993 1.00 0.02 (0.02) 1.00 2.19 38,836 0.73 2.17 0.76 2.14
1992(3) 1.00 0.02 (0.02) 1.00 3.53* 35,005 0.47* 3.44* 0.62* 3.29*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.71% $35,478 0.48% 2.68% 0.69% 2.47%
1994 1.00 0.02 (0.02) 1.00 2.25 26,654 0.22 2.35 0.80 1.77
1993 1.00 0.03 (0.03) 1.00 2.49 5,096 0.67 2.53 0.87 2.33
1992(4) 1.00 0.02 (0.02) 1.00 3.72* 22,145 0.58* 3.42* 0.62* 3.38*
</TABLE>
Footnotes on page 67 following table
The accompanying notes are an integral part of the financial statements.
65
<PAGE> 129
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
REALIZED DISTRIBUTIONS
NET AND ----------------------------- NET
ASSET UNREALIZED IN EXCESS ASSET
VALUE NET GAINS OR NET OF NET VALUE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN
--------- ---------- ----------- ---------- -------- --------- ------ ---------
- ------------------------
EQUITY INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.71 $0.30 $ 0.14 $(0.30) $(0.99) - $11.86 3.87%
1994 11.94 0.38 1.63 (0.39) (0.85) - 12.71 16.78
1993 11.77 0.39 0.48 (0.39) (0.31) - 11.94 7.71
1992 11.12 0.45 1.24 (0.46) (0.58) - 11.77 16.07
1991 9.93 0.45 1.17 (0.43) - - 11.12 16.87
1990(5) 10.00 0.32 (0.07) (0.32) - - 9.93 7.79*
<CAPTION>
- ------------------------
GROWTH FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.31 $0.06 $ 0.22 $(0.06) $(0.27) $ - $11.26 2.75%
1994 11.19 0.05 0.46 (0.05) (0.30) (0.04) 11.31 4.74
1993 11.36 0.13 0.26 (0.13) (0.43) - 11.19 3.49
1992 11.72 0.21 1.35 (0.21) (1.71) - 11.36 14.93
1991 10.28 0.22 1.44 (0.22) - - 11.72 16.40
1990(5) 10.00 0.23 0.27 (0.22) - - 10.28 6.70*
<CAPTION>
- ------------------------
SMALL CAP VALUE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.33 $0.10 $(0.70) $(0.10) $(0.62) - $11.01 (4.70)%
1994 12.03 0.09 1.57 (0.09) (1.27) - 12.33 14.50
1993 12.01 0.05 0.10 (0.04) (0.09) - 12.03 1.42
1992(3) 10.00 0.04 2.01 (0.04) - - 12.01 32.73*
<CAPTION>
- ------------------------
BALANCED FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995(6) $10.00 $0.27 $ 0.30 $(0.27) - - $10.30 8.94%*
<CAPTION>
- ------------------------
SHORT/INTERMEDIATE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.47 $0.55 $(0.33) $(0.55) $(0.02) - $10.12 2.27%
1994 10.67 0.59 (0.14) (0.59) (0.06) - 10.47 3.71
1993 10.47 0.67 0.32 (0.67) (0.12) - 10.67 9.77
1992 10.17 0.70 0.34 (0.70) (0.04) - 10.47 10.58
1991 9.96 0.75 0.20 (0.74) - - 10.17 9.89
1990(5) 10.00 0.56 (0.05) (0.55) - - 9.96 6.96*
<CAPTION>
- ------------------------
FIXED INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.66 $0.61 $(0.56) $(0.61) $(0.04) - $10.06 0.65%
1994 10.88 0.62 (0.01) (0.62) (0.21) - 10.66 5.38
1993 10.52 0.71 0.66 (0.72) (0.29) - 10.88 13.69
1992 10.11 0.76 0.47 (0.76) (0.06) - 10.52 12.62
1991 9.84 0.79 0.26 (0.78) - - 10.11 11.18
1990(5) 10.00 0.53 (0.19) (0.50) - - 9.84 4.54*
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET EXPENSES INCOME AVERAGE AVERAGE
ASSETS TO TO NET NET
END OF AVERAGE AVERAGE ASSETS ASSETS PORTFOLIO
PERIOD NET NET (EXCLUDING (EXCLUDING TURNOVER
(000) ASSETS ASSETS WAIVERS) WAIVERS) RATE
-------- -------- ------------ ---------- ---------- ---------
- ------------------------
EQUITY INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $288,889 0.95% 2.47% 0.95% 2.47% 57.96%
1994 282,144 0.93 3.06 0.93 3.06 156.21
1993 197,039 1.00 3.33 1.00 3.33 70.84
1992 142,052 0.96 4.04 0.96 4.04 111.52
1991 82,167 0.94 4.65 0.98 4.61 98.75
1990(5) 32,115 0.93* 4.29* 1.06* 4.16* 54.08
<CAPTION>
- ------------------------
GROWTH FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $139,339 0.96% 0.55% 0.96% 0.55% 46.28%
1994 150,602 0.94 0.56 0.94 0.56 153.03
1993 153,876 0.98 1.14 0.98 1.14 114.83
1992 115,473 1.00 1.80 1.00 1.80 144.16
1991 113,335 0.92 2.08 0.96 2.04 91.32
1990(5) 81,998 0.90* 2.72* 1.00* 2.62* 41.69
<CAPTION>
- ------------------------
SMALL CAP VALUE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $26,393 1.30% 0.86% 1.30% 0.86% 15.84%
1994 22,280 1.31 0.72 1.31 0.72 49.34
1993 19,300 1.38 0.45 1.38 0.45 43.00
1992(3) 16,237 1.22* 0.65* 1.27* 0.60* 9.08
<CAPTION>
- ------------------------
BALANCED FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995(6) $23,933 0.70%* 4.10%* 1.15%* 3.65%* 30.63%
<CAPTION>
- ------------------------
SHORT/INTERMEDIATE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $201,774 0.85% 5.33% 0.85% 5.33% 53.66%
1994 268,235 0.84 5.02 0.84 5.02 58.80
1993 186,031 0.88 6.28 0.88 6.28 25.95
1992 128,225 0.85 6.90 0.85 6.90 57.81
1991 77,996 0.84 7.44 0.88 7.40 42.86
1990(5) 25,695 0.88* 7.41* 0.98* 7.31* 2.46
<CAPTION>
- ------------------------
FIXED INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $244,138 0.85% 6.02% 0.85% 6.02% 34.69%
1994 272,409 0.83 5.53 0.83 5.53 49.41
1993 208,115 0.87 6.62 0.87 6.62 36.88
1992 150,594 0.89 7.66 0.89 7.66 120.70
1991 110,935 0.82 7.97 0.86 7.93 63.33
1990(5) 71,228 0.82* 7.10* 0.98* 6.94* 12.97
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE> 130
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS
REALIZED ----------------------------
NET AND IN NET
ASSET UNREALIZED EXCESS ASSET
VALUE NET GAINS OR NET OF NET VALUE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN
--------- ---------- ----------- ---------- -------- -------- ------ -----------
- ---------------------------------
MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.79 $0.49 $(0.39) $(0.49) $(0.12) - $10.28 1.17%
1994 11.06 0.51 (0.03) (0.51) (0.24) - 10.79 4.35
1993 10.43 0.51 0.64 (0.52) - - 11.06 11.42
1992 10.25 0.60 0.19 (0.60) (0.01) - 10.43 8.40
1991 9.99 0.64 0.23 (0.61) - - 10.25 8.96
1990(7) 10.00 0.14 (0.02) (0.13) - - 9.99 4.81*
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C><C> <C>
1995 $11.31 $0.51 $(0.36) $(0.51) $(0.01) - $10.94 1.49%
1994 11.30 0.54 0.04 (0.54) (0.03) - 11.31 5.18
1993 10.46 0.52 0.85 (0.53) - - 11.30 13.48
1992(3) 10.00 0.34 0.45 (0.33) - - 10.46 12.33*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.87 $0.44 $(0.28) $(0.44) - - $9.59 1.81%
1994(8) 10.00 0.21 (0.13) (0.21) - - 9.87 1.53*
<CAPTION>
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $13.79 $0.01 $(0.93) $ - $(0.95) $ - $11.92 (6.99)%
1994 10.32 0.03 3.88 (0.03) (0.41) - 13.79 38.19
1993 10.62 0.09 (0.34) (0.05) - - 10.32 (2.35)
1992(3) 10.00 0.02 0.63 - - (0.03) 10.62 9.88*
<CAPTION>
- ---------------------------------
INTERNATIONAL FIXED INCOME FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.75 $0.62 $(0.48) $(0.13) $(0.24) $ - $10.52 1.50%
1994 10.76 0.65 0.46 (0.90) (0.22) - 10.75 10.24
1993 10.21 0.52 0.47 (0.30) (0.14) - 10.76 9.55
1992(3) 10.00 0.31 0.26 - (0.06) (0.30) 10.21 8.92*
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET EXPENSES INCOME AVERAGE AVERAGE
ASSETS TO TO NET NET
END OF AVERAGE AVERAGE ASSETS ASSETS PORTFOLIO
PERIOD NET NET (EXCLUDING (EXCLUDING TURNOVER
(000) ASSETS ASSETS WAIVERS) WAIVERS) RATE
-------- -------- ------ ----------- ---------- -----------
- ---------------------------------
MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 28,750 0.75% 4.75% 0.93% 4.57% 60.86%
1994 35,556 0.69 4.66 0.96 4.39 80.70
1993 22,682 1.01 4.80 1.30 4.49 144.89
1992 11,299 0.75 5.81 1.31 5.25 114.78
1991 7,516 0.32 6.33 1.40 5.25 30.21
1990(7) 2,620 0.39* 5.85* 1.56* 4.68* 0.00
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 96,857 0.79% 4.71% 0.87% 4.63% 28.43%
1994 111,354 0.38 4.75 0.86 4.27 12.05
1993 47,169 0.48 5.04 1.04 4.48 16.09
1992(3) 10,673 0.52* 5.35* 1.29* 4.58* 0.00
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 16,724 0.65% 4.63% 1.01% 4.27% 48.91%
1994(8) 19,866 0.22* 4.27* 0.85* 3.64* 30.68
<CAPTION>
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 34,937 1.46% 0.07% 1.46% 0.07% 47.68%
1994 33,223 1.59 0.11 1.59 0.11 51.30
1993 13,463 1.63 0.91 1.63 0.91 80.72
1992(3) 12,427 1.56* 0.25* 1.61* 0.20* 22.26
<CAPTION>
- ---------------------------------
INTERNATIONAL FIXED INCOME FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 45,657 1.24% 5.96% 1.24% 5.96% 130.64%
1994 46,888 1.38 6.00 1.38 6.00 128.14
1993 38,257 1.30 6.31 1.30 6.31 115.25
1992(3) 27,744 1.33* 6.79* 1.37* 6.75* 110.13
- ----------------
</TABLE>
* Annualized.
(1) Commenced operations on March 1, 1988.
(2) Commenced operations on March 24, 1988.
(3) Commenced operations on July 1, 1991.
(4) Commenced operations on August 15, 1991.
(5) Commenced operations on May 31, 1989.
(6) Commenced operations on July 1, 1994.
(7) Commenced operations on December 1, 1989.
(8) Commenced operations on August 31, 1993.
The accompanying notes are an integral part of the financial statements.
67
<PAGE> 131
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
February 28, 1995
1. ORGANIZATION:
The Compass Capital Group (the "Group") was organized on October 1, 1987,
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company established as a
Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group presently offers
shares of the Cash Reserve Fund, U.S. Treasury Fund, Municipal Money Fund,
New Jersey Municipal Money Fund, Pennsylvania Municipal Money Fund, Equity
Income Fund, Growth Fund, Balanced Fund, Small Cap Value Fund (formerly
Aggressive Equity), Short/Intermediate Fund, Fixed Income Fund, Municipal
Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania Municipal Bond Fund,
International Equity Fund and International Fixed Income Fund (referred to
as a "Fund" or collectively as the "Funds"). Sales of shares of the Group
may be made to customers of Midlantic Bank N.A. ("Midlantic"), and to the
general public. Effective August 27, 1994, Midlantic National Bank, the
investment adviser to the Group, merged with Continental Bank and changed
its name to Midlantic Bank, N.A.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
Securities Valuation - Investments in equity securities which are traded on
a national securities exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily available for
such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no
sale was reported on that date are stated at the last quoted bid price.
Option contracts are valued at the last quoted bid price quoted on the
primary exchange or board of trade which such option contracts are stated.
Debt obligations exceeding sixty days to maturity for which market
quotations are readily available are valued at the most recently quoted bid
price. Foreign securities in the International Equity Fund and International
Fixed Income Fund (the "International Funds") are valued based upon
quotations from the primary market in which they are traded. Debt
obligations with sixty days or less remaining until maturity may be valued
at their amortized cost. Restricted and illiquid securities for which
quotations are not readily available are valued at fair value using methods
determined in good faith as approved by the Board of Trustees.
Security Transactions and Related Income - Security transactions are
accounted on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis.
Continued
68
<PAGE> 132
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
Dividend income is recorded on the ex-dividend date. Gains or losses realized
on sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds. Market discounts and premiums
are not amortized for financial reporting and Federal income tax purposes in
the taxable variable net asset value funds. Market premiums and original issue
discounts are amortized for financial reporting and Federal income tax purposes
in the Municipal Bond Fund, New Jersey Municipal Bond Fund, and Pennsylvania
Municipal Bond Fund.
Repurchase Agreements - The Group may enter into repurchase agreements with
member banks of the Federal Deposit Insurance Corporation ("FDIC") with
capital, surplus and undivided profits in excess of $100,000,000 (as of the
date of their most recently published financial statements) and from registered
broker/dealers whom Midlantic deems creditworthy under guidelines approved by
the Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase price
generally equals the price paid by the Group plus interest negotiated on the
basis of current short-term rates.
Securities pledged as collateral for repurchase agreements are held by the
custodian bank until the respective agreements mature. Provisions of the
repurchase agreements ensure that the market value of the collateral, including
accrued interest thereon, is sufficient in the event of default of the
counterparty.
The Group may also invest in tri-party repurchase agreements. Securities held
as collateral for tri-party repurchase agreements are maintained in a
segregated account by the broker's custodian bank until maturity of the
repurchase agreement.
If the counterparty defaults and the value of the collateral declines or if the
counterparty enters an insolvency proceeding, realization of the collateral by
the Funds may be delayed or limited.
Distributions to Shareholders - Distributions from net investment income are
declared daily and paid monthly for the money market funds. Distributions from
net investment income are declared and paid monthly for the variable net asset
value funds, excluding the Small Cap Value Fund which is paid quarterly and the
International Funds which are paid twice annually. Any net realized capital
gains are declared and distributed to shareholders at least annually.
Differences between undistributed net investment income or accumulated net
capital gains for financial reporting and tax purposes, if permanent, are
required to be reclassified to/from paid in capital.
Federal Income Taxes - It is the intention of the Group to continue to qualify
as a regulated investment company for Federal income tax purposes and
distribute all of its taxable income and net capital gains. Accordingly, no
provision for Federal income taxes is required.
Continued
69
<PAGE> 133
Notes to Financial Statements
- -------------------------------------------------------------------
February 28, 1995
Foreign Currency Translation - The books and records of the International Funds
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The International Funds do not isolate that portion of gains and losses on
investment securities which is due to changes in the foreign exchange rates
from that which is due to changes in market prices of such securities.
The International Funds report certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts - The International Funds enter into forward
foreign currency contracts as a hedge against either specific transactions or
portfolio positions. These contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized
until the contract settlement date. Such contracts, which protect the value of
a Fund's investment securities against a decline in the value of currency, do
not eliminate fluctuations in the underlying prices of the securities. They
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of a
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such foreign currency increase.
The aggregate principal amounts of the contracts are not recorded as the Funds
intend to settle the contracts prior to delivery.
Other - Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Group are prorated to
the Funds on the basis of relative net assets.
Continued
70
<PAGE> 134
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term and U.S. Government
securities) for the period ended February 28, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
--------- --------
<S> <C> <C>
Equity Income Fund................ $164,247 $161,787
Growth Fund....................... 60,422 81,242
Small Cap Value Fund.............. 9,473 3,712
Balanced Fund..................... 16,372 3,398
Short/Intermediate Fund........... 37,876 55,497
Fixed Income Fund................. 34,404 49,965
Municipal Bond Fund............... 19,676 30,965
New Jersey Municipal Bond Fund.... 28,269 34,325
Pennsylvania Municipal Bond Fund.. 8,902 8,841
International Equity Fund......... 18,310 15,395
International Fixed Income Fund... 54,465 53,855
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
--------- -------
<S> <C> <C>
Balanced Fund............ $8,572 $1,101
Short/Intermediate Fund.. 70,018 95,269
Fixed Income Fund........ 43,792 38,074
</TABLE>
4. RELATED PARTY TRANSACTIONS:
SEI Financial Management Corporation (the "Administrator") serves the Group
as Administrator. Under the terms of the administration agreement between the
Group and the Administrator, the Administrator earns an annual fee of .18% of
the daily net assets of the Funds. SEI Financial Services Company (the
"Distributor") serves the Group as Distributor pursuant to a distribution
agreement between the Group and the Distributor. The Distributor receives no
fee for its services.
Investment advisory services are provided to the Group by Midlantic. Under
the terms of the investment advisory agreement, Midlantic is entitled to
receive fees based on a percentage of the average net assets of the Funds.
The advisory fee is equal to .35% of the average daily net assets of the Cash
Reserve Fund and U.S. Treasury Fund; .40% of the Municipal Money Fund, New
Jersey Municipal Money Fund and Pennsylvania Municipal Money Fund; .60% of
the
Continued
71
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
February 28, 1995
Short/Intermediate Fund, Fixed Income Fund, Municipal Bond Fund, New Jersey
Municipal Bond Fund and Pennsylvania Municipal Bond Fund; .70% of the Growth
Fund, Equity Income Fund and Balanced Fund; .80% of the International Fixed
Income Fund; and .90% of the Small Cap Value Fund and International Equity
Fund.
The Administrator and the Adviser have voluntarily agreed to waive a portion
of their fee on certain portfolios so that total expenses of such
portfolios will not exceed certain annual expense limitations.
Fisher Investments, Inc., Morgan Grenfell Investment Services Limited and
Seligman Henderson Co. have entered into subadvisory agreements with
Midlantic as subadvisors for the Small Cap Value Fund, International
Fixed Income Fund and International Equity Fund, respectively. Wellington
Management Company has also entered into a subadvisory agreement with
Midlantic for the Equity Income Fund and Growth Fund.
During the period ended February 28, 1995, Midlantic Corporation, an
affiliate of the Adviser, purchased a security from the Cash Reserve Fund
for $5,000,000 which represented the amortized cost and carrying value
of the security. The securities aggregate market value was $4,112,500 at the
time of purchase. In connection with this transaction the Fund recorded a
realized loss of $887,500 on the sale of the security in the statement of
operations along with offsetting capital contribution from the affiliate.
The transaction did not change the net asset value of the Fund.
5. INVESTMENT TRANSACTIONS:
At February 28, 1995 the total cost of securities and the net realized
gains or losses on securities sold for Federal income tax purposes was not
materially different from amounts reported for financial reporting purposes.
The aggregate unrealized appreciation and depreciation information at
February 28, 1995 for each variable net asset value fund is as follows:
<TABLE>
<CAPTION>
EQUITY SMALL SHORT/ FIXED
INCOME GROWTH CAP VALUE BALANCED INTERMEDIATE INCOME
(000) (000) (000) (000) (000) (000)
--------- -------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation................. $24,040 $15,696 $3,041 $ 795 $ 842 $ 2,315
Aggregate gross unrealized
depreciation................. (10,756) (4,438) (2,885) (208) (3,663) (7,483)
--------- -------- --------- -------- ------------ ---------
Net unrealized
appreciation/(depreciation).. $13,284 $11,258 $ 156 $ 587 $(2,821) $(5,168)
========= ======== ========= ======== ============ =========
</TABLE>
Continued
72
<PAGE> 136
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL NEW JERSEY PENNSYLVANIA INTERNATIONAL INTERNATIONAL
BOND MUNICIPAL BOND MUNICIPAL BOND EQUITY FIXED INCOME
(000) (000) (000) (000) (000)
--------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation................. $ 189 $ 1,009 $ 25 $ 2,783 $1,777
Aggregate gross unrealized
depreciation................. (471) (2,666) (528) (2,190) (368)
--------- -------------- -------------- ------------- -------------
Net unrealized
appreciation/(depreciation).. $(282) $(1,657) $(503) $ 593 $1,409
========= ============== ============== ============= =============
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS:
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal
year. The following deferred losses will be treated as arising on the first
day of the fiscal year ending February 29, 1996. Additionally, the following
capital losses realized by the funds as of February 28, 1995 are available to
offset future net capital gains through the following fiscal years:
<TABLE>
<CAPTION>
DEFERRED CAPITAL
LOSSES LOSSES EXPIRATION
FUND (000) (000) DATE
- ----- -------- ------- ----------
<S> <C> <C> <C>
Cash Reserve.................. - $ 150 2003
Municipal Money............... - 19 2003
Municipal Money............... - 16 2002
Municipal Money............... - 305 2001
New Jersey Municipal Money.... - 7 2003
Pennsylvania Municipal Money.. - 2 2003
Equity Income................. - 225 2003
Growth........................ 2,299 - -
International Fixed Income.... - 459 2003
Short/Intermediate............ 1,045 2,251 2003
Fixed Income.................. 1,010 2,214 2003
Municipal Bond................ 369 722 2003
New Jersey Municipal Bond..... 55 378 2003
Pennsylvania Municipal Bond... 410 89 2003
</TABLE>
Continued
73
<PAGE> 137
Notes to Financial Statements
- -------------------------------------------------------------------------------
February 28, 1995
7. FORWARD FOREIGN CURRENCY CONTRACTS
A summary of forward foreign currency contracts that were outstanding at
February 28, 1995 is as follows:
<TABLE>
<CAPTION>
NET
CONTRACTS TO UNREALIZED
SETTLEMENT DELIVER/ APPRECIATION/
DATES RECEIVE IN EXCHANGE FOR (DEPRECIATION)
----------------- ---------------- --------------- --------------
INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C>
Foreign Currency Sale 04/20/95 JY 378,070,000 $ 3,850,000 $ (87,770)
--------------- --------------
<CAPTION>
INTERNATIONAL FIXED INCOME FUND
<S> <C> <C> <C> <C>
Foreign Currency Sales 03/08/95 NZ 1,600,000 $ 1,021,440 $ 8,857
03/14/95-04/21/95 DM 12,480,000 8,165,044 (409,269)
03/14/95-05/16/95 JY 740,000,000 7,542,623 (171,377)
03/14/95 SP 260,000,000 1,963,598 (72,331)
03/15/95 FF 10,500,000 1,938,342 (107,923)
04/21/95-05/16/95 UK 1,465,000 2,280,766 (27,628)
04/21/95-05/16/95 IT2,920,000,000 1,782,389 41,989
04/25/95 CA 1,100,000 770,470 (17,116)
--------------- --------------
$25,464,672 $(754,798)
=============== ==============
Foreign Currency Purchases 03/08/95 NZ 700,000 $ 440,538 $ 2,467
03/14/95 DM 330,000 219,124 7,395
03/14/95 SP 260,000,000 1,981,481 54,448
04/25/95 CA 1,100,000 774,806 12,780
--------------- --------------
$ 3,415,949 $ 77,090
=============== ==============
$(677,708)
==============
</TABLE>
CURRENCY LEGEND
- --------------------
CA Canadian Dollar
DM German Marks
FF French Francs
IT Italian Lira
JY Japanese Yen
NZ New Zealand Dollar
SP Spanish Pesetas
UK British Pounds Sterling
74
<PAGE> 138
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Midlantic Bank, N.A. or, where applicable,
sub-adviser with regard to portfolio investments for the Funds include Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"),
Duff & Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), and IBCA
Limited and its affiliate, IBCA Inc. (collectively, "IBCA"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that
may be utilized by Midlantic Bank, N.A. and the description of each NRSRO's
ratings is as of the date of this Statement of Additional Information, and may
subsequently change.
Long-Term Debt Ratings (may be assigned, for example, to corporate and
municipal bonds)
Description of the four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
A-1
<PAGE> 139
Description of the four highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time A-
AA- because of economic conditions.
A+ Protection factors are average but adequate. However, A risk
A factors are more variable and greater in periods of economic
A- stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issues is generally rated "[-]+."
A-2
<PAGE> 140
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment risk
albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by many of the following
characteristics:
-Leading market positions in well-established
industries.
-High rates of return on funds employed.
-Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
-Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
-Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
A-3
<PAGE> 141
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is
maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a
plus sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not
as high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
A-4
<PAGE> 142
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.
IBCA's description of its three highest short-term debt ratings:
A1+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
Short-Term Loan/Municipal Note Ratings
Moody's description of its two highest short-term loan/municipal note ratings:
A-5
<PAGE> 143
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
A-6
<PAGE> 1
EXHIBIT (17)(n)
Prospectus dated April 3, 1995
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST
- --------------------------------------------------------------------------------
The BFM Institutional Trust Inc. (Trust) is a no-load, open-end management
investment company currently consisting of sixteen investment portfolios, each
with its own investment objective and policies. The eight diversified
investment portfolios (Portfolios) described in this Prospectus are separate
series of the Trust. The Trust is primarily designed to provide pension and
profit sharing plans, employee benefit trusts, financial institutions,
corporations, and high net worth individuals with access to the professional
investment management services offered by BlackRock Financial Management Inc.
(formerly, BlackRock Financial Management L.P.) which serves as investment
adviser (the "Adviser") to the Trust.
The following portfolios are described in this Prospectus:
The Short Duration Portfolio
The Intermediate Duration Portfolio
The Core Fixed Income Portfolio
The Mortgage Portfolio
The Government Portfolio
The Long Duration Portfolio
The Global Fixed Income Portfolio
The Money Market Portfolio
Information about the investment objective of each Portfolio, along with a
detailed description of the types of securities in which each Portfolio may
invest, and of investment policies and restrictions applicable to each
Portfolio, are set forth in this Prospectus. There can be no assurance that the
investment objective of any Portfolio will be achieved. Because the market
value of the Portfolios' investments will change, the net asset value per share
of each Portfolio also will vary. The Trust's address is 345 Park Avenue, New
York, New York 10154, and its telephone number is (212) 754-5560.
INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY A BANK, AND THE SHARES OF EACH PORTFOLIO ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
----------------------
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Additional information
about the Trust has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated April 3, 1995, which information is
incorporated herein by reference and available without charge upon request to
the Trust, at the address or telephone number above.
----------------------
Investors are advised to read this Prospectus and retain it for future
reference.
----------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those contained
in this Prospectus, in connection with the offer contained herein, and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
----------------------
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.
----------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Description of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Other Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
How to Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Reports to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Stockholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Taxes, Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Administrator, Custodian and Transfer and Dividend Disbursing Agent . . . . . . . . . . . . . . 30
Validity of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A
Corporate Bond, Mortgage-Backed Security and Commercial Paper Ratings . . . . . . . . . . Appendix B
General Characteristics and Risks of Hedging Transactions . . . . . . . . . . . . . . . . Appendix C
</TABLE>
2
<PAGE> 3
PROSPECTUS SUMMARY
The BFM Institutional Trust Inc. (Trust) is a no-load, open-end management
investment company. The eight diversified investment portfolios (Portfolios)
described in this Prospectus are designed primarily for institutional
investors. The Trust also has eight other portfolios whose investment
objective, policies and other characteristics are described in a separate
prospectus. BlackRock Financial Management Inc. is the investment adviser (the
"Adviser") to the Trust.
INVESTMENT OBJECTIVES
Each of the following five Portfolios of the Trust seeks to realize a total
rate of return that exceeds the total return of a specified benchmark as
indicated in the table below.
<TABLE>
<CAPTION>
MINIMUM CREDIT
QUALITY
PORTFOLIO BENCHMARK(1) (S&P/MOODY'S)
--------- ------------ -------------
<S> <C> <C>
Short Duration Merrill Lynch 1-3 Year AAA/Aaa (2)
Treasury Index
Intermediate Duration Merrill Lynch 3-5 Year BBB-/Baa3 (2)
Treasury Index
Core Fixed Income Lehman Brothers BBB-/Baa3 (2)
Aggregate Index
Mortgage Salomon Brothers AA/Aa (2)
Mortgage Index
Government Lehman Brothers U.S. Government or its Agencies
Government Bond Index or Instrumentalities
- ------------
</TABLE>
(1) See "Portfolio Benchmarks" in Appendix A to this Prospectus.
(2) Or comparable quality as determined by the Adviser at the time of
investment. See "Corporate Bond, Mortgage-Backed Security and Commercial
Paper Ratings" in Appendix B to this Prospectus.
THE LONG DURATION PORTFOLIO and THE GLOBAL FIXED INCOME PORTFOLIO will each
seek to realize maximum total rate of return consistent with their respective
investment policies and strategies. The assets of these two Portfolios will be
rated at least BBB-by Standard & Poor's Corporation (S&P) or Baa3 by Moody's
Investors Service (Moody's) or will be determined by the Adviser to be of
comparable quality at the time of investment. The five Portfolios named in the
table above, together with The Long Duration Portfolio and The Global Fixed
Income Portfolio, are referred to herein as the Fixed Income Portfolios.
THE MONEY MARKET PORTFOLIO seeks to realize maximum current income,
consistent with preservation of capital and liquidity. The assets of this
Portfolio will be rated at least A-1 or AAA by S&P and Prime-1 or Aaa by
Moody's or will be determined by the Adviser to be of comparable quality at the
time of investment. The Money Market Portfolio seeks to maintain, but does not
guarantee, a constant net asset value of $1.00 per share. There can be no
assurance that the investment objective of any Portfolio will be achieved.
INVESTMENT POLICIES AND STRATEGIES
The Adviser seeks to maximize the total return of the Fixed Income
Portfolios by basing its investment philosophy on four principles. First, the
Portfolios will invest only in investment grade or better fixed income
securities. Second, the Fixed Income Portfolios are constructed to have a
duration set within a relatively narrow range. Third, the Adviser uses a
relative value approach to sector and security selection, by aggressively
underweighting or overweighting particular sectors or securities versus the
appropriate benchmark. Fourth, the Adviser applies a rigorous quantitative
approach to the valuation of individual securities.
3
<PAGE> 4
All the Fixed Income Portfolios (with the exception of The Mortgage
Portfolio and The Government Portfolio) may invest in U.S. Government,
Mortgage-Backed, Asset-Backed and Corporate Debt securities.
The Global Fixed Income Portfolio may also invest in Foreign securities.
The Mortgage Portfolio may only invest in Mortgage-Backed, Asset-Backed and
U.S. Government securities. The Government Portfolio may only invest in U.S.
Government securities. The Money Market Portfolio will invest in money market
instruments and other short-term securities having maturities of one year or
less.
The Adviser uses the concept of "duration" to manage the Fixed Income
Portfolios. Duration is a measure of the expected life of a fixed income
security and is indicative of a security's price "volatility" or "risk"
associated with changes in interest rates. Whereas "term to maturity" measures
only the time until a debt security provides its final payment, duration also
takes into account all of the expected payments prior to maturity and weights
them by the present values of the cash to be received at each future point in
time. There is no assurance that a Fixed Income Portfolio will achieve its
targeted duration at all times. See "Description of the Trust-Investment
Objectives and Policies-Duration". The Fixed Income Portfolios may enter into
certain interest rate, futures, options, currency and related transactions for
hedging and duration management purposes. See "Description of the
Trust-Investment Objectives and Policies-Other Investment Strategies".
INVESTMENT SECURITIES
U.S. Government Securities. U.S. Government securities are issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Such
securities include U.S. Treasury, GNMA, FNMA and FHLMC securities, including
certain Mortgage-Backed securities. See "Description of the Trust-Description
of Securities-U.S. Government Securities".
Mortgage-Backed Securities. Mortgage-Backed securities directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans on real property, including pass-through securities, adjustable
rate mortgage securities (ARMs), collateralized mortgage obligations (CMOs) and
stripped securities. The yield and credit characteristics of Mortgage-Backed
securities differ in a number of respects from traditional debt securities. See
"Description of the Trust-Description of Securities-Mortgage-Backed
Securities".
Asset-Backed Securities. Asset-Backed securities have similar structural
characteristics to Mortgage-Backed securities. However, the underlying assets
are not mortgage loans or interests in mortgage loans but include assets such
as motor vehicle installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from revolving
credit (credit card) agreements. See "Description of the Trust-Description of
Securities-Asset-Backed Securities".
Corporate Debt Securities. Other types of debt securities include those
issued by corporations and other entities, including bonds, debentures, notes,
certificates of deposit, bankers' acceptances, commercial paper and other
instruments. See "Description of the Trust-Description of Securities-Corporate
Debt Securities".
Foreign Securities. The Global Fixed Income Portfolio will invest up to
100% of its assets in foreign debt securities, including Mortgage-Backed and
Asset-Backed securities, issued or guaranteed by foreign governments or
supranational entities, or any of their political subdivisions, agencies or
instrumentalities, and by foreign companies and financial institutions. See
"Description of the Trust-Description of Securities-Foreign Securities".
INVESTMENT ADVISER
The Adviser is compensated monthly by the Portfolios for its services in an
amount equal to the following percentages of each Portfolio's average daily net
asset value on an annualized basis: .25% for The Money Market Portfolio, .30%
for The Short Duration Portfolio and .35% for all other Portfolios. See
"Management of the Trust-Investment Adviser".
4
<PAGE> 5
On February 28, 1995, the BlackRock Financial Management, L.P. sold its
business to PNC Bank N.A. ("PNC"), the twelfth largest bank in the U.S. All
members of the Adviser's senior management team have signed long-term
employment contracts with PNC and will continue to be responsible for managing
the day-to-day affairs of the Adviser, including carrying out its
responsibilities with respect to the Trust and its various portfolios.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Portfolio are offered at the next determined net asset value
with no sales charge. The minimum initial investment is $500,000, although the
Fund may in its discretion accept subscriptions for a lesser amount.
Shares of each Portfolio may be redeemed without cost at the net asset
value per share of the Portfolio next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price.
Shares of any Portfolio may be exchanged for shares of any other Portfolio
on the basis of relative net asset values. See "Purchase and Redemption of
Shares".
DIVIDENDS AND DISTRIBUTIONS
Dividends will be declared daily on shares held of record at 5:00 p.m., New
York time. Each Portfolio intends to distribute all of its net investment
income at least monthly, and any net realized capital gains at least annually.
All dividends and distributions will be reinvested automatically at net asset
value in additional shares of the same Portfolio, unless cash payment is
requested. See "Taxes, Dividends and Distributions".
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company and its affiliates provide the Trust
with administrative, accounting, custodial, transfer agency and dividend
disbursing services.
INVESTMENT RISKS AND CONSIDERATIONS
Investment risks and considerations relevant to the securities in which
each Portfolio invests are described in the Prospectus under "Description of
the Trust-Investment Objectives and Policies", "Description of Securities" and
"Other Investment Strategies". The following are some of these risks. As with
all fixed income securities, the market values of each Fixed Income Portfolio's
assets, and as such the net asset value of each Fixed Income Portfolio's
shares, will fluctuate with changes in prevailing interest rates. While
principal and interest payments on some securities may be guaranteed by the
U.S. Government, government agencies or other guarantors, the market value of
the securities is not guaranteed. Events such as prepayments on underlying
mortgage loans may adversely affect the return from Mortgage-Backed securities.
All Portfolios may invest in repurchase agreements, which entail a risk of loss
should the seller default on its obligation to repurchase the security which is
the subject of the transaction. The Fixed Income Portfolios may use futures,
options, and options on futures for hedging or duration management purposes.
Use of these instruments involves certain costs and risks, including the risk
that a Fixed Income Portfolio could not close out an option or futures position
when it would be most advantageous to do so, and the risk of an imperfect
correlation between the value of the security being hedged and the value of the
particular derivative instrument. The Global Fixed Income Portfolio may invest
in securities of foreign issuers, which are subject to additional risks,
including foreign currency risks, not applicable to securities of U.S. issuers.
The income from foreign securities may also be subject to foreign taxes.
High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by the
Portfolios. While the Portfolios have no fixed policy with respect to
portfolio turnover, the Adviser expects that, under normal circumstances, each
Fixed Income Portfolio's annual turnover rate will not exceed 150%.
The Fixed Income Portfolios may borrow from banks and enter into reverse
repurchase agreements or dollar rolls up to 33 1/3% of the value of their
respective total assets. Portfolios that utilize this technique, called
"leverage", may have a net asset value that will rise faster or decrease faster
than would otherwise be the case.
5
<PAGE> 6
TRUST EXPENSES
STOCKHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . . . . . . . . . . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
</TABLE>
ANNUAL TRUST OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Core Fixed
Money Market Short Duration Income All Other
Portfolio Portfolio Portfolio Portfolios
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Advisory Fees . . . . . . . . . . 0.25% 0.30% 0.30% 0.35%
Other Expenses. . . . . . . . . . 0.25 0.27 0.25 0.25
---- ---- ---- ----
Total Expenses . . . . . . . . . 0.50% 0.57% 0.55% 0.60%
==== ==== ==== ====
</TABLE>
The Adviser has voluntarily undertaken to waive a portion of its advisory
fee to the extent necessary so that the total expenses of The Short Duration
Portfolio and The Core Fixed Income Portfolio will not exceed 0.57% and 0.55%,
respectively, of average net assets. This fee waiver may be terminated at any
time.
Example
A stockholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Money Market Portfolio . . . . . . . . . . . . $5 $16 $28 $63
The Short Duration Portfolio . . . . . . . . . . . $6 $18 $32 $72
The Core Fixed Income Portfolio . . . . . . . . . . $6 $18 $31 $69
All Other Portfolios . . . . . . . . . . . . . . . $6 $19 $34 $76
</TABLE>
The above example is based on data for the Trust's fiscal year ended June
30, 1994. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Trust will bear, whether
directly or indirectly. For a more complete description of the various costs
and expenses, see "Management of the Trust." "Other Expenses" includes an
estimate of operating expenses of the Trust, such as Directors' and
professional fees, registration fees, reports to stockholders and transfer
agency and custodian fees. Investors who purchase or redeem shares through
broker-dealers or other financial intermediaries may be subject to additional
charges.
6
<PAGE> 7
BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD
The table below provides operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets and other
supplemental data for the periods ended June 30, 1994 and June 30, 1993, which
has been audited by Deloitte & Touche LLP. The financial highlights for the
six-month period ended December 31, 1994 have not been audited. This
information has been determined based upon financial information provided in
the financial statements which are included in the Statement of Additional
Information. The Statement of Additional Information is available to
shareholders on request.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR JULY 17, 1992(a)
DECEMBER 31, 1994 ENDED THROUGH
(UNAUDITED) JUNE 30, 1994 JUNE 30, 1993
----------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . $ 9.71 $ 9.96 $ 10.00
--------- -------- --------
Net investment income (net of $.005, $.011 and
$.005 respectively, of interest expense) b) 0.26 0.48 0.51
Net realized and unrealized loss on investments (0.13) (0.25) (0.06)
--------- -------- ---------
Net increase from investment operations . . . . 0.13 0.23 0.45
--------- -------- --------
Dividends from net investment income . . . . . . (0.27) (0.48) (0.49)
--------- -------- --------
Net asset value, end of period . . . . . . . . . $ 9.57 $ 9.71 $ 9.96
========= ======== ========
TOTAL INVESTMENT RETURN (b) . . . . . . . . . . . 1.37% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses . . . . . . . . . . . . . . . 0.57%(c) 0.57% 0.56%(c)
Net investment income . . . . . . . . . . . . . 5.37%(c) 4.70% 5.32%(c)
SUPPLEMENTAL DATA:
Average net assets (000) . . . . . . . . . . . . $26,253 $36,686 $67,540
Portfolio turnover . . . . . . . . . . . . . . . 240% 455% 513%
Net assets, end of period (000) . . . . . . . . $15,372 $31,265 $51,611
</TABLE>
(a) Commencement of investment operations.
(b) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at the net
asset value per share on the payment date.
(c) Annualized.
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<PAGE> 8
BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD
The table below provides operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets and other
supplemental data for the periods ended June 30, 1994 and June 30, 1993, which
has been audited by Deloitte & Touche LLP. The financial highlights for the
six-month period ended December 31, 1994 have not been audited. This
information has been determined based upon financial information provided in
the financial statements which are included in the Statement of Additional
Information. The Statement of Additional Information is available to
shareholders on request.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR DECEMBER 9, 1992(a)
DECEMBER 31, 1994 ENDED THROUGH
(UNAUDITED) JUNE 30, 1994 JUNE 30, 1993
----------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . $ 9.36 $10.37 $10.00
------ ------ ------
Net investment income (net of $.001, $.003 and
$.001 respectively, of interest expense) . 0.30 0.55 0.32
Net realized and unrealized gains (losses) on
investments . . . . . . . . . . . . . . . (0.18) (0.60) 0.37
------ ------ ------
Net increase from investment operations . . . . 0.12 (0.05) 0.69
------ ------ ------
Dividends from net investment income . . . . . . (0.30) (0.55) (0.32)
Distributions from net realized capital gains . -- (0.41) --
------ ------ ------
Total dividends and distributions . . . . . (0.30) (0.96) (0.32)
------ ------ ------
Net asset value, end of period . . . . . . . . . $ 9.18 $9.36 $10.37
====== ====== ======
TOTAL INVESTMENT RETURN (b) . . . . . . . . . . . 1.29% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses . . . . . . . . . . . . . . . 0.55%(c) 0.55% 0.55%(c)
Net investment income . . . . . . . . . . . . . 6.34%(c) 5.61% 5.57%(c)
SUPPLEMENTAL DATA:
Average net assets (000) . . . . . . . . . . . . $12,827 $9,702 $6,622
Portfolio turnover . . . . . . . . . . . . . . . 359% 722% 354%
Net assets, end of period (000) . . . . . . . . $13,786 $12,507 $7,803
</TABLE>
(a) Commencement of investment operations.
(b) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at the net
asset value per share on the payment date.
(c) Annualized.
8
<PAGE> 9
DESCRIPTION OF THE TRUST
MANAGEMENT OF THE TRUST
BlackRock Financial Management Inc. (formerly, BlackRock Financial
Management L.P.), a registered investment adviser, will act as the Trust's
investment adviser (the "Adviser"). On February 28, 1995, BlackRock Financial
Management L.P. sold its business to PNC Bank, N.A., the twelfth largest bank
in the U.S. At the time of the sale, the Adviser changed from a limited
partnership to a corporation and accordingly, changed the name from BlackRock
Financial Management L.P. to BlackRock Financial Management Inc. All members of
the Adviser's senior management team have signed long-term employment contracts
with PNC and will continue to be responsible for managing the day-to-day
affairs of the Adviser, including carrying out its responsibilities with
respect to the Trust and its various portfolios. The Adviser currently serves
as the investment adviser to institutional and fixed income investors in the
United States and overseas through a number of funds and separately managed
accounts with combined total assets in excess of $25 billion. See "Management
of the Trust" below.
INVESTMENT OBJECTIVES AND POLICIES
The following describes briefly the investment objective and policies of
each Portfolio. Certain instruments and techniques discussed in this section
are described in greater detail later in this Prospectus and in the Statement
of Additional Information.
THE FIXED INCOME PORTFOLIOS
The Portfolios other than The Money Market Portfolio (Fixed Income
Portfolios) seek to maximize total return, consistent with preservation of
capital and prudent investment management. Each Portfolio differs from the
others primarily in the length of the Portfolio's duration or the proportion of
its investments in certain types of fixed income securities. Duration is one of
the fundamental tools used by the Adviser in the selection of securities for
the Fixed Income Portfolios. Duration is a measure of the expected life of a
fixed income security on a present value basis and is indicative of a
security's price "volatility" or "risk" associated with changes in interest
rates. The concept of duration was developed to incorporate a bond's yield,
coupons, final maturity and call features into one measure. There is no
assurance that a Fixed Income Portfolio will achieve its targeted duration at
all times. A more detailed discussion of duration is provided under "Duration"
below.
The total return which each Fixed Income Portfolio seeks to maximize will
consist of interest from underlying securities and capital appreciation from
the purchase and sale of securities, from use of futures and options and, in
the case of The Global Fixed Income Portfolio, from changes in foreign currency
exchange rates. The change in market value of fixed income securities (and
therefore their capital appreciation) is largely a function of changes in the
current level of interest rates. When interest rates are falling, a Portfolio
with a shorter duration generally will not generate as high a level of total
return as a Portfolio with a longer duration. Conversely, when interest rates
are rising, a Portfolio with a shorter duration will generally outperform
longer duration portfolios. When interest rates are stable, shorter duration
portfolios generally will not generate as high a level of total return as
longer duration portfolios (assuming that long-term interest rates are higher
than short-term rates, which is commonly the case). The market value of
securities denominated in currencies other than the U.S. dollar also may be
affected by movements in foreign currency exchange rates.
The individual Fixed Income Portfolios are structured as follows:
THE SHORT DURATION PORTFOLIO seeks to realize a total rate of return
that exceeds the total return of the Merrill Lynch 1-3 Year Treasury Index.
The duration of the Merrill Lynch 1-3 Year Treasury Index as of December
31, 1994 was 1.66 years. The Portfolio will invest all of its assets in a
broad range of fixed income securities, including U.S. Government,
Mortgage-Backed, Asset-Backed and, to a lesser extent, Corporate Debt
securities. The duration of the Portfolio will be targeted to be in the
range of 1.0 to 3.0 years. Under normal circumstances, the dollar-weighted
average maturity of the Portfolio's securities will be longer than 3
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<PAGE> 10
years, sometimes significantly. The Portfolio's assets (i) will be issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
(ii) will be rated at least AAA by S&P or Aaa by Moody's or (iii) will have
been determined by the Adviser to be of comparable quality at the time of
investment.
THE INTERMEDIATE DURATION PORTFOLIO seeks to realize a total rate of
return that exceeds the total return of the Merrill Lynch 3-5 Year Treasury
Index. The duration of the Merrill Lynch 3-5 Year Treasury Index as of
December 31, 1994 was 3.34 years. The Portfolio will invest all of its
assets in a broad range of investment grade fixed income securities,
including U.S. Government, Mortgage-Backed, Asset-Backed and, to a lesser
extent, Corporate Debt securities. The duration of the Portfolio will be
targeted to be in the range of 2.5 to 5.0 years. Under normal
circumstances, the dollar-weighted average maturity of the Portfolio's
securities will be longer than 5 years, sometimes significantly. The
Portfolio's assets (i) will be issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, (ii) will be rated BBB- or better by
S&P or Baa3 or better by Moody's or (iii) will have been determined by the
Adviser to be of comparable quality at the time of investment.
THE CORE FIXED INCOME PORTFOLIO seeks to realize a total rate of
return that exceeds the total return of the Lehman Brothers Aggregate
Index. The duration of the Lehman Brothers Aggregate Index as of December
31, 1994 was 4.67 years. The Portfolio will invest all of its assets in a
broad range of investment grade fixed income securities, including U.S.
Government, Mortgage-Backed, Asset-Backed and Corporate Debt securities.
The duration of the Portfolio will be targeted to be in the range of plus
or minus 20% around the current duration of the Lehman Brothers Aggregate
Index. The Portfolio's assets (i) will be issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (ii) will be rated BBB- or
better by S&P or Baa3 or better by Moody's or (iii) will have been
determined by the Adviser to be of comparable quality at the time of
investment.
THE MORTGAGE PORTFOLIO seeks to realize a total rate of return that
exceeds the total return of the Salomon Brothers Mortgage Index. The
duration of the Salomon Brothers Mortgage Index as of December 31, 1994 was
5.03 years. Under normal market conditions, the Portfolio will invest at
least 65% of its assets in a broad range of Mortgage-Backed securities,
with the remainder of its assets in Asset-Backed and U.S. Government
securities. The duration of the Portfolio will be targeted to be in the
range of plus or minus 20% around the current duration of the Salomon
Brothers Mortgage Index. The Portfolio's assets (i) will be issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
(ii) will be rated AA or better by S&P or Aa or better by Moody's or (iii)
will have been determined by the Adviser to be of comparable quality at the
time of investment.
THE GOVERNMENT PORTFOLIO seeks to realize a total rate of return that
exceeds the total return of the Lehman Brothers Government Bond Index. The
duration of the Lehman Brothers Government Bond Index as of December 31,
1994 was 4.60 years. Under normal market conditions, the Portfolio will
invest all of its assets in securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. The duration of the
Portfolio will be targeted to be in the range of plus or minus 20% around
the current duration of the Lehman Brothers Government Bond Index.
THE LONG DURATION PORTFOLIO seeks to realize a maximum total rate of
return consistent with investing all of its assets in a broad range of
investment grade fixed income securities, including U.S. Government,
Mortgage-Backed, Asset-Backed and Corporate Debt securities. The duration
of the Portfolio will be targeted to be in the range of 8 to 12 years.
Under normal circumstances, the dollar-weighted average maturity of the
Portfolio's securities will be longer than 10 years. The Portfolio's assets
(i) will be issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, (ii) will be rated BBB- or better by S&P or Baa3 or
better by Moody's or (iii) will have been determined by the Adviser to be
of comparable quality at the time of investment.
THE GLOBAL FIXED INCOME PORTFOLIO seeks to realize a maximum total
rate of return consistent with investing all of its assets in a broad range
of both U.S. and non-U.S. investment grade fixed income securities
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<PAGE> 11
(both dollar and non-dollar denominated), including U.S. Government,
Mortgage-Backed, Asset-Backed, Corporate Debt and Foreign securities. The
duration of the Portfolio will be targeted to be in the range of 3 to 7
years. The Portfolio's assets (i) will be issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, (ii) will be rated BBB- or
better by S&P or Baa3 or better by Moody's or (iii) will have been
determined by the Adviser to be of comparable quality at the time of
investment. Under normal market conditions, the Portfolio will be invested
in at least three different countries.
For a description of the indices mentioned above, see "Portfolio
Benchmarks" in Appendix A to this Prospectus. For purposes of enhancing
liquidity and/or preserving capital, on a temporary basis, each Fixed Income
Portfolio may invest without limit in money market instruments, including
instruments described under "The Money Market Portfolio" below.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to realize maximum current income,
consistent with preservation of capital and liquidity, by investing in money
market instruments and other short-term securities having maturities of one
year or less. The Portfolio will also maintain a dollar-weighted average
portfolio of 90 days or less. The Money Market Portfolio seeks to maintain, but
does not guarantee, a constant net asset value of $1.00 per share.
The Money Market Portfolio will invest in obligations issued by the U.S.
Government, its agencies or instrumentalities; high quality commercial paper
and corporate obligations; certificates of deposit, fixed time deposits and
bankers' acceptances of banks that are members of the Federal Deposit Insurance
Corporation and have assets greater than $1 billion; variable and floating rate
debt securities; and repurchase agreements. The investments of The Money Market
Portfolio will be limited to U.S. dollar denominated instruments that are (i)
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, (ii) rated at least A-1 or AAA by S&P and Prime-1 or Aaa by
Moody's or (iii) determined by the Adviser to be of comparable quality at the
time of investment. See "Corporate Bond and Commercial Paper Ratings" in
Appendix B to this Prospectus.
DURATION
Duration is a measure of the expected life of a fixed income security that
was developed as a more precise alternative to the concept of "term to
maturity". Duration incorporates a bond's yield, coupon interest payments,
final maturity and call or prepayment features into one measure. Duration is
one of the fundamental tools used by the Adviser in security selection for the
Fixed Income Portfolios.
Most debt obligations provide interest ("coupon") payments in addition to a
final ("par") payment at maturity. Some obligations also have call or
prepayment provisions. Depending on the relative magnitude of these payments,
the market values of debt obligations may respond differently to changes in the
level and structure of interest rates.
Traditionally, a debt security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments
prior to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a bond subject to call or prepayment,
expected to be received, and weights them by the present values of the cash to
be received at each future point in time. For any fixed income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other things being the same, the
lower the stated or coupon rate of interest of a fixed income security, the
longer the duration of the security; conversely, the higher the stated or
coupon rate of interest of a fixed income security, the shorter the duration of
the security.
Futures, options and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions (backed by a segregated account
of cash and cash equivalents) will lengthen the portfolio duration by
approximately the same amount that holding an
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<PAGE> 12
equivalent amount of the underlying securities would. Short futures or put
option positions have durations roughly equal to the negative duration of the
securities that underlie those positions, and have the effect of reducing
portfolio duration by approximately the same amount that selling an equivalent
amount of the underlying securities would.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, the Adviser will use more
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure.
There is no assurance that a Fixed Income Portfolio will achieve its
targeted duration at all times. This is because the computation of duration is
based on a number of estimated rather than known factors, including expected
prepayment rates.
DESCRIPTION OF SECURITIES
The following describes certain types of securities in which the Portfolios may
invest.
U.S. Government Securities
U.S. Treasury Securities. The Portfolios will invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
Each Fixed Income Portfolio may also invest in "zero coupon" securities,
including U.S. Treasury bills, notes and bonds which have been stripped of
their unmatured interest coupons or which are certificates representing
interests in such stripped debt obligations. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. A zero coupon security pays no interest to its
holder during its life. In addition to those issued by the U.S. Government,
such zero coupon securities may be issued by private issuers representing an
interest in securities issued by the U.S. Government. Such privately issued
zero coupon securities are not considered U.S. Government securities and will
be deemed illiquid for purposes of the 15% limitation on illiquid securities.
See "Investment Objectives and Policies-U.S. Government Securities" in the
Statement of Additional Information and "Illiquid Securities" below.
Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. The Portfolios will invest in securities issued by agencies
of the U.S. Government or instrumentalities of the U.S. Government, including,
but not limited to, GNMA, FNMA and FHLMC securities. Obligations of GNMA, the
Farmers Home Administration and the Export-Import Bank are backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the "full faith and credit" of the United States, the Portfolios must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. Such securities include obligations issued by FNMA and FHLMC, each
of which may borrow from the U.S. Treasury to meet its obligations, although
the U.S. Treasury is under no obligation to lend to FNMA or FHLMC. GNMA, FNMA
and FHLMC investments by the Fixed Income Portfolios may also include
pass-through securities, CMOs and certain other Mortgage-Backed securities. See
"Mortgage-Backed Securities" below.
Mortgage-Backed Securities
Mortgage-Backed securities directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans secured by real
property. The term Mortgage-Backed securities, as used herein, includes
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<PAGE> 13
adjustable rate mortgage securities and derivative mortgage products such as
collateralized mortgage obligations, stripped Mortgage-Backed securities and
other products described below.
There are currently three basic types of Mortgage-Backed securities: (i)
those issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities, such as GNMA, FNMA and FHLMC; (ii) those issued by private
issuers that represent an interest in or are collateralized by Mortgage-Backed
securities issued or guaranteed by the U.S. Government or one of its agencies
or instrumentalities; and (iii) those issued by private issuers that represent
an interest in or are collateralized by whole mortgage loans or Mortgage-Backed
securities without a government guarantee but usually having some form of
private credit enhancement.
Mortgage-Related Securities Issued by U.S. Government Agencies and
Instrumentalities. The Fixed Income Portfolios will invest in Mortgage-Backed
securities, including those representing an undivided ownership interest in a
pool of mortgages, e.g., GNMA, FNMA and FHLMC certificates. The U.S. Government
or the issuing agency guarantees the payment of interest and principal on these
securities. However, the guarantees do not extend to the securities' yield or
value, nor do the guarantees extend to the yield or value of the Portfolios'
shares. These certificates are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate, net of certain fees.
See "Investment Objectives and Policies -- Mortgage-Backed Securities" in the
Statement of Additional Information.
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed either by GNMA, FNMA or FHLMC certificates or by a pool of
fixed rate or adjustable rate mortgage loans. Securities which are backed by a
pool of fixed rate or adjustable rate mortgage loans generally are structured
with one or more types of credit enhancement. See "Types of Credit Enhancement"
below.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates (ARMs). ARMs eligible for inclusion in a
mortgage pool generally provide for a fixed initial mortgage interest rate for
either the first three, six, twelve, thirteen, thirty-six or sixty scheduled
monthly payments. Thereafter, the interest rates are subject to periodic
adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the mortgage. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
Collateralized Mortgage Obligations and Multi-class Pass-Through
Securities. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (collectively, Mortgage Assets). Multi-class pass-through securities
are equity interests in a trust composed of Mortgage Assets. Unless the context
indicates otherwise, all references herein to CMOs include multi-class
pass-through certificates. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. Government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. The
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<PAGE> 14
issuer of CMOs or multi-class pass-through securities may elect to be treated
as a Real Estate Mortgage Investment Conduit (REMIC).
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a CMO series in a
number of different ways. Generally, the purpose of the allocation of the cash
flow of a CMO to the various classes is to obtain a more predictable cash flow
to the individual tranches than exists with the underlying collateral of the
CMO. As a general rule, the more predictable the cash flow is on a CMO tranche,
the lower the anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on Mortgage-Backed securities.
The Portfolios also may invest in, among other things, parallel-pay CMOs
and Planned Amortization Class CMOs (PAC Bonds). Parallel-pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating
the stated maturity date or final distribution date of each class, which, as
with other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds are
parallel-pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
The Portfolios do not intend to invest in CMO residuals. The residual in a
CMO structure generally represents the interest in any excess cash flow
remaining after making required payments of principal of and interest on the
CMOs and related administrative expenses of the issuer.
Stripped Mortgage-Backed Securities. The Fixed Income Portfolios may also
invest in mortgage pass-through securities where all or a substantial portion
of the interest payments go to one class of holders (Interest Only Securities
or IOs) and all or a substantial portion of the principal payments go to a
second class of holders (Principal Only Securities or POs). These securities
are commonly referred to as Stripped Mortgage-Backed securities or SMBS. The
yields to maturity on IOs and POs are very sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
such rate may have a material effect on yield to maturity. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal, a
Portfolio may not fully recoup its initial investment in IOs. Conversely, if
the underlying Mortgage Assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected.
In addition to SMBS issued by agencies or instrumentalities of the U.S.
Government, the Fixed Income Portfolios may purchase SMBS issued by private
originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose subsidiaries
of the foregoing. Privately issued SMBS will be deemed illiquid for purposes of
the 15% limitation on illiquid securities. See "Illiquid Securities" below. The
determination whether a particular U.S. Government issued SMBS is liquid will
be made by the Adviser under guidelines established by the Board of Directors.
Asset-Backed Securities
The securitization techniques used to develop Mortgage-Backed securities
are also applied to a broad range of other assets. Through the use of trusts
and special purpose corporations, various types of assets, primarily automobile
and credit card receivables and home equity loans, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure.
Other types of assets being securitized include loans to finance boats,
recreational vehicles, mobile homes and manufactured housing; computer, copier,
railcar and medical equipment leases; student and commercial loans; and trade,
health care and franchise receivables. In general, the collateral supporting
Asset-Backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. As with Mortgage-Backed
securities, Asset-Backed securities are often backed by a pool of assets
representing the obligations of a
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number of different parties and use similar credit enhancement techniques. See
"Types of Credit Enhancement" below.
The market for certain types of Asset-Backed securities is relatively new
and untested. Certain Asset-Backed securities may have a limited secondary
market and may be subject to restrictions on transferability. Any Asset-Backed
security that cannot be disposed of within seven days and in the usual course
of business without taking a reduced price will be deemed illiquid for purposes
of the 15% limitation on illiquid securities. See "Illiquid Securities" below.
The determination whether a particular Asset-Backed security is liquid will be
made by the Adviser under guidelines established by the Board of Directors.
New instruments and variations of existing Mortgage-Backed securities and
Asset-Backed securities continue to be developed. The Portfolios may invest in
any such instruments or variations as may be developed to the extent consistent
with their investment objectives and policies and applicable regulatory
requirements.
Different types of Asset-Backed Securities and the assets supporting such
securities may be subject to additional restrictions, and may be affected be
economic, legal and other changes, unique to such securities and assets. For
example, a recent legislative proposal to limit credit card interest rates had
a significant adverse effect on the market for credit card receivables.
Types of Credit Enhancement
Mortgage-Backed securities and Asset-Backed securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least
a portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Portfolios will
not pay any additional fees for credit support, although the existence of
credit support may increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"reserve funds" (where cash or investments, sometimes funded from a portion of
the payments on the underlying assets, are held in reserve against future
losses) and "overcollateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceeds that required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
Risk Factors Relating to Mortgage-Backed and Asset-Backed Securities
The yield characteristics of Mortgage-Backed and Asset-Backed securities
differ from traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if a
Portfolio purchases such a security at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Alternatively, if the Portfolio purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Fixed Income
Portfolios may invest a portion of their assets in
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derivative Mortgage-Backed securities such as Stripped Mortgage-Backed
securities, which are highly sensitive to changes in prepayment and interest
rates. The Adviser will seek to manage these risks (and potential benefits) by
diversifying its investments in such securities and through hedging techniques.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Portfolios are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates.
Asset-Backed securities, although less likely to experience the same prepayment
rates as Mortgage-Backed securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors will
predominate. Mortgage-Backed securities and Asset-Backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because
of the risk of prepayment.
Asset-Backed securities present certain risks that are not presented by
Mortgage-Backed securities. Primarily, Asset-Backed securities do not have the
benefit of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of Asset-Backed
securities backed by automobile receivables permit the servicers of such
receivables to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related Asset-Backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of Asset-Backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Different types of Asset-Backed securities and the assets supporting such
securities may be subject to additional restrictions, and may be affected by
economic, legal and other changes, unique to such securities and assets. For
example, a recent legislative proposal to limit credit card interest rates had
a significant adverse effect on the market for credit card receivables.
Corporate Debt Securities
Corporate Debt securities include securities issued by corporations and
other entities, including bonds and debentures (which are long-term), notes
(which may be short- or long-term), certificates of deposit (unsecured
borrowings by banks), bankers' acceptances (indirectly secured borrowings to
facilitate commercial transactions) and commercial paper (short-term unsecured
notes). These securities may have adjustable or fixed rates of interest and
may be secured or unsecured by assets of the issuer or another party.
Adjustable rate corporate debt securities may have interest rate caps and
floors but such corporate debt securities are not subject to prepayment risk
other than through contractual call provisions, which generally impose a
penalty for prepayment during all or a portion of the period such securities
are outstanding. Fixed rate debt securities may also be subject to call
provisions. Corporate Debt securities are subject to the bankruptcy risk of
the issuer. The Trust believes that the high quality securities it purchases
will tend to reduce such risks. Several of the Portfolios may purchase
corporate debt securities rated at the time of investment no lower than BBB- by
S&P or Baa3 by Moody's. The rating of a corporate debt security may change over
time, as S&P and Moody's monitor and evaluate the ratings assigned to corporate
debt securities on an ongoing basis. As a result, corporate debt securities
held by a Portfolio could receive a higher rating (which would tend to increase
their value) or a lower rating (which would tend to decrease their value)
during the time that they are owned by the Portfolio. If a security owned by a
Portfolio is downgraded below either BBB- by S&P or Baa3 by Moody's, the
Adviser will monitor such security and determine whether to sell it based on
the factors it considers relevant such as size of the investment, whether a
loss or gain will result, relative risk to the Portfolio, depth of the trading
market or any other relevant factors. The Portfolio expects that under normal
market conditions no more than 5%, if any, of a Portfolio's assets will consist
of securities whose ratings have been downgraded below BBB- by S&P or Baa3 by
Moody's. The Fixed Income Portfolios will consider
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whether to retain or dispose of a bond whose rating drops below the minimum
ratings applicable to such Portfolios. The Fixed Income Portfolios are not
restricted in the amount they may invest in any of the securities described in
this section.
Foreign Securities
The Global Fixed Income Portfolio will invest up to 100% of its total
assets in foreign securities, including Mortgage-Backed securities and
Asset-Backed securities issued by foreign entities. The Portfolio may invest in
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Adviser to be of comparable quality to the other obligations in which
the Portfolio may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples are the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
Supranational entities do not have taxing authority and, therefore, in order to
meet interest and principal payments, are dependent upon their members'
continued support. The percentage of The Global Fixed Income Portfolio's assets
invested in securities issued by foreign governments will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.
The Global Fixed Income Portfolio may also invest in Corporate Debt
securities of foreign companies and in obligations of foreign banks, bank
holding companies and other financial institutions that, at the date of
investment, have assets in excess of $1 billion. Under normal market
conditions, The Global Fixed Income Portfolio's assets will include securities
of issuers in at least three countries, one of which countries may be the
United States. For defensive purposes the Portfolio may invest from time to
time in only U.S. securities. The Adviser has limited experience in investing
in foreign securities.
Investments in foreign securities involve certain risks not ordinarily
associated with investments in securities of domestic issuers. Such risks
include fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. With respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign securities
markets (other than Japan), while growing in volume, have, for the most part,
substantially less volume than U.S. markets, and securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable U.S. companies. Transaction costs on foreign securities markets are
generally higher than in the United States and settlement procedures are often
not as regularized as in the United States. There is generally less government
supervision and regulation of exchanges, brokers and issuers than there is in
the United States. The Global Fixed Income Portfolio may have greater
difficulty taking appropriate legal action with respect to foreign investments
in foreign courts than with respect to domestic issuers in U.S. courts.
Dividend and interest income from foreign securities will generally be
subject to withholding taxes by the country in which the issuer is located, and
The Global Fixed Income Portfolio will not be able to pass through to its
stockholders foreign tax credits or deductions with respect to these taxes.
Floating Rate, Inverse Floating Rate and Index Obligations
The Fixed Income Portfolios may invest in debt securities with interest
payments or maturity values that are not fixed, but float in conjunction with
(or inversely to) an underlying index or price. These securities may be backed
by U.S. Government or corporate issuers, or by collateral such as mortgages. In
certain cases, a change in
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the underlying index or price may have a leveraging effect on the periodic
coupon payments, creating larger possible swings in the prices of such
securities than would be expected when taking into account their maturities
alone. The indices and prices upon which such securities can be based include
interest rates, currency rates and commodities prices.
Floating rate securities pay interest according to a coupon which is reset
periodically. This reset mechanism may be formula based, or reflect the passing
through of floating interest payments on an underlying collateral pool. The
coupon is usually reset daily, weekly, monthly, quarterly or semi-annually, but
other schedules are possible. Floating rate obligations generally exhibit a low
price volatility for a given stated maturity or average life because their
coupons adjust with changes in interest rates. If their underlying index is not
an interest rate, or the reset mechanism lags the movement of rates in the
current market, greater price volatility may be experienced.
Inverse floating rate securities are similar to floating rate securities
except that their coupon payments vary inversely with an underlying index by
use of a formula. Inverse floating rate securities tend to exhibit greater
price volatility then other floating rate securities. Because the changes in
the coupon are usually negatively correlated with changes in overall interest
rates, interest rate risk and price volatility on inverse floating rate
obligations can be high, especially if leverage is used in the formula. Each
Fixed Income Portfolio does not intend to invest more than 10% of its total
assets in inverse floating rate securities.
Index securities pay a fixed rate of interest, but have a maturity value
that varies by formula, so that when the obligation matures a gain or loss is
realized. The risk of index obligations depends on the volatility of the
underlying index, the coupon payment and the maturity of the obligation.
Illiquid Securities
The Fixed Income Portfolios may invest up to 15% of their net assets in
securities for which there are legal or contractual restrictions on resale or
for which there is no readily available market or other illiquid securities.
Illiquid securities include restricted securities of corporate and other
issuers, privately stripped securities, repurchase agreements having maturities
of more than seven days, and certain hedging instruments. Such securities may
experience limitations on resale that may have an adverse effect on the
marketability of portfolio securities. A mutual fund may not be able to
dispose of illiquid securities promptly or at reasonable prices. The board of
directors has adopted procedures pursuant to the guidelines of the SEC that
permits the Adviser to determine whether restricted securities issued pursuant
to Rule 144A under the Securities Act of 1933 are liquid for purposes of this
limitation. Nevertheless, Rule 144A securities may be subject to a greater
possibility of becoming illiquid than registered securities due to changing
market or other factors. Trust purchases may increase the level of illiquidity
and institutional buyers may become disinterested in purchasing such
securities. See "Investment Objectives and Policies-Illiquid Securities" in the
Statement of Additional Information.
OTHER INVESTMENT STRATEGIES
Hedging
The Fixed Income Portfolios may enter into various interest rate
transactions, purchase and sell futures contracts and purchase and sell (or
write) exchange-listed and over-the-counter put and call options on securities
and futures contracts, and The Global Fixed Income Portfolio may enter into
foreign exchange transactions (collectively, Hedging Transactions). Hedging
Transactions may be used to attempt to protect against possible changes in the
market value of a Portfolio's securities resulting from trends in the debt
securities markets, to protect a Portfolio's unrealized gains on its
securities, to facilitate the sale of such securities, to manage the duration
of the Portfolios, to establish a position in the securities markets as a
temporary substitute for purchasing particular securities or, in the case of
The Global Fixed Income Portfolio, to protect against changes in the relative
values of foreign currencies and the U.S. dollar. Any or all of these
techniques may be used at any time, and there is no particular strategy that
requires use of one technique rather than another. Use of any Hedging
Transaction is a function of market conditions. The ability of the Portfolios
to hedge successfully will depend on the Adviser's
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ability to predict pertinent market movements, which cannot be assured. The
Hedging Transactions that the Portfolios may use are described below.
Interest Rate Transactions. Among the Hedging Transactions into which the
Fixed Income Portfolios may enter are interest rate swaps and the purchase or
sale of interest rate caps and floors. The Portfolios expect to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of their respective portfolios, as a duration management
technique or to protect against an increase in the price of securities a
Portfolio anticipates purchasing at a later date. The Portfolios intend to use
these transactions as a hedge and not as a speculative investment.
Interest rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate floor. See "Investment Objectives and Policies-Other Investment
Strategies-Interest Rate Transactions" in the Statement of Additional
Information.
Futures Contracts. In connection with their hedging and other risk
management strategies, the Fixed Income Portfolios may enter into contracts for
the purchase or sale for future delivery (futures contracts) of debt
securities, aggregates of debt securities or indices or prices thereof, and
other financial indices, to hedge the value of their portfolio securities that
might result from a change in interest rates. The Portfolios will engage in
such transactions only for bona fide hedging, risk management, duration
management and other portfolio management purposes, in each case, in accordance
with the rules and regulations of the Commodity Futures Trading Commission.
Calls on Securities and Futures Contracts. In order to reduce fluctuations
in net asset value, the Fixed Income Portfolios may sell or purchase call
options (calls) on U.S. Government securities, Mortgage-Backed securities,
Corporate Debt securities and Eurodollar instruments and related futures on
such securities. A call option gives the purchaser of the option the right to
buy, and obligates the seller to sell, the underlying security or futures
contract at the exercise price at any time or at a specified time during the
option period. The purchase of a call gives a Portfolio the right to buy a
security at a fixed price. A call sold by a Portfolio exposes the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security and may require the
Portfolio to hold a security which it might otherwise have sold. All such calls
sold by a Portfolio must be "covered" as long as the call is outstanding (i.e.,
a Portfolio must segregate the securities or futures contract subject to the
call or other liquid assets).
Puts on Securities and Futures Contracts. Each Fixed Income Portfolio may
purchase put options (puts) that relate to U.S. Government securities,
Mortgage-Backed securities, Corporate Debt securities and Eurodollar
instruments (whether or not it holds such securities in its portfolio) or
futures on such securities. The Portfolios may also sell puts on U.S.
Government securities, Mortgage-Backed securities, Corporate Debt securities
and Eurodollar instruments and related futures on such securities if a
Portfolio's contingent obligations on such puts are covered by segregated
assets consisting of cash or liquid debt securities having a value not less
than the exercise price. A Portfolio will not sell puts if, as a result, more
than 50% of the Portfolio's assets would be required to be segregated to cover
its potential obligations under its hedging and other investment transactions.
In selling puts, there is a risk that a Portfolio may be required to buy the
underlying security at a disadvantageous price.
Eurodollar Instruments. The Fixed Income Portfolios may make investments in
Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the London Interbank
Offered Rate (LIBOR), although foreign currency denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. The Portfolios intend to use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR, to which many interest rate
swaps are linked. The use of these instruments is subject to the same
limitations and risks as those applicable to the use of the interest rate
futures
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contacts and options thereon described under "Futures Contracts", "Calls on
Securities and Futures Contracts" and "Puts on Securities and Futures
Contracts" above.
Currency Transactions. The Global Fixed Income Portfolio may, although it
does not expect to do so to any significant degree, engage in currency
transactions in order to hedge the value of foreign currencies against the U.S.
dollar, including forward currency contracts, exchange traded currency futures
and options and currency swaps. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract.
The Global Fixed Income Portfolio's dealings in foreign exchange
transactions will be limited to hedging involving either specific transactions
or portfolio positions. Transaction hedging is the purchase or sale of foreign
currency with respect to specific receivables or payables of the Portfolio,
which will generally arise in connection with the purchase or sale of its
portfolio securities. Position hedging is the sale of foreign currency with
respect to portfolio security positions denominated or generally quoted in that
currency.
The Global Fixed Income Portfolio may not position a hedge with respect to
a particular foreign currency to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or generally quoted in or currently convertible into that currency.
If the Portfolio enters into a position hedging currency transaction, the
Portfolio's custodian or subcustodian will segregate cash or U.S. Government or
other liquid high-grade debt securities having a value that is not less than
the value of the Portfolio's total assets committed to the consummation of the
transaction.
Foreign currency hedge transactions may limit potential gain from a
positive change in the relationship between currencies. Unanticipated changes
in currency prices may result in poorer overall performance for the Portfolio
than if it had not engaged in such transactions.
The Global Fixed Income Portfolio also engages in foreign currency
transactions on a spot basis in connection with the investment of cash balances
held by the Portfolio outside the United States. The purpose of these cash
balances is to provide liquidity for operations. The Portfolio normally expects
to invest its cash balances primarily in bank accounts or similar investments
denominated in foreign currencies in lieu of dollar-denominated bank accounts
or investments. This should permit the Portfolio to profit from declines in the
value of the dollar during periods when the dollar is declining relative to the
foreign currencies in which its cash balances are invested. There is, however,
no guarantee that the Adviser will correctly anticipate currency fluctuations.
Accordingly, if the Portfolio's cash balances are maintained in investments
denominated in foreign currencies during periods when the value of the dollar
is appreciating relative to those foreign currencies, the Portfolio will
experience losses. The Portfolio will also incur service charges in connection
with each currency conversion.
Further Information on Hedging Transactions. Appendix C and the Statement
of Additional Information under "Investment Objectives and Policies-Other
Investment Strategies-Options and Futures Transactions" contains further
information about the characteristics, risks and possible benefits of Hedging
Transactions and the Fixed Income Portfolios' other policies and limitations
relating to investments in futures and options. The principal risks relating to
the use of futures, options and other Hedging Transactions are: (a) less than
perfect correlation between the prices of the instrument and the market value
of the securities in a Portfolio; (b) possible lack of a liquid secondary
market for closing out a position; (c) losses resulting from interest rate or
currency exchange movements not anticipated by the Adviser; and (d) the
obligation to meet additional variation margin or other payment requirements.
Borrowing
The Fixed Income Portfolios may borrow from banks and enter into reverse
repurchase agreements or dollar rolls up to 33 1/3% of the value of their
respective total assets (computed at the time the loan is made) to take
advantage of investment opportunities. See "Reverse Repurchase Agreements and
Dollar Rolls" below. The Portfolios may pledge up to 33 1/3% of their
respective total assets to secure these borrowings. If a Portfolio's asset
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coverage for borrowings falls below 300%, the Portfolio will take prompt action
to reduce its borrowings. If a Portfolio borrows to invest in securities, any
investment gains made on the securities in excess of interest paid on the
borrowing will cause the net asset value of the shares to rise faster than
would otherwise be the case. On the other hand, if the investment performance
of the additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to the Portfolio, the net asset value of
the Portfolio's shares will decrease faster than would otherwise be the case.
This is a speculative characteristic known as "leverage". The Portfolios are
also authorized to borrow an additional 5% of their respective total assets
without regard to the foregoing limitations for temporary purposes such as
clearance of portfolio transactions and share redemptions.
Reverse Repurchase Agreements and Dollar Rolls
The Fixed Income Portfolios may use reverse repurchase agreements and
dollar rolls as part of their investment strategy. Reverse repurchase
agreements involve sales by a Portfolio of assets concurrently with an
agreement by the Portfolio to repurchase the same assets at a later date at a
fixed price. During the reverse repurchase agreement period, the Portfolio
continues to receive principal and interest payments on these assets.
The Fixed Income Portfolios may also enter into dollar rolls in which the
Portfolio sells securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type and coupon) securities
on a specified future date from the same party. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sales price and the
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale.
Each Portfolio will establish a segregated account with the Custodian in
which it will maintain cash, U.S. Government securities or other liquid
high-grade debt obligations at least equal in value to its obligations in
respect to reverse repurchase agreements and dollar rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market value of the
securities retained by a Portfolio may decline below the price of the
securities the Portfolio has sold but is obligated to repurchase under the
agreement. In addition, in the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Portfolio's
use of the proceeds of the agreement may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the
Portfolio's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage and are considered borrowings by the Portfolios for purposes
of the percentage limitations applicable to borrowings. See "Borrowing" above.
When-issued and Delayed Delivery Securities and Forward Commitments
From time to time, the Fixed Income Portfolios may purchase securities on a
when-issued or delayed delivery basis or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. The securities purchased are
subject to market fluctuation and no interest accrues to the Portfolio during
this period. While the Portfolios will only purchase securities on a
when-issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, the Portfolios may sell the securities before the
settlement date, if it is deemed advisable. At the time a Portfolio makes the
commitment to purchase securities on a when-issued or delayed delivery basis,
the Portfolio will record the transaction and thereafter reflect the value,
each day, of such security in determining the net asset value of the Portfolio.
At the time of delivery, the value of the securities may be more or less than
the purchase price. An increase in the percentage of a Portfolio's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of a Portfolio's net asset
value. At the time a Portfolio enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash, U.S.
Government securities or other liquid high-grade debt securities equal to at
least 102% of the value of the when-issued or forward commitment securities
will be established and maintained with the Custodian. Subject to this
requirement, a Portfolio may purchase securities on such basis without limit.
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Short Sales
The Fixed Income Portfolios may only make short sales of securities
"against-the-box". A short sale is a transaction in which a Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline. The Portfolios expect to make short sales both as a form of
hedging to offset potential declines in long positions in similar securities
and in order to maintain portfolio flexibility. In a short sale
"against-the-box", at the time of the sale, the Portfolio owns or has the
immediate and unconditional right to acquire the identical security at no
additional cost. When selling short "against-the-box", the Trust foregoes an
opportunity for capital appreciation in the security.
Repurchase Agreements
The Portfolios may enter into repurchase agreements, which may be viewed as
a type of secured lending, and which typically involve the acquisition of debt
securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The repurchase agreement provides that the
Portfolio will sell back to the institution, and that the institution will
repurchase, the underlying security at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
repurchase agreement will at all times be fully collateralized by the
institution in an amount at least equal to the repurchase price, including
accrued interest earned on the underlying securities. The collateral will be
maintained in a segregated account and will be valued daily. As the value of
the collateral declines, the seller will deposit additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines or, in some cases, if the seller fails financially, the
Portfolio may incur a loss. See "Investment Objectives and Policies-Other
Investment Strategies-Repurchase Agreements" in the Statement of Additional
Information.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements, a Portfolio may lend up
to 33 1/3% of its portfolio securities to brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the
Portfolio (subject to certain notice provisions), and are at all times secured
by cash or U.S. Government securities which are at least equal to the market
value, determined daily, of the loaned securities. The Portfolio continues to
receive the income on the loaned securities while at the same time earning
interest on the loan or on the cash amounts deposited as collateral, which will
be invested in short-term obligations. The Portfolio may incur a loss,
however, if the seller defaults and the value of the loaned securities exceeds
the value of the collateral or, in some cases, if the borrower fails
financially. See "Investment Objectives and Policies-Other Investment
Strategies-Securities Lending" in the Statement of Additional Information.
Investment Restrictions
The Statement of Additional Information contains, under the heading
"Investment Restrictions", specific enumerated investment restrictions which
govern the investments of each Portfolio. Those investment restrictions so
designated and the investment objectives of each Portfolio are "fundamental
policies" of the Trust, which means that they may not be changed without a
majority vote of stockholders of the affected Portfolio. Except for the
investment objectives and those restrictions specifically identified as
fundamental, all investment policies and practices described in this Prospectus
and in the Statement of Additional Information are not fundamental, meaning
that the Board of Directors may change them without stockholder approval.
The fundamental restrictions applicable to all Portfolios include (i) a
prohibition on purchasing any security (other than a U.S. Government security)
if as a result (a) with respect to 75% of its total assets, more than 5% of the
Portfolio's total assets would be invested in the securities of a single issuer
or (b) 25% or more of a Portfolio's total assets would be invested in the
securities of issuers in a particular industry, and (ii) a prohibition on
purchasing more than 10% of all outstanding voting securities of any one
issuer.
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<PAGE> 23
Portfolio Turnover
The Portfolios have no fixed policy with respect to portfolio turnover. The
Portfolios do not expect to trade in securities for short-term gain. The
Adviser expects that, under normal circumstances, each Fixed Income Portfolio's
annual turnover rate will not exceed 150%. The portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of portfolio securities
by the average monthly value of the Portfolio's securities, excluding
securities having a maturity at the date of purchase of one year or less. While
a Portfolio will pay commissions in connection with its options and futures
transactions, the other securities in which the Portfolios invest are generally
traded on a "net" basis with dealers acting as principals for their own account
without a stated commission. Nevertheless, high portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs which
will be borne directly by the Portfolios. The Adviser will monitor the tax
status of the Portfolios under the Internal Revenue Code during period in which
the annual turnover rate of the Portfolios exceeds 100%. To the extent that
increased portfolio turnover results in sales at a profit of securities held
less than three months, a Portfolio's ability to qualify as a "regulated
investment company" under the Internal Revenue Code may be affected. See
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST
The Board of Directors, in addition to reviewing the actions of the Adviser
and the Distributor, as set forth below, decides upon matters of general
policy. Additional information about the Directors and officers of the Trust
may be found in the Statement of Additional Information under the heading
"Directors and Officers".
INVESTMENT ADVISER
BlackRock Financial Management Inc. (formerly, BlackRock Financial
Management L.P.) is the Trust's investment adviser (the "Adviser") and is
compensated monthly by the Portfolios for its services in an amount equal to
the following percentages of each Portfolio's average daily net asset value on
an annualized basis: .25% for The Money Market Portfolio, .30% for The Short
Duration Portfolio and .35% for all other Portfolios. Pursuant to the
Investment Advisory Agreement with the Trust, the Adviser manages the
investment operations of the Trust. See "Management of the Trust-The Investment
Advisory Agreement" in the Statement of Additional Information.
The Adviser is a Delaware limited corporation with offices at 345 Park
Avenue, New York, New York 10154. On February 28, 1995, BlackRock Financial
Management L.P. sold its business to PNC Bank N.A., the twelfth largest bank in
the U.S. At the time of the sale, the Adviser changed from a limited
partnership to a corporation and accordingly, changed the name from BlackRock
Financial Management L.P. to BlackRock Financial Management Inc. All members of
the Adviser's senior management team have signed long-term employment contracts
with PNC and will continue to be responsible for managing the day-to-day
affairs of the Adviser, including carrying out its responsibilities with
respect to the Trust and its various portfolios. The Adviser is registered as
an investment adviser under the Investment Advisers Act of 1940.
The Adviser's employees include several individuals with extensive
experience in creating, evaluating and investing in a broad range of U.S.
fixed-income securities. Prior to co-founding BlackRock Financial Management
L.P., from July 1976 to March 1988, Mr. Fink, the Chairman and Chief Executive
Officer of the Adviser, was employed by The First Boston Corporation where he
had been a Managing Director since January 1979. At First Boston, he was a
member of the Management Committee and co-head of its Taxable Fixed Income
Division. He also managed the Financial Futures and Fixed Income Options
Department and the Mortgage and Real Estate Products Group. Mr. Schlosstein,
co-founder of BlackRock Financial Management L.P., was employed by Shearson
Lehman Brothers Inc. from February 1981 to March 1988 and became a Managing
Director in August 1984. At Shearson Lehman, he was co-head of the Mortgage and
Savings Institutions Group. Messrs. Fink and Schlosstein, along with other
members of the Adviser, were instrumental in many of the major innovations in
these securities markets, including the creation of the fixed and floating rate
CMOs, Asset-Backed securities and the senior-subordinated mortgage
pass-through.
The Adviser provides asset management services with respect to high quality
fixed income instruments, including U.S. Treasury securities, Mortgage-Backed
securities, municipal obligations, corporate bonds and
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<PAGE> 24
hedging products. Scott Amero, a partner of BlackRock Financial Management
Inc., is responsible for the day-to-day management of the Portfolios. Mr. Amero
has managed the Portfolios since their inception and has been employed by BFM
as a portfolio manager since 1990. Prior to joining BlackRock in 1990, Mr.
Amero was a vice president in Fixed Income Research at The First Boston
Corporation. BFM, however, applies a team approach to portfolio management and
several BlackRock professionals, including Robert Kapito and Keith Anderson,
limited partners of BFM, are responsible for the longer-term strategies and
major transactions for the Portfolios. The Adviser currently serves as the
investment adviser to individual and institutional fixed income investors in
the United States and overseas through several funds and separately managed
accounts with combined total assets in excess of $25 billion.
In addition to the Trust, the Adviser serves as adviser to 25 closed-end
funds. Certain features of these closed-end funds are provided in the
following table:
<TABLE>
<CAPTION>
TERM: PRIMARY NET ASSETS
STOCK EXCHANGE YEAR OF PORTFOLIO (DECEMBER 31, 1994)
TICKER SYMBOL MATURITY COMPOSITION (IN MILLIONS)
------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Taxable BlackRock Trusts:*
The BlackRock Income
Trust Inc. . . . . . . . BKT None-Perpetual Mortgage-Backed Securities $448
The BlackRock North American
Government Income Trust Inc. BNA None-Perpetual Canadian Securities and
Mortgage-Backed Securities $348
The BlackRock 1998 Term
Trust Inc. . . . . . . . BBT 1998 Mortgage-Backed Securities $526
The BlackRock 1999 Term
Trust Inc. . . . . . . . . BNN 1999 Mortgage-Backed Securities $182
The BlackRock Target Term . . .
Trust Inc. . . . . . . . BTT 2000 Mortgage-Backed Securities and $860
Zero Coupon Securities
The BlackRock 2001 Term
Trust Inc. . . . . . . . BLK 2001 Mortgage-Backed Securities $1,143
The BlackRock Strategic Term
Trust Inc. . . . . . . . BGT 2002 Mortgage-Backed Securities $467
The BlackRock Investment Quality
Term Trust Inc. . . . . . BQT 2004 Mortgage-Backed Securities and $302
Corporate Debt Securities
The BlackRock Advantage Term
Trust Inc. . . . . . . . BAT 2005 Mortgage-Backed Securities and $86
Zero Coupon Securities
The BlackRock Broad Investment
Grade 2009 Term Trust Inc. BCT 2009 Corporate Debt Securities, $35
Mortgage-Backed Securities and
Asset-Backed Securities
- ------------
</TABLE>
* The Adviser also acts as investment adviser to BlackRock Asset Investors
("BAI"), BlackRock Fund Investors I ("BFI I"), BlackRock Fund Investors II
("BFI II") and BlackRock Fund Investors III ("BFI III"). As of December 31,
1994, BAI and BFI I, II and III had no assets. Upon funding, BAI primarily will
invest in commercial and residential mortgage-backed securities and BFI I, II
and III primarily will invest in shares of BAI. The term of each fund is seven
years, subject to two one-year extensions pursuant to certain terms and
conditions.
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<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
Tax-Exempt BlackRock Trusts:
The BlackRock California Investment
Quality Municipal Trust Inc. RAA None-Perpetual California Municipal Obligations $12
The BlackRock Florida Investment
Quality Municipal Trust . RFA None-Perpetual Florida Municipal Obligations $13
The BlackRock New Jersey Investment
Quality Municipal Trust Inc. RNJ None-Perpetual New Jersey Municipal Obligations $11
The BlackRock New York Investment
Quality Municipal Trust Inc. RNY None-Perpetual New York Municipal Obligations $15
The BlackRock Investment Quality
Municipal Trust Inc. . . BKN None-Perpetual Municipal Obligations $197
The BlackRock Municipal Target
Term Trust Inc. . . . . . BMN 2006 Municipal Obligations $453
The BlackRock California Insured
Municipal 2008 Term Trust Inc. BFC 2008 California Municipal Obligations $142
The BlackRock Florida Insured
Municipal 2008 Term Trust BRF 2008 Florida Municipal Obligations $121
The BlackRock Insured Municipal
2008 Term Trust Inc. . . BRM 2008 Municipal Obligations $378
The BlackRock New York Insured
Municipal 2008 Term Trust Inc. BLN 2008 New York Municipal Obligations $155
The BlackRock Insured Municipal
Target Term Trust Inc. . BMT 2010 Municipal Obligations $252
</TABLE>
The Adviser also serves as adviser to eight open-end portfolios which are
also series of the Trust. These portfolios include The Investment Grade
Multi-Sector Mortgage Securities Portfolio, and the Multi-Sector Mortgage
Securities Portfolios II-VIII. The Adviser serves as investment sub-adviser to
five open-end funds, The BlackRock Government Income Trust, Dean Witter Premier
Income Trust, Accessor Funds, Inc. Mortgage Securities Portfolio, the Frank
Russell Trust and The Shearson Lehman Brothers Adjustable Rate Government
Income Fund, that invest primarily in "AAA" credit quality mortgage-backed and
asset-backed securities. The Adviser serves as the investment adviser to six
offshore funds: BFM Fund for Fannie Mae Mortgage Securities; BFM Freddie Mac
Mortgage Securities Fund; BFM Mortgage Performance Fund; BFM LIBOR Mortgage
Fund; Gemini I; and BSY Financial Corporation. In addition, the Adviser serves
as the investment sub-adviser to an offshore fund SBC Government Bond Portfolio
- - U.S. 1-3 Years. Each of these offshore funds invests primarily in U.S.
Mortgage-Backed Securities.
DISTRIBUTOR
Provident Distributors, Inc., an affiliate of PNC, acts as the Trust's
distributor (the "Distributor"). The Trust has adopted a Distribution and
Stockholder Servicing Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act. The Plan permits the Adviser to pay a fee to the
Distributor, which in turn is authorized to make payments to securities dealers
with which the Distributor may enter into solicitation fee agreements. The
Distributor may also use a portion of the fee it receives under the Plan to
compensate institutions who perform support services that would otherwise be
performed by the Administrator or its agents. The purpose of the Plan is to
promote distribution of the Trust's shares and to enhance the provision of
stockholder services. The Trust is not required or permitted under the Plan to
make payments over and above its investment advisory fee; the Plan merely
permits the reallocation of a portion of the advisory fee the Adviser receives
to pay for distribution related and stockholder servicing activities. See
"Distribution and Stockholder Servicing Plan" in the Statement of Additional
Information.
EXPENSES
The Portfolios are responsible for the payment of certain fees and expenses
including, among others, the following: (i) advisory fees; (ii) the fees of
unaffiliated Directors; (iii) the fees of the Trust's Administrator, Custodian
and Transfer and Dividend Disbursing Agent; (iv) the fees of the Trust's legal
counsel and independent accountants; (v) brokerage commissions incurred in
connection with portfolio transactions; (vi) all taxes and
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<PAGE> 26
charges of governmental agencies; (vii) the reimbursement of organizational
expenses; and (viii) expenses related to stockholder communications, including
all expenses of stockholders' and Board of Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
stockholders. The expenses were .57% and .55% of net assets for The Short
Duration Portfolio and The Core Fixed Income Portfolio, respectively, for the
period ended June 30, 1994.
NET ASSET VALUE
The net asset value per share of each Fixed Income Portfolio is determined
by subtracting from the value of the assets of a Portfolio the amount of its
liabilities, and dividing the remainder by the number of outstanding shares of
the Portfolio. The Board of Directors has fixed the specific time of day for
the computation of the Portfolios' net asset value to be as of 4:00 p.m., New
York time. Portfolio securities are valued based on market quotations or, if
not readily available, at fair value as determined in good faith under
procedures established by the Trust's Board of Directors.
The Money Market Portfolio seeks to maintain a net asset value of $1.00 per
share for purchases and redemptions. To do so, The Money Market Portfolio uses
the amortized cost method of valuing its securities pursuant to Rule 2a-7 under
the Investment Company Act. There can be no assurance that The Money Market
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
For further information regarding the amortized cost method, see "Net Asset
Value" in the Statement of Additional Information.
Each Portfolio will compute its net asset value once daily on days that the
New York Stock Exchange is open for trading, except on days on which no orders
to purchase, sell or redeem shares have been received. The New York Stock
Exchange is closed on the following holidays: New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
PURCHASE AND REDEMPTION OF SHARES
HOW TO PURCHASE SHARES
The shares of the Portfolios are currently offered to pension and profit
sharing plans, employee benefit trusts, financial institutions, corporations,
and individuals. Shares of a Portfolio may be purchased at net asset value
without a sales charge. The minimum initial investment is $500,000, although
the Fund may in its discretion accept subscriptions for a lesser amount.
An account may be opened by completing and signing a Client Registration
Form and mailing it to The BFM Institutional Trust Inc. at the following
address: P.O. Box 8318, Boston, Massachusetts 02266-8318.
Purchases of shares may be made by wiring Federal funds to the Trust's
Transfer Agent on any day on which the Portfolio computes its net asset value.
Normally, payments for such shares should be received by the Transfer Agent no
later than 12:00 noon, New York time. Before wiring Federal funds, the investor
must first telephone the Transfer Agent at 1-800-336-6986. On the telephone the
following information will be requested: name of authorized person; stockholder
name; stockholder account number; name of Portfolio; amount being wired; and
wiring bank name. Purchase orders will be effected at the net asset value next
determined after receipt of a proper order and payment of Federal funds, and
dividends will commence accruing on that day.
Other Purchase Information
Purchases of a Portfolio's shares will be made in full and fractional
shares. In the interest of economy and convenience, certificates for shares
will generally not be issued.
The Trust reserves the right, in its sole discretion, to suspend the
offering of shares of the Portfolios or to reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interests
of the Trust; to waive the minimum initial investment of certain investors; and
to redeem shares if information provided
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<PAGE> 27
in the Client Registration Form should prove to be incorrect in any material
manner (e.g., in a manner such as to render the stockholder ineligible to
purchase shares of the Trust). Shares will not be offered or sold in any
jurisdiction to any person to whom it would be unlawful to make such offer or
sale in such jurisdiction.
Shares of a Portfolio may be purchased by customers of broker-dealers or
other financial intermediaries (service agents) which have established a
stockholder servicing relationship with the Trust on behalf of their customers.
Service agents may impose additional or different conditions on the purchase or
redemption of Portfolio shares by their customers and may charge their
customers transaction, account or other fees on the purchase and redemption of
Portfolio shares. Each service agent is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Stockholders who
are customers of service agents should consult their service agent for
information regarding these fees and conditions.
HOW TO REDEEM SHARES
Each Portfolio will redeem its shares at the net asset value next
determined following receipt of a proper request, and dividends will not accrue
after that day. Each Portfolio accepts telephone requests from any investor for
wire redemption. The Portfolios and the Transfer Agent will not be liable for
following telephone instructions reasonably believed to be genuine. In this
regard, the Portfolios and the Transfer Agent require personal identification
information before accepting a telephone redemption. If the Portfolios or
their Transfer Agent fail to use reasonable procedures, the Portfolios might be
liable for losses due to fraudulent instructions. Redemptions may be made by
calling the Trust's Transfer Agent at 1-800-336-6986, by facsimile, or by other
wire communication. No charge is made for redemptions. Shares redeemed may be
worth more or less than the purchase price of the shares, depending on the
market value of the investment securities held by the particular Portfolio at
the time of redemption.
If a proper redemption request is received prior to 12:00 noon, New York
time, on any day on which the Portfolio computes its net asset value, payment
of the redemption price will ordinarily be wired to the stockholder's bank on
the next business day. If the request is received after 12:00 noon, New York
time, payment will ordinarily be wired to the stockholder's bank within two
business days. Redemption proceeds will be sent by wire only to the bank named
on the stockholder's application form. A stockholder may change the wire
instructions on the application form by writing to the Transfer Agent with an
appropriate signature guarantee. The Trust may suspend the right of redemption
or postpone the payment date at times when the New York Stock Exchange is
closed, or during certain other periods as permitted under the federal
securities laws.
Subject to applicable regulatory requirements, the Trust reserves the right
to pay any redemption price by a distribution in kind of securities held by a
Portfolio in lieu of cash. It is highly unlikely that shares would ever be
redeemed in kind. If shares are redeemed in kind, however, the redeeming
stockholder should expect to incur transaction costs upon the disposition of
the securities received in the distribution.
EXCHANGE PRIVILEGE
Shares of a Portfolio may be exchanged for shares of any other Portfolio
based on the respective net asset values of the shares involved. An exchange
order is treated the same as a redemption followed by a purchase. Investors who
wish to make exchange requests should telephone the Trust's Transfer Agent at
1-800-336-6986.
The Client Registration Form provides that neither the Trust nor the
Transfer Agent will be liable for any loss for following instructions,
including telephone exchange or redemption instructions, believed to be genuine
and in accordance with the procedures in this Prospectus. As a result,
stockholders will bear the risk of any loss associated with such instructions,
including any fraudulent instructions. The staff of the Securities and Exchange
Commission is currently considering the propriety of such a provision.
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<PAGE> 28
REPORTS TO STOCKHOLDERS
The Trust will send to its stockholders semi-annual and annual reports and
may send periodic reports more frequently. The reports include a discussion of
the performance of the Portfolios and a comparison of the performance of the
Portfolios to their respective benchmarks. The financial statements appearing
in annual reports are audited by independent accountants.
In order to avoid duplicate mailing and printing expenses, the Trust will
provide one semi-annual and annual stockholder report and one annual prospectus
per investor. Stockholders may request additional copies of such reports or
prospectuses without charge by calling 1-800-336-6986 or by writing to the
Trust at P.O. Box 8318, Boston, Massachusetts 02266-8318.
STOCKHOLDER INQUIRIES
Stockholder inquiries should be addressed to the Trust at P.O. Box 8318,
Boston, Massachusetts 02266-8318, or by telephone, at 1-800-336-6986.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Portfolio will be treated as a separate taxable entity for federal
income tax purposes. Each Portfolio intends to elect to qualify and to remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code. So long as the Portfolios continue to so qualify, they will not
be subject to federal income taxes on their net investment income and capital
gains, if any, that they distribute to stockholders. Any undistributed income
may be subject to tax, including a 4% excise tax on certain undistributed
income of a regulated investment company that does not distribute to
stockholders in a timely manner at least 98% of its income. All dividends out
of net investment income, together with distributions of net short-term capital
gains, will be taxable as ordinary income to stockholders whether or not
reinvested. Any net long-term capital gains distributed to stockholders will be
taxable as such to stockholders, whether or not reinvested and regardless of
the length of time shares have been held. The Portfolios expect to declare
dividends daily of their net investment income payable monthly and make
distributions at least annually of any net capital gains.
The Global Fixed Income Portfolio may incur foreign income taxes to the
extent that it invests in foreign securities. Certain of these taxes may be
credited to stockholders.
Under U.S. Treasury Regulations, each Portfolio is required to withhold and
remit to the U.S. Treasury 31% of dividend and capital gain income and
redemption proceeds on the accounts of those stockholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign stockholders) with the required certifications regarding the
stockholder's status under the federal income tax laws.
Dividends and distributions will be paid in additional Portfolio shares,
based on the net asset value on the payment date or such other date as the
Directors may determine, unless the stockholder elects in writing not less than
five business days prior to the payment date to receive such dividends and
distributions in cash. Such election should be submitted to the Transfer Agent.
However, if it is determined that the U.S. Postal Service cannot properly
deliver Trust mailings to the stockholder, the Trust will terminate the
stockholder's election to receive dividends and other distributions in cash.
Thereafter, the stockholder's subsequent dividends and other distributions will
be automatically reinvested in additional shares of the Portfolio until the
stockholder notifies the Trust in writing of his or her correct address and
requests in writing that the election to receive dividends and other
distributions in cash be reinstated. The Trust will notify each stockholder
after the close of the Trust's taxable year both of the dollar amount and the
taxable status of that year's dividends and distributions. Stockholders are
urged to consult their own tax advisers regarding specific questions as to
federal, state or local taxes.
The tax discussion set forth above is included for general information
only. For additional information, see "Taxes, Dividends and Distributions" in
the Statement of Additional Information. Prospective investors should
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<PAGE> 29
consult their own tax advisers concerning the federal, state, local and foreign
tax consequences to them of an investment in the Portfolios.
GENERAL INFORMATION
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yield", "effective
yield" and "total return". These figures will be based on historical earnings,
may fluctuate substantially and are not intended to indicate future
performance.
The "yield" of the Fixed Income Portfolios refers to the income generated
by an investment in a Portfolio over a one-month or 30-day period. This income
is then "annualized"; that is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each 30-day period for 12
periods and is shown as a percentage of the investment. The income earned on
the investment is also assumed to be reinvested at the end of the sixth 30-day
period. The "total return" of the Fixed Income Portfolios shows how much an
investment in a Portfolio would have increased (decreased) over a specified
period of time (i.e., one, five or ten years or since inception of the
Portfolio) assuming that all distributions and dividends by the Portfolio were
reinvested on the reinvestment dates during the period and less all recurring
fees. Total return does not take into account any federal, state or local
income taxes that may be payable upon redemption.
The "yield" of The Money Market Portfolio refers to the income generated by
an investment in The Money Market Portfolio 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. The "effective yield" is calculated similarly,
but, when annualized, the income earned by an investment in The Money Market
Portfolio 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 Trust may include comparative performance information in advertising or
marketing the Portfolios' shares. Such performance information may include data
from Lipper Analytical Services, Inc., other industry publications, business
periodicals, rating services and market indices. See "Performance Information"
in the Statement of Additional Information.
DESCRIPTION OF SHARES
The Trust was organized as a Maryland corporation on November 27, 1991, and
currently consists of sixteen separately managed portfolios. The Trust is
authorized to issue 2 billion shares of capital stock, $.0001 par value, in one
or more classes or series. The Fixed Income Portfolios are each authorized to
issue 100 million shares of capital stock, and The Money Market Portfolio is
authorized to issue 1 billion shares of capital stock. In addition to the
Portfolios, the Trust consists of the following series: the Investment Grade
Multi-Sector Mortgage Securities Portfolio and the Multi-Sector Mortgage
Securities Portfolios II-VIII. The Board of Directors is empowered by the
Articles of Incorporation to issue additional classes or series of shares and
to increase or decrease the number of authorized shares of the Trust or any
class or series thereof.
Each share of a Portfolio represents an equal proportionate interest in the
Portfolio with each other share of that Portfolio. Shares entitle their
holders to one vote per share. Shares have non-cumulative voting rights, do not
have preemptive or subscription rights and are transferable. Pursuant to the
Investment Company Act, stockholders are required to approve the adoption of
any investment advisory agreement, any plan of distribution under Rule 12b-1
and any changes in fundamental investment policies.
If the Trust does not hold annual meetings of stockholders, it will abide
by Section 16(c) of the Investment Company Act which provides that the
Directors will call a meeting of stockholders for the purpose of voting on the
question of the removal of a Director if so requested in writing by the holders
of 10% or more of a Portfolio's
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outstanding shares and will assist such stockholders in communicating with the
other stockholders. Directors may be removed by vote of a majority of the
outstanding shares of a Portfolio.
To provide the initial capital of the Trust, the Adviser has purchased
10,000 shares of The Short Duration Portfolio for an aggregate purchase price
of $100,000. These shares were acquired for investment purposes and the Adviser
has no present intention of selling such shares.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company (State Street), 1776 Heritage Drive,
North Quincy, Massachusetts, serves as Administrator to the Trust pursuant to
an administration agreement. State Street receives an annual fee equal to .08%
of each Portfolio's net asset value up to $75 million, .06% of the next $75
million and .04% in excess of $150 million, subject to certain minimum
requirements. State Street also serves as Custodian for the Trust's portfolio
securities and cash and as Transfer Agent for the Trust's shares and, in those
capacities, maintains certain books and records for the Trust. State Street
also acts as dividend disbursing agent for the Trust. State Street's mailing
address is P.O. Box 1713, Boston, Massachusetts 02105.
VALIDITY OF THE SHARES
The validity of the shares offered hereby will be passed on for the Trust
by Miles & Stockbridge, Baltimore, Maryland. Certain other matters have been
passed on for the Trust by Skadden, Arps, Slate, Meagher & Flom, New York, New
York. Such counsel have relied, as to matters of Maryland law, on the opinion
of Miles & Stockbridge.
EXPERTS
Deloitte & Touche LLP, New York, New York, has been selected as the
independent auditors for the Trust and in that capacity audits the Portfolios'
annual financial statements.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Trust with the SEC under
the Securities Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
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APPENDIX A
PORTFOLIO BENCHMARKS
Merrill Lynch 1-3 Year Treasury Index. The Merrill Lynch 1-3 Year Treasury
Index is comprised of all U.S. Treasury notes and bonds having a remaining
maturity of between 1.0 and 2.99 years and bearing a coupon equal to or greater
than 4.25%. As of December 31, 1994, the index contained 57 distinct issues
with a combined market value of $76 billion. It had a duration of 1.66 years as
of that date.
Merrill Lynch 3-5 Year Treasury Index. The Merrill Lynch 3-5 Year Treasury
Index is comprised of all U.S. Treasury notes and bonds having a remaining
maturity of between 3.0 and 4.99 years and bearing a coupon equal to or greater
than 4.25%. As of December 31, 1994, the index contained 40 distinct issues
with a combined market value of $438 billion. It had a duration of 3.34 years
as of that date.
Lehman Brothers Aggregate Index. The Lehman Brothers Aggregate Index is
made up of the Lehman Brothers Government/Corporate Bond Index, the Lehman
Brothers Mortgage-Backed Securities Index and the Lehman Brothers Asset-Backed
Securities Index and is intended to be representative of the investment grade,
publicly issued, fixed-rate, U.S. fixed income market. These indices include
Fixed-rate debt issues rated investment grade or higher by Moody's Investors
Service, Inc. (Moody's), Standard & Poor's Corporation (S&P) or Fitch
Investor's Service. All issues have at least one year to maturity and an
outstanding par value of $100 million for U.S. Government issues and $50
million for all others. The Lehman Brothers Government/Corporate Bond Index
includes the Lehman Brothers Government Bond Index and the Lehman Brothers
Corporate Bond Index. The Government Bond Index is described below. The
Corporate Bond Index includes all publicly issued, fixed-rate, non-convertible
investment grade domestic corporate debt, as well as Yankee bonds, which are
dollar denominated, Securities and Exchange Commission registered, public,
non-convertible debt obligations issued or guaranteed by foreign sovereign
governments, municipalities or governmental or international agencies. The
Mortgage-Backed Securities Index is comprised of all fixed-rate securities
backed by mortgage pools of the GNMA, FNMA and FHLMC. Graduated Payment
Mortgages (GPMs) are included, but Graduated Equity Mortgages (GEMs) are not.
The Asset-Backed Securities Index includes all publicly issued, non-callable
fixed-rate asset-backed securities (excluding subordinated tranches) backed by
automobile, credit card and fixed-rate home equity loans. At December 31, 1994,
the Aggregate Index was comprised of 4,854 issues with a market value of $3.9
trillion. It had a duration of 4.67 years as of that date. On a market value
basis, the Government, Corporate, Mortgage-Backed and Asset-Backed Indices
accounted for 53.85%, 16.03%, 28.89% and 1.23% of the Aggregate Index,
respectively.
Salomon Brothers Mortgage Index. The Salomon Brothers Mortgage Index is
composed of all agency pass-throughs and FHA and GNMA project loans with a
final maturity of at least one year and a minimum amount outstanding of $200
million per coupon. At December 31, 1994, the Salomon Brothers Mortgage Index
had a market value of $4 billion in 4,877 different issues. It had a duration
of 5.03 years as of that date.
Lehman Brothers Government Bond Index. The Lehman Brothers Government Bond
Index is made up of all public obligations of the U.S. Treasury, U.S.
Government agencies and quasi-governmental corporations, and corporate debt
guaranteed by the U.S. Government. At December 31, 1994, the Lehman Brothers
Government Bond Index contained 1,041 issues with a market value of $2.1
trillion. It had a duration of 4.60 years as of that date.
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<PAGE> 32
APPENDIX B
CORPORATE BOND, MORTGAGE-BACKED SECURITY
AND COMMERCIAL PAPER RATINGS
CORPORATE BONDS AND MORTGAGE-BACKED SECURITIES
Moody's. Bonds rated Aa by Moody's are judged by Moody's to be of high
quality by all standards. Together with bonds rated Aaa (Moody's highest
rating), they comprise what are generally known as high-grade bonds. Aa bonds
are rated lower than Aaa bonds because margins of protection may not be as
large as those of Aaa bonds, or fluctuations of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than those applicable to Aaa securities.
Bonds that are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Bonds rated Baa by Moody's are considered by Moody's to be medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Baa bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
S&P. Bonds rated AA by S&P are judged by S&P to have a very strong capacity
to pay interest and repay principal and differ only in a small degree from
issues rated AAA. Bonds rated AAA have the highest rating assigned by S&P, and
the capacity to pay interest and repay principal is extremely strong. Bonds
rated A by S&P have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions. Bonds rated BBB by S&P are regarded
by S&P as having an adequate capacity to pay interest and repay principal.
Whereas BBB bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
The process of determining ratings for Mortgage-Backed securities by
Moody's and S&P includes consideration of the credit quality of the underlying
collateral, including any credit support providers, structural and legal
aspects associated with the securities, and the likelihood that the payment
stream on the mortgage pool is adequate to make payments that investors are
entitled to under the securities. Neither of such ratings represents an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such prepayments may differ from that
originally anticipated, nor does it address the possibility that investors may
suffer a lower than anticipated yield or that investors in such securities may
fail to recoup fully their initial investment due to prepayments.
COMMERCIAL PAPER
Moody's. Moody's employs the Prime rating for investment grade senior
short-term debt obligations. Issuers within the Prime category are given
ratings 1, 2 or 3, depending on the relative strengths of certain factors.
Issuers rated Prime-1, the highest category, have a superior ability for
repayment which will often be evidenced by many of the following
characteristics: (1) leading market positions in well established industries;
(2) high rates of return on funds employed; (3) conservative capitalization
structure with moderate reliance on debt and ample asset protection; (4) broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial markets and
assured sources of alternative liquidity.
S&P. Ratings are graded into four categories, ranging from A for the
highest quality obligations to D for the lowest. Issues rated A are regarded as
having the greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2 and 3 to indicate the relative
degree of safety. Issues rated A-1, the highest category, have a strong degree
of safety regarding timely payment.
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<PAGE> 33
APPENDIX C
GENERAL CHARACTERISTICS AND RISKS OF HEDGING TRANSACTIONS
PUT AND CALL OPTIONS
A put option gives the purchaser of the option the right to sell and the
writer the obligation to buy the underlying security at the exercise price
during the option period. The purchase of a put option on a debt security would
generally be designed to protect a Portfolio's holdings in a security against a
substantial decline in market value. A call option gives the purchaser of the
option the right to buy and the writer the obligation to sell the underlying
security at the exercise price during the option period. The purchase of a call
option on a security would generally be intended to protect the Portfolio
against an increase in the price of a security that it intended to purchase in
the future. The Portfolio may also write put and call options. The premium that
a Portfolio receives for writing the option will serve as a partial hedge, in
the amount of the option premium, against changes in the value of the
securities in its portfolio. The Portfolios are authorized to purchase exchange
listed options and over-the-counter options (OTC Options). Listed options are
issued by the Options Clearing Corporation (OCC), which guarantees the
performance of the obligations of the parties to such options.
Each Portfolio's ability to close out its position as a purchaser or seller
of an exchange-listed put or call option is dependent upon the existence of a
liquid secondary market on option exchanges. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had been
listed by the OCC as a result of trades on that exchange would generally
continue to be exercisable in accordance with their terms.
OTC Options are purchased from or sold to dealers or financial institutions
which have entered into direct agreements with the Portfolios. With OTC
Options, such variables as expiration date, exercise price and premium will be
agreed upon between a Portfolio and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer
fails to make or take delivery of the securities underlying an option it has
written, in accordance with the terms of that option, the Portfolio would lose
the premium paid for the option as well as any anticipated benefit of the
transaction. The Portfolios will engage in OTC Option transactions only with
primary United States government securities dealers recognized by the Federal
Reserve Bank in New York.
The hours of trading for options on debt securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that will not be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS
The Portfolios may purchase and sell exchange-traded financial futures
contracts or purchase and sell put and call options on such futures as a hedge
against anticipated interest rate or currency changes. The sale of a futures
contract creates an obligation by the Portfolio, as seller, to deliver the
specific type of financial instrument called for in the contract at a specified
future time for a specified price. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put).
Typically, investment in futures contracts requires a Portfolio to deposit
with a financial intermediary as security for its obligations an amount of cash
or other specified debt securities which initially is 1% to 5% of the
C-1
<PAGE> 34
face amount of the contract (but may be higher in some circumstances) and which
thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. Investment in options involves payment of a premium for the option
without any further obligation on the part of the Portfolio. Accordingly, the
daily deposit requirements in futures contracts create an ongoing greater
potential financial risk than do options transactions, where the exposure is
limited to the cost of the initial premium. Transactions may be settled by
entering into an offsetting transaction, and are subject to the risk that the
position may not be able to be closed if no offsetting transaction can be
arranged.
A Portfolio will not engage in transactions in futures contracts or related
options for speculative purposes but only as a hedge against changes resulting
from market conditions in the values of securities in its portfolio. In
addition, the Portfolio will not enter into a futures contract or related
option (except for closing transactions) if, immediately thereafter, the sum of
its initial deposits and premiums on open contracts and options would exceed 5%
of the Portfolio's total assets (taken at current value); provided, however,
that in the case of an option that is in-the-money at the time of the purchase,
the in-the-money amount may be excluded in calculating the 5% limitation. Also,
assets consisting of cash, U.S. Government securities or other liquid
high-grade debt obligations will be segregated with the Custodian and marked to
market in an amount equal to the market value of the contract.
Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency
futures contract for the purchase of foreign currencies must occur within that
foreign country. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market which may not occur. Currency exchange
rates may fluctuate based on factors extrinsic to the domestic economy.
GENERAL RISKS OF HEDGING TRANSACTIONS
Hedging Transactions present certain additional risks. In particular, the
variable degree of correlation between price movements of hedging instruments
and price movements in the position being hedged creates the possibility that
losses on the hedge may be greater than gains in the value of a Portfolio's
position. In addition, certain hedging instruments and markets may not be
liquid in all circumstances. As a result, in volatile markets, a Portfolio may
not be able to close out a transaction without incurring losses substantially
greater than the initial deposit. Although the contemplated use of these
instruments should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time they tend to limit any potential
gain which might result from an increase in the value of such position. Losses
due to Hedging Transactions will reduce net asset value. The ability of a
Portfolio to hedge successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. A Portfolio's ability to
enter into Hedging Transactions may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
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<PAGE> 35
THE BFM INSTITUTIONAL TRUST
Supplement Dated July 10, 1995 to Prospectus Dated April 3, 1995
THE FOLLOWING INFORMATION SUPERSEDES THE DISCLOSURE AS NOTED WITH THE PAGE
NUMBERS DESIGNATED BELOW.
page 5
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC, Inc. and its affiliates provide the Trust with administrative,
accounting, custodial, transfer agency and disbursing services.
page 25
DISTRIBUTOR
Provident Distributions, Inc. acts as the Trust's distributor (the
"Distributor").
page 26
HOW TO PURCHASE SHARES
(Second paragraph)
An account may be opened by completing and signing a Client Registration
Form and mailing it to The BFM Institutional Trust Inc. at the following
address: PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809, Mail Stop
400-0217, Attn: Rhonda Stanford.
Purchase of shares may be made by wiring Federal funds to the Trust's
Transfer Agent on any day on which the Portfolio computes its net asset value.
Normally, payments for such shares should be received by the Transfer Agent no
later than 12:00 noon, New York time. Before wiring Federal funds, the
investor must first telephone the Transfer Agent at 1-800-441-7450. On the
telephone the following information will be requested: name of authorized
person; stockholder name; stockholder account number; name of Portfolio; amount
being wired; and wiring bank name. Purchase orders will be effected at the net
asset value next determined after receipt of a proper order and payment of
Federal funds, and dividends will commence accruing on that day.
page 27
HOW TO REDEEM SHARES
Redemptions may be made by calling the Trust's Transfer Agent at
1-800-441-7450.
page 27
EXCHANGE PRIVILEGE
As exchange order is treated the same as a redemption followed by a purchase.
Investors who wish to make exchange requests should telephone the Trust's
Transfer Agent at 1-800-441-7450.
page 28
REPORTS TO STOCKHOLDERS
(second paragraph)
Stockholders may request additional copies of such reports or prospectuses
without charge by calling 1-800-441-7450 or by writing to the Trust at PFPC,
Inc., 400 Bellevue Parkway, Wilmington, DE 19809, Mail Stop 400-0217,
Attn: Rhonda Stanford.
page 28
STOCKHOLDER INQUIRIES
Stockholder inquiries should be addressed to the Trust at PFPC, Inc., 400
Bellevue Parkway, Wilmington, DE 19809, Mail Stop 400-0217. Attn: Rhonda
Stanford or by telephone at 1-800-441-7450.
page 30
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809, serves as the
Administrator, Custodian and Transfer and Dividend Disbursing Agent to the
Trust pursuant to an administration agreement. PFPC receives an annual fee
equal to 0.14% of each Portfolio's net asset value. In its capacity as
Administrator, Custodian and Transfer Agent and Dividend Disbursing Agent, PFPC
maintains certain books and records for the Trust.
<PAGE> 36
THE BFM INSTITUTIONAL TRUST
Supplement Dated August 28, 1995 to Prospectus Dated April 3, 1995
THE FOLLOWING INFORMATION SUPERSEDES THE DISCLOSURE AS NOTED WITH THE PAGE
NUMBERS DESIGNATED BELOW.
page 5
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Inc. and its affiliates provide the Trust with administrative, accounting,
custodial, transfer agency and disbursing services.
page 25
DISTRIBUTOR
Provident Distributors, Inc. acts as the Trust's distributor (the
"Distributor").
page 26
HOW TO PURCHASE SHARES
(Second paragraph)
An account may be opened by completing and signing a Client Registration
Form and mailing it to The BFM Institutional Trust Inc. at the following
address: PFPC Inc., P.O. Box 8961, Wilmington, DE 19899-8961, Attn: BlackRock
Account Services.
Purchase of shares may be made by wiring Federal funds to the Trust's
Transfer Agent on any day on which the Portfolio computes its net asset value.
Normally, payments for such shares should be received by the Transfer Agent no
later than 12:00 noon, New York time. Before wiring Federal funds, the
investor must first telephone the Transfer Agent at 1-800-555-3890. On the
telephone the following information will be requested: name of authorized
person; stockholder name; stockholder account number; name of Portfolio; amount
being wired; and wiring bank name. Purchase orders will be effected at the net
asset value next determined after receipt of a proper order and payment of
Federal funds, and dividends will commence accruing on that day.
page 27
HOW TO REDEEM SHARES
Redemptions may be made by calling the Trust's Transfer Agent at
1-800-555-3890.
page 27
EXCHANGE PRIVILEGE
An exchange order is treated the same as a redemption followed by a purchase.
Investors who wish to make exchange requests should telephone the Trust's
Transfer Agent at 1-800-555-3890.
<PAGE> 37
page 28
REPORTS TO STOCKHOLDERS
(second paragraph)
Stockholders may request additional copies of such reports or prospectuses
without charge by calling 1-800-555-3890 or by writing to the Trust at PFPC
Inc., P.O. Box 8961, Wilmington, DE 19899-8961, Attn: BlackRock Account
Services.
page 28
STOCKHOLDER INQUIRIES
Stockholder inquiries should be addressed to the Trust at PFPC Inc., P.O. Box
8961, Wilmington, DE 19899-8961, Attn: BlackRock Account Services or by
telephone at 1-800-555-3890.
page 30
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Inc., 400 Bellevue Pkwy., Wilmington, DE 19809, serves as the
Administrator, Custodian and Transfer and Dividend Disbursing Agent to the
Trust pursuant to an administration agreement. PFPC receives an annual fee
equal to 0.14% of each Portfolio's net asset value. In its capacity as
Administrator, Custodian and Transfer Agent and Dividend Disbursing Agent, PFPC
maintains certain books and records for the Trust.
<PAGE> 1
EXHIBIT (17)(o)
THE BFM INSTITUTIONAL TRUST
Statement of Additional Information
dated April 3, 1995
The BFM Institutional Trust Inc. (Trust) is a no-load, open-end management
investment company currently consisting of sixteen investment portfolios. The
eight diversified investment portfolios (the "Portfolios"), each with its own
investment objective and policies, described in this Statement of Additional
Information consist of The Short Duration Portfolio, The Intermediate Duration
Portfolio, The Core Fixed Income Portfolio, The Mortgage Portfolio, The
Government Portfolio, The Long Duration Portfolio and The Global Fixed Income
Portfolio (the "Fixed Income Portfolios") and The Money Market Portfolio.
BlackRock Financial Management Inc. (formerly BlackRock Financial Management
L.P.) serves as investment adviser (the "Adviser") to the Trust.
The Trust's address is 345 Park Avenue, New York, New York 10154, and its
telephone number is (212) 754-5560.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Trust's Prospectus dated April 3, 1995, a copy of
which may be obtained from the Trust upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ----------
<S> <C> <C>
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . B-2 9
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . B-11 --
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13 --
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . B-16 23
Distribution and Stockholder Servicing Plan . . . . . . . . . . . . . . . . B-18 25
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . . . . B-19 23
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20 26
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . . . . B-21 26
Taxes, Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . B-22 28
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . B-24 29
Custodian, Transfer and Dividend Disbursing Agent . . . . . . . . . . . . . B-25 30
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-25 30
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-26 --
</TABLE>
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<PAGE> 2
INVESTMENT OBJECTIVES AND POLICIES
For a description of the objectives and policies of the Portfolios, see
"Description of the Trust - Investment Objectives and Policies" in the Trust's
Prospectus. The following information is provided for those investors desiring
information in addition to that contained in the Prospectus.
U.S. GOVERNMENT SECURITIES
U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association (GNMA), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration (FHA), the General
Services Administration, the Maritime Administration and the Small
Business Administration. The maturities of such obligations range from
three months to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality may borrow, to meet its obligations,
from the U.S. Treasury. Among the agencies and instrumentalities issuing
such obligations are the Tennessee Valley Authority, the Federal National
Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation
(FHLMC) and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Bank.
Neither the value nor the yield of the Portfolios' shares or of the U.S.
Government securities which may be invested in by the Portfolios are guaranteed
by the U.S. Government. Such values and yield will fluctuate with changes in
prevailing interest rates and other factors. Generally, as prevailing interest
rates rise, the value of any U.S. Government securities held by the Portfolios
will fall. Such securities with longer maturities generally tend to produce
higher yields and are subject to greater market fluctuation as a result of
changes in interest rates than debt securities with shorter maturities.
The Fixed Income Portfolios may also purchase "zero coupon" Treasury
securities. These are U.S. Treasury bills, notes and bonds which have been
stripped of their unmatured interest coupons or which are certificates
representing interests in such stripped debt obligations. Such securities are
purchased at a discount from their face amount giving the purchaser the right
to receive their full value at maturity. A zero coupon security pays no
interest to its holder during its life. Its value to an investor consists of
the difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).
B-2
<PAGE> 3
The interest rate on such securities is automatically compounded and paid
out at maturity. While such compounding at a constant rate eliminates the risk
of receiving lower yields upon reinvestment of interest if prevailing interest
rates decline, the owner of a zero coupon security will be unable to
participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that
a holder (such as a Portfolio) of a zero coupon security accrue a portion of
the discount at which the security was purchased as income each year even
though the Portfolio receives no interest payments in cash on the security
during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, a number of banks and brokerage firms have separated
(stripped) the principal portions from the coupon portions of U.S. Treasury
bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account.
MORTGAGE-BACKED SECURITIES
As discussed in the Prospectus, the Mortgage-Backed securities purchased
by the Portfolios evidence an interest in a specific pool of mortgages. Such
securities are issued by GNMA, FNMA and FHLMC and by private issuers, such as
depository institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing.
GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of
the United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the Housing Act), authorized GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 (FHA Loans), or guaranteed by the Veterans' Administration under the
Servicemen's Readjustment Act of 1944, as amended (VA Loans), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith
and credit of the U.S. Government is pledged to the payment of all amounts that
may be required to be paid under the guarantee. In order to meet its
obligations under such guarantee, GNMA is authorized to borrow from the U.S.
Treasury with no limitations as to amount.
The GNMA certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used
to reduce the borrower's monthly payments during the early years of the
mortgage loans ("buydown" mortgage loans); (viii) mortgage loans that provide
for adjustments in payments based on periodic changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except
as otherwise specified above, will be fully-amortizing loans secured by first
liens on one- to four-family housing units.
FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
Government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local
B-3
<PAGE> 4
lenders, thereby replenishing their funds for additional lending. FNMA
acquires funds to purchase home mortgage loans from many capital market
investors that may not ordinarily invest in mortgage loans directly, thereby
expanding the total amount of funds available for housing.
Each FNMA certificate will entitle the registered holder thereof to
receive amounts representing such holder's pro rata interest in scheduled
principal payments and interest payments (at such FNMA certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments on the mortgage loans
in the pool represented by such FNMA certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
otherwise finally liquidated mortgage loan. The full and timely payment of
principal of and interest on each FNMA certificate will be guaranteed by FNMA,
which guarantee is not backed by the full faith and credit of the U.S.
Government.
Each FNMA certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
graduated payment mortgage loans; and (iii) adjustable rate mortgage loans.
FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the FHLMC Act). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily FHLMC certificates.
FHLMC guarantees to each registered holder of a FHLMC certificate the
timely payment of interest at the rate provided for by such FHLMC certificate,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default
on an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of a claim by any mortgage insurer or (iii) the
expiration of any right of redemption, whichever occurs later, but in any event
no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. The obligations of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by the full faith and credit
of the U.S. Government.
FHLMC certificates represent a pro rata interest in a group of mortgage
loans (a FHLMC certificate group) purchased by FHLMC. The mortgage loans
underlying the FHLMC certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
the applicable standards set forth in the FHLMC Act. A FHLMC certificate group
may include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC
certificate group.
COLLATERALIZED MORTGAGE OBLIGATIONS. In reliance on a Securities and
Exchange Commission (SEC) interpretation, the Fixed Income Portfolios'
investments in certain qualifying collateralized mortgage obligations (CMOs),
including CMOs that are treated as Real Estate Mortgage Investment Conduits
(REMICs), are not subject to the limitations in the Investment Company Act of
l940 (the Investment Company Act) on acquiring interests in other investment
companies. In order to be able to rely on the SEC's interpretation, the CMOs
must be unmanaged, fixed-asset issuers, that (a) invest primarily in
mortgage-backed securities, (b) do not issue redeemable securities, (c) operate
under general exemptive
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orders exempting them from all provisions of the Investment Company Act, and
(d) are not registered or regulated under the Investment Company Act as
investment companies. To the extent that the Portfolios select CMOs that do
not meet the above requirements, the Portfolios will be subject to the
limitations on acquiring interests in other investment companies described in
"Investment Restrictions" below.
ILLIQUID SECURITIES
The Portfolios may not invest more than 15% of their respective net assets
in repurchase agreements which have a maturity of longer than seven days or in
other illiquid securities, including securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of l933, as amended (the Securities Act).
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds, like the Portfolios,
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities, and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of
such investments.
The SEC has recently adopted Rule l44A which allows for a broader
institutional trading market for securities otherwise subject to restrictions
on resale to the general public. Rule l44A establishes a "safe harbor" from
the registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers.
Under guidelines adopted by the board of directors pursuant to
requirements established by the SEC, the Adviser may determine that restricted
securities issued pursuant to Rule l44A under the Securities Act may be liquid.
The Adviser will monitor the liquidity of such restricted securities subject to
the supervision of the Board of Directors. In reaching liquidity decisions,
the Adviser will consider, among others, the following factors: (l) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security and (4)
the nature of the security and the nature of the marketplace (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
OTHER INVESTMENT STRATEGIES
INTEREST RATE TRANSACTIONS
Each Fixed Income Portfolio may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually
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enter into interest rate swaps on a net basis, i.e., the two payment streams
are netted out, with the Portfolio receiving or paying, as the case may be,
only the net amount of the two payments. A Portfolio will accrue the net
amount of the excess, if any, of its obligations over its entitlements with
respect to each interest rate swap on a daily basis and will deliver an amount
of cash, U.S. Government securities or liquid high-grade debt securities
having an aggregate net asset value at least equal to the accrued excess to a
custodian that satisfies the requirements of the Investment Company Act.
A Portfolio will enter into interest rate swap, cap and floor transactions
only with institutions meeting the creditworthiness standards established by
the Board of Directors. If there is a default by the other party to such a
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are less liquid
than swaps.
OPTIONS AND FUTURES TRANSACTIONS
PUT AND CALL OPTIONS. Each Fixed Income Portfolio may purchase listed and
over-the-counter call and put options (OTC options) in amounts equaling up to
10% of their respective total assets. Each Portfolio may purchase put options
on securities which it holds (or has the right to acquire) in its portfolio to
protect itself against a decline in the value of the securities. If the value
of the underlying security were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the
Portfolio would incur no additional loss. In addition, each Portfolio may sell
a put option which it has previously purchased prior to the sale of the
securities underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option which is sold.
Any such gain or loss could be offset in whole or in part by a change in the
market value of the underlying security. If a put option purchased by the
Portfolio expired without being sold or exercised, the premium would be lost.
Because trading interest in options written on Treasury bonds and notes
tends to center mostly on the most recently auctioned issues, the exchanges on
which such securities trade will not continue indefinitely to introduce options
with new expirations to replace expiring options on particular issues.
Instead, the expirations introduced at the commencement of options trading on a
particular issue will be allowed to run their course, with the possible
addition of a limited number of new expirations as the original ones expire.
Options trading on each issue of bonds or notes will thus be phased out as new
options are listed on more recent issues, and options representing a full range
of expirations will not ordinarily be available for every issue on which
options are traded.
In the event of the bankruptcy of a broker through which a Portfolio
engages in options transactions, the Portfolio could experience delays and/or
losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Transactions are entered into by the Portfolios only with brokers or financial
institutions deemed creditworthy by the Adviser.
OTC options pose risks not associated with exchange-traded options. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. Moreover, because performance of an OTC option is not guaranteed by the
Options Clearing Corporation (OCC) or any other settlement agency, there is a
risk of counterparty default. In the event of the bankruptcy of the writer of
an OTC option purchased by a Portfolio, the Portfolio could experience a loss
of all or part of the value of the option.
Exchange-traded options involve certain risks not present in an OTC
market. For example, exchanges
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could impose limits governing the maximum number of positions on the same side
of a market or involving the same underlying instrument that may be held by a
single investor, whether acting alone or in concert with others (regardless of
whether such positions are held or written on the same or different exchanges
or held or written in one or more accounts or through one or more brokers).
FUTURES CONTRACTS. As a purchaser of an interest rate futures contract
(futures contract), a Portfolio incurs an obligation to take delivery of a
specified amount of the obligation underlying the futures contract at a
specified time in the future for a specified price. As a seller of a futures
contract, a Portfolio incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
The Fixed Income Portfolios may purchase or sell futures contracts for the
purpose of hedging their respective portfolio (or anticipated portfolio)
securities against changes in prevailing interest rates. If the Adviser
anticipates that interest rates may rise and, concomitantly, the price of U.S.
Government or other debt securities may fall, the Portfolio may sell a futures
contract. If declining interest rates are anticipated, the Portfolio may
purchase a futures contract to protect against a potential increase in the
price of U.S. Government or other debt securities the Portfolio intends to
purchase. In addition, futures contracts may be bought or sold in order to
close out a short or long position in a corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security
and the same delivery date. If the offsetting sale price exceeds the purchase
price, the purchaser would realize a gain, whereas if the purchase price
exceeds the offsetting sale price, the purchaser would realize a loss. There
is no assurance that a Portfolio will be able to enter into a closing
transaction.
When a Portfolio enters into a futures contract it is initially required
to deposit with the Custodian, in a segregated account in the name of the
broker performing the transaction, an "initial margin" of cash or U.S.
Government securities equal to approximately 1 to 5% of the contract amount.
Initial margin requirements are established by the exchanges on which futures
contracts trade and may change from time to time. In addition, brokers may
establish margin deposit requirements in excess of those required by the
exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Portfolio upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Portfolio may be required to make subsequent deposits into
the segregated account, maintained at the Custodian for that purpose, of cash,
U.S. Government securities or other liquid high-grade debt obligations, called
"variation margin", in the name of the broker, which are reflective of price
fluctuations in the futures contract. Upon the expiration of the futures
contract or the execution of an opposite position by a Portfolio (which will
operate to terminate the position in the futures contract), a final
determination of variation margin is made. Additional cash is then required to
be paid to or released by the broker, and the Portfolio realizes a gain or a
loss.
Currently, interest rate futures contracts can be purchased on debt
securities such as U.S. Treasury
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bills and bonds, Eurodollar instruments, U.S. Treasury notes with maturities
between 6 1/2 and 10 years, GNMA certificates and bank certificates of deposit.
OPTIONS ON FUTURES CONTRACTS. The Portfolios may purchase options on
futures contracts for similar purposes to those set forth above for the
purchase of a futures contract (purchase of a call option or sale of a put
option) and the sale of a futures contract (purchase of a put option or sale of
a call option), or upon exercise to close out a long or short position in
futures contracts. If, for example, the Adviser wished to protect against an
increase in interest rates and the resulting negative impact on the value of a
portion of its U.S. Government securities portfolio, it might purchase a put
option on an interest rate futures contract, the underlying security of which
correlates with the portion of the portfolio the Adviser seeks to hedge.
CERTAIN RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
The Portfolios are authorized to enter into futures contracts and related
options only for bona fide hedging and duration management purposes. For this
purpose, the Commodity Futures Trading Commission (CFTC) generally defines
bona fide hedging as a transaction or position that (i) represents a substitute
for a transaction to be made in a physical market, (ii) is economically
appropriate to the reduction of risk, (iii) arises from a potential change in
the value of assets owned or to be acquired, and (iv) is intended to offset
price risks incidental to cash positions. In addition, with respect to
anticipatory long positions, bona fide hedging is defined to mean that either:
(1) a substantial majority (i.e., approximately 75%) of all anticipatory hedge
transactions (transactions in which the Portfolio does not own at the time of
the transaction, but expects to acquire, the securities underlying the futures
contract) involving the purchase of futures contracts will be completed by the
purchase of securities which are the subject of the hedge, or (2) the
underlying value of all long positions in futures contracts will not exceed the
total value of (a) short-term debt obligations and cash set aside by the
Portfolio; (b) cash proceeds due to the Portfolio on investments within thirty
days; (c) the margin deposited on the contracts; and (d) any unrealized
appreciation in the value of the contracts.
A Portfolio may sell a futures contract to protect against the decline in
the value of U.S. Government securities and other debt securities held by the
Portfolio. It is possible that the futures market may advance and the value of
securities held by the Portfolio may decline. If this were to occur, the
Portfolio would lose money on the futures contract and also experience a
decline in value in its portfolio securities. However, over time the market
prices of the securities of a diversified portfolio should tend to move in the
same direction as the prices of futures contracts.
If a Portfolio purchases a futures contract to hedge against the increase
in value of U.S. Government securities it intends to buy, and the value of such
securities decreases, then the Portfolio may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If a Portfolio maintains a short position in a futures contract, it will
cover this position by holding, in a segregated account maintained at the
Custodian, cash, U.S. Government securities or other liquid high grade debt
obligations equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities underlying the futures contract.
Such a position may also be covered by owning the securities underlying the
futures contract, or by holding a call option permitting the Portfolio to
purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if a Portfolio holds a long position in a futures contract,
it will hold cash, U.S. Government securities or other liquid high grade debt
obligations equal to the purchase price of the contract (less the amount of
initial or variation margin on deposit) in a segregated account maintained for
the Portfolio by the Custodian. Alternatively, a Portfolio could cover its
long position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Portfolio.
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Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Portfolio has
insufficient cash, it may be disadvantageous to do so. The ability to close
out options and futures positions could also have an adverse impact on a
Portfolio's ability to effectively hedge its portfolio.
A Portfolio may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. In addition, the CFTC and various markets have
established limits, referred to as "speculative position limits", on the
maximum net long or net short positions that any person may hold or control in
a futures contract or related option. An exchange may order the liquidation of
positions found to be in violation of these limits and it may impose other
sanctions and restrictions.
In the event of the bankruptcy of a broker through which a Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Transactions are entered into by a Portfolio only with
brokers or financial institutions deemed creditworthy by the Adviser.
While the futures contracts and options transactions to be engaged in by
the Portfolios for the purpose of hedging the Portfolios' securities are not
speculative in nature, there are risks inherent in the use of such instruments.
There may exist an imperfect correlation between the price movements of futures
contracts purchased by the Portfolios and the movements in the prices of the
securities which are the subject of the hedge. Another risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which a Portfolio seeks a hedge. A
correlation may also be distorted by the fact that the futures market is
denominated by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds.
If participants in the futures market elect to close out their contracts
through offsetting transactions rather than meet margin deposit requirements,
distortions in the normal relationships between the debt securities and futures
market could result. Price distortions could also result if investors in
futures contracts elect to make or take delivery of underlying securities
rather than engage in closing transactions due to the resultant reduction in
the liquidity of the futures market. In addition, due to the fact that, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in the prices of
U.S. Government securities and movements in the prices of futures contracts, a
correct forecast of interest rate trends by the investment adviser may still
not result in a successful hedging transaction.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to a
Portfolio because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Portfolio notwithstanding that the purchase or sale of a futures
contract would not result in a loss, as in the instance where there is no
movement in the prices of the futures contracts or underlying U.S. Government
securities.
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CURRENCY HEDGING
The Global Fixed Income Portfolio may enter into forward foreign currency
exchange contracts (forward contracts) to attempt to minimize the risk to the
Portfolio from adverse changes in currency exchange rates. All forward
contracts will be covered by depositing in a segregated account with the
Custodian cash, U.S. Government securities or other liquid high-grade debt
obligations equal to the Portfolio's obligation on each contract's settlement
date or by entering into an offsetting position or transaction. Long forward
positions may be covered by purchasing a put option on the security underlying
the forward contract. Short forward positions may be covered by (i) owning the
currency underlying the forward contract or (ii) holding a call option
permitting the Portfolio to purchase the same forward contract at a price no
higher than the price at which the short position was established.
Forward contracts and options on foreign currencies are not traded on
markets regulated by the CFTC or (with the exception of certain options traded
on national securities exchanges) by the SEC, but are traded through financial
institutions acting as market-makers. As a result, forward contracts are
subject to the same types of market risks as OTC options. See "Options and
Futures Transactions -- Put and Call Options" above.
Forward contracts, options, futures contracts and options on futures
contracts may be traded in foreign markets or on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies. The value of such positions also could
be adversely affected by, among other things, (i) other foreign political and
economic factors, (ii) lesser availability than in the United States of data on
which to make trading decisions, (iii) delays in the Portfolio's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States, (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States and (v)
lesser trading volume.
REPURCHASE AGREEMENTS
The Portfolios may invest temporarily, without limitation, in repurchase
agreements, which are agreements pursuant to which securities are acquired from
a third party with the understanding that they will be repurchased by the
seller at a fixed price on an agreed date. These agreements may be made with
respect to any of the securities in which the Portfolios are authorized to
invest. Repurchase agreements may be characterized as loans by the Portfolios
which are secured by the underlying securities. The Portfolios may enter into
repurchase agreements with (i) member banks of the Federal Reserve System
having total assets in excess of $500 million and (ii) securities dealers,
provided that such banks or dealers meet the creditworthiness standards
established by the Board of Directors ("Qualified Institutions"). The Adviser
will monitor the continued creditworthiness of Qualified Institutions, subject
to the supervision of the Board of Directors. The repurchase price reflects
the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security. The
collateral is marked to market daily.
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, the Portfolio will seek to dispose of such securities,
which action could involve costs or delays. If the seller becomes insolvent
and subject to liquidation or reorganization under applicable bankruptcy or
other laws, the Portfolio's ability to dispose of the underlying securities may
be restricted. In addition, it is possible that the Portfolio may not be able
to substantiate its interest in the underlying securities. To help minimize
this risk, the securities underlying the repurchase agreement will be held by
the custodian at all times in an amount at least equal to the repurchase price,
including accrued interest. If the seller fails to repurchase the securities,
the Portfolio may suffer a loss to the extent proceeds
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from the sale of the underlying securities are less than the repurchase price.
SECURITIES LENDING
The Portfolios may lend their portfolio securities to Qualified
Institutions. By lending its portfolio securities, a Portfolio attempts to
increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loaned that may occur during the
term of the loan will be for the account of a Portfolio. The Portfolio may
lend its portfolio securities so long as the terms and the structure of such
loans are not inconsistent with the Investment Company Act, which currently
requires, among other things, that (a) the borrower pledge and maintain with
the Portfolio collateral consisting of cash or securities issued or guaranteed
by the U.S. Government having a value at all times that is at least equal to
the value of the securities loaned, (b) the borrower add to such collateral
whenever the price of the securities loaned rises (i.e., the value of the loan
is "marked to the market" on a daily basis), (c) the loan be made subject to
termination by the Portfolio at any time and (d) the Portfolio receive
reasonable interest on the loan (which may include the Trust's investing any
cash collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. A Portfolio
will not lend portfolio securities if, as a result, the aggregate of such loans
exceeds 33 1/3% of the value of the Portfolio's total assets (including such
loans). Loan arrangements made by the Portfolio will comply with all other
applicable regulatory requirements, including the rules of the New York Stock
Exchange, which rules presently require the borrower, after notice, to
redeliver the securities within the normal settlement time of five business
days.
All relevant facts and circumstances, including the creditworthiness of
the Qualified Institution, will be monitored by the Adviser, and will be
considered in making decisions with respect to lending of securities, subject
to review by the Board of Directors. If the borrower fails to deliver the
loaned securities after receipt of notice, the Portfolio could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially.
A Portfolio may pay reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the Board of Directors. In addition, voting rights may pass with
the loaned securities, but if a material event were to occur affecting such
securities, the loan must be called and the securities voted.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of holders of a majority
of the outstanding voting securities of the affected Portfolio. A "majority of
the outstanding voting securities", when used in this Statement of Additional
Information, means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are present in person or
represented by proxy or (ii) more than 50% of the outstanding shares.
No Portfolio may:
1. Purchase securities on margin (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by a Fixed Income Portfolio of initial or
variation margin in connection with options or futures contracts is not
considered the purchase of a security on margin.
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2. Make short sales, except that a Fixed Income Portfolio may make short
sales "against-the-box".
3. Issue senior securities, borrow money or pledge its assets, except
that a Fixed Income Portfolio may borrow from banks or enter into reverse
repurchase agreements or dollar rolls up to 33 1/3% of the value of its total
assets (calculated when the loan is made) to take advantage of investment
opportunities and may pledge up to 33 1/3% of the value of its total assets to
secure such borrowings. Each Portfolio is also authorized to borrow an
additional 5% of its total assets without regard to the foregoing limitations
for temporary purposes such as clearance of portfolio transactions and share
redemptions. For purposes of these restrictions, the purchase or sale of
securities on a "when-issued", delayed delivery or forward commitment basis,
the purchase and sale of options and futures contracts and collateral
arrangements with respect thereto are not deemed to be the issuance of a senior
security, a borrowing or a pledge of assets.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies and instrumentalities) if as a result: (i) with respect to 75% of
its total assets, more than 5% of the Portfolio's total assets would then be
invested in securities of a single issuer or (ii) 25% or more of a Portfolio's
total assets would be invested in one or more issuers having their principal
business activities in the same industry.
5. Purchase securities, other than U.S. Government securities,
Mortgage-Backed securities or Asset-Backed securities, of any issuer having a
record, together with predecessors, of less than three years of continuous
operations if, immediately after such purchase, more than 5% of the Portfolio's
total assets would be invested in such securities.
6. Buy or sell real estate or interests in real estate, except that the
Portfolio may purchase and sell Mortgaged-Backed securities, securities
collateralized by mortgages, securities which are secured by real estate,
securities of companies which invest or deal in real estate.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
8. Make investments for the purpose of exercising control or management.
9. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Portfolio may invest in the securities of
companies which invest in or sponsor such programs.
10. Make loans, except through (i) repurchase agreements and (ii) loans
of portfolio securities limited to 50% of the value of the Portfolio's total
assets.
11. Purchase more than 10% of all outstanding voting securities of any
one issuer.
12. Buy or sell commodities contracts, except that a Fixed Income
Portfolio may purchase and sell futures contracts and options thereon.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of a Portfolio's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset value will not be
considered a violation of such policy.
In addition, the Investment Company Act prohibits a Portfolio from
investing its assets in more than 3% or, together with other investment
companies having the same investment adviser, more than 10%, of
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<PAGE> 13
the outstanding voting stock of any closed-end investment company, more than
5% of its total value in any closed-end investment company, or more than 10% of
its total value in closed-end investment companies as a group, unless the
investment is acquired pursuant to a plan of reorganization or a SEC approved
offer of exchange.
DIRECTORS AND OFFICERS
The officers of the Trust manage its day to day operations. The officers
are directly responsible to the Trust's Board of Directors, which sets broad
policies for the Trust and chooses its officers. The following is a list of
the directors and officers of the Trust and a brief statement of their present
positions and principal occupations during the past five years. Unless
otherwise indicated, each of the directors is also a director of, and each
officer holds the same position with, The BlackRock Income Trust Inc., The
BlackRock Target Term Trust Inc., The BlackRock Advantage Term Trust Inc., The
BlackRock Strategic Term Trust Inc., The BlackRock 1998 Term Trust Inc., The
BlackRock Municipal Target Term Trust Inc., The BlackRock North American
Government Income Trust Inc., The BlackRock Insured Municipal Target Term Trust
Inc., The BlackRock Investment Quality Term Trust Inc., The BlackRock 2001 Term
Trust, Inc., The BlackRock Insured Municipal 2008 Term Trust Inc., The
BlackRock California Insured Municipal 2008 Term Trust Inc., The BlackRock
Florida Insured Municipal 2008 Term Trust, The BlackRock New York Insured
Municipal 2008 Term Trust Inc., The BlackRock 1999 Term Trust Inc., The
BlackRock Investment Quality Municipal Trust Inc., The BlackRock Broad
Investment Grade 2009 Term Trust Inc., The BlackRock California Investment
Quality Municipal Trust Inc., The BlackRock Florida Investment Quality
Municipal Trust, The BlackRock New Jersey Investment Quality Municipal Trust
Inc. and The BlackRock New York Investment Quality Municipal Trust Inc.
Messrs. Fink and Schlosstein serve on the Trust's executive committee, which
has full authority to exercise all of the powers permitted to such a committee
under Maryland law. Unless specified otherwise below, the business address of
the directors and officers of the Trust is 345 Park Avenue, New York, New York
10154.
<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Kent Dixon Director Consultant/Investor. Former President and Chief
200 Whitfield Street Executive Officer of Empire Federal Savings Bank
Guilford, CT 06437 of America and BancPLUS Savings Association, former Chairman of the Board,
President and Chief Executive Officer of Northeast Savings. Former Director of
ISFA (the owner of INVEST, a national securities brokerage service designed for
banks and thrift institutions). Director, Empire of America Realty Credit
Corporation.
Frank J. Fabozzi Director Consultant. Editor of The Journal of Portfolio
225 Summit Avenue Management and Adjunct Professor of Finance at the
Summit, NJ 07901 School of Organization and Management at Yale University. Director, Guardian
Mutual Funds Group. Author and editor of several books on fixed income portfolio
management. Visiting Professor of Finance and Accounting at the Sloan School of
Management, Massachusetts Institute of Technology from 1986 to August 1992.
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C> <C>
Laurence D. Fink * (1) Director and Chairman and Chief and Chief Executive Officer of
Chairman of the the Adviser. Formerly Managing Director of The
Board First Boston Corporation (investment bank), member of its Management Committee,
co-head of its Taxable Fixed Income Department, and head of its Mortgage and Real
Estate Products Group.
James Grosfeld Director Consultant/Investor. Formerly Chairman of the
755 West Big Beaver Board and Chief Executive Officer of PHM Cor-
Road #2200 poration (home building and mortgage banking and
Troy, MI 48084 finance) (May 1974 - April 1990).
Ralph L. Schlosstein * (1) Director and President of the Adviser. Formerly Managing
President Director of Shearson Lehman Hutton Inc. (investment bank) and co-head of its
Mortgage and Savings Institutions Group.
Keith T. Anderson Vice President Limited partner of the Adviser. From February 1987 to April 1988 Vice President
at The First Boston Corporation in the Fixed Income Research Department.
Previously Vice President and Senior Portfolio Manager at Criterion Investment
Management Company.
Michael C. Huebsch Vice President Limited partner of the Adviser since January 1991. Vice President of the Adviser
from February 1989 to January 1991. From July 1985 to January 1989 Vice
President at The First Boston Corporation in the Fixed Income Research
Department.
Robert S. Kapito Vice President Limited partner and Vice Chairman of the Adviser. Formerly Vice President at The
First Boston Corporation in the Mortgage Products Group.
Scott M. Amero Vice President Limited partner of the Adviser since January 1993. Vice President of the Adviser
from January l990 to December 1992. Formerly Vice President at The First Boston
Corporation in the Fixed Income Research Department (September l985 - January
1990).
Sarah M. Brown (2) Vice President Vice President of the Adviser since June 1992. Formerly Vice President at
Hyperion Capital Management, Inc. (February 1990 - May 1992), Chief Administrator
at Ranieri Wilson and Co., Inc. (financial services) (May 1988 - February 1990),
Chief Administrative Officer and First Vice President, Investment Banking
Division at E.F. Hutton, Inc. (1984 - May 1988).
John Richard Kushel (2) Vice President Vice President of the Adviser since January 1993. Associate of the Adviser from
May 1991 to December 1992. From July 1988 to May 1991 Associate at Prudential
Securities Incorporated in the Financial Institutions Group.
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C> <C>
P. Philip Matthews (2) Vice President Limited partner of the Adviser since March 1990. Director and Product Sales
Manager for the Mortgage Securities Department at Salomon Brothers from May 1985
to February 1990.
Barbara G. Novick Secretary Limited partner of the Adviser. From January 1985 to April 1988 Vice President
at The First Boston Corporation in the Mortgage Products Group. Previously
affiliated with Morgan Stanley & Co. in its Analytical Systems Group.
Henry Gabbay Treasurer Limited partner and Chief Operating Officer of the Adviser. From September 1984
to February 1989 Vice President at The First Boston Corporation.
James Kong Assistant Principal of the Adviser since January 1993. Vice
Treasurer President of the Adviser from January 1992. Associate of the Adviser from April
1989 to December 1991. Assistant Vice President at The First Boston Corporation
in the CMO/ABO Administration Department from April 1987 to April 1989.
Previously affiliated with Deloitte, Haskins & Sells (now Deloitte & Touche LLP).
J. Robert Small (2) Assistant Vice President and Controller of the Adviser since
Treasurer April 1992. Formerly Controller of Blackstone Group Holdings L.P. and affiliates
(December 1989 - March 1992). Previously affiliated with Coopers & Lybrand
(accounting firm) (November 1983 - November 1989).
Karen H. Sabath Assistant Limited partner of the Adviser since January 1993.
Secretary Vice President of the Adviser until December 1992. From August 1988 to December
1990 Associate of the Adviser. From June 1986 to July 1988 Associate at The First
Boston Corporation in the Mortgage Finance Department.
</TABLE>
- --------------
* Interested person of the Trust (as defined in the Investment Company
Act).
(1) Member of the Executive Committee. Subject to the requirements of
the Investment Company Act, the Executive Committee has authority generally to
exercise any of the powers of the Board of Directors, except the power to
declare dividends or distributions, issue stock, recommend actions requiring
stockholder approval, amend the by-laws or approve certain mergers or share
exchanges.
(2) Officer only of The BFM Institutional Trust Inc.
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<PAGE> 16
The following table sets forth certain information regarding the
compensation of the Trust's directors and officers. Except as disclosed below,
no executive officer or person affiliated with the Trust received compensation
from the Trust for the calendar year ended June 30, 1994 in excess of $60,000.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Com- Pension or Estimated Total Compensation
pensation from Retirement Benefits, Annual from Registrant
Name of Person, Registrant Accrued as Part of Benefits Upon and Fund Complex
Position (fiscal year) Fund Expenses Retirement Paid to Directors *
<S> <C> <C> <C> <C>
Kent Dixon $2,500 ** ** $162,500 (22)
Director,
Treasurer
and
Secretary
Frank J. Fabozzi 2,500 ** ** 162,500 (22)
Director
James Grosfeld 2,500 ** ** 162,500 (26)
Director and
President
</TABLE>
- --------------
* Represents the total compensation paid to such persons during the
calendar year ending December 31, 1994 (and, with respect to the Trust,
estimated to be paid during a full calendar year). The parenthetical number
represents the number of investment companies (including the Trust) from which
such person receives compensation that are considered part of the same fund
complex as the Trust, because, among other things, they have a common
investment adviser.
** Not applicable.
MANAGEMENT OF THE TRUST
THE INVESTMENT ADVISORY AGREEMENT
Pursuant to the Investment Advisory Agreement (Advisory Agreement), the
Trust has retained the Adviser to manage the investment of each Portfolio's
assets and to provide such investment research, advice and supervision, in
conformity with each Portfolio's investment objective and policies, as may be
necessary for the operations of the Trust.
The Advisory Agreement provides, among other things, that the Adviser will
bear all expenses of its partners and employees and overhead incurred in
connection with its duties under the Advisory Agreement, and will pay all
directors' fees and salaries of the Trust's directors and officers who are
affiliated persons (as such term is defined in the Investment Company Act) of
the Adviser. The Advisory Agreement provides that the Portfolios will pay to
the Adviser for its services a monthly fee in an amount equal to the following
percentages of each Portfolio's average daily net asset value on an annualized
basis: .25% for The Money Market Portfolio, .30% for The Short Duration
Portfolio and .35% for all other Portfolios.
Although the Adviser intends to devote such time and effort to the
business of the Trust as is
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<PAGE> 17
reasonably necessary to perform its duties to the Trust, the services of the
Adviser are not exclusive and the Adviser provides similar services to other
investment companies and other clients and may engage in other activities.
The Advisory Agreement also provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable to the Trust or any of the
Trust's stockholders for any act or omission by the Adviser or for any loss
sustained by the Trust or the Trust's stockholders, and provides for
indemnification by the Trust of the Adviser, its partners, employees, agents
and affiliates for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions.
The Advisory Agreement was approved by BlackRock Financial Management
Inc., as the Trust's initial stockholder, on July 2, 1992, and by the Trust's
Board of Directors, including a majority of the directors who are not parties
to the Advisory Agreement or interested persons of any such party (as such term
is defined in the Investment Company Act), on December 6, 1991. The Advisory
Agreement with respect to The Short Duration Portfolio and The Core-Fixed
Income Portfolio will be submitted to the stockholders of such Portfolios for
their approval at the first meeting of stockholders of the Trust. The Advisory
Agreement will continue in effect until July 2, 1994, and if not sooner
terminated, will continue in effect for successive periods of 12 months
thereafter, provided that each continuance with respect to a Portfolio is
specifically approved at least annually by both (1) the vote of a majority of
the Trust's Board of Directors or the vote of a majority of the outstanding
voting securities of the Portfolio (as such term is defined in the Investment
Company Act) and (2) by the vote of a majority of the Directors who are not
parties to the Advisory Agreement or interested persons (as such term is
defined in the Investment Company Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated as to any Portfolio at any time by the Trust,
without the payment of any penalty, upon the vote of a majority of the Trust's
Board of Directors or a majority of the outstanding voting securities of the
Portfolio or by the Adviser, on 60 days' written notice by either party to the
other. Except as otherwise provided by order of the SEC or any rule or
provision of the Investment Company Act, the Advisory Agreement will terminate
automatically in the event of its assignment (as such term is defined in the
Investment Company Act and the rules thereunder).
The Adviser has granted the Trust a non-exclusive license to use the term
"BFM" in its name. The Trust has agreed to cease using such name as promptly
as practicable in the event that the Adviser ceases to be the investment
adviser of the Trust.
THE ADMINISTRATION AGREEMENT
State Street Bank and Trust Company (Administrator), 1776 Heritage Drive,
North Quincy, Massachusetts, acts as administrator for the Trust. Under the
Administration Agreement with the Trust (Administration Agreement), the
Administrator administers the Trust's corporate affairs subject to the
supervision of the Trust's Board of Directors and in connection therewith
furnishes the Trust with office facilities together with such clerical services
(e.g., preparation of annual and other reports to stockholders and the SEC and
Federal, state and local income tax returns) as are not being furnished by the
Custodian. In connection with its administration of the corporate affairs of
the Trust, the Administrator bears the expense of the office space, furnishings
and equipment and the personnel required by it to perform the services on the
terms indicated in the Administration Agreement. State Street receives an
annual fee equal to .10% of each Portfolio's net asset value up to $75 million,
.08% of the next $75 million and .04% in excess of $150 million, subject to
certain minimum requirements.
The Administration Agreement will automatically continue in effect until
it is terminated. It is terminable by either party on 60 days' prior written
notice.
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<PAGE> 18
EXPENSES OF THE TRUST
Except as indicated above, each Portfolio will pay all of its expenses.
Expenses directly attributable to a Portfolio are charged to that Portfolio;
other expenses are allocated proportionally among all the Portfolios in
relation to the net assets of each Portfolio. Expenses include fees of the
Directors not affiliated with the Adviser and Board meeting expenses; fees of
the Adviser and the Administrator; interest charges; taxes; organization
expenses; charges and expenses of the Trust's legal counsel and independent
accountants, and of the transfer agent, registrar and dividend disbursing agent
of the Trust; expenses of printing and mailing stock certificates, stockholder
reports, notices, proxy statements and reports to governmental offices;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions; expenses connected with
negotiating, effecting purchase or sale, or registering privately issued
portfolio securities; custodial fees and expenses for all services to the
Trust, including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating and publishing the net asset value
of each Portfolio's shares; expenses of membership in investment company
associations; expenses of fidelity bonding and other insurance expenses,
including insurance premiums; expenses of stockholders meetings; and SEC and
state registration fees.
DISTRIBUTION AND STOCKHOLDER SERVICING PLAN
The Trust, on behalf of each Portfolio, has entered into a Distribution
Agreement dated as of March 28, 1995 with Provident Distributors, Inc., 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania, 19087 (the
"Distributor"). The terms of the Distribution Agreement were approved on
February 16, 1995 by the vote of a majority of the Directors of the Trust who
are not parties to the Distribution Agreement or "interested persons" (as such
term is defined by the Investment Company Act) of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval.
Pursuant to the terms of the Distribution Agreement, the Distributor serves as
the principal underwriter and distributor of the Trust's shares, and in that
capacity makes a continuous offering of the Trust's shares and bears the costs
and expenses of printing and distributing any copies of any prospectuses and
annual and interim reports for the Trust (after such items have been prepared
and set in type) which are used in connection with the offering of shares to
securities dealers or investors, and the cost and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by securities dealers in connection with the offering
of the shares for sale to the public. There is no fee payable by the Trust or
any Portfolio pursuant to the Distribution Agreement, and there is no sales or
redemption charge. The Distribution Agreement provides for indemnification by
the Trust of the Distributor, its partners, employees, agents and affiliates
for liabilities incurred by them in connection with their services to the
Trust, subject to certain limitations and conditions. The continuance of the
Distribution Agreement must be approved in the same manner as the Investment
Advisory Agreement, and the Distribution Agreement will terminate automatically
if assigned by either party thereto and is terminable with respect to any
Portfolio at any time without penalty by the Rule 12b-1 Directors (as defined
below) or by vote of a majority of the outstanding shares of the Portfolio (as
such term is defined in the Investment Company Act) on not more than 60 days'
nor less than 30 days' written notice to the Distributor and by the Distributor
on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(i) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to the
Distributor. The Trust is not required or
B-18
<PAGE> 19
permitted under the Plan to make payments over and above the amount of the
advisory fee to promote the sale of its shares; the Plan merely permits the
reallocation of a portion of the advisory fee the Adviser receives to pay for
distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such
office space, equipment, telephone facilities and various personnel as may be
necessary or beneficial to establish and maintain stockholders' accounts and
records, process purchase and redemption transactions, answer routine client
inquiries and provide such other services to the Trust and the Portfolios as
may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for
the Portfolios, the selection of brokers and dealers to effect the transactions
and the negotiation of prices and any brokerage commissions. The securities in
which the Portfolios invest are traded principally in the over-the-counter
market. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a
mark-up to the dealer. Securities purchased in underwritten offerings generally
include, in the price, a fixed amount of compensation for the manager(s),
underwriter(s) and dealer(s). The Portfolios may also purchase certain money
market instruments directly from an issuer, in which case no commissions or
discounts are paid. Purchases and sales of debt securities on a stock exchange
are effected through brokers who charge a commission for their services.
The Adviser's primary considerations in selecting the manner of executing
securities transactions for the Portfolios will be prompt execution of orders,
the size and breadth of the market for the security, the reliability, integrity
and financial condition and execution capability of the firm, the size of and
difficulty in executing the order, and the best net price. There are many
instances when, in the judgment of the Adviser, more than one firm can offer
comparable execution services. In selecting among such firms, consideration is
given to those firms which supply research and other services in addition to
execution services. However, it is not the policy of the Adviser, absent
special circumstances, to pay higher commissions to a firm because it has
supplied such services.
The Adviser is able to fulfill its obligations to furnish a continuous
investment program to the Portfolios without receiving such information from
brokers; however, it considers access to such information to be an important
element of financial management. Although such information is considered
useful, its value is not determinable, as it must be reviewed and assimilated
by the Adviser, and does not
B-19
<PAGE> 20
reduce the Adviser's normal research activities in rendering investment advice
under the Advisory Agreement. It is possible that the Adviser's expenses could
be materially increased if it attempted to purchase this type of information or
generate it through its own staff.
One or more of the other accounts which the Adviser manages may own from
time to time the same investments as a Portfolio. Investment decisions for the
Trust are made independently from those of such other accounts; however, from
time to time, the same investment decision may be made for more than one
company or account. When two or more companies or accounts seek to purchase or
sell the same securities, the securities actually purchased or sold will be
allocated among the companies and accounts on a good faith equitable basis by
the Adviser in its discretion in accordance with the accounts' various
investment objectives. In some cases, this system may adversely affect the
price or size of the position obtainable for a Portfolio. In other cases,
however, the ability of the Portfolios to participate in volume transactions
may produce better execution for the Portfolios.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the policy of the Portfolios to engage in transactions with
the objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Fixed Income Portfolios will be
approximately 150%, excluding securities having a maturity of one year or less.
Because it is difficult to predict accurately portfolio turnover rates, actual
turnover may be higher or lower. Higher portfolio turnover results in increased
Portfolio expenses, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on reinvestment in other
securities. The Adviser will monitor the tax status of the Portfolios under
the Internal Revenue Code during periods in which the annual turnover rate of
the Portfolios exceeds 100%. To the extent that increased portfolio turnover
results in sales at a profit of securities held less than three months, a
Portfolio's ability to qualify as a "regulated investment company" under the
Internal Revenue Code may be affected. See "Taxes, Dividends and
Distributions" below.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible
for determining in good faith the fair value of securities of each of the
Portfolios. In accordance with procedures adopted by the Board of Directors,
the value of each portfolio security for which quotations are available will be
based on the valuation provided by an independent broker/dealer or pricing
service. Pricing services consider such factors as security prices, yields,
maturities, call features, ratings and developments relating to specific
securities in arriving at securities valuations.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures established
by the Board of Directors. Short-term debt securities which mature in more than
60 days are valued at current market quotations. Short-term debt securities
which mature in 60 days or less are valued at amortized cost if their term to
maturity from the purchase date was 60 days or less, or by amortizing their
value on the 61st day prior to maturity, if their term to maturity from the
date of purchase exceeded 60 days, unless the Board of Directors determines
that such valuation does not represent fair value.
Options are valued at the last sale price on the exchange on which they
are listed, unless no sales of such options have taken place that day, in which
case they will be valued at the mean between their closing bid and asked
prices. When the seller writes a call, an amount equal to the premium received
is included as an asset, and an equivalent deferred credit is included as a
liability. If a call written by a Portfolio is exercised, the proceeds are
increased by the premium received. If a call expires, a Portfolio has a gain in
the amount of the premium; if a Portfolio enters into a closing purchase
transaction, the Portfolio will have
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<PAGE> 21
a gain or loss depending on whether the premium was more or less than the cost
of the closing transaction. If a put held by a Portfolio is exercised, the
amount the Portfolio receives on sale of the underlying investment is reduced
by the amount of the premium paid by the Portfolio. Futures are valued at the
last sale price as of the close of the commodities exchange on which they are
traded, unless the Board of Directors determines that such price does not
reflect the securities' fair value, in which case these securities will be
valued at their fair market value as determined by or under the direction of
the Board of Directors.
For valuation purposes, quotations of foreign portfolio securities, other
assets and liabilities and forward contracts stated in foreign currency are
translated into U.S. dollar equivalents at the prevailing market rates as of
the morning of valuation. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. Foreign currency exchange rates and the values of such
securities used in computing the net asset value of The Global Fixed Income
Portfolio's shares are determined as of such times. All assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars
at the bid price of such currencies against U.S. dollars last quoted by a major
bank. If such quotations are not available at the close of the exchange, the
rate of exchange will be determined in accordance with policies established in
good faith by the Board of Directors. Occasionally, events which affect the
values of such securities and exchange rates may occur after the close of the
New York Stock Exchange and will therefore not be reflected in the computation
of net asset value. Furthermore, because The Global Fixed Income Portfolio's
securities are traded on foreign markets that may be open when the New York
Stock Exchange is closed, the value of the net assets of the Portfolio may be
significantly affected on days when no net asset value is calculated.
The Money Market Portfolio seeks to maintain its net asset value at $1.00
per share, although there can be no assurance that the $1.00 net asset value
will be maintained. Investments of The Money Market Portfolio are valued at
amortized cost, which means that they are valued at their acquisition cost (as
adjusted for amortization of premium or discount) rather than at current market
value. The market values of The Money Market Portfolio's investments are
subject to price fluctuations resulting from rising or declining interest rates
and due to the ability of issuers to make payment at maturity. Calculations
are made to compare the values of The Money Market Portfolio's investments
valued at amortized cost with market values. Market valuations are obtained by
using actual quotations or estimates of market makers, or values obtained from
yield data relating to classes of money market instruments published by
reputable sources at the mean between the bid and asked prices for the
instruments.
If a deviation of 1/2 of 1% or more were to occur between the net asset
value calculated by reference to market values and The Money Market Portfolio's
$1.00 per share net asset value, or if there were any other deviation which the
Board of Directors believed would result in a material dilution to stockholders
or purchasers, the Board of Directors would promptly consider what actions, if
any, should be initiated. Such actions could include selling portfolio
instruments prior to maturity, shortening the average portfolio maturity,
redeeming shares of the Portfolio in kind or utilizing a net asset value per
share based on available market quotations, which actions could result in a
loss to the Portfolio and its stockholders.
PURCHASE AND REDEMPTION OF SHARES
Shares of each of the Portfolios may be purchased and redeemed directly
from the Trust or through the Distributor. See "Purchase and Redemption of
Shares - How to Purchase Shares" in the Prospectus. Upon the initial purchase
of shares of a Portfolio, a stockholder investment account is established for
each investor under which a record of the shares held is maintained by the
Transfer Agent. The Adviser may, at its discretion, agree to accept securities
rather than cash to fund the purchase of shares in the Trust.
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<PAGE> 22
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Portfolio with
respect to which the dividend or distribution was made at net asset value per
share on the payment date, unless the Board of Directors determines otherwise.
A stockholder may direct the Transfer Agent in writing not less than five full
business days prior to the payment date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. However, if it is
determined that the U.S. Postal Service cannot properly deliver Trust mailings
to the stockholder, the Trust will terminate the stockholder's election to
receive dividends and other distributions in cash. Thereafter, the
stockholder's subsequent dividends and other distributions will be
automatically reinvested in additional shares of the Portfolio until the
stockholder notifies the Trust in writing of his or her correct address and
requests in writing that the election to receive dividends and other
distributions in cash be reinstated.
EXCHANGE PRIVILEGE
The Trust makes available to its stockholders the privilege of exchanging
their shares of one Portfolio for shares of another Portfolio of the Trust.
All exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another Portfolio only if shares of such Portfolio may legally be sold under
applicable state laws. No fee or sales load will be imposed upon the exchange.
The exchange privilege may be modified, terminated or suspended on 60
days' notice, and the Trust has the right to reject any exchange application
relating to any Portfolio's shares.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Portfolio intends to elect to qualify and to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
l986, as amended (the Internal Revenue Code). This relieves the Portfolio (but
not its stockholders) from paying federal income tax on income which is
distributed to stockholders, and permits net long-term capital gains of the
Portfolio (i.e., the excess of net long-term capital gains over net short-term
capital losses) to be treated as long-term capital gains of stockholders,
regardless of how long stockholders have held their shares in the Portfolio.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Portfolio's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, options, futures
contracts, forward contracts and foreign currencies, and certain other income
derived with respect to its business of investing in stock, securities or
currencies; (b) the Portfolio derive less than 30% of its gross income from
gains (without reduction for losses) from the sale or other disposition of
securities, options thereon, futures contracts, options thereon and forward
contracts, in each case held for less than three months; (c) the Portfolio
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Portfolio's assets is represented
by cash and cash items (including receivables), U.S. Government obligations,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater than 5% of the
Portfolio's assets and l0% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government obligations). In
addition, in order not to be subject to federal income tax, the Portfolio must
distribute to its stockholders at least 90% of its net investment income and
short-term capital gains earned in each year.
B-22
<PAGE> 23
Gains or losses on sales of securities by a Portfolio generally will be
treated as long-term capital gains or losses if the securities have been held
by it for more than one year. Other gains or losses on the sale of securities
will be short-term capital gains or losses.
Gains or losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as "Section 1256 contracts"). Certain
of a Portfolio's transactions may be subject to wash sale and short sale
provisions of the Internal Revenue Code. In addition, debt securities acquired
by the Portfolio may be subject to original issue discount and market discount
rules.
"Regulated futures contracts" and certain listed options which are not
"equity options" constitute "Section 1256 contracts" and will be required to be
"marked to market" (that is, treated as having been sold at market value) for
federal income tax purposes at the end of a Portfolio's taxable year. Sixty
percent of any gain or loss recognized on such "deemed sales" and on actual
dispositions will be treated as long-term capital gain or loss and the
remainder will be treated as short-term capital gain or loss. In addition,
positions which are part of a "straddle" are subject to rules which apply
certain wash sale and short sale provisions of the Internal Revenue Code. A
Portfolio may be required to defer the recognition of losses on positions it
holds to the extent of any unrecognized gain on offsetting positions held by
the Portfolio. Because only a few regulations implementing the straddle rules
have been promulgated, the tax consequences to a Portfolio of some hedging
transactions may not be entirely clear. A Portfolio's ability to enter into
futures contracts, options thereon and options on securities may be affected by
the 30% limitation on gains derived from securities held less than three
months, discussed above. Because application of the straddle rules may affect
the character of gains or losses, defer losses or accelerate the recognition of
gains or losses from the affected straddle positions, the amount that will be
distributed to stockholders, and that will be taxed to stockholders as ordinary
income or long-term capital gains, may be increased or decreased as compared to
a fund that did not engage in hedging transactions.
Distributions of net investment income and net short-term capital gains
will be taxable to the stockholder at ordinary income rates regardless of
whether the stockholder receives such distributions in additional shares or
cash. Distributions of net long-term capital gains, if any, are taxable as
long-term capital gains regardless of how long the Portfolio shares have been
held. However, if a stockholder holds shares in a Portfolio six months or
less, then any loss recognized on the sale of such shares will be treated as
long-term capital loss to the extent of any distribution on the shares which
was treated as long-term capital gain. Stockholders will be notified annually
by the Trust as to the federal tax status of distributions made by each
Portfolio.
Each Portfolio is subject to a nondeductible 4% excise tax if it does not
distribute 98% of its ordinary income on a calendar year basis and 98% of its
capital gains on an October 31 year-end basis. Each Portfolio intends to
distribute its income and capital gains in the manner necessary to avoid
imposition of the 4% excise tax. Dividends and distributions generally are
taxable to stockholders in the year in which they are received; however,
dividends declared in October, November and December payable to stockholders of
record on a specified date in October, November and December and paid in the
following January will be treated as having been paid by the Portfolio and
received by stockholders in such prior year. Under this rule, a stockholder
may be taxed in one year on dividends or distributions actually received in
January of the following year.
Any loss realized on a sale, redemption or exchange of shares of a
Portfolio by a stockholder will be disallowed to the extent the shares are
replaced within a 61-day period beginning 30 days before the disposition of the
shares. Shares purchased pursuant to the reinvestment of a dividend will
constitute a replacement of shares.
B-23
<PAGE> 24
Income received by The Global Fixed Income Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Income tax treaties between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to determine in advance
the effective rate of foreign tax to which the Portfolio will be subject, since
the amount of the Portfolio's assets to be invested in various countries is not
known.
Each Portfolio declares dividends daily based on actual net investment
income determined in accordance with generally accepted accounting principles.
A portion of such dividends may also include projected net investment income.
Each Portfolio's net capital gains, if any, will be distributed at least
annually. In determining the amount of capital gains to be distributed, any
capital loss carry forwards from prior years will be offset against capital
gains. In the event that a stockholder's shares are redeemed on a date other
than the monthly dividend payment date, the proceeds of such redemption will
equal the net asset value of the shares redeemed plus the amount of all
dividends declared through the date of redemption.
Any dividends or distributions paid shortly after a purchase by an
investor may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. Therefore, prior to purchasing
shares of a Portfolio, the investor should carefully consider the impact of
dividends or capital gains distributions which are expected to be or have been
announced. Distributions also may be subject to state, local and foreign
taxes.
The foregoing is a general and abbreviated discussion of tax consequences
of investment in the Portfolios. Investors are urged to consult their own tax
advisers to determine the effect of investment in the Portfolios upon their
individual tax situations.
PERFORMANCE INFORMATION
Each Fixed Income Portfolio may from time to time advertise its yield as
calculated over a 30-day period. This yield will be computed by dividing the
Portfolio's net investment income per share earned during this 30-day period by
the maximum offering price per share on the last day of this period. Yield is
calculated according to the following formula:
a-b 6
YIELD = 2[(------ + 1) - 1]
cd
Where: a= dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursements).
c= the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d= the maximum offering price per share on the last day of
the period.
Total return of each Fixed Income Portfolio is computed by finding the
average annual compounded rates of return over the 1, 5, or 10 year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P= a hypothetical initial payment of $1000.
T= average annual total return.
n= number of years.
ERV= ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof).
B-24
<PAGE> 25
The Money Market Portfolio may from time to time advertise its yield and
effective yield as calculated over a 7-day period. Yield is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of 1 share at the beginning
of a 7-day period for which yield is to be quoted, subtracting a hypothetical
charge reflecting deductions from stockholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
365/7. Effective yield is computed by adding 1 to the base period return
(calculated as described above), raising that sum to a power equal to 365
divided by 7, and subtracting 1 from the result, according to the following
formula:
365/7
EFFECTIVE YIELD = [(Base Period Return + 1) ] - 1
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company (State Street), 1776 Heritage Drive,
North Quincy, Massachusetts, serves as Custodian for the Portfolios' securities
and cash, and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with the Trust.
State Street also serves as the Transfer and Dividend Disbursing Agent of
the Trust. It provides customary transfer agency and dividend disbursing
services to the Trust, including the handling of stockholder communications,
the processing of stockholder transactions, the maintenance of stockholder
account records, the payment of dividends and distributions and related
functions. State Street has subcontracted for the performance of such services
with Boston Financial Data Services, Inc., an affiliate of State Street.
EXPERTS
Deloitte & Touche LLP, New York, New York, has been selected as the
independent auditors for the Trust and in that capacity audits the Portfolios'
annual financial statements.
B-25
<PAGE> 26
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 98.4%
MORTGAGE PASS-THROUGHS - 45.8%
Federal Home Loan Mortgage Corporation,
$ 863 7.25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 834,381
391 7.38%, Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . 376,138
1,118 8.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089,854
303 8.25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,105
283 8.34%, 3 year CMT (ARM) . . . . . . . . . . . . . . . . . . . . . . . 283,164
410 8.75% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407,494
Federal National Mortgage Association,
1,150 5.00%, 1 year CMT (ARM) . . . . . . . . . . . . . . . . . . . . . . . 1,094,208
1,142 5.30%, 1 year CMT (ARM) . . . . . . . . . . . . . . . . . . . . . . . 1,100,143
1,302 7.52%, 3 year CMT (ARM) . . . . . . . . . . . . . . . . . . . . . . . 1,331,695
233 7.85%, 3 year CMT (ARM) . . . . . . . . . . . . . . . . . . . . . . . 231,177
---------------
7,045,359
---------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - 11.8%
448 Collateralized Mortgage Securities Corporation,
Collateral Mortgage Obligation Series 1, Class 2 . . . . . . . . . . 450,521
598 Kidder Peabody Mortgage Assets Trust,
Collateralized Mortgage Obligation,
Class XIV-B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601,205
783 Nomura Asset Securities Corporation,
Mortgage Pass Through Series 1994-3,
Class A1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764,937
---------------
1,816,663
---------------
ASSET-BACKED SECURITIES - 16.3%
1,000 Chase Manhattan Credit Card,
8.75%, Series 1991-1, Class A . . . . . . . . . . . . . . . . . . . . 1,009,060
600 Discover Credit Card Trust,
8.63%, Series 1991-B, Class A . . . . . . . . . . . . . . . . . . . . 602,808
300 Sears Credit Card Master Trust,
7.25%, Series 1994-2, Class A . . . . . . . . . . . . . . . . . . . . 294,000
600 Standard Credit Card Master Trust I,
8.50%, Series 1991-1, Class A . . . . . . . . . . . . . . . . . . . . 605,250
---------------
2,511,118
---------------
</TABLE>
See Notes to Financial Statements.
B-26
<PAGE> 27
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES - 24.5%
U.S. Treasury Notes,
$ 1,300 (a) 5.88%, 5/31/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,271,969
2,250 6.50%, 5/15/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,187,765
300 6.50%, 8/15/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,907
--------------
3,750,641
--------------
Total long-term investments
(cost $15,526,464) . . . . . . . . . . . . . . . . . . . . . . . . . . 15,123,781
--------------
SHORT-TERM INVESTMENT - 3.4%
REPURCHASE AGREEMENT - 3.4%
526 Lehman Brothers Inc., 5.80%, dated 12/30/94, due 1/03/94 in the
amount of $526,339 (cost $526,000, collateralized by
$575,000 U.S. Treasury Note, 6.00%, due 10/15/99
with a value of $540,516) . . . . . . . . . . . . . . . . . . . . . 526,000
Total investments - 101.8%
(cost $16,052,464) . . . . . . . . . . . . . . . . . . . . . . . . . 15,649,781
Liabilities in excess of other assets - (1.8)% . . . . . . . . . . . . . (277,427)
NET ASSETS - 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,372,354
===============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Partial principal amount pledged as collateral for reverse repurchase
agreements.
KEY TO ABBREVIATIONS
ARM: Adjustable Rate Mortgage.
CMT: Constant Maturity Treasury.
See Notes to Financial Statements.
B-27
<PAGE> 28
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 97.6%
MORTGAGE PASS-THROUGHS - 49.3%
Federal Home Loan Mortgage Corporation,
$ 1,850 8.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,776,769
Federal Housing Administration,
99 East Point Chelsea, 10.23% . . . . . . . . . . . . . . . . . . . . . 103,327
74 GMAC, Series 1, 7.48% . . . . . . . . . . . . . . . . . . . . . . . . 70,964
222 Greystone, Series 1994-1, 8.88% . . . . . . . . . . . . . . . . . . . 217,983
161 USGI, Series 2069, 7.43% . . . . . . . . . . . . . . . . . . . . . . 152,239
Federal National Mortgage Association,
100 6.50%, Multi-family, Trust 1994-M1, Class B . . . . . . . . . . . . . 88,875
363 7.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,858
498 (a) 8.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,978
844 8.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828,339
250 8.12%, 7 Year Multi-family . . . . . . . . . . . . . . . . . . . . . 245,095
Government National Mortgage Association,
500 7.00%, 1 Year CMT (ARM) . . . . . . . . . . . . . . . . . . . . . . . 485,937
676 8.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668,953
93 9.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,550
487 9.00%, Project Pool 275130 . . . . . . . . . . . . . . . . . . . . . 485,856
623 9.50%, Project Pool 302733 . . . . . . . . . . . . . . . . . . . . . 636,379
46 10.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,093
29 11.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,504
10 11.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,318
14 12.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,537
2 12.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,706
--------------
6,797,260
--------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - 2.7%
43 Federal National Mortgage Association, REMIC
Pass-Through Certificates, Trust 1992-87, Class 87-C . . . . . . . . 42,635
104 First Boston Corporation Mortgage Securities Trust,
Collateralized Mortgage Obligation, Series 2, Class A3 . . . . . . . 104,445
104 Salomon Brothers Mortgage Secs. VII Incorporated,
Series 1994-9 Class A6, . . . . . . . . . . . . . . . . . . . . . . . 86,729
193 Salomon Brothers Mortgage Trust,
Series 1987-3, Class A (P/O) . . . . . . . . . . . . . . . . . . . . 130,165
--------------
363,974
--------------
</TABLE>
See Notes to Financial Statements.
B-28
<PAGE> 29
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
S&P AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES - 1.4%
$ 119 First Boston Mortgage Securities Corporation,
Series 1993-M1, Class 1A . . . . . . . . . . . . . . . . . . . . . . $ 105,671
100 Kidder Peabody Acceptance Corporation I,
Series 1994-C1, Class A . . . . . . . . . . . . . . . . . . . . . . . 90,141
---------------
195,812
---------------
ASSET-BACKED SECURITIES - 5.8%
250 Banc One Credit Card Master Trust,
7.55%, Series 1994-B, Class A . . . . . . . . . . . . . . . . . . . . 246,445
300 First USA Credit Card Master Trust,
5.50%, Series 1994-4, Class A . . . . . . . . . . . . . . . . . . . . 299,811
250 MBNA Master Credit Card Trust II,
5.25%, Series 1994-C, Class A . . . . . . . . . . . . . . . . . . . . 250,000
---------------
796,256
---------------
CORPORATE BONDS - 13.1%
AA 100 African Development Bank,
9.50%, 12/15/95 . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,790
AA- 60 Associates Corp. of North America,
6.75%, 7/15/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,886
AA+ 100 British Columbia Hydro and Power,
15.50%, Series FF, 11/15/11 . . . . . . . . . . . . . . . . . . . . . 118,046
A- 100 Caterpillar Financial Services,
8.72%, 7/21/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,903
A- 100 Chase Manhattan Corporation, Subordinated Note,
6.50%, 1/15/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,708
BBB 50 CSX Corporation, Debenture,
8.63%, 5/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,525
AA 105 Du Pont E I De Nemours and Company,
7.50%, 3/01/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,624
BBB+ 100 First National Bank, Boston MA, Subordinated Note,
8.00%, 9/15/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,912
A- 100 First Union Corporation,
8.00%, 11/15/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,910
A 100 Ford Capital Bv.,
9.13%, 4/08/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,968
A 100 Ford Motor Credit Company, Shelf 94,
8.00%, 12/01/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,290
</TABLE>
See Notes to Financial Statements.
B-29
<PAGE> 30
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
S&P AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS - (CONT'D)
BBB+ $ 100 General Motors Corporation, Medical Terminal Note,
9.63%, 12/01/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,860
A- 100 ITT Financial Corporation,
8.85%, 7/15/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,786
AAA 130 Johnson & Johnson Corporation,
8.72%, 11/01/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,852
AA 100 Mobil Corporation,
7.63%, 2/23/33 . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,852
A 50 Pacific Gas & Electric Company, Series 93 D,
7.25%, 8/01/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,385
AA 100 Republic of Italy,
6.88%, 9/27/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,292
Smith Barney Holdings, Incorporated, Note,
A- 100 5.38%, 6/01/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,169
A- 50 5.63%, 11/15/98 . . . . . . . . . . . . . . . . . . . . . . . . . . 45,036
BBB 50 Texas Utilities Electric Company, 1st Mortgage,
7.38%, 10/01/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,498
AA 90 Wal Mart Stores Incorporated, Debenture,
8.50%, 9/15/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,005
---------------
1,808,297
---------------
U.S. GOVERNMENT SECURITIES - 25.3%
U.S. Treasury Bonds,
45 6.25%, 8/15/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,584
230 7.50%, 11/15/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,009
178 8.75%, 8/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,491
30 11.25%, 2/15/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,637
75 12.00%, 8/15/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,727
U.S. Treasury Notes,
255 5.50%, 2/28/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,121
315 5.75%, 8/15/03 . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,754
570 6.50%, 8/15/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 552,723
35 6.75%, 6/30/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,562
570 7.13%, 9/30/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . 553,612
500 7.25%, 8/15/04 . . . . . . . . . . . . . . . . . . . . . . . . . . . 479,920
55 7.75%, 11/30/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,794
695 8.50%, 11/15/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . 716,392
---------------
3,487,326
---------------
Total long-term investments
(cost $13,779,147) . . . . . . . . . . . . . . . . . . . . . . . . . 13,448,925
---------------
</TABLE>
See Notes to Financial Statements.
B-30
<PAGE> 31
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 9.3%
REPURCHASE AGREEMENTS - 9.3%
$1,137 Lehman Brothers Inc., 5.80%, dated 12/30/94, due 1/03/95 in the
amount of $1,137,733 (cost $1,137,000, collateralized by
$1,045,000 U.S. Treasury Bond, 8.75%, due 8/15/20
with a value of $1,163,032) . . . . . . . . . . . . . . . . . . . . . . . $ 1,137,000
150 State Street Bank and Trust Co., 3.00%, dated 12/30/94,
due 1/03/95 in the amount of $150,050 (cost $150,000,
collateralized by $135,000 U.S. Treasury Bond, 9.13%
due 8/15/20 with a value of $153,056) . . . . . . . . . . . . . . . . . . 150,000
----------------
Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . 1,287,000
----------------
Total investments - 106.9%
(cost $15,066,147) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,735,925
Liabilities in excess of other assets - (6.9%) . . . . . . . . . . . . . . (950,163)
----------------
NET ASSETS - 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,785,762
=================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Rating: Using the higher of Standard & Poor's or Moody's rating.
(a) A portion of these securities with a market value of $225,085 is a
mortgage dollar roll security (Note 4).
KEY TO ABBREVIATIONS
ARM: Adjustable Rate Mortgage.
CMT: Constant Maturity Treasury.
P/O: Principal Only.
REMIC: Real Estate Mortgage Investment Conduit.
See Notes to Financial Statements.
B-31
<PAGE> 32
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
<S> <C> <C>
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of $134,544
and $16,967 and interest expense of $14,775
and $902, respectively) . . . . . . . . . . . . . . . $ 786,538 $ 445,272
------------------ -----------------
Expenses
Investment advisory . . . . . . . . . . . . . . . . . . 39,702 22,661
Administration . . . . . . . . . . . . . . . . . . . . . 31,924 26,019
Custodian . . . . . . . . . . . . . . . . . . . . . . . 27,525 32,152
Transfer Agent . . . . . . . . . . . . . . . . . . . . . 17,198 18,547
Registration . . . . . . . . . . . . . . . . . . . . . . 14,216 14,216
Amortization of deferred organization expenses . . . . . 11,651 5,803
Audit . . . . . . . . . . . . . . . . . . . . . . . . . 7,715 3,302
Legal . . . . . . . . . . . . . . . . . . . . . . . . . 5,253 2,222
Printing . . . . . . . . . . . . . . . . . . . . . . . . 3,962 1,582
Directors . . . . . . . . . . . . . . . . . . . . . . . 3,062 1,224
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 4,513 2,445
------------------ -----------------
Total expenses . . . . . . . . . . . . . . . . . . . . 166,721 130,173
------------------ -----------------
Expenses waived by the Adviser (Note 2) . . . . . . . (39,702) (22,661)
Expenses reimbursed by the Adviser (Note 2) . . . . . (51,585) (71,960)
------------------ -----------------
(91,287) (94,621)
------------------ -----------------
Net expenses . . . . . . . . . . . . . . . . . . . . . 75,434 35,552
------------------ -----------------
Net investment income . . . . . . . . . . . . . . . . . 711,104 409,720
------------------ -----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized loss on:
Investments . . . . . . . . . . . . . . . . . . . . . . (466,820) (344,682)
Options . . . . . . . . . . . . . . . . . . . . . . . . -- (10,078)
------------------ -----------------
(466,820) (354,760)
Net change in unrealized depreciation . . . . . . . . . . . 158,622 104,793
------------------ -----------------
Net loss on investments . . . . . . . . . . . . . . . . . . (308,198) (249,967)
------------------ -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . $ 402,906 $ 159,753
================== =================
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
B-33
<PAGE> 33
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31 1994 DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows provided by (used for) operating activities:
Interest received . . . . . . . . . . . . . . . . . . . . . $ 1,103,165 $ 388,897
Expenses paid . . . . . . . . . . . . . . . . . . . . . . . (103,089) (80,563)
Interest expense paid . . . . . . . . . . . . . . . . . . . (14,801) (628)
Proceeds from disposition of short-term portfolio
investments, net . . . . . . . . . . . . . . . . . . . . 3,723,000 12,000
Purchase of long-term portfolio investments . . . . . . . . (58,707,264) (48,509,985)
Proceeds from disposition of long-term portfolio
investments . . . . . . . . . . . . . . . . . . . . . . . 69,716,325 46,620,520
---------------- -----------------
Net cash flows provided by (used for) operating activities 15,717,336 (1,569,759)
---------------- -----------------
Cash flows (used for) provided by financing activities:
Increase in reverse repurchase agreements . . . . . . . . . 602,700
Dividends paid (excluding reinvestment of dividends
of $674,313 and $400,387, respectively) . . . . . . . . . (62,261) (13,766)
Proceeds from Trust shares sold . . . . . . . . . . . . . . 256,793 1,773,045
Cost of Trust shares redeemed . . . . . . . . . . . . . . (16,534,124) (639,694)
---------------- -----------------
Net cash flows (used for) provided by financing activities (15,736,892) 1,119,585
---------------- -----------------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . (19,556) (450,174)
Cash at beginning of period . . . . . . . . . . . . . . . . . 76,243 453,236
---------------- -----------------
Cash at end of period . . . . . . . . . . . . . . . . . . . $ 56,687 $ 3,062
================= =================
RECONCILIATION OF NET INCREASE (DECREASE)
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net increase in net assets resulting from operations . . . . $ 402,906 $ 159,753
---------------- -----------------
Decrease (increase) in investments . . . . . . . . . . . . . 14,752,631 (2,409,162)
Net realized loss . . . . . . . . . . . . . . . . . . . 466,820 354,760
Decrease in unrealized depreciation . . . . . . . . . . . . (158,622) (104,793)
Decrease in receivable for investments sold . . . . . . . . 2,200,813 79,618
Decrease (increase) in interest receivable . . . . . . . . . 38,882 (10,128)
Decrease in deferred organization expenses and other assets . 9,567 4,984
(Decrease) increase in payable for investments purchased
and dollar roll payable . . . . . . . . . . . . . . . . . (1,959,142) 411,444
Decrease in accrued expenses and other liabilities . . . . . (36,519) (56,235)
---------------- -----------------
Total adjustments . . . . . . . . . . . . . . . . . . . . 15,314,430 (1,729,512)
---------------- -----------------
Net cash flows provided by (used for) operating activities . $ 15,717,336 $ (1,569,759)
================ =================
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
B-34
<PAGE> 34
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
THE SHORT DURATION PORTFOLIO
----------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 711,104 $ 1,725,504
Net realized (loss) gain . . . . . . . . . . . . . . . . . . . . . . . . (466,820) 107,050
Net change in unrealized depreciation . . . . . . . . . . . . . . . . . . 158,622 (854,281)
----------------- -----------------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,906 978,273
----------------- -----------------
Dividends from net investment income . . . . . . . . . . . . . . . . . . . (737,344) (1,771,675)
----------------- -----------------
Capital share transactions: . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from shares subscribed . . . . . . . . . . . . . . . . . . . . 256,793 36,449,281
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . (16,489,124) (57,608,135)
Net asset value of shares issued in
reinvestment of dividends . . . . . . . . . . . . . . . . . . . . . . 674,313 1,605,782
----------------- -----------------
Decrease in net assets from capital
share transactions . . . . . . . . . . . . . . . . . . . . . . . . . (15,558,018) (19,553,072)
----------------- -----------------
Total decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,892,456) (20,346,474)
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,264,810 51,611,284
----------------- -----------------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,372,354 $ 31,264,810
=================== =================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
B-35
<PAGE> 35
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income . . . . . . . . . . . . . . . . . $ 409,720 $ 544,253
Net realized loss . . . . . . . . . . . . . . . . . . . (354,760) (221,036)
Net change in unrealized
depreciation on investments . . . . . . . . . . . . . 104,793 (567,698)
---------------- ----------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . 159,753 (244,481)
---------------- ----------------
Dividends and distributions:
Net investment income . . . . . . . . . . . . . . . . . (415,083) (542,010)
In excess of net realized gain on investments . . . . . -- (292,003)
----------------- -----------------
(415,083) (834,013)
----------------- -----------------
Capital share transactions:
Proceeds from shares subscribed . . . . . . . . . . . 1,773,045 9,073,497
Cost of shares redeemed . . . . . . . . . . . . . . . (639,694) (4,087,689)
Net asset value of shares issued in
reinvestment of dividends and distributions . . . . 400,387 797,134
----------------- -----------------
Increase in net assets from capital
share transactions . . . . . . . . . . . . . . . . 1,533,738 5,782,942
----------------- -----------------
Total increase . . . . . . . . . . . . . . . . . . . . 1,278,408 4,704,448
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . 12,507,354 7,802,906
----------------- -----------------
End of period . . . . . . . . . . . . . . . . . . . . . . $ 13,785,762 $ 12,507,354
================= =================
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
B-36
<PAGE> 36
THE BFM INSTITUTIONAL TRUST INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
THE SHORT DURATION PORTFOLIO
----------------------------
SIX MONTHS YEAR JULY 17, 1992 (a)
ENDED ENDED THROUGH
DECEMBER 31, 1994 JUNE 30, 1994 JUNE 30, 1993
----------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period . . . . . . . . . . . . . . . . . $ 9.71 $ 9.96 $ 10.00
-------- -------- --------
Net investment income (net of $.005, $.011 and
$.005 respectively, of interest expense) (b) . . . . . . . . . . . 0.26 0.48 0.51
Net realized and unrealized loss on investments . . . . . . . . . . . (0.13) (0.25) (0.06)
-------- -------- --------
Net increase from investment operations . . . . . . . . . . . . . . . . 0.13 0.23 0.45
-------- -------- --------
Dividends from net investment income . . . . . . . . . . . . . . . . . (0.27) (0.48) (0.49)
-------- -------- --------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . $ 9.57 $ 9.71 $ 9.96
======== ======== ========
TOTAL INVESTMENT RETURN (c) . . . . . . . . . . . . . . . . . . . . . . 1.37% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.57% (d) 0.57% 0.56% (d)
Net investment income (b) . . . . . . . . . . . . . . . . . . . . . . . 5.37% (d) 4.70% 5.32% (d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) . . . . . . . . . . . . . . . . . . $26,253 $36,686 $67,540
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . 240% 455% 513%
Net assets, end of period (in thousands) . . . . . . . . . . . . . . . $15,372 $31,265 $51,611
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $39,702 and $110,232
and reimbursed expenses amounting to $51,585 and $55,582,
for the periods ended December 31, 1994 and June 30, 1994,
respectively. For the period July 17, 1992 through June
30, 1993, the Administrator waived fees amounting to
$64,580. If the Fund had borne all expenses, the expense
ratios would have been 1.26%, 1.02% and 0.66% for the
periods ended December 31, 1994, June 30, 1994 and June
30, 1993, respectively. The net investment income ratios
would have been 4.68%, 4.25% and 5.22% for the periods
ended December 31, 1994, June 30, 1994 and June 30, 1993,
respectively. The net investment income on a per share
basis would have been $0.23, $0.43 and $0.49 for the
periods ended December 31, 1994, June 30, 1994 and June
30, 1993, respectively.
(c) Total investment return is calculated assuming a purchase
of common stock at net asset value per share on the first
day and a sale at net asset value per share on the last
day of the period reported. Dividends are assumed, for
purposes of this calculation, to be reinvested at the net
asset value per share on the payment date.
(d) Annualized.
The information above represents the unaudited operating
performance based on an average share of common stock
outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the
periods indicated. This information has been determined
based upon financial information provided in the financial
statements.
See Notes to Financial Statements.
B-37
<PAGE> 37
THE BFM INSTITUTIONAL TRUST INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
SIX MONTHS YEAR DECEMBER 9, 1992 (a)
ENDED ENDED THROUGH
DECEMBER 31, 1994 JUNE 30, 1994 JUNE 30, 1993
----------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period . . . . . . . . . . . . . . . . . $ 9.36 $ 10.37 $ 10.00
-------- -------- --------
Net investment income (net of $.001, $.003 and
$.001, respectively, of interest expense) (b) . . . . . . . . . . 0.30 0.55 0.32
Net realized and unrealized gains on investments . . . . . . . . . . (0.18) (0.60) 0.37
-------- -------- --------
Net (decrease) increase from investment operations . . . . . . . . . . 0.12 (0.05) 0.69
-------- -------- --------
Dividends from net investment income . . . . . . . . . . . . . . . . . (0.30) (0.55) (0.32)
Distributions from net realized capital gains . . . . . . . . . . . . . -- (0.41) --
-------- -------- ---------
Total dividends and distributions . . . . . . . . . . . . . . . . . . (0.30) (0.96) (0.32)
-------- -------- --------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . $ 9.18 $ 9.36 $ 10.37
======== ======== ========
TOTAL INVESTMENT RETURN (c) . . . . . . . . . . . . . . . . . . . . . . 1.29% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses (b) . . . . . . . . . . . . . . . . . . . . . . . . 0.55% (d) 0.55% 0.55% (d)
Net investment income (b) . . . . . . . . . . . . . . . . . . . . . . . 6.34% (d) 5.61% 5.57% (d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) . . . . . . . . . . . . . . . . . . $12,827 $9,702 $6,622
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . 359% 722% 354%
Net assets, end of period (in thousands) . . . . . . . . . . . . . . . $13,786 $12,507 $7,803
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $22,661, $34,010 and $24,761 and
reimbursed expenses amounting to $71,960, $137,179 and $0 for the periods
ended December 31, 1994, June 30, 1994 and June 30, 1993, respectively.
The Administrator waived fees amounting to $32,500 and $3,701 for the
period ended June 30, 1993, the Custodian and the Transfer Agent waived
fees amounting to $24,272 and $17,283, respectively. If the Fund had borne
all expenses, the expense ratios would have been 2.01%, 2.65% and 2.44%
for the periods ended December 31, 1994, June 30, 1994 and June 30, 1993,
respectively. The net investment income ratios would have been 4.88%,
3.51% and 3.68% for the periods ended December 31, 1994, June 30, 1994 and
June 30, 1993, respectively. The net investment income on a per share basis
would have been $0.34, $0.34 and $0.22 for the periods ended December 31,
1994, June 30, 1994 and June 30, 1993, respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset
value per share on the last day of the period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at the net
asset value per share on the payment date.
(d) Annualized.
The information above represents unaudited operating performance based
on an average share of common stock outstanding, total investment return,
ratios to average net assets and other supplemental data, for each of the
periods indicated. This information has been determined based upon
financial information provided in the financial statements.
See Notes to Financial Statements.
B-38
<PAGE> 38
THE BFM INSTITUTIONAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- ----------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company organized as a Maryland corporation. The
Articles of Incorporation permit the Board of Directors to create an unlimited
number of series (or "Portfolios"), each of which issues a separate class of
shares and has its own investment objective and policies. The Trust was formed
on November 27, 1991 and had no operations through June 18, 1992 other than
those related to organizational matters and the sale and issuance of 10,000
shares of The Short Duration Portfolio to BlackRock Financial Management L.P.
(the "Adviser") for $100,000 on June 18, 1992. The Short Duration Portfolio and
The Core Fixed Income Portfolio commenced investment operations on July 17,
1992 and December 9, 1992, respectively. On October 6, 1994, The BFM
Institutional Trust Inc., Multi-Sector Mortgage Securities Portfolio III
commenced investment operations and is being shown in a separate report.
The Adviser has advanced certain organizational and offering expenses
of the Trust and is to be reimbursed by the Trust. Organizational costs
estimated at $282,000 have been deferred. $115,250 and $57,500 have been
allocated to The Short Duration Portfolio and to The Core Fixed Income
Portfolio, respectively, and are being amortized over a period not to exceed 60
months from the date each Portfolio commenced investment operations. In the
event that any of the original shares owned by the Adviser (or any subsequent
holder) are repurchased by the Trust prior to the end of the 60-month period,
the proceeds from the repurchase payable in respect of such shares shall be
reduced by the pro rata share (based on the proportionate share of the original
shares repurchased to the total number of original shares outstanding at the
time of repurchase) of the unamortized deferred organization expenses as of the
date of such repurchase. In the event that a Portfolio is liquidated prior to
the end of the 60-month period, the Adviser (or any subsequent holder) shall
bear the remaining unamortized deferred organization expenses.
The following is a summary of significant accounting policies followed
by the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers
or pricing services approved by the Trust's Board of Directors. In determining
the value of a particular security, pricing services may use certain
information with respect to transactions in such securities, quotations from
dealers, market transactions in comparable securities, various relationships
observed in the market between securities, and calculated yield measures based
on valuation technology commonly employed in the market for such securities.
Exchange-traded options are valued at their last sales price as of the close of
options trading on the applicable exchanges. In the absence of a last sale,
options are valued at the average of the quoted bid and asked prices as of the
close of business. A futures contract is valued at the last sale price as of
the close of the commodities exchange on which it trades unless the Trust's
Board of Directors determine that such price does not reflect its fair value,
in which case it will be valued at its fair value as determined by the Trust's
Board of Directors. Any securities or other assets for which such current
market quotations are not readily available are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost, if their term to maturity from date of
purchase was 60 days or less, or by amortizing their value on the 61st day
prior to maturity, if their original term to maturity from date of purchase
exceeded 60 days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults
and the value of the collateral declines or if bankruptcy
B-39
<PAGE> 39
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the
premium and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized
gain or loss. If an option is exercised, the premium paid or received is added
to the proceeds from the sale or cost of the purchase in determining whether
the Trust has realized a gain or a loss on investment transactions. The Trust,
as writer of an option, may have no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security underlying
the written option.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can
be either cash or securities. During the period that the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking-to-market" on a daily basis to reflect the market value
of the contract at the end of each day's trading. Variation margin payments
are made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in
maintaining a targeted duration. Futures contracts can be sold to effectively
shorten an otherwise longer duration portfolio. Duration is a measure of the
price sensitivity of a security or a portfolio to relative changes in interest
rates. For instance, a duration of "one" means that a portfolio or a
security's price would be expected to change by approximately one percent with
a one percent change in interest rates, while a duration of "five" would imply
that the price would move approximately five percent in relation to a one
percent change in interest rates. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
more volatile positions so that changes in interest do not change the duration
of the portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, duration management
or other portfolio management purposes. Should interest rates move
unexpectedly, the Trust may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
The Trust is also at risk of not being able to enter into a closing transaction
for the futures contract because of an illiquid secondary market. In addition,
since futures are used to shorten or lengthen a portfolio's duration, there is
a risk that the portfolio may have temporarily performed better without the
hedge or that the Trust may lose the opportunity to realize appreciation in the
market price of the underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of
hedging to offset potential price declines in similar securities owned. The
Trust may only make short sales "against-the-box". In this type of short sale,
at the time of the sale, the Trust owns or has the immediate and unconditional
right to acquire the identical security at no additional cost. When selling
short "against-the-box", the Trust foregoes an opportunity for capital
appreciation in the security.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all
times, to the market value of the securities loaned. The Trust
B-40
<PAGE> 40
reimbursement was required due to such limitation for the six months ended
December 31, 1994.
The Trust has entered into a Distribution Agreement with BFM Advisory
L.P. (the "Distributor"). Pursuant to the terms of the Distribution Agreement,
the Distributor serves as the principal underwriter and distributor of the
Trust's shares, and in that capacity makes a continuous offering of the Trust's
shares and bears the costs and expenses of printing and distributing any copies
of any prospectuses and annual and interim reports for the Trust (after such
items have been prepared and set in type) which are used in connection with the
offering of shares to securities dealers or investors, and the cost and
expenses of preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by securities dealers in connection
with the offering of the shares for sale to the public. There is no fee payable
by the Trust pursuant to the Distribution Agreement, and there is no sales or
redemption charge. The Distribution Agreement provides for indemnification by
the Trust of the Distributor, its partners, employees, agents and affiliates
for liabilities incurred by them in connection with their services to the
Trust, subject to certain limitations and conditions. The continuance of the
Distribution Agreement must be approved in the same manner as the Investment
Advisory Agreement, and the Distribution Agreement will terminate automatically
if assigned by either party thereto and is terminable with respect to any
Portfolio at any time without penalty by the Rule 12b-1 Directors (as defined
below) or by vote of a majority of the outstanding shares of the Portfolio (as
such term is defined in the Investment Company Act) on not more than 60 days'
nor less than 30 days' written notice to the Distributor and by the Distributor
on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant
to which the Adviser is permitted to use a portion of the advisory fee it
receives from the Trust to promote the distribution of the Trust's shares and
to enhance the provision of stockholder services. The Plan was approved by a
majority of (i) the directors of the Trust and (ii) the directors of the Trust
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to
the Distributor. The Trust is not required or permitted under the Plan to make
payments over and above the amount of the advisory fee to promote the sale of
its shares; the Plan merely permits the reallocation of a portion of the
advisory fee the Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is
authorized to make payments to securities dealers with which the Distributor
has entered into solicitation fee agreements. The Distributor may also use a
portion of the fee it receives under the Plan to cover the Distributor's cost
of marketing services and advertising on behalf of the Portfolios and to
compensate institutions who perform support services that would otherwise be
performed by the Trust or its agent. These support services may include
providing such office space, equipment, telephone facilities and various
personnel as may be necessary or beneficial to establish and maintain
stockholders' accounts and records, process purchase and redemption
transactions, answer routine client inquiries and provide such other services
to the Trust as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
Certain directors of the Trust who are not interested parties are paid
a fee for their services in the amount of $2,500 on an annual basis.
On June 16, 1994, the Adviser entered into a definitive agreement to be
acquired by PNC Bank, NA. The acquisition is expected to close by the end of
February, 1995. Following closing, the Adviser will become a wholly-owned
corporate subsidiary of PNC Asset Management Group, Inc., the holding company
for PNC's asset management businesses.
B-42
<PAGE> 41
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for each Portfolio for the six months ended
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
The Short Duration Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,743,075 $ 67,785,132
The Core Fixed Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 47,332,059 44,883,658
</TABLE>
The federal income tax basis of the investments of each portfolio at December
31, 1994 were substantially the same as the bases for financial reporting and,
accordingly, net unrealized appreciation (depreciation) for federal income tax
purposes were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
GROSS UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- -------------
<S> <C> <C> <C>
The Short Duration Portfolio . . . . . . . . . . . . . . . . . . . . . . . $ 9,855 $ (412,538) $ (402,683)
The Core Fixed Income Portfolio . . . . . . . . . . . . . . . . . . . . . 11,330 (341,552) (330,222)
</TABLE>
For federal income tax purposes, The Short Duration Portfolio had a capital
loss carryforward at June 30, 1994 of $630,770 which will expire in 2002. Of
these losses, $358,956 were incurred in the post-October period of the fiscal
year ended June 30, 1994. The Core Fixed Income Portfolio incurred $343,156 of
losses in the post-October period of the fiscal year ended June 30, 1994. A
tax election is available to defer part or all of these losses to the fiscal
year ending June 30, 1995. Accordingly, no capital gains distribution is
expected to be paid to shareholders until net gains have been realized in
excess of such amounts.
NOTE 4. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse Repurchase Agreements: The Trust enters into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and
under the direction of the Trust's Board of Directors. Interest on the value
of reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it establishes and maintains a segregated
account with the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding
in The Short Duration Portfolio during the period ended December 31, 1994 was
approximately $1,794,346 at a weighted average interest rate of approximately
5.671%. The maximum amount of reverse repurchase agreements outstanding at any
month-end during the six months was $2,600,000 as of November 30, 1994 which was
14.15% of total assets. The amount of reverse repurchase agreements outstanding
at December 31, 1994 was $602,700, which was 3.5% of total assets. The average
daily balance of reverse repurchase agreements outstanding in The Core Fixed
Income Portfolio during the period ended December 31, 1994 was approximately
$309,300 at a weighted average interest rate of approximately 5.245%. No
reverse repurchase agreements were held at any month-end during the six months
ended December 31, 1994.
Dollar Rolls: The Trust enters into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal
and interest paid on the securities. The Trust is compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The Short Duration Portfolio had no dollar roll transactions during the six
months ended December 31, 1994. The average monthly balance of dollar rolls
outstanding in The Core Fixed Income Portfolio
B-43
<PAGE> 42
during the six months ended December 31, 1994 was $179,089. The maximum amount
of dollar rolls outstanding at any month-end during the period was $284,186 as
of November 30, 1994, which was 2.02% of total assets. The amount of dollar
rolls outstanding at December 31, 1994 was $225,826, which was 1.4% of total
assets.
NOTE 5. CAPITAL
The Trust is authorized to issue 2 billion shares of $.0001 par value
capital stock in one or more classes or series. The Short Duration Portfolio
and The Core Fixed Income Portfolio are each authorized to issue 100 million
shares. Of the 1,606,404 shares of The Short Duration Portfolio outstanding at
December 31, 1994, the Adviser owned 11,346 shares. Of the 1,501,599 shares of
The Core Fixed Income Portfolio outstanding at December 31, 1994, the Adviser
owned 2 shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
Shares subscribed . . . . . . . . . . . . . . . . 26,582 3,673,276
Shares issued in connection with
the reinvestment of dividends . . . . . . . . 69,602 162,452
----------- -----------
96,184 3,835,728
Shares redeemed . . . . . . . . . . . . . . . . . (1,708,682) (5,800,442)
----------- -----------
Net decrease . . . . . . . . . . . . . . . . . . . (1,612,498) (1,964,714)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1994
----------------- -------------
<S> <C> <C>
Shares subscribed . . . . . . . . . . . . . . . . 191,883 903,352
Shares issued in connection with the
reinvestment of dividends and distributions . . 43,088 80,352
-------------- --------------
234,971 983,704
Shares redeemed . . . . . . . . . . . . . . . . . (69,468) (399,930)
-------------- --------------
Net increase . . . . . . . . . . . . . . . . . . 165,503 583,774
============== ==============
</TABLE>
NOTE 6. DIVIDENDS
Subsequent to December 31, 1994 the Board of Directors of the Trust
declared a dividend from undistributed earnings of $0.0548 and $0.0543 per share
for The Short Duration Portfolio and The Core Fixed Income Portfolio,
respectively, payable February 1, 1995 to shareholders of record on January 31,
1995.
B-44
<PAGE> 1
EXHIBIT (17)(p)
Prospectus dated April 3, 1995
===============================================================================
THE BFM INSTITUTIONAL TRUST INC.
- -------------------------------------------------------------------------------
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company currently consisting of sixteen investment
portfolios. The eight non-diversified investment portfolios (the "Portfolios")
described in this Prospectus are separate series of the Trust. The Trust is
primarily designed to provide pension and profit sharing plans, employee
benefit trusts, financial institutions, corporations, and high net worth
individuals with access to the professional investment management services
offered by BlackRock Financial Management Inc. (formerly, BlackRock Financial
Management L.P.) which serves as investment adviser (the "Adviser") to the
Trust.
The following portfolios are described in this Prospectus:
The Investment Grade Multi-Sector Mortgage Securities Portfolio
The Multi-Sector Mortgage Securities Portfolio II
The Multi-Sector Mortgage Securities Portfolios III-VIII
Information about the investment objective of each Portfolio, along with a
detailed description of the types of securities in which each Portfolio may
invest, and of investment policies and restrictions applicable to each
Portfolio, are set forth in this Prospectus. There can be no assurance that the
investment objective of any Portfolio will be achieved. INVESTMENTS IN THE
MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIOS II-VIII MAY INCLUDE SECURITIES
HAVING A CREDIT QUALITY BELOW INVESTMENT GRADE. SUCH SECURITIES, ALSO CALLED
"JUNK BONDS", ARE CONSIDERED TO BE SPECULATIVE AND MAY BE SUBJECT TO SPECIAL
RISKS, INCLUDING A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF
INTEREST. SEE "INVESTMENT RISKS AND SPECIAL CONSIDERATIONS" AND "DESCRIPTION
OF SECURITIES--LOWER RATED AND NON-RATED SECURITIES". Because the market value
of the Portfolios' investments will change, the net asset value per share of
each Portfolio also will vary. The Trust's address is 345 Park Avenue, New
York, New York 10154, and its telephone number is (212) 754-5560.
INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY A BANK, AND THE SHARES OF EACH PORTFOLIO ARE NEITHER
INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
----------------------
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Additional information
about the Trust has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated April 3, 1995, which information is
incorporated herein by reference and available without charge upon request to
the Trust, at the address or telephone number above.
----------------------
Investors are advised to read this Prospectus and retain it for future
reference.
----------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those contained
in this Prospectus, in connection with the offer contained herein, and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
----------------------
<PAGE> 2
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.
----------------------
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Opportunities in the Commercial and Residential Mortgage-Backed Securities Markets . . . . . 8
Description of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Investment Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Duration Management and Other Management Techniques . . . . . . . . . . . . . . . . . . 17
Leverage and Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Repurchase Agreements and Lending of Securities . . . . . . . . . . . . . . . . . . . . 19
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
How to Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reports to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Stockholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Taxes, Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Administrator, Custodian and Transfer and Dividend Disbursing Agent . . . . . . . . . . 25
Validity of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Description of Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A
General Characteristics and Risks of Additional Investment Management Techniques . . . Appendix B
</TABLE>
3
<PAGE> 4
PROSPECTUS SUMMARY
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company. The eight non-diversified investment
portfolios (each a "Portfolio" and collectively, the "Portfolios") described in
this Prospectus are designed primarily for institutional investors. The Trust
also has other portfolios whose investment objective, policies and strategies
and other characteristics are described in a separate prospectus. BlackRock
Financial Management Inc. (formerly, BlackRock Financial Management L.P.) is
the investment adviser (the "Adviser") to the Portfolios.
INVESTMENT OBJECTIVES
THE INVESTMENT GRADE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO (the
"Investment Grade Multi-Sector Portfolio") will seek to provide maximum total
rate of return consistent with investing in a range of investment grade agency
and non-agency Mortgage-Backed Securities, including primarily senior and
subordinated tranches of residential, commercial, multifamily and agricultural
mortgage securities. The securities in which the Portfolio may invest include,
but are not limited to, collateralized mortgage obligations, real estate
mortgage investment conduits, adjustable rate mortgages, Asset-Backed
Securities, bank debt, corporate debt securities and U.S. Treasury and agency
securities. The assets of this Portfolio will be rated at least BBB- by
Standard & Poor's Corporation ("S&P"), Duff & Phelps Inc. ("D&P") or Fitch
Investors Service ("Fitch") or Baa3 by Moody's Investors Service, Inc.
("Moody's") or will be determined by the Adviser to be of comparable quality at
the time of investment or will be issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO II AND THE MULTI-SECTOR
MORTGAGE SECURITIES PORTFOLIOS III-VIII (the "Multi-Sector Portfolios II-VIII")
will seek to provide maximum total rate of return consistent with investing in
a range of agency and non-agency Mortgage-Backed Securities, including
primarily senior and subordinated tranches of residential, commercial,
multifamily and agricultural mortgage securities. The securities in which the
Portfolios may invest include, but are not limited to, collateralized mortgage
obligations, real estate mortgage investment conduits, adjustable rate
mortgages, Asset-Backed Securities, bank debt, corporate debt securities and
U.S. Treasury and agency securities. Except as otherwise set forth in this
Prospectus, the assets of these seven Portfolios may be invested without
limitation as to amount or credit rating in securities rated below investment
grade or, if non-rated, securities determined by the Adviser to be of
comparable quality at the time of investment. Such securities are commonly
referred to as "junk bonds" and have a higher risk of default of principal and
interest. See "Investment Risks and Special Considerations" and "Description
of Securities - Lower Rated and Non-Rated Securities". Notwithstanding the
foregoing, Multi-Sector Portfolio III (i) will seek to provide a total rate of
return before fees and expenses over rolling twelve-month periods that exceeds
the total return of the Salomon Broad Investment Grade Index over the same
period by at least 1.60% on an annualized basis, (ii) will not invest in
Asset-Backed Securities, bank or corporate debt securities other than money
market instruments, or non-rated securities (other than for U.S. Government
securities) and (iii) will maintain a dollar-weighted average credit quality of
at least A-/A3, with U.S. Government securities being assigned a AAA rating.
There can be no assurance that the investment objectives of any Portfolio
will be achieved.
INVESTMENT POLICIES AND STRATEGIES
The Investment Grade Multi-Sector Portfolio will seek to achieve its
objectives by investing in a portfolio of fixed income securities consisting
primarily of investment grade "Mortgage-Backed Securities" (both fixed and
adjustable rate) which (i) represent interests in or are secured by mortgage
loans on commercial real property, such as industrial and warehouse properties,
office buildings, retail space and shopping malls, multifamily properties and
cooperative apartments, hotels and motels, nursing homes, hospitals, senior
living centers and agricultural properties ("Commercial Mortgage-Backed
Securities"), or (ii) have been issued by private mortgage originators and
represent interests in or are secured by mortgage loans on single family
residential properties ("Residential Mortgage-Backed
<PAGE> 5
Securities"). See "Description of the Trust--Description of
Securities--Commercial Mortgage-Backed Securities" and "--Residential
Mortgage-Backed Securities".
Each Multi-Sector Portfolio II-VIII will seek to achieve its investment
objectives by investing in a portfolio of fixed income securities consisting
primarily of Commercial and Residential Mortgage-Backed Securities. Each
Multi-Sector Portfolio II and IV-VIII may invest without limitation in
Commercial and Residential Mortgage-Backed Securities rated below investment
grade or, if non-rated, determined by the Adviser to be of comparable quality
at the time of investment. Notwithstanding the foregoing, Multi-Sector
Portfolio III (i) will not invest in securities (other than U.S. Government
securities) that are not rated at least B by Standard & Poor's Corporation
("S&P"), Duff & Phelps Inc. ("D&P") or Fitch Investors Service ("Fitch") or B2
by Moody's Investors Service, Inc. ("Moody's") at the time of investment; (ii)
will not invest in securities (other than U.S. Government securities) not rated
by at least one of the foregoing organizations at the time of investment; (iii)
will not invest more than 12.5% of its assets in securities that are rated
below BB-/Ba3 by any of the foregoing organizations; and (iv) will not invest
more than 25% of its assets in securities that are rated below BBB-/Baa3 by any
of the foregoing organizations. In the case of short-term money market
instruments and short-term commingled funds the applicable rating requirement
will be A2/P2. For the purposes of Multi-Sector Portfolio III, split rated
securities will be accounted for at the lower rating. In addition,
Multi-Sector Portfolio III will maintain a targeted duration within 20% shorter
or longer than the then current duration of the Salomon Broad Investment Grade
Index.
Each Portfolio may also invest in securities issued by the U.S. Government
or its agencies and instrumentalities, Asset-Backed Securities, corporate debt
securities, bank debt and, although it does not currently intend to do so,
during temporary defensive periods and in order to keep cash on hand fully
invested, money market instruments. Each Portfolio is authorized to borrow
funds from commercial banks and enter into reverse repurchase agreements or
dollar rolls in an amount not exceeding 33 1/3% of its total assets (including
the amount borrowed). A Portfolio is also authorized to borrow an additional
5% of its total assets without regard to the foregoing percentage limitations
for temporary purposes. See "Other Investment Practices--Leverage and
Borrowing". However, Multi-Sector Portfolio III will limit to 20% of net
assets its investments in U.S. Government securities that are not also
Mortgage-Backed Securities, will not invest in Asset-Backed Securities, bank
debt or corporate debt securities other than money market securities and will
not borrow money or enter into reverse repurchase agreements or dollar rolls.
Each Portfolio expects to invest from time to time in various instruments
designed to reduce interest rate risks and their effects on the market value of
a Portfolio's securities. A Portfolio may purchase or sell futures and listed
and over-the-counter options contracts on securities, indices and futures
contracts, make short sales, purchase Eurodollar instruments, enter into
interest rate swaps and purchase or sell interest rate caps and floors, lend
securities and invest in restricted or illiquid securities to a limited extent.
In addition, a Portfolio may invest in repurchase agreements and make forward
commitments. For further discussion of these practices and the associated
special considerations, see "Other Investment Practices". However,
Multi-Sector Portfolio III will not engage in short sales or the lending of
portfolio securities and will invest in futures, options, swaps, caps and
floors solely for bona fide hedging and duration management purposes.
INVESTMENT SECURITIES
Commercial Mortgage-Backed Securities. Commercial Mortgage-Backed
Securities represent interests in or are secured by mortgage loans on
commercial real property, such as industrial and warehouse properties, office
buildings, retail space and shopping malls, multifamily properties and
cooperative apartments, hotels and motels, nursing homes, hospitals, senior
living centers and agricultural properties. See "Description of the
Trust--Description of Securities--Commercial Mortgage-Backed Securities".
Residential Mortgage-Backed Securities. Residential Mortgage-Backed
Securities are fixed income securities which have been issued by private
mortgage originators and which represent interests in or are secured by
mortgage
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<PAGE> 6
loans on single family residential properties. Mortgage-Backed Securities,
both commercial and residential, include pass-through securities, adjustable
rate mortgage securities ("ARMS"), collateralized mortgage obligations ("CMOs")
and stripped securities. See "Description of the Trust--Description of
Securities--Residential Mortgage-Backed Securities".
U.S. Government Securities. U.S. Government securities are issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Such
securities include U.S. Treasury, GNMA, FNMA and FHLMC securities, including
certain Mortgage-Backed Securities. See "Description of the Trust--Description
of Securities--U.S. Government Securities".
Asset-Backed Securities. Asset-Backed Securities have similar structural
characteristics to Mortgage-Backed Securities. However, the underlying assets
are not mortgage loans or interests in mortgage loans but include assets such
as motor vehicle installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from revolving
credit (credit card) agreements. See "Description of the Trust--Description of
Securities--Asset-Backed Securities".
Corporate Debt Securities. Other types of debt securities include those
issued by corporations and other entities, including bonds, debentures, notes,
certificates of deposit, bankers' acceptances, commercial paper and other
instruments. See "Description of the Trust--Description of
Securities--Corporate Debt Securities".
Bank Debt. Each Portfolio may also purchase bank indebtedness and
participations therein, both secured and unsecured, of debtor companies. See
"Description of the Trust--Description of Securities--Bank Debt".
INVESTMENT ADVISER
The Adviser is compensated monthly by each Portfolio for its services in an
amount equal to the following percentages of each Portfolio's average daily net
asset value on an annualized basis: .40% for the Investment Grade Multi-Sector
Portfolio and .50% for the Multi-Sector Portfolios II and IV-VIII. The
Investment Advisory Agreement for the Multi-Sector Portfolio III provides that
the Adviser will be compensated at the end of each calendar quarter at an
annualized rate of .25% of the Portfolio's average month end net assets. See
"Management of the Trust--Investment Adviser".
On February 28, 1995, BlackRock Financial Management L.P. sold its business
to PNC Bank N.A. ("PNC"), the twelfth largest bank in the U.S. All members of
the Adviser's senior management team have signed long-term employment contracts
with PNC and will continue to be responsible for managing the day-to-day
affairs of the Adviser, including carrying out its responsibilities with
respect to the Trust and its various portfolios.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Portfolio are offered at the next determined net asset value
with no sales charge. The minimum initial investments for the Investment Grade
Multi-Sector Portfolio and the Multi-Sector Portfolio II is $5 million. The
minimum initial investment for each Multi-Sector Portfolio III-VIII is $50
million. Each Multi-Sector Portfolio III-VIII will be offered separately to
appropriate institutional investors. The Adviser reserves the right to waive
the minimum initial investment for any Multi-Sector Portfolio.
Shares of each Portfolio may be redeemed without cost at the net asset
value per share of the Portfolio next determined after receipt of the
redemption request (which will be the date specified if the redemption request
specifies a particular date in the future for its effectiveness). The Trust
expects to pay all redemption requests made with at least thirty (30) days'
advance notice in cash. Redemption requests in excess of $250,000 by any
single shareholder from a particular Portfolio within any three-month period
may be paid in kind unless the Trust has received at least thirty (30) days'
advance notice and will be paid in kind if the redeeming shareholder so
requests
3
<PAGE> 7
and such payment will not adversely affect other shareholders. Each
Portfolio's net asset value will fluctuate and accordingly the redemption price
may be more or less than the purchase price. Shareholders who receive
redemptions in kind will incur additional expense and delay in disposing of
such securities and the value of such securities may decline during the
disposition period.
DIVIDENDS AND DISTRIBUTIONS
Dividends for each Portfolio will be declared daily on shares held of
record at 5:00 p.m., New York City time. Each Portfolio intends to distribute
all of its net investment income at least monthly, and any net realized capital
gains at least annually. All dividends and distributions will be reinvested
automatically at net asset value in additional shares of the same Portfolio,
unless cash payment is requested. See "Taxes, Dividends and Distributions".
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company and its affiliates will provide each
Portfolio with administrative accounting, custodial, and dividend disbursing
services and transfer agency services. See "General
Information--Administrator, Custodian and Transfer and Dividend Disbursing
Agent".
INVESTMENT RISKS AND SPECIAL CONSIDERATIONS
Investment risks and considerations relevant to the securities in which
each Portfolio invests are described in the Prospectus under "Description of
the Trust--Investment Objectives and Policies", "--Description of Securities"
and "Other Investment Practices". The following summarizes some of these
risks:
Each Portfolio (other than Multi-Sector Portfolio III) may invest without
limit in both Commercial Mortgage-Backed Securities and Residential
Mortgage-Backed Securities. Investments in Commercial Mortgage-Backed
Securities involve the credit risks of delinquency and default. Delinquency
refers to interruptions in the payment of interest and principal. Default
refers to the potential for unrecoverable principal loss from the sale of
foreclosed property. These risks include the risks inherent in the commercial
mortgage loans which support such Commercial Mortgage-Backed Securities and the
risks associated with direct ownership of real estate. This may be especially
true in the case of Commercial Mortgage-Backed Securities secured by, or
evidencing an interest in, a relatively small or less diverse pool of
commercial mortgage loans. The factors contributing to these risks include the
effects of general and local economic conditions on real estate values, the
conditions of specific industry segments, the ability of tenants to make lease
payments and the ability of a property to attract and retain tenants, which in
turn may be affected by local conditions such as oversupply of space or a
reduction of available space, the ability of the owner to provide adequate
maintenance and insurance, energy costs, government regulations with respect to
environmental, zoning, rent control and other matters, and real estate and
other taxes.
While the credit quality of the Commercial Mortgage-Backed Securities in
which each Portfolio may invest will reflect the perceived likelihood of future
cash flows to meet operating expenses and cash flow requirements, the
underlying commercial properties may not be able to continue to generate income
to meet their operating expenses and cash flow requirements (mainly debt
service, lease payments, capital expenditures, taxes, maintenance, insurance
and tenant improvements) as a result of any of the factors mentioned above.
Consequently, the obligors under commercial mortgages may be unable to make
payments of interest in a timely fashion, increasing the risk of default on a
related Commercial Mortgage-Backed Security. In addition, the repayment of the
commercial mortgage loans underlying Commercial Mortgage-Backed Securities will
typically depend upon the future availability of financing and the stability of
real estate property values.
The commercial mortgage loans that underlie Commercial Mortgage-Backed
Securities have certain distinct characteristics. Commercial mortgage loans
are generally not amortizing or not fully amortizing. At their maturity date,
repayment of the remaining principal balance or "balloon" is due and is repaid
through the attainment of an
4
<PAGE> 8
additional loan or sale of the property. Most commercial mortgage loans are
nonrecourse obligations of the borrower, meaning that the sole remedy of the
lender in the event of a default is to foreclose upon the collateral. As a
result, in the event of default by a borrower, recourse may be had only against
the specified property pledged to secure the loan and not against the
borrower's other assets. If borrowers are not able or willing to refinance or
dispose of the property to pay the principal balance due at maturity, payments
on the subordinated classes of the related Commercial Mortgage-Backed Security
are likely to be adversely affected. The ultimate extent of the loss, if any,
to the subordinated classes may only be determined after the foreclosure of the
mortgage encumbering the property and, if the mortgagee takes title to the
property, upon liquidation of the property. Factors such as the title of the
property, its physical condition and financial performance, as well as
governmental disclosure requirements with respect to the condition of the
property, may make a third party unwilling to purchase the property at a
foreclosure sale or for a price sufficient to satisfy the obligations with
respect to the related Commercial Mortgage-Backed Securities. The condition of
a property may deteriorate during foreclosure proceedings. Certain obligors on
underlying mortgages may become subject to bankruptcy proceedings, in which
case the amount and timing of amounts due under the related Commercial
Mortgage-Backed Securities may be materially adversely affected.
In general, any losses on a given Commercial Mortgage-Backed Security will
be absorbed first by the equity holder, then by a cash reserve fund or letter
of credit, if any, and then by the "first loss" subordinated security to the
extent of its principal balance. Because each Portfolio intends to invest in
subordinated classes of Commercial Mortgage-Backed Securities, there can be no
assurances that in the event of default and the exhaustion of equity support,
the reserve fund and any debt classes junior to those in which each Portfolio
invests, any Portfolio will be able to recover all of its investment in the
securities it purchases. In addition, if the underlying mortgage portfolio has
been overvalued by the originator, or if mortgage values subsequently decline,
the affected Portfolio holds the "first loss" position in certain Commercial
Mortgage-Backed Securities ahead of the more senior debt holders, which may
result in significant losses. Many of the lower-rated and non-rated Commercial
Mortgage-Backed Securities are subject to less prepayment risk than in the case
with Residential Mortgage-Backed Securities because of structural features of
the underlying mortgage loans and the fact that they are entitled to repayment
only after more senior classes are paid.
Investments in Residential Mortgage-Backed Securities involve the credit
risks that affect interest and principal cash flows similar to the credit risks
of Commercial Mortgage-Backed Securities discussed above, as well as the
prepayment risks associated with the possibility that prepayments of principal
generally may be made at any time without penalty. Prepayment rates are
influenced by changes in current interest rates and a variety of economic,
geographic, social and other factors. Changes in the rate of prepayments on a
Residential Mortgage-Backed Security may change the yield to maturity of the
security and amounts available for reinvestment from such securities by the
Portfolios are likely to be greater during periods of relatively low or
declining interest rates and therefore are likely to be reinvested at lower
interest rates than during a period of relatively high interest rates. This
prepayment effect has been particularly pronounced during the past three years
as borrowers have refinanced higher interest rate mortgages into lower interest
rate mortgages available in the marketplace. Because the Portfolios expect to
invest in subordinated Residential Mortgage-Backed Securities, the
prioritization of cash flows from mortgages under the Residential
Mortgage-Backed Securities in favor of the senior classes generally reduces
this prepayment risk.
Investing in Lower Credit Quality Securities. An investor should recognize
that the lower-rated or non-rated Commercial and Residential Mortgage-Backed
Securities in which each Multi-Sector Portfolio II-VIII may invest have
speculative characteristics. The Multi-Sector Portfolio III will not purchase
non-rated securities (other than U.S. Government securities). The prices of
lower credit quality securities, which are commonly referred to as "junk
bonds", have been found to be less sensitive to interest rate changes than more
highly rated investments, but more sensitive to adverse economic downturns or
individual issuer developments. Securities rated lower than B by S&P and
Moody's, including bonds rated as low as D by S&P or C by Moody's, can be
regarded as having extremely poor prospects of ever attaining any real
investment standing and may be in default with payment of interest and/or
repayment of principal in arrears. A projection of an economic downturn or the
advent of a recession, for example, could cause a decline in the price of lower
credit quality securities because the advent of a recession could lessen
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<PAGE> 9
the ability of obligors of mortgages underlying Commercial Mortgage-Backed
Securities and Residential Mortgage-Backed Securities to make principal and
interest payments. In such event, existing credit supports and any first loss
positions may be insufficient to protect against loss of principal.
Non-diversified Status. Each Portfolio has registered as a
"non-diversified" investment company which enables it to invest more than 5% of
its assets in the obligations of any single issuer, subject only to the
diversification requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a result of its ability to concentrate its
investments in the obligations of a smaller number of issuers, each Portfolio
may be more susceptible than a more widely diversified fund to any single
economic, political or regulatory occurrence.
Leverage. Each Portfolio is authorized to borrow funds and utilize
leverage (including through reverse repurchase agreements and dollar rolls) in
amounts not exceeding 33 1/3% of its total assets (including the amount
borrowed). The use of leverage by a Portfolio creates an opportunity for
increased net income, but, at the same time, creates special risks. In
particular, if any Portfolio borrows on a short-term basis and invests the
proceeds in longer-term securities, an increase in interest rates may (i)
reduce or eliminate the interest rate differential usually available between
short-term and long-term rates and (ii) reduce the value of a Portfolio's
longer-term securities, thereby exposing the Portfolio to lower yields and risk
of loss on disposition of its longer-term securities. Each Portfolio will
only borrow or use leverage when the Adviser believes that such activities
will benefit the portfolio utilizing leverage. Each Portfolio may also borrow
up to an additional 5% of its total assets for temporary purposes without
regard to the foregoing limitation. Notwithstanding the foregoing,
Multi-Sector Portfolio III will not borrow money or enter into reverse
repurchase agreements or dollar rolls.
Illiquid Securities. Each Portfolio may invest up to 15% of its net assets
in securities that lack an established secondary trading market or are
otherwise considered illiquid. Liquidity of a security relates to the ability
to easily dispose of securities and the price to be obtained, and does not
necessarily relate to the credit risk or likelihood of receipt of cash at
maturity. Illiquid securities may trade at a discount from comparable, more
liquid investments. The Commercial Mortgage-Backed Securities which each
Portfolio intends to acquire may be less marketable and in some instances will
be considered illiquid by the Trust under applicable standards because of the
absence of registration under the federal securities laws, contractual
restrictions on transfer or the small size of the issue (relative to the issues
of comparable interests). See "Investment Objectives and Policies--Description
of Shares--Illiquid Securities".
Other Investment Management Techniques. Each Portfolio (subject in the
case of Multi-Sector Portfolio III to limitations described herein) may use
various other investment management techniques that also involve special
considerations including engaging in hedging transactions and short sales,
selling listed and over-the-counter covered call options, making forward
commitments, entering into repurchase agreements, purchasing securities on a
when-issued basis, entering into interest rate swaps and purchasing or selling
interest rate caps and floors and lending its portfolio securities. For
further discussion of these practices and the associated risks and special
considerations, see "Other Investment Practices".
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<PAGE> 10
TRUST EXPENSES
STOCKHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . . . . . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
</TABLE>
ANNUAL TRUST OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Investment
Grade Multi- Multi- Multi-
Multi-Sector Sector Sector Sector
Portfolio Portfolio II Portfolio III Portfolios IV-VIII
--------- ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Advisory Fees . . . . . 0.40%(a) 0.50%(a) 0.25%(a) 0.50%(a)
Other Expenses. . . . . 0.15 0.15 0.12 (b) 0.15
-------- -------- ------- ----------
Total Expenses . . . . 0.55% 0.65% 0.37% 0.65%
======== ========= ===== =========
</TABLE>
- ---------------------------
(a) The Adviser reserves the right in its sole discretion to reduce the
advisory fee charged to each Portfolio.
(b) The Adviser has agreed to cap the Other Expenses for this Portfolio at
the level indicated.
Example
A stockholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Investment Grade Multi-Sector Portfolio $6 $18 $31 $71
The Multi-Sector Portfolio II $7 $21 $37 $84
The Multi-Sector Portfolio III $4 $12 $21 $48
The Multi-Sector Portfolios IV-VIII $7 $21 $37 $84
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Trust will bear, whether
directly or indirectly. For a more complete description of the various costs
and expenses, see "Description of the Trust--Management of the Trust". "Other
Expenses" includes an estimate of operating expenses of the Trust, such as
Directors' and professional fees, registration fees, reports to stockholders
and transfer agency and custodian fees. Investors who purchase or redeem shares
through broker-dealers or other financial intermediaries may be subject to
additional charges.
7
<PAGE> 11
OPPORTUNITIES IN THE COMMERCIAL AND
RESIDENTIAL MORTGAGE-BACKED SECURITIES MARKETS
Commercial and non-agency Residential Mortgage-Backed Securities are
among the highest yielding, call protected, domestic, fixed-income securities
across all rating categories. Under current market conditions, the Adviser
believes that investments in non-agency mortgage securities (which include
Commercial and non-agency Residential Mortgage-Backed Securities) provide
attractive investment opportunities. This is due to several factors, including
the developing nature of the Commercial and non-agency Residential
Mortgage-Backed Securities markets, the restructuring of the real estate loans
underlying non-agency mortgage securities, the infusion of capital to the real
estate market and the Adviser's expectation of no further significant
deterioration of real estate property values.
The construction boom of the early 1980s resulted in the oversupply of
developed commercial and residential real estate. This oversupply led to high
vacancy rates and, coupled with declining rental rates, led to a decline in
real estate values in the late 1980s and early 1990s. Real estate loans
originated in the early and mid-1980s were issued during a period of higher
real estate values. The subsequent rise in delinquencies and losses for
lenders has led to new mortgage origination standards which incorporate less
optimistic assumptions concerning rent growth and occupancy. Mortgages
originated during this period of higher values may be restructured or
renegotiated to reflect current market conditions. The resulting non-agency
mortgage securities have underlying loans with LTV ratios that more accurately
reflect current market values and allow the Adviser to better assess credit
exposure.
Many sophisticated investors have recently become active participants in
the commercial real estate market, which has brought new equity into these
types of investments. The increased issuance of real estate investment trusts
("REITs") has been another source of new equity. The Adviser believes that
this infusion of equity, combined with more conservative real estate
valuations, as well as the dislocation of traditional lenders provides a strong
foundation for the continued issuance of Commercial and non-agency Residential
Mortgage-Backed Securities.
A recovery of the real estate market in general would have a positive
effect on investments in non-agency Mortgage-Backed Securities. Market
indicators are beginning to show positive trends, with declines in commercial
mortgage delinquencies and defaults. Additionally, the second quarter of 1993
brought the first positive quarterly total return on real estate investments in
two years, as measured by the Russel-NCREIF Index, which tracks the performance
of U.S. commercial real estate.
The Resolution Trust Corporation ("RTC") entered the non-agency
Mortgage-Backed Securities market as a significant participant by securitizing
non-agency mortgage loans in June of 1991, packaging certain mortgages it
acquired as receiver of failed savings and loans. The RTC, in addition to
other entities, has securitized commercial and non-agency residential
mortgages, aggregating in excess of $22 billion of Commercial Mortgage-Backed
Securities and $200 billion of Residential Mortgage-Backed Securities created
from January, 1987 to December, 1992. As a result of the significant decline
in real estate values in the U.S. in the late 1980s and early 1990s and in
conjunction with their efforts to improve the creditworthiness of financial
institutions, regulators such as the National Association of Insurance
Commissioners ("NAIC") and the Bank for International Settlements ("BIS") set
more stringent capital requirements for assets including real estate holdings.
These requirements have led traditional real estate lenders largely to withdraw
from lending to real estate borrowers and to seek a secondary market outlet for
these mortgage loans and for real estate borrowers to seek financing from
non-traditional lenders. The Adviser believes that, as a result, banks and
insurance companies will increasingly take advantage of the secondary market to
dispose of real estate holdings and borrowers will utilize the capital markets
as a major source of financing.
The establishment by rating agencies of standardized rating criteria has
helped further the development of the secondary market for commercial and
non-agency residential Mortgage-Backed Securities. Unlike the securitization
of traditional residential mortgages, which are eligible for principal and
interest guarantees from government agencies such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), the
securitization of commercial and non-agency residential mortgages may require
other forms of credit enhancement, including the senior/subordinated security
structure, reserve funds and third-party letters of credit. The
senior/subordinated structure was developed in the 1980s to create a senior
security which would be highly rated and attractive to a wide range of
investors. The subordinated security, which was designed to absorb credit
losses on the underlying mortgages and therefore insulate the senior securities
from such losses, was generally either retained by the issuer or sold to a
sophisticated investor
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<PAGE> 12
in a negotiated transaction. In the current environment, the subordinated
securities are further segmented into a hierarchy of loss positions. This
allows many different classes of securities to be created, with varying degrees
of credit exposure, prepayment exposure and potential total return.
Based on investor demand for certain securities (which depends in part on
a combination of rating, yield spread and maturity) the issuer of a
senior/subordinated structure works closely with the rating agencies to
determine the credit support levels required to achieve the desired rating for
each security class. The specific structure created dictates the priority for
the allocation of available cash flows on the underlying mortgages. The senior
classes receive the first available cash flows of both interest and principal,
while the subordinated classes typically receive only interest until the senior
and higher ranked subordinated classes are paid down. Any principal losses
experienced on the underlying properties are absorbed first by the equity
holder and then by the cash reserve fund and letters of credit, if any are
present in the structure, and then by the "first loss" subordinated security
holder to the extent of its principal balance and then by the next subordinated
classes, in order of their respective position in the structure.
The Adviser believes that the development of the secondary market for
Commercial and non-agency Residential Mortgage-Backed Securities has created
significant opportunities for investing in the lower-rated and non-rated
classes of these securities. Furthermore, the Adviser believes that there is
sufficient liquidity in this secondary market for the Trust to accomplish its
investment objectives. Many of the lower-rated and non-rated Commercial
Mortgage-Backed Securities are subject to less prepayment risk than is the case
with Residential Mortgage-Backed Securities because of structural features of
the underlying mortgage loans and the fact that they are entitled to repayment
only after more senior classes are paid. Such securities therefore offer an
opportunity for attractive yields, which the Adviser believes more than
compensates investors for assuming the credit risk associated with such
securities. In addition, the Adviser believes that the Commercial and
non-agency Residential Mortgage-Backed Securities market will expand and yield
spreads to Treasuries will decline, leading to an opportunity for price
appreciation. The Adviser believes this sector of the Mortgage-Backed
Securities market is likely to realize expansion similar to that which the
agency residential Mortgage-Backed Securities market experienced in the late
1980s, where the earlier investors benefitted greatly as the market improved
and expanded.
DESCRIPTION OF THE TRUST
MANAGEMENT OF THE TRUST
BlackRock Financial Management Inc. (formerly, BlackRock Financial
Management L.P.), a registered investment adviser, will act as each Portfolio's
investment adviser (the "Adviser"). On February 28, 1995, BlackRock Financial
Management L.P. sold its business to PNC Bank N.A., the twelfth largest bank in
the U.S. At the time of the sale, the Adviser changed from a limited
partnership to a corporation and accordingly, changed the name from BlackRock
Financial Management L.P. to BlackRock Financial Management Inc. All members
of the Adviser's senior management team have signed long-term employment
contracts with PNC and will continue to be responsible for managing the
day-to-day affairs of the Adviser, including carrying out its responsibilities
with respect to the Trust and its various portfolios. The Adviser currently
serves as the investment adviser to institutional and fixed income investors in
the United States and overseas through a number of funds and separately managed
accounts with combined total assets in excess of $25 billion. See "Management
of the Trust" below.
INVESTMENT OBJECTIVES AND POLICIES
The following describes briefly the investment objective and policies of
each Portfolio. Certain instruments and techniques discussed in this section
are described in greater detail later in this Prospectus and in the Statement
of Additional Information ("SAI").
THE INVESTMENT GRADE MULTI-SECTOR PORTFOLIO will seek to provide maximum
total rate of return consistent with investing in a range of investment grade
agency and non-agency Mortgage-Backed Securities, including primarily senior
and subordinated tranches of residential, commercial, multifamily and
agricultural mortgage securities. The securities in which the Portfolio may
invest include, but are not limited to, collateralized mortgage obligations,
real estate mortgage investment conduits, adjustable rate mortgages,
asset-backed securities, bank debt, corporate debt securities and U.S. Treasury
and agency securities. The assets of this Portfolio will be rated at least
BBB- by S&P,
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<PAGE> 13
D&P or Fitch or Baa3 by Moody's or will be determined by the Adviser to be of
comparable quality at the time of investment or will be issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
THE MULTI-SECTOR PORTFOLIO II AND THE MULTI-SECTOR PORTFOLIOS III-VIII
will seek to provide maximum total rate of return consistent with investing in
a range of agency and non-agency Mortgage-Backed Securities, including
primarily senior and subordinated tranches of residential, commercial,
multifamily and agricultural mortgage securities. The securities in which each
Portfolio may invest include, but are not limited to, collateralized mortgage
obligations, real estate mortgage investment conduits, adjustable rate
mortgages, Asset-Backed Securities, bank debt, corporate debt securities and
U.S. Treasury and agency securities. The assets of these seven Portfolios may
be invested without limitation in lower rated securities or, if non-rated,
securities determined by the Adviser to be of comparable quality at the time of
investment. Such securities are commonly referred to as "junk bonds" and have
a higher risk of default of principal and interest. Notwithstanding the
foregoing, Multi-Sector Portfolio III (i) will seek to provide a total rate of
return before fees and expenses over rolling twelve-month periods that exceeds
the total return of the Salomon Broad Investment Grade Index over the same
period by at least 1.60% an annualized basis, (ii) will not invest in
Asset-Backed Securities, bank or corporate debt securities other than money
market instruments, or non-rated securities (other than for U.S Government
securities) and (iii) will maintain a dollar-weighted average credit quality of
at least A-/A3, with U.S. Government securities being assigned a AAA rating.
Multi-Sector Portfolio III will maintain a targeted duration within 20% shorter
or longer than the then current duration of the Salomon Broad Investment Grade
Index. Duration is a measure of the expected life of a fixed income security
on a present value basis and is indicative of a security's price "volatility"
or "risk" associated with changes in interest rates.
In determining which Mortgage-Backed Securities each Portfolio will
purchase, the Adviser will consider, among other factors, the following:
characteristics of the underlying mortgage loan, including LTV and debt service
coverage ratio, loan seasoning, and refinancing risk; characteristics of the
underlying property, including diversity of the loan pool, occupancy and
leasing, and competitiveness in the pertinent market; economic, environmental
and local considerations; deal structure, including historical performance of
the originator, subordination percentages and reserve fund balances; and
structural participants such as administrators and servicers.
In addition to examining the relative value of the investments as
indicated above, the Adviser's disciplined approach to investments for each
Portfolio will include considerable interaction with rating agencies, extensive
review of due diligence by underwriters and rating agencies, confirmation of
debt service coverage ratios and stress testing of security cash flows. The
Adviser also will select investments which will vary the portfolio by
underlying property types, geographic regions and industry exposure. In this
regard, Multi-Sector Portfolio III will not purchase any commercial
Mortgage-Backed Security ("CMBS") if, giving effect thereto, (i) the net assets
of the Portfolio constituting CMBS that are directly or indirectly secured by
or payable out of cash flow from the same pool of collateral would increase and
would account for more than 10% of the Portfolio's net assets, or (ii) the net
assets of the Portfolio attributable to CMBS backed by the same pool of
collateral would increase and the Portfolio would own more than 25% of the
currently outstanding principal amount of CMBS that are directly or indirectly
secured by or payable out of cash flow from the same pool of collateral. In
addition, Multi-Sector Portfolio III will not, except during any three-month
period after any month in which its net assets have increased by more than 30%,
purchase any CMBS if, giving effect thereto, (i) the net assets of the
Portfolio constituting CMBS that are directly or indirectly secured by or
payable out of cash flow from properties located within a single state of the
U.S. would increase and would account for more than 25% of the Portfolio's net
assets or (ii) the net assets of the Portfolio constituting CMBS that are
directly or indirectly secured by or payable out of cash flow from office
properties would increase and would account for more than 33%, or from hotel
and motel properties would increase and would account for more than 20%, or
from any one of multi-family, cooperative, industrial and warehouse, retail and
shopping mall, mobile home park, nursing home and senior living center or
hospital properties would increase and would account for more than 75% of the
Portfolio's net assets, or (iii) the net assets of the Portfolio constituting
particular issuances of CMBS that are directly or indirectly secured by or
payable out of cash flow from single properties would increase and would
account for more than 50% of the Portfolio's net assets. For the foregoing
purpose, a CMBS will be considered to be secured by or payable out of the cash
flow from a property only in the proportion that the outstanding principal
amount of the mortgage loan relating to such property and backing such security
bears to the sum of the outstanding principal amount of all mortgage loans
backing such security. If the Multi-Sector Portfolio III's asset composition
in any of the foregoing categories subsequently exceeds 110% of the related
percentage limitation for any reason, the Portfolio will take such action as
may be necessary so that within 60 days after the occurrence of such excess the
relevant percentage limitation is again satisfied. Multi-Sector Portfolio III
will not invest in any issuance of Mortgage-Backed Securities
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more than 5% of the principal amount of the collateral of which at the time of
issuance is single-family residential and agricultural properties in the
aggregate.
Each Portfolio has adopted a number of fundamental investment
restrictions which may not be changed without the approval of each Portfolio's
outstanding voting securities. The SAI sets forth these restrictions in full.
Multi-Sector Portfolio III has adopted several non-fundamental portfolio
investment limitations that differ from those of Multi-Sector Portfolio II and
IV- VIII. In addition, Multi-Sector Portfolio III will not modify any of its
portfolio investment limitations without providing at least 60 days prior
written notice of such modification to its shareholders.
DESCRIPTION OF SECURITIES
The following describes certain types of securities in which each
Portfolio may invest:
Commercial Mortgage-Backed Securities
Commercial Mortgage-Backed Securities are generally multi-class debt or
pass-through securities backed by a mortgage loan or pool of mortgage loans
secured by commercial property, such as industrial and warehouse properties,
office buildings, retail space and shopping malls, multifamily properties and
cooperative apartments, hotels and motels, nursing homes, hospitals, senior
living centers and agricultural property. The commercial mortgage loans that
underlie Commercial Mortgage-Backed Securities have certain distinct
characteristics. Commercial mortgage loans are generally not amortizing or not
fully amortizing. At their maturity date, repayment of the remaining principal
balance or "balloon" is due and is repaid through the attainment of an
additional loan or sale of the property. Unlike most single family residential
mortgages, commercial real property loans often contain provisions which
substantially reduce the likelihood that such securities will be prepaid. The
provisions generally impose significant prepayment penalties on loans and, in
some cases there may be prohibitions on principal prepayments for several years
following origination. This difference in prepayment exposure is significant
due to extraordinarily high levels of refinancing of traditional residential
mortgages experienced over the past year as mortgage rates have reached a 25
year low. Assets underlying Commercial Mortgage-Backed Securities may relate
to only a few properties or to a single property. See "Prospectus
Summary--Investment Risks and Special Considerations".
Commercial Mortgage-Backed Securities have been issued in public and
private transactions by a variety of public and private issuers.
Non-governmental entities that have issued or sponsored Commercial
Mortgage-Backed Securities offerings include owners of commercial properties,
originators of and investors in mortgage loans, savings and loan associations,
mortgage banks, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. Each Portfolio may from time to
time purchase Commercial Mortgage-Backed Securities directly from issuers in
negotiated transactions or from a holder of such Commercial Mortgage-Backed
Securities in the secondary market.
Commercial Mortgage-Backed Securities generally are structured to protect
the senior class investors against potential losses on the underlying mortgage
loans. This is generally provided by the subordinated class investors, which
may be included in each Portfolio, by taking the first loss if there are
defaults on the underlying commercial mortgage loans. Other protection, which
may benefit all of the classes, including the subordinated classes in which the
Portfolios intend to invest, may include issuer guarantees, reserve funds,
additional subordinated securities, cross-collateralization,
over-collateralization and the equity investors in the underlying properties.
By adjusting the priority of interest and principal payments on each
class of a given Commercial Mortgage-Backed Security, issuers are able to issue
senior investment grade securities and lower rated or non-rated subordinated
securities tailored to meet the needs of sophisticated institutional investors.
In general, subordinated classes of Commercial Mortgage-Backed Securities are
entitled to receive repayment of principal only after all required principal
payments have been made to more senior classes and have subordinate rights as
to receipt of interest distributions. Such subordinated classes are subject to
a substantially greater risk of nonpayment than are senior classes of
Commercial Mortgage-Backed Securities. Even within a class of subordinate
securities, most Commercial Mortgage-Backed Securities are structured with a
hierarchy of levels (or "loss positions"). Loss positions are the order in
which nonrecoverable losses of principal are applied to the securities within a
given structure. For instance, a first loss
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subordinate security will absorb any principal losses before any higher loss
position subordinate security. This type of structure allows a number of
classes of securities to be created with varying degrees of credit exposure,
prepayment exposure and potential total return.
Subordinated classes of Commercial Mortgage-Backed Securities have more
recently been structured to meet specific investor preferences and issuer
constraints and have different priorities for cash flow and loss absorption.
As previously discussed, from a credit perspective, they are structured to
absorb any credit-related losses prior to the senior class. The principal cash
flow characteristics of subordinated classes are designed to be among the most
stable in the Mortgage-Backed Securities market, the probability of prepayment
being much lower than with traditional Residential Mortgage-Backed Securities.
This characteristic is primarily due to the structural feature that directs the
application of principal payments first to the senior classes until they are
retired before the subordinated classes receive any prepayments. While this
serves to enhance the credit protection of the senior classes, it produces
subordinated classes with more stable average lives. Subject to the applicable
provisions of the 1940 Act, there are no limitations on the classes of
Commercial Mortgage-Backed Securities in which each of the Portfolios may
invest. Accordingly, in certain circumstances, one of the Portfolios may
recover proportionally less of its investment in a Commercial Mortgage-Backed
Security than the holders of more senior classes of the same Commercial
Mortgage-Backed Security.
The rating assigned to a given issue and class of Commercial
Mortgage-Backed Securities is a product of many factors, including, the
structure of the security, the level of subordination, the quality and adequacy
of the collateral, and the past performance of the originators and servicing
companies. The rating of any Commercial Mortgage-Backed Security is determined
to a substantial degree by the debt service coverage ratio (i.e., the ratio of
current net operating income from the commercial properties, in the aggregate,
to the current debt service obligations on the properties) and the LTV ratio of
the pooled properties. The amount of the securities issued in any one rating
category is determined by the rating agencies after a rigorous credit rating
process which includes analysis of the issuer, servicer and property manager,
as well as verification of the LTV and debt service coverage ratios. LTV
ratios may be particularly important in the case of commercial mortgages
because most commercial mortgage loans provide that the lender's sole remedy in
the event of a default is against the mortgaged property, and the lender is not
permitted to pursue remedies with respect to other assets of the borrower.
Accordingly, loan-to-value ratios may, in certain circumstances, determine the
amount realized by the holder of the Commercial Mortgaged-Backed Security.
Residential Mortgage-Backed Securities
Each Portfolio also expects to invest in Residential Mortgage-Backed
Securities that are Mortgage-Backed Securities representing participation
interests in pools of single-family residential mortgage loans originated by
private mortgage originators. Traditionally, Residential Mortgage-Backed
Securities were issued by governmental agencies such as Fannie Mae, Freddie Mac
and Ginnie Mae. Each Portfolio intends to invest in those securities issued by
non-governmental agencies as well as governmental agencies. Non-governmental
entities that have issued or sponsored Residential Mortgage-Backed Securities
offerings include savings and loan associations, mortgage banks, insurance
companies, investment banks and special purpose subsidiaries of the foregoing.
Residential Mortgage-Backed Securities, similar to Commercial Mortgage-Backed
Securities, have been issued using a variety of structures, including
multi-class structures featuring senior and subordinated classes. The
Multi-Sector Portfolios II and IV-VIII intend to invest in the lower rated or
non-rated classes of Residential Mortgage-Backed Securities, with credit
qualities at the time of investment rated or deemed by the Adviser to have
similar credit and cash flow characteristics as those discussed previously in
relation to subordinated classes of Commercial Mortgage-Backed Securities.
While single-family residential loans do not typically have prepayment
penalties or restrictions, as commercial mortgage loans often do, Residential
Mortgage-Backed Securities are often structured so that subordinated classes
may be locked out of prepayments for a period of time. However, in a period of
extremely rapid prepayments, during which senior classes may be retired faster
than expected, the subordinated classes may receive unscheduled payments of
principal and would have average lives that, while longer than the average
lives of the senior classes, would be shorter than originally expected.
The types of agency and non-agency Commercial and Residential
Mortgage-Backed Securities which each Portfolio may invest shall include, but
not be limited to, the following securities:
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Mortgage-Related Securities Issued by U.S. Government Agencies and
Instrumentalities. Each Portfolio may invest in Mortgage-Backed Securities
issued by agencies or instrumentalities of the U.S. Government including GNMA,
FNMA and FHLMC. The U.S. Government or the issuing agency guarantees the
payment of interest and principal on these securities. However, the guarantees
do not extend to the securities' yield or value, nor do the guarantees extend
to the yield or value of a Portfolio's shares. These securities are in most
cases "pass-through" instruments, through which the holder receives a share of
all interest and principal payments from the mortgages underlying the security,
net of certain fees. See "Mortgage-Backed Securities" in the SAI.
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed either by GNMA, FNMA or FHLMC certificates or by a pool of
fixed rate or adjustable rate mortgage loans. Securities which are backed by a
pool of fixed rate or adjustable rate mortgage loans generally are structured
with one or more types of credit enhancement. See "Types of Credit Enhancement"
in the SAI.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates ("ARMs"). ARMs eligible for inclusion in a
mortgage pool generally provide for a fixed initial mortgage interest rate for
either the first three, six, twelve, thirteen, thirty-six or sixty scheduled
monthly payments. Thereafter, the interest rates are subject to periodic
adjustment based on changes to a designated benchmark index. See "Adjustable
Rate Mortgage Securities" in the SAI.
Collateralized Mortgage Obligations and Multi-Class Pass-Through
Securities. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (collectively, "Mortgage Assets"). Multi-class pass-through
securities are equity interests in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multi-class pass-through certificates. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income thereon, provide the funds to
pay debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. Government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. The issuer of CMOs or
multi-class pass-through securities may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC"). See "Collateralized Mortgage
Obligations and Multi-Class Pass-Through Securities" in the SAI.
Stripped Mortgage-Backed Securities. Each Portfolio (other than
Multi-Sector Portfolio III) may also invest in mortgage pass-through securities
where all or a substantial portion of the interest payments go to one class of
holders ("Interest Only Securities" or "IOs") and all or a substantial portion
of the principal payments go to a second class of holders ("Principal Only
Securities" or "POs"). These securities are commonly referred to as Stripped
Mortgage-Backed Securities or SMBS. The yields to maturity on IOs and POs are
very sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and such rate may have a material effect on
yield to maturity. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, a Portfolio may not fully recoup its
initial investment in IOs. Conversely, if the underlying Mortgage Assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially adversely affected.
In addition to SMBS issued by agencies or instrumentalities of the U.S.
Government, each Portfolio may purchase SMBS issued by private originators of,
or investors in, mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing.
Privately issued SMBS will be deemed illiquid for purposes of the 15%
limitation on illiquid securities. See "Illiquid Securities" below. The
determination whether a particular U.S. Government issued SMBS is liquid will
be made by the Adviser under guidelines established by the Board of Directors.
Lower Rated and Non-Rated Securities. The Mortgage-Backed Securities in
which each Multi-Sector Portfolio II and IV-VIII may invest are expected to be
lower rated (i.e., have a credit quality below investment grade) or non-rated
subordinated classes. Investments in such lower rated securities or non-rated
securities of equivalent credit quality are subject to special risks, including
a greater risk of loss of principal and non-payment of interest. An
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investor should carefully consider the following factors before purchasing
shares of each of the Multi-Sector Portfolios II and IV-VIII. Multi-Sector
Portfolio III (i) will not invest in securities (other than U.S. Government
securities) that are not rated at least B by S&P, D&P or Fitch or B2 by Moody's
at the time of investment; (ii) will not invest in securities (other than U.S.
Government securities) not rated by at least one of the foregoing organizations
at the time of investment; (iii) will not invest more than 12.5% of its assets
in securities that are rated below BB-/Ba3 by any of the foregoing
organizations; and (iv) will not invest more than 25% of its assets in
securities that are rated below BBB-/Baa3 by any of the foregoing
organizations. In the case of short-term money market instruments and
short-term commingled funds the applicable rating requirement will be A2/P2.
For the purpose of Multi-Sector Portfolio III, split rated securities will be
accounted for at the lower rating. If any security held in its portfolio is
downgraded such that the Portfolio would not be able at that time to make an
investment in such security, the Portfolio will sell such security within 30
days after such downgrade. Multi-Sector Portfolio III will maintain a
dollar-weighted average credit quality of at least A-/A3, with U.S. Government
securities assigned a AAA rating. In order to calculate the average credit
quality of the Portfolio, the Portfolio will assign sequential numbers to each
of the 20 rating categories from AAA to D, multiply the value of each
instrument by the rating equivalent number assigned to its lowest rating, sum
all of such products, divide the aggregate by the net asset value of the
Portfolio and convert the number back to its equivalent rating symbol.
Generally, lower rated or non-rated securities of equivalent credit
quality offer a higher return potential than higher rated securities but
involve greater volatility of price and greater risk of loss of income and
principal, including the possibility of default or bankruptcy of the issuers of
such securities. Lower rated securities and comparable non-rated securities
will likely have large uncertainties or major risk exposure to adverse
conditions and are predominately speculative. The occurrence of adverse
conditions and uncertainties would likely reduce the value of securities held
by each Multi-Sector Portfolio II-VIII, with a commensurate effect on the value
of a given portfolio's shares. While the market values of lower rated
securities and non-rated securities of equivalent credit quality tend to react
less to fluctuations in interest rate levels than do those of higher rated
securities, the market values of certain of these securities also tend to be
more sensitive to changes in economic conditions than higher rated securities.
In addition, lower rated securities and non-rated securities of equivalent
credit quality generally present a higher degree of credit risk. Each
Multi-Sector Portfolio II-VIII may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.
Securities which are rated BB by S&P, D&P and Fitch and Ba by Moody's
have speculative characteristics with respect to capacity to pay interest and
repay principal. Securities which are rated B generally lack characteristics
of a desirable investment and assurance of interest and principal payments over
any long period of time may be small. Securities which are rated Caa or CCC or
below are poor standing. Those issues may be in default or present elements of
danger with respect to principal or interest. Securities rated C by Moody's, D
by S&P, or the equivalent by D&P or Fitch are the lowest rating class. Such
ratings indicate that payments are in default, or that a bankruptcy petition
has been filed with respect to the issuer or that the issuer is regarded as
having extremely poor prospects. A general description of the bond ratings of
Moody's, S&P, D&P and Fitch is set forth in Appendix A to the Prospectus.
In general, the ratings of nationally recognized statistical rating
organizations represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market value
risk of the securities. It is possible that an agency might not change its
rating of a particular issue to reflect subsequent events. These ratings will
be used by the Portfolios as initial criteria for the selection of portfolio
securities, but each Portfolio also will rely upon the independent advice of
the Adviser to evaluate potential investments.
Asset-Backed Securities
The securitization techniques used to develop Mortgage-Backed Securities
are also applied to a broad range of other assets. Through the use of trusts
and special purpose corporations, various types of assets, primarily automobile
and credit card receivables and home equity loans, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure.
Other types of assets being securitized include loans to finance boats,
recreational vehicles, mobile homes and manufactured housing; computer, copier,
railcar and medical equipment leases; student and commercial loans; and trade,
health care
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and franchise receivables. In general, the collateral supporting Asset-Backed
Securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. As with Mortgage-Backed Securities,
Asset-Backed Securities are often backed by a pool of assets representing the
obligations of a number of different parties and use similar credit enhancement
techniques. See "Types of Credit Enhancement" in the SAI.
The market for certain types of Asset-Backed Securities is relatively new
and untested. Certain Asset-Backed Securities may have a limited secondary
market and may be subject to restrictions on transferability. Any Asset-Backed
security that cannot be disposed of within seven days and in the usual course
of business without taking a reduced price will be deemed illiquid for purposes
of the 15% limitation on illiquid securities. See "Illiquid Securities" below.
The determination whether a particular Asset-Backed security is liquid will be
made by the Adviser under guidelines established by the Board of Directors of
the Trust.
New instruments and variations of existing Mortgage-Backed Securities and
Asset-Backed Securities continue to be developed. The Portfolios may invest in
any such instruments or variations as may be developed to the extent consistent
with their investment objectives and policies and applicable regulatory
requirements.
U.S. Government Securities
U.S. Treasury Securities. The Portfolios will invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
Each Portfolio (other than Multi-Sector Portfolio III) may also invest in
"zero coupon" securities, including U.S. Treasury bills, notes and bonds which
have been stripped of their unmatured interest coupons or which are
certificates representing interests in such stripped debt obligations. Such
securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. A zero coupon
security pays no interest to its holder during its life. In addition to those
issued by the U.S. Government, such zero coupon securities may be issued by
private issuers representing an interest in securities issued by the U.S.
Government. Such privately issued zero coupon securities are not considered
U.S. Government securities and will be deemed illiquid for purposes of the 15%
limitation on illiquid securities. See "Investment Objectives and
Policies--U.S. Government Securities" in the SAI and "Illiquid Securities"
below.
Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. Each Portfolio may invest in securities issued by agencies
of the U.S. Government or instrumentalities of the U.S. Government, including,
but not limited to, GNMA, FNMA and FHLMC securities. Obligations of GNMA, the
Farmers Home Administration and the Export-Import Bank are backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the "full faith and credit" of the United States, the Portfolios must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. Such securities include obligations issued by FNMA and FHLMC, each
of which may borrow from the U.S. Treasury to meet its obligations, although
the U.S. Treasury is under no obligation to lend to FNMA or FHLMC. GNMA, FNMA
and FHLMC investments by the Portfolios may also include pass-through
securities, CMOs and certain other Mortgage-Backed Securities.
Corporate Debt Securities
Corporate Debt securities include securities issued by corporations and
other entities, including bonds and debentures (which are long-term), notes
(which may be short- or long-term), certificates of deposit (unsecured
borrowings by banks), bankers' acceptances (indirectly secured borrowings to
facilitate commercial transactions) and commercial paper (short-term unsecured
notes). These securities may have adjustable or fixed rates of interest and
may be secured or unsecured by assets of the issuer or another party.
Adjustable rate corporate debt securities may have interest rate caps and
floors but such corporate debt securities are not subject to prepayment risk
other than through contractual call provisions, which generally impose a
penalty for prepayment during all or a portion of the period such securities
are outstanding. Fixed rate debt securities may also be subject to call
provisions. Corporate Debt securities are subject to the bankruptcy risk of
the issuer. The Trust believes that the high quality securities it
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purchases will tend to reduce such risks. Several of the Portfolios may
purchase corporate debt securities rated at the time of investment no lower
than BBB- by S&P or Baa3 by Moody's. The rating of a corporate debt security
may change over time, as S&P and Moody's monitor and evaluate the ratings
assigned to corporate debt securities on an ongoing basis. As a result,
corporate debt securities held by a Portfolio could receive a higher rating
(which would tend to increase their value) or a lower rating (which would tend
to decrease their value) during the time that they are owned by the Portfolio.
If a security owned by a Portfolio is downgraded below either BBB- by S&P or
Baa3 by Moody's, the Adviser will monitor such security and determine whether
to sell it based on the factors it considers relevant such as size of the
investment, whether a loss or gain will result, relative risk to the Portfolio,
depth of the trading market or any other relevant factors. The Trust expects
that under normal market conditions no more than 5%, if any, of a Portfolio's
assets will consist of securities whose ratings have been downgraded below BBB-
by S&P or Baa3 by Moody's. The Portfolios will consider whether to retain or
dispose of a bond whose rating drops below the minimum ratings applicable to a
Portfolio. Except for Multi-Sector Portfolio III, the Portfolios are not
restricted in the amount they may invest in any of the securities described in
this section.
Bank Debt
Except for Multi-Sector Portfolio III, each Portfolio from time to time
may also purchase indebtedness and participation therein, both secured and
unsecured, of debtor companies in the form of loans made by commercial banks to
debtor companies. When a Portfolio purchases a participation interest in bank
debt it assumes the credit risk associated with the bank as well as the credit
risk associated with the issuer of any underlying debt instrument. Bank debt
which represents indebtedness of a debtor company to a bank is not a security
of the banks issuing or selling it. The Portfolio may purchase bank debt from
national and state chartered banks. Each Portfolio is restricted from
investing more than 15% of its assets in bank debt which is not readily
marketable and illiquid.
Floating Rate, Inverse Floating Rate and Index Obligations
The Portfolios may invest in debt securities with interest payments or
maturity values that are not fixed, but float in conjunction with (or inversely
to) an underlying index or price. These securities may be backed by U.S.
Government or corporate issuers, or by collateral such as mortgages. In certain
cases, a change in the underlying index or price may have a leveraging effect
on the periodic coupon payments, creating larger possible swings in the prices
of such securities than would be expected when taking into account their
maturities alone. The indices and prices upon which such securities can be
based include interest rates, currency rates and commodities prices. However,
Multi-Sector Portfolio III will not invest in any instrument whose value is
computed based on a multiple of the change in price or value of an asset or an
index of or relating to assets in which the Portfolio could not invest.
Floating rate securities pay interest according to a coupon which is
reset periodically. This reset mechanism may be formula based, or reflect the
passing through of floating interest payments on an underlying collateral pool.
The coupon is usually reset daily, weekly, monthly, quarterly or semi-annually,
but other schedules are possible. Floating rate obligations generally exhibit a
low price volatility for a given stated maturity or average life because their
coupons adjust with changes in interest rates. If their underlying index is not
an interest rate, or the reset mechanism lags the movement of rates in the
current market, greater price volatility may be experienced.
Inverse floating rate securities are similar to floating rate securities
except that their coupon payments vary inversely with an underlying index by
use of a formula. Inverse floating rate securities tend to exhibit greater
price volatility then other floating rate securities. Because the changes in
the coupon are usually negatively correlated with changes in overall interest
rates, interest rate risk and price volatility on inverse floating rate
obligations can be high, especially if leverage is used in the formula.
Multi-Sector Portfolio III will not invest, and the other Portfolios do not
intend to invest more than 10% of its total assets in inverse floating rate
securities.
Index securities pay a fixed rate of interest, but have a maturity value
that varies by formula, so that when the obligation matures a gain or loss is
realized. The risk of index obligations depends on the volatility of the
underlying index, the coupon payment and the maturity of the obligation.
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Illiquid Securities
Illiquid securities are subject to legal or contractual restrictions on
disposition or lack an established secondary trading market. The sale of
restricted and illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. Restricted securities may sell
at a price lower than similar securities that are not subject to restrictions
on resale. Each Portfolio may purchase certain restricted securities up to 15%
of its net assets eligible for sale to qualified institutional buyers as
contemplated by Rule 144A under the Securities Act of 1933 and may treat such
securities as being liquid if the Adviser determines, pursuant to procedures
adopted by the Trust's Board of Directors, that a sufficient secondary market
does exist for such securities. See the SAI for a further discussion of
illiquid securities.
OTHER INVESTMENT PRACTICES
DURATION MANAGEMENT AND OTHER MANAGEMENT TECHNIQUES
As a basic element of its overall investment strategy each Portfolio
intends to use a variety of other investment management techniques and
instruments. A more complete description of such techniques is contained in
the SAI. Each Portfolio may purchase and sell futures contracts, enter into
various interest rate transactions such as swaps, caps and floors and may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, financial indices and futures contracts (collectively, "Additional
Investment Management Techniques"). These Additional Investment Management
Techniques may be used for duration management and other risk management to
attempt to protect against possible changes in the market value of a Portfolio
resulting from trends in the debt securities markets and changes in interest
rates, to protect a Portfolio's unrealized gains in the value of its securities
holdings, to facilitate the sale of such securities for investment purposes, to
establish a position in the securities markets as a temporary substitute for
purchasing particular securities and (except for Multi-Sector Portfolio III) to
enhance income or gain. There is no particular strategy that requires use of
one technique rather than another as the decision to use any particular
strategy or instrument is a function of market conditions and the composition
of the portfolio. See Appendix B "General Characteristics and Risks of
Additional Investment Management Techniques".
Additional Investment Management Techniques present certain risks. With
respect to hedging and risk management, the variable degree of correlation
between price movements of hedging instruments and price movements in the
position being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of a Portfolio's position. The same is true
for such instruments entered into for income or gain. In addition, certain
instruments and markets may not be liquid in all circumstances. As a result,
in volatile markets, a Portfolio may not be able to close out a transaction
without incurring losses substantially greater than the initial deposit.
Although the contemplated use of these instruments predominantly for hedging
should tend to minimize the risk of loss due to a decline in the value of the
position, at the same time they tend to limit any potential gain which might
result from an increase in the value of such position. The ability of a
Portfolio to successfully utilize Additional Investment Management Techniques
will depend on the Adviser's ability to predict pertinent market movements and
sufficient correlations, which cannot be assured. Finally, the daily deposit
requirements in futures contracts that a Portfolio has sold create an ongoing
greater potential financial risk than do options transactions, where the
exposure is limited to the cost of the initial premium. Losses due to the use
of Additional Investment Management Techniques will reduce net asset value.
In selecting counterparties for OTC hedging and risk management
transactions, Multi-Sector Portfolio III will adhere to the following minimum
ratings: (i) with respect to an OTC derivative instrument with a remaining
nominal maturity of six months or less, a Moody's Derivative Counterparty
Rating of A3; (ii) with respect to an OTC derivative instrument with a
remaining maturity of more than six months, a Moody's Derivative Counterparty
Rating of AA3. If the counterparty does not have a Moody's counterparty
rating, then either the Moody's or S&P longterm securities rating of A3/A-
(with respect to category (i) above) or Aa3/AA- (with respect to category (ii)
above) may be used as a substitute. In addition, all such counterparties must
have a minimum short-term rating of A-1 by Moody's and P-1 by S&P. If a
counter-party drops below the minimum ratings, then Multi-Sector Portfolio III
will seek to unwind existing agreements with such counterparty in a cost
effective manner and will be prohibited from entering into new agreements with
the counterparty so long as the counterparty's rating is below the relevant
minimum.
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<PAGE> 21
The principal risks relating to the use of futures contracts and other
Additional Investment Management Techniques are: (a) less than perfect
correlation between the prices of the instrument and the market value of the
securities in the portfolio's holdings; (b) possible lack of a liquid secondary
market for closing out a position in such instruments; (c) losses resulting
from interest rate or other market movements not anticipated by the Adviser;
and (d) the obligation to meet additional variation margin or other payment
requirements, all of which could result in a Portfolio being in a worse
position than if such techniques had not been used. See Appendix B "General
Characteristics and Risks of Additional Investment Management Techniques" and
the Statement of Additional Information for further information.
The Portfolios (except for Multi-Sector Portfolio III) may make short
sales of securities. A short sale is a transaction in which a Portfolio sells
a security it does not own in anticipation that the market price of that
security will decline. A Portfolio may make short sales to hedge positioning
for duration and risk management in order to maintain portfolio flexibility or
to enhance income or gain. Short sales will be made in compliance with
applicable regulatory requirements and will be fully collateralized at all
times.
Each Portfolio may also purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date outside the normal course of
settlement for securities of that type. When-issued securities and forward
commitments may be sold prior to the settlement date, but a Portfolio will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. If a
Portfolio disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss. At the time a Portfolio enters into a
transaction on a when-issued or forward commitment basis, it will segregate
with its custodian cash or other liquid high grade debt securities with a value
not less than the value of the when-issued or forward commitment securities.
The value of these assets will be monitored daily to ensure that their marked
to market value will at all times equal or exceed the corresponding obligations
of the Portfolio. There is always a risk that the securities may not be
delivered and that a Portfolio may incur a loss. Settlements in the ordinary
course, which typically occur monthly for mortgage-related securities, are not
treated by the Portfolios as when-issued or forward commitment transactions and
accordingly are not subject to the foregoing restrictions.
LEVERAGE AND BORROWING
Each Portfolio is authorized to borrow money or otherwise use leverage in
an amount up to 33 1/3% of the Trust's total assets (including the amount
borrowed), less all liabilities and indebtedness other than the bank or other
borrowing. Each Portfolio is also authorized to borrow an additional 5% of its
total assets without regard to the foregoing limitation for temporary purposes
such as clearance of portfolio transactions and share repurchases. A Portfolio
may only borrow from a commercial bank or trust company and will only borrow
when the Adviser believes that such borrowings will benefit the Portfolio after
taking into account considerations such as interest income and possible gains
or losses upon liquidation. Notwithstanding the foregoing, Multi-Sector
Portfolio III will not borrow money or enter into reverse repurchase agreements
or dollar rolls.
Borrowing by a Portfolio creates an opportunity for increased net income
but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Shares and in the
yield on the Portfolio's portfolio. Although the principal of such borrowings
will be fixed, the Trust's assets may change in value during the time the
borrowing is outstanding. Borrowing will create interest expenses for a
Portfolio which can exceed the income from the assets retained. Furthermore,
if a Portfolio borrows on a short-term basis and invests the proceeds in
long-term securities, an increase in interest rates could reduce or eliminate
the interest rate differential usually available between short-term and
long-term rates and could reduce the value of the Trust's securities, thereby
exposing the Portfolio to adverse yields and risk of loss on disposition of its
securities. The Trust may also borrow for emergency purposes, for the payment
of dividends, for share repurchases or for the clearance of transactions.
Each Portfolio (except for Multi-Sector Portfolio III) expects to
leverage by entering into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements (as discussed below). Under
a reverse repurchase agreement, a Portfolio sells securities and agrees to
repurchase them at a mutually agreed upon
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<PAGE> 22
date and price. At the time the Portfolio enters into a reverse repurchase
agreement, an approved custodian may segregate liquid, high grade debt
securities having a value not less than the repurchase price (including accrued
interest). Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale by a Portfolio may decline
below the price of the securities the Portfolio has sold but is obligated to
repurchase. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce a
Portfolio's obligation to repurchase the securities and the Portfolio's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision. Reverse repurchase agreements create leverage, a
speculative factor, and will be considered as borrowings for purposes of a
Portfolio's limitation on borrowing.
A Portfolio (except for Multi-Sector Portfolio III) may also leverage by
entering into dollar rolls in which the Portfolio sells fixed income securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the role period, the Portfolio forgoes principal
and interest paid on such securities. The Portfolio is compensated by the
difference between the current sales price and the forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. Dollar rolls are treated by a Portfolio
in the same manner as reverse repurchase agreements for leverage purposes.
Each Portfolio (except for Multi-Sector Portfolio III) expects that any
borrowings will be made on a secured basis. In such situation, either the
custodian will segregate the pledged assets for the benefit of the lender or
arrangements will be made with (i) the lender to act as a subcustodian if the
lender is a bank or otherwise qualifies as a custodian of investment company
assets or (ii) a suitable subcustodian.
REPURCHASE AGREEMENTS AND LENDING OF SECURITIES
Each Portfolio may invest temporarily, without limitation, in repurchase
agreements, which are agreements pursuant to which securities are acquired by a
Portfolio from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed upon date. These
agreements may be made with respect to any of the securities in which a
Portfolio is authorized to invest. Repurchase agreements may be characterized
as loans secured by the underlying securities and will be entered into in
accordance with the requirements of the SEC. Multi-Sector Portfolio III will
not enter into any repurchase agreement with respect to securities other than
U.S. Government securities and mortgage-backed securities. The value of the
collateral for such repurchase agreement marked-to-market at the end of each
business day will be at least 102% of the amount of the repurchase agreement.
The Multi-Sector Portfolio III will not enter into any repurchase agreement the
term of which exceeds 90 days.
Each Portfolio (other than Multi-Sector Portfolio III) may lend its
portfolio securities to qualified institutions as determined by the Board of
Directors. By lending its portfolio securities, a Portfolio attempts to
increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loans that may occur during the term
of the loan will be for the account of a Portfolio. A Portfolio may lend its
portfolio securities so long as the terms and the structure of such loans are
not inconsistent with the requirements of the 1940 Act.
MANAGEMENT OF THE TRUST
The Board of Directors, in addition to reviewing the actions of the
Adviser and the Distributor, as set forth below, decides upon matters of
general policy. Additional information about the Directors and officers of the
Trust may be found in the Statement of Additional Information under the heading
"Directors and Officers".
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<PAGE> 23
INVESTMENT ADVISER
BlackRock Financial Management Inc. (formerly, BlackRock Financial
Management L.P) is the Trust's investment adviser (the "Adviser") and is
compensated monthly by each Portfolio for its services in an amount equal to
the following percentages of each Portfolio's average daily net asset value on
an annualized basis: .40% for the Investment Grade Multi-Sector Portfolio and
.50% for the Multi-Sector Portfolios II and IV-VIII. The Investment Advisory
Agreement for the Multi-Sector Portfolio III which provides that the Adviser
will be compensated at the end of each calendar quarter at an annualized rate
of .25% of the Portfolio's average month end net assets. Pursuant to an
Investment Advisory Agreement with the Trust, the Adviser manages the
investment operations of each Portfolio. See "Management of the Trust--The
Investment Advisory Agreement" in the SAI.
The Adviser is a Delaware corporation with offices at 345 Park Avenue,
New York, New York 10154. On February 28, 1995, BlackRock Financial Management
L.P. sold its business to PNC Bank N.A., the twelfth largest bank in the U.S.
At the time of the sale, the Adviser changed from a limited partnership to a
corporation and accordingly, changed the name from BlackRock Financial
Management L.P. to BlackRock Financial Management Inc. All members of the
Adviser's senior management team have signed long-term employment contracts
with PNC and will continue to be responsible for managing the day-to-day
affairs of the Adviser, including carrying out its responsibilities with
respect to the Trust and its various portfolios. The Adviser is registered as
an investment adviser under the Investment Advisers Act of 1940.
The Adviser's employees include several individuals with extensive
experience in creating, evaluating and investing in a broad range of U.S.
fixed-income securities. Prior to co-founding BlackRock Financial Management
L.P., from July 1976 to March 1988, Mr. Fink was employed by The First Boston
Corporation where he had been a Managing Director since January 1979. At First
Boston, he was a member of the Management Committee and co-head of its Taxable
Fixed Income Division. He also managed the Financial Futures and Fixed Income
Options Department and the Mortgage and Real Estate Products Group. Mr.
Schlosstein, co-founder of BlackRock Financial Management L.P., was employed by
Shearson Lehman Brothers Inc. from February 1981 to March 1988 and became a
Managing Director in August 1984. At Shearson Lehman, he was co-head of the
Mortgage and Savings Institutions Group. Messrs. Fink and Schlosstein, along
with other members of the Adviser, were instrumental in many of the major
innovations in these securities markets, including the creation of the fixed
and floating rate CMOs, Asset-Backed Securities and the senior-subordinated
mortgage pass-through.
The Adviser provides asset management services with respect to high
quality fixed income instruments, including U.S. Treasury securities,
Mortgage-Backed Securities, municipal obligations, corporate bonds and hedging
products. Investment decisions for the Trust are made by a committee and no
person(s) is primarily responsible for making recommendations to that
committee. The Adviser currently serves as the investment adviser to
individual and institutional fixed income investors in the United States and
overseas through several funds and separately managed accounts with combined
total assets in excess of $25 billion.
In addition to the Trust, the Adviser serves as adviser to 25 closed-end
funds. Certain features of these closed-end funds are provided in the
following table:
<TABLE>
<CAPTION>
Primary Net Assets
Stock Exchange Term: Year of Portfolio (December 31, 1994)
Ticker Symbol Maturity Composition (in millions)
--------------- -------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Taxable BlackRock Trusts:*
The BlackRock Income
Trust Inc. . . . . . . . . . BKT None-Perpetual Mortgage-Backed Securities $448
The BlackRock North American
Government Income Trust Inc. . BNA None-Perpetual Canadian Securities and
Mortgage-Backed Securities $348
The BlackRock 1998 Term
Trust Inc. . . . . . . . . . BBT 1998 Mortgage-Backed Securities $526
</TABLE>
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<PAGE> 24
<TABLE>
<CAPTION>
Primary Net Assets
Stock Exchange Term: Year of Portfolio (December 31, 1994)
Ticker Symbol Maturity Composition (in millions)
--------------- -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
The BlackRock 1999 Term
Trust Inc. . . . . . . . . . . BNN 1999 Mortgage-Backed Securities $182
The BlackRock Target Term
Trust Inc. . . . . . . . . . BTT 2000 Mortgage-Backed Securities and $860
Zero Coupon Securities
The BlackRock 2001 Term
Trust Inc. . . . . . . . . . BLK 2001 Mortgage-Backed Securities $1,143
The BlackRock Strategic Term
Trust Inc. . . . . . . . . . BGT 2002 Mortgage-Backed Securities $467
The BlackRock Investment Quality
Term Trust Inc. . . . . . . . BQT 2004 Mortgage-Backed Securities and $302
Corporate Debt Securities
The BlackRock Advantage Term
Trust Inc. . . . . . . . . . BAT 2005 Mortgage-Backed Securities and $86
Zero Coupon Securities
The BlackRock Broad Investment
Grade 2009 Term Trust Inc. . BCT 2009 Corporate Debt Securities, $35
Mortgage-Backed Securities and
Asset-Backed Securities
Tax-Exempt BlackRock Trusts:
The BlackRock California Investment
Quality Municipal Trust Inc. RAA None-Perpetual California Municipal Obligations $12
The BlackRock Florida Investment
Quality Municipal Trust Inc. RFA None-Perpetual Florida Municipal Obligations $13
The BlackRock New Jersey Investment
Quality Municipal Trust Inc. RNJ None-Perpetual New Jersey Municipal Obligations $11
The BlackRock New York Investment
Quality Municipal Trust Inc. RNY None-Perpetual New York Municipal Obligations $15
The BlackRock Investment Quality
Municipal Trust Inc. . . . . BKN None-Perpetual Municipal Obligations $197
The BlackRock Municipal Target
Term Trust Inc. . . . . . . . BMN 2006 Municipal Obligations $453
The BlackRock California Insured
Municipal 2008 Term Trust Inc. BFC 2008 California Municipal Obligations $142
The BlackRock Florida Insured
Municipal 2008 Term Trust Inc. BRF 2008 Florida Municipal Obligations $121
The BlackRock Insured Municipal
2008 Term Trust Inc. . . . . BRM 2008 Municipal Obligations $378
The BlackRock New York Insured
Municipal 2008 Term Trust Inc. BLN 2008 New York Municipal Obligations $155
The BlackRock Insured Municipal
Target Term Trust Inc. . . . BMT 2010 Municipal Obligations $252
- ------------------------------
</TABLE>
* The Adviser also acts as investment adviser to BlackRock Asset Investors
("BAI"), BlackRock Fund Investors I ("BFI I"), BlackRock Fund Investors II
("BFI II") and BlackRock Fund Investors III ("BFI III"). As of December
31, 1994, BAI and BFI I,II and III had no assets. Upon funding, BAI
primarily will invest in commercial and residential mortgage-backed
securities and BFI I,II and III primarily will invest in shares of BAI.
The term of each fund is seven years, subject to two one year extensions
pursuant to certain terms and conditions.
The Adviser also serves as investment adviser to eight open-end portfolios
which are series of the Trust. These portfolios include The Short Duration
Portfolio, The Intermediate Duration Portfolio, The Core Fixed Income
Portfolio, The Mortgage Portfolio, The Government Portfolio, The Long Duration
Portfolio and The Global Fixed Income Portfolio, all fixed income portfolios
and The Money Market Portfolio. The Adviser serves as investment sub-adviser
to five open-end funds, The BlackRock Government Income Trust, Dean Witter
Premier Income Trust, Accessor Funds, Inc. Mortgage Securities Portfolio, the
Frank Russell Investment Company and The Shearson Lehman Brothers Adjustable
Rate Government Income Fund, that invest primarily in "AAA" credit quality
mortgage-backed and Asset-Backed Securities.
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<PAGE> 25
In addition, the Adviser serves as the investment adviser to six offshore
funds: BFM Fund for Fannie Mae Mortgage Securities; BFM Freddie Mac Mortgage
Securities Fund; BFM Mortgage Performance Fund; BFM LIBOR Mortgage Fund; Gemeni
I; and BSY Financial Corporation. Each of these funds invests primarily in
U.S. Mortgage-Backed Securities.
DISTRIBUTOR
Provident Distributors, Inc., an affiliate of PNC, acts as the Trust's
distributor (the "Distributor"). The Trust has adopted a Distribution and
Stockholder Servicing Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act. The Plan permits the Adviser to pay a fee to the
Distributor, which in turn is authorized to make payments to securities dealers
with which the Distributor may enter into solicitation fee agreements. The
Distributor may also use a portion of the fee it receives under the Plan to
compensate institutions who perform support services that would otherwise be
performed by an Administrator or its agents. The purpose of the Plan is to
promote distribution of the Trust's shares and to enhance the provision of
stockholder services. The Trust is not required or permitted under the Plan to
make payments over and above its investment advisory fee; the Plan merely
permits the reallocation of a portion of the advisory fee the Adviser receives
to pay for distribution related and stockholder servicing activities. See
"Distribution and Stockholder Servicing Plan" in the SAI.
EXPENSES
Each Portfolio is responsible for the payment of certain fees and expenses
including, among others, the following: (i) advisory fees; (ii) the fees of
unaffiliated Directors; (iii) the fees of each Portfolio's Administrator,
Custodian and Transfer and Dividend Disbursing Agent; (iv) the fees of the
Trust's legal counsel and independent accountants; (v) brokerage commissions
incurred in connection with portfolio transactions; (vi) all taxes and charges
of governmental agencies; (vii) the reimbursement of organizational expenses;
and (viii) expenses related to stockholder communications, including all
expenses of stockholders' and Board of Directors' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to
stockholders.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined by subtracting
from the value of the assets of a Portfolio the amount of its liabilities, and
dividing the remainder by the number of outstanding shares of the Portfolio.
The Board of Directors has fixed the specific time of day for the computation
of a Portfolio's net asset value to be as of 4:00 p.m., New York time.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Trust's Board of Directors.
Each Portfolio will compute its net asset value once daily on days that the New
York Stock Exchange is open for trading, except on days on which no orders to
purchase, sell or redeem shares have been received. The New York Stock Exchange
is closed on the following holidays: New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
PURCHASE AND REDEMPTION OF SHARES
HOW TO PURCHASE SHARES
The shares of the Portfolios are currently offered to pension and profit
sharing plans, employee benefit trusts, financial institutions, corporations,
and individuals. Shares of a Portfolio may be purchased at net asset value
without a sales charge. The minimum initial investment in the Investment Grade
Multi-Sector Portfolio and the Multi-Sector Portfolio II is $5 million. The
minimum initial investment for each Multi-Sector Portfolio III-VIII is $50
million and each of the Multi-Sector Portfolios III-VIII will be separately
offered to appropriate institutional investors.
An account may be opened by completing and signing a Client Registration
Form and mailing it to The BFM Institutional Trust Inc. at the following
address: State Street Bank - Global Client Support, P.O. Box 1978, Boston,
Massachusetts 02105.
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<PAGE> 26
Purchases of shares may be made by wiring Federal funds to each Portfolio's
Transfer Agent on any day on which the Portfolios compute net asset value.
Normally, payments for such shares should be received by the proper Transfer
Agent no later than 12:00 noon, New York time. Before wiring Federal funds, the
investor must first telephone the Transfer Agent at 617-985-9620. On the
telephone the following information will be requested: name of authorized
person; stockholder name; stockholder account number; name of the Portfolio;
amount being wired; and wiring bank name. Purchase orders will be effected at
the net asset value next determined after receipt of a proper order and payment
of Federal funds, and dividends will commence accruing on that day.
Other Purchase Information
Purchases of a Portfolio's shares will be made in full and fractional
shares. In the interest of economy and convenience, certificates for shares
will generally not be issued.
The Trust reserves the right, in its sole discretion, to suspend the
offering of shares of any or all of the Portfolios or to reject purchase orders
when, in the judgment of management, such suspension or rejection is in the
best interests of the Trust; to waive the minimum initial investment of certain
investors; and to redeem shares if information provided in the Client
Registration Form should prove to be incorrect in any material manner (e.g., in
a manner such as to render the stockholder ineligible to purchase shares of the
Trust). Shares will not be offered or sold in any jurisdiction to any person to
whom it would be unlawful to make such offer or sale in such jurisdiction.
Shares of a Portfolio may be purchased by customers of broker-dealers or
other financial intermediaries (service agents) which have established a
stockholder servicing relationship with the Trust on behalf of their customers.
Service agents may impose additional or different conditions on the purchase or
redemption of Portfolio shares by their customers and may charge their
customers transaction, account or other fees on the purchase and redemption of
Portfolio shares. Each service agent is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Stockholders who
are customers of service agents should consult their service agent for
information regarding these fees and conditions.
HOW TO REDEEM SHARES
Each Portfolio will redeem its shares at the net asset value next
determined following receipt of a proper request, and dividends will not accrue
after the day on which the redemption is effectuated. The date on which a
redemption request is received will be the date specified if the redemption
request specifies a particular date in the future for its effectiveness. The
Trust expects to pay all redemption requests made with at least thirty (30)
days' advance notice in cash. Redemption requests in excess of $250,000 by
any single shareholder from a particular Portfolio within any three-month
period may be paid in kind unless the Trust has received at least thirty (30)
days' advance notice and will be paid in kind if the redeeming shareholder so
requests and such payment will not adversely affect other shareholders.
Shareholders who receive redemptions in kind will incur additional expense and
delay in disposing of such securities and the value of such securities may
decline during the disposition period. Each Portfolio accepts telephone
requests from any investor for wire redemption. The Portfolios and the
Transfer Agent will not be liable for following telephone instructions
reasonably believed to be genuine. In this regard, the Portfolios and the
Transfer Agent require personal identification information before accepting a
telephone redemption. If the Portfolios or their Transfer Agent fail to use
reasonable procedures, the Portfolios might be liable for losses due to
fraudulent instructions. Redemptions may be made by calling Transfer Agent at
617-985-9620, by facsimile, or by other wire communication. No charge is made
for redemptions. Shares redeemed may be worth more or less than the purchase
price of the shares, depending on the market value of the investment securities
held by the particular Portfolio at the time of redemption.
If a proper redemption request is received prior to 12:00 noon, New York
time, on any day on which the Portfolio computes its net asset value, payment
of the redemption price will ordinarily be wired to the stockholder's bank on
the first business day subsequent to the 30-day advance notice redemption
request in the case of the Portfolios. If the request is received after 12:00
noon, New York time, payment will ordinarily be wired to the stockholder's bank
within two business days subsequent to the 30-day advance notice redemption
request. Redemption proceeds will be sent by wire only to the bank named on the
stockholder's application form. A stockholder may change the wire instructions
on the application form by writing to the proper Transfer Agent with an
appropriate signature guarantee. The Trust may suspend the right
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<PAGE> 27
of redemption or postpone the payment date at times when the New York Stock
Exchange is closed, or during certain other periods as permitted under the
federal securities laws.
REPORTS TO STOCKHOLDERS
The Trust will send to its stockholders semi-annual and annual reports and
may send periodic reports more frequently. The reports include a discussion of
the performance of the Portfolios and a comparison of the performance of the
Portfolios to their respective benchmarks. The financial statements appearing
in annual reports are audited by independent accountants.
In order to avoid duplicate mailing and printing expenses, the Trust will
provide one semi-annual and annual stockholder report and one annual prospectus
per investor. Stockholders may request additional copies of such reports or
prospectuses for each Portfolio without charge by calling 617-985-9620 or by
writing to the Administrator at State Street Bank - Global Client Support, P.O.
Box 1978, Boston, Massachusetts 02105.
STOCKHOLDER INQUIRIES
Stockholder inquiries should be addressed to The BFM Institutional Trust
Inc. at State Street Bank - Global Client Support, P.O. Box 1978, Boston,
Massachusetts 02105, or by telephone, at 617-985-9620.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Portfolio will be treated as a separate taxable entity for federal
income tax purposes. Each Portfolio intends to elect to qualify and to remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code. So long as the Portfolios continue to so qualify, they will not
be subject to federal income taxes on their net investment income and capital
gains, if any, that they distribute to stockholders. Any undistributed income
may be subject to tax, including a 4% excise tax on certain undistributed
income of a regulated investment company that does not distribute to
stockholders in a timely manner at least 98% of its income. All dividends out
of net investment income, together with distributions of net short-term capital
gains, will be taxable as ordinary income to stockholders whether or not
reinvested. Any net long-term capital gains distributed to stockholders will be
taxable as such to stockholders, whether or not reinvested and regardless of
the length of time shares have been held. Each Portfolio expects to declare
dividends daily of their net investment income payable monthly and make
distributions at least annually of any net capital gains.
Under U.S. Treasury Regulations, each Portfolio is required to withhold and
remit to the U.S. Treasury 31% of dividend and capital gain income and
redemption proceeds on the accounts of those stockholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign stockholders) with the required certifications regarding the
stockholder's status under the federal income tax laws.
Dividends and distributions will be paid in additional Portfolio shares,
based on the net asset value on the payment date or such other date as the
Directors may determine, unless the stockholder elects in writing not less than
five business days prior to the payment date to receive such dividends and
distributions in cash. Such election should be submitted to the Transfer Agent.
The Trust will notify each stockholder after the close of the Trust's taxable
year both of the dollar amount and the taxable status of that year's dividends
and distributions. Stockholders are urged to consult their own tax advisers
regarding specific questions as to federal, state or local taxes.
The tax discussion set forth above is included for general information
only. For additional information, see "Taxes, Dividends and Distributions" in
the Statement of Additional Information. Prospective investors should consult
their own tax advisers concerning the federal, state, local and foreign tax
consequences to them of an investment in the Portfolios.
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<PAGE> 28
GENERAL INFORMATION
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yield", "effective
yield" and "total return". These figures will be based on historical earnings,
may fluctuate substantially and are not intended to indicate future
performance.
The "yield" of the Portfolios refers to the income generated by an
investment in a Portfolio over a one-month or 30-day period. This income is
then "annualized"; that is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each 30-day period for 12
periods and is shown as a percentage of the investment. The income earned on
the investment is also assumed to be reinvested at the end of the sixth 30-day
period. The "total return" of the Portfolios shows how much an investment in a
Portfolio would have increased (decreased) over a specified period of time
(i.e., one, five or ten years or since inception of the Portfolio) assuming
that all distributions and dividends by the Portfolio were reinvested on the
reinvestment dates during the period and less all recurring fees. Total return
does not take into account any federal, state or local income taxes that may be
payable upon redemption.
The Trust may include comparative performance information in advertising or
marketing the Portfolios' shares. Such performance information may include data
from Lipper Analytical Services, Inc., other industry publications, business
periodicals, rating services and market indices. See "Performance Information"
in the Statement of Additional Information.
DESCRIPTION OF SHARES
The Trust was organized as a Maryland corporation on November 27, 1991, and
currently consists of sixteen separately managed portfolios. The Trust is
authorized to issue 2 billion shares of capital stock, $.0001 par value, in one
or more classes or series. The Investment Grade Multi-Sector Portfolio and the
Multi-Sector Portfolio II are each authorized to issue 100 million shares of
capital stock, and each Multi-Sector Portfolio III-VIII is authorized to issue
one (1) million shares of capital stock. In addition to the Portfolios, the
Trust consists of the following series: The Short Duration Portfolio, The
Intermediate Duration Portfolio, The Core Fixed Income Portfolio, The Mortgage
Portfolio, The Government Portfolio, The Long Duration Portfolio and the Global
Fixed Income Portfolio, which are all fixed income portfolios and The Money
Market Portfolio. The Board of Directors is empowered by the Articles of
Incorporation to issue additional classes or series of shares and to increase
or decrease the number of authorized shares of the Trust or any class or series
thereof.
Each share of a Portfolio represents an equal proportionate interest in the
Portfolio with each other share of that Portfolio. Shares entitle their
holders to one vote per share. Shares have non-cumulative voting rights, do not
have preemptive or subscription rights and are transferable. Pursuant to the
1940 Act, stockholders are required to approve the adoption of any investment
advisory agreement, any plan of distribution under Rule 12b-1 and any changes
in fundamental investment policies.
If the Trust does not hold annual meetings of stockholders, it will abide
by Section 16(c) of the 1940 Act which provides that the Directors will call a
meeting of stockholders for the purpose of voting on the question of the
removal of a Director if so requested in writing by the holders of 10% or more
of a Portfolio's outstanding shares and will assist such stockholders in
communicating with the other stockholders. Directors may be removed by vote of
a majority of the outstanding shares of a Portfolio.
To provide the initial capital of the Trust, the Adviser has purchased
10,000 shares of The Short Duration Portfolio for an aggregate purchase price
of $100,000. These shares were acquired for investment purposes and the Adviser
has no present intention of selling such shares.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), State Street Bank -
Global Client Support, P.O. Box 1978, Boston, Massachusetts, 02105 will serve
as Administrator to the Portfolios pursuant to an administration agreement.
State Street receives an annual fee equal to .08% of each Portfolio's net asset
value up to $75 million, .06% of the next $75 million and .04% in excess of
$150 million, subject to certain minimum requirements. Such rate is .04% in
the case of
25
<PAGE> 29
Multi-Sector Portfolio III. State Street will also serve as Transfer Agent for
the Portfolios and Custodian for all of the Portfolio's securities and cash.
In its capacity as Custodian and Transfer Agent, State Street will maintain
certain books and records for the Trust. State Street also acts as dividend
disbursing agent for the Trust. State Street's mailing address is Global Client
Support, P.O. Box 1978, Boston, Massachusetts 02105.
VALIDITY OF THE SHARES
The validity of the shares offered hereby will be passed on for the Trust
by Miles & Stockbridge, Baltimore, Maryland.
EXPERTS
Deloitte & Touche LLP, New York, New York, has been selected as the
independent auditors for the Trust and in that capacity audits the Portfolios'
annual financial statements.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Trust with the SEC under
the Securities Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
26
<PAGE> 30
APPENDIX A
DESCRIPTION OF RATINGS
DESCRIPTION OF MOODY'S BOND RATINGS:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality,
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments with respect to these bonds are protected by a
large or by an exceptionally stable margin, and principal is secure. Although
the various protective elements applicable to these bonds are likely to change,
those changes are most unlikely to impair the fundamentally strong position of
these bonds.
Aa -- Bonds that are rated Aa are judged to be of high quality by
all standards and together with the Aaa group comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or other elements may be
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest with respect to these bonds are
considered adequate, but elements may be present that suggest a susceptibility
to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered to be medium grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack outstanding
investment characteristics and may have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds that are rated Caa are of poor standing. These issues may
be in default or present elements of danger may exist with respect to principal
and interest.
Ca -- Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers l, 2, and 3 in each generic
rating classification from Aa through B. The modifier l indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
DESCRIPTION OF STANDARD & POOR'S BOND RATINGS:
AAA -- Debt rated "AAA" has the highest rating assigned by
S&P. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest rated issues only in
small degree.
A-1
<PAGE> 31
A -- Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than in higher rated categories.
BB -- Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
B -- Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC -- Debt rated "CCC" has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
CC -- The rating "CC" typically is applied to debt
subordinated to senior debt that is assigned an actual or implied "CCC" rating.
C -- The rating "C" typically is applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC-" debt rating. The
"C" rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI -- The rating "CI" is reserved for income bonds on which no
interest is being paid.
D -- Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Standard & Poor's letter ratings may be modified by the
addition of a plus or minus sign, which is used to show relative standing
within the major rating categories, except in the AAA, CC, C, CI and D
categories.
DESCRIPTION OF DUFF & PHELPS' BOND RATINGS:
AAA - Bonds rated AAA are of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA -- Bonds rated AA have high credit quality with strong
protection factors. Risk is modest.
A -- Bonds rated A have average but adequate protection
factors. Risk factors are greater and more variable in times of economic stress
than AAA or AA.
BBB -- Bonds rated BBB exhibit below average protection
factors, but still considered for prudent investment. Considerable variability
in risk during economic cycles.
A-2
<PAGE> 32
BB -- Bonds rated BB are below investment grade, but deemed
likely to meet obligations when due.
B -- Bonds rated B are below investment grade and possessing
risk that obligations will not be met when due.
CCC -- Bonds rated CCC are well below investment grade. They
may be in default or have considerable uncertainty as to timely payment of
interest and/or principal.
DD -- Bonds rated DD are defaulted debt obligations. Payments
of principal and/or interest have not been made.
Duff & Phelps' letter ratings may be modified by the addition
of a plus or minus sign, which is used to show relative standing within the
major rating categories, except in the AAA, CCC and DD categories.
DESCRIPTION OF FITCH BOND RATINGS:
AAA -- Bonds rated AAA are considered investment grade and of
the highest quality. The ability to pay interest and principal is exceptionally
strong and unlikely to be affected by reasonably foreseeable events.
AA -- Bonds rated AA are considered investment grade and very high
credit quality.
A -- Bonds rated A are considered investment grade and of high credit
quality. The ability to pay interest and principal is strong, but may be
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds rated BBB are considered investment grade and
satisfactory credit quality. The likelihood that these bonds will fall below
investment grade, however, is higher than for bonds with higher ratings.
BB -- Bonds rated BB are considered speculative. The ability to pay
interest and principal may be affected over time by adverse economic changes.
B -- Bonds rated B are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the issuer's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC -- Bonds rated CCC have certain identifiable characteristics
which, if not remedied, may lead to default.
CC -- Bonds rated CC are minimally protected. Default seems probable
over time.
C -- Bonds rated C are in imminent default in payments of interest or
principal.
DDD, DD and D -- Bonds rated in any of these categories are in default
on interest and/or principal payments.
Fitch's letter ratings may be modified by the addition of a plus or
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA category.
A-3
<PAGE> 33
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS OF
ADDITIONAL INVESTMENT MANAGEMENT TECHNIQUES
In order to manage the risk of its securities portfolio, including duration
management, or to enhance income or gain as described above, each Portfolio
will engage in Additional Investment Management Techniques. A Portfolio will
engage in such activities in the Adviser's discretion, and may not necessarily
be engaging in such activities when movements in interest rates that could
affect the value of the assets of the Portfolio occur. A Portfolio's ability
to pursue certain of these strategies may be limited by applicable regulations
of the CFTC and the federal income tax requirements applicable to regulated
investment companies. See "Taxation - Consequences of Certain Trust
Investments."
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
Each Portfolio may purchase and sell put and call options on securities and
indices. A put option gives the purchaser of the option the right to sell and
the writer the obligation to buy the underlying security at the exercise price
during the option period. Each Portfolio may also purchase and sell options on
stock indices ("index options"). Index options are similar to options on
securities except that, rather than taking or making delivery of securities
underlying the option at a specified price upon exercise, an index option gives
the holder the right to receive cash upon exercise of the option if the level
of the stock index upon which the option is based is greater, in the case of a
call, or less, in the case of a put, than the exercise price of the option.
The purchase of a put option on a debt security could protect a Portfolio's
holdings in a security or a number of securities against a substantial decline
in the market value. A call option gives the purchaser of the option the right
to buy and the seller the obligation to sell the underlying security or index
at the exercise price during the option period or for a specified period prior
to a fixed date. The purchase of a call option on a security could protect a
Portfolio against an increase in the price of a security that it intended to
purchase in the future. In the case of either put or call options that it has
purchased, if the option expires without being sold or exercised, a Portfolio
will experience a loss in the amount of the option premium plus any related
commissions. When a Portfolio sells put and call options, it receives a
premium as the seller of the option. The premium that a Portfolio receives for
selling the option will serve as a partial hedge, in the amount of the option
premium, against changes in the value of the securities in its portfolio.
During the term of the option, however, a covered call seller has, in return
for the premium on the option, given up the opportunity for capital
appreciation above the exercise price of the option if the value of the
underlying security increases, but has retained the risk of loss should the
price of the underlying security decline. Conversely, a secured put seller
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option, less the premium received on
the sale of the option. Each Portfolio is authorized to purchase and sell
exchange listed options and over-the-counter options ("OTC Options") which are
privately negotiated with the counterparty. Listed options are issued by the
Options Clearing Corporation ("OCC") which guarantees the performance of the
obligations of the parties to such options.
A Portfolio's ability to close out its position as a purchaser or seller of
an exchange-listed put or call option is dependent upon the existence of a
liquid secondary market on option exchanges. Among the possible reasons for
the absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had been
listed by the OCC as a result of trades on that exchange would generally
continue to be exercisable in accordance with their terms. OTC options are
purchased from or sold to dealers, financial institutions or other
counterparties which have entered into direct agreements with a Portfolio.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between a Portfolio and the counterparty, without the
intermediation of a third party such as the OCC. If the counterparty fails to
make or take delivery of the securities underlying an option it has written, or
otherwise settle the transaction in accordance with the terms of that option as
written, a Portfolio would lose the premium paid for the option as well as any
anticipated benefit of the transaction. As a Portfolio must rely on the credit
quality of the counterparty rather than the guarantee of the OCC, it will only
enter into OTC options with counterparties with the highest long-term credit
ratings, and with primary United States government securities dealers
recognized by the Federal Reserve Bank of New York.
B-1
<PAGE> 34
The hours of trading for options on debt securities may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS
Characteristics. Each Portfolio may sell financial futures contracts or
purchase put and call options on such futures as a hedge against anticipated
interest rate changes or other market movements. The sale of a futures
contract creates an obligation by a Portfolio, as seller, to deliver the
specific type of financial instrument called for in the contract at a specified
future time for a specified price. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put).
Margin Requirements. At the time a futures contract is purchased or sold,
a Portfolio must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin that a Portfolio will pay may
range from approximately 1% to approximately 5% of the value of the securities
or commodities underlying the contract. In certain circumstances, however,
such as periods of high volatility, a Portfolio may be required by an exchange
to increase the level of its initial margin payment. Additionally, initial
margin requirements may be increased generally in the future by regulatory
action. An outstanding futures contract is valued daily and the payment in
cash of "variation margin" may be required, a process known as "marking to the
market". Transactions in listed options and futures are usually settled by
entering into an offsetting transaction, and are subject to the risk that the
position may not be able to be closed if no offsetting transaction can be
arranged.
Limitations on Use of Futures and Options on Futures. Each Portfolio's use
of futures and options on futures will in all cases be consistent with
applicable regulatory requirements and in particular the rules and regulations
of the CFTC. Under such regulations a Portfolio currently may enter into such
transactions without limit for bona fide hedging purposes, including risk
management and duration management and other portfolio strategies.
Each Portfolio may also engage in transactions in futures contracts or
related options to enhance income or gain provided that a Portfolio will not
enter into a futures contract or related option (except for closing
transactions for purposes other than bona fide hedging) if, immediately
thereafter, the sum of the amount of its initial deposits and premiums on open
contracts and options would exceed 5% of a Portfolio's liquidation value, i.e.
net assets (taken at current value); provided, however, that in the case of an
option that is in-the-money at the time of the purchase, the in-the-money
amount may be excluded in calculating the 5% limitation. Also, when required,
a segregated account of cash or cash equivalents will be maintained and marked
to market in an amount equal to the market value of the contract. Each
Portfolio reserves the right to comply with such different standard as may be
established from time to time by CFTC rules and regulations with respect to the
purchase or sale of futures contracts or options thereon.
Segregation and Cover Requirements. Futures contracts, interest rate
swaps, caps, floors and collars, short sales, reverse repurchase agreements and
dollar rolls, and listed options on securities, indices and futures contracts
sold by each Portfolio are subject to segregation and coverage requirements of
either the CFTC or the SEC, with the result that, if a Portfolio does not hold
the security or futures contract underlying the instrument, a Portfolio will be
required to segregate on an ongoing basis with its custodian, cash, U.S.
government securities, or other liquid high grade debt obligations in an amount
at least equal to the Portfolio's obligations with respect to such instruments.
Such amounts fluctuate as the obligations increase or decrease. The
segregation requirement can result in a Portfolio maintaining securities
positions it would otherwise liquidate, segregating assets at a time when it
might be disadvantageous to do so or otherwise restrict portfolio management.
B-2
<PAGE> 35
INSTITUTIONAL CLIENT REGISTRATION FORM
The undersigned acknowledges receipt of a copy of the current prospectus of
The BFM Institutional Trust Inc. (the "Trust"), and subscribes for shares of
the Trust as specified below and in accordance with the prospectus and terms
and instructions contained therein:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF
SUBSCRIPTION
------------------
<S> <C>
The Investment Grade Multi-Sector Portfolio . . . . . . . . . . . $
The Multi-Sector Portfolio II . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio IV . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio V . . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio VI . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio VII . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio VIII . . . . . . . . . . . . . . . . . $
------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . $
============
</TABLE>
The Trust reserves the right, in its sole discretion, to suspend the
offering of shares of any Portfolio or to reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interests
of the Trust; to waive the minimum initial investment of certain investors; to
redeem shares if information provided in this Client Registration Form should
prove to be incorrect in any material manner (e.g., in a manner such as to
render the stockholder ineligible to purchase shares of the Trust); and to pay
all redemption requests made with at least thirty (30) days' advance notice in
cash. Redemption requests in excess of $250,000 by any single shareholder from
a particular portfolio within any three-month period may be paid in kind unless
the Trust has received at least thirty (30) days' advance notice and will be
paid in kind if the redeeming shareholder so requests and such payment will not
adversely affect other shareholders. Shares will not be offered or sold in any
jurisdiction to any person to whom it would be unlawful to make such offer or
sale in such jurisdiction.
REGISTRATION OF SHARES
Shares are to be registered in the name(s) and address indicated below
(please type or print).
- ------------------------------------------------------------------------------
Name of Account
- ------------------------------------------------------------------------------
Street or P.O. Box
- ------------------------------------------------------------------------------
City State Zip Code
Telephone Number (______)____________
INSTITUTIONAL ACCOUNT INFORMATION
Check type of Institution:
<TABLE>
<S> <C>
____ pension or profit-sharing plan or trust ____ investment company
____ bank
____ savings institution ____ entity qualified under Section 501(c)(3) of the Internal Revenue Code
____ credit union ____ corporation
____ trust company ____ other (please specify:
____ insurance company ____ _____________________)
</TABLE>
As of its most recent fiscal year end, the investor had total assets of
approximately $ ____________ and net assets of approximately $ ____________.
If the account is a Trust, include above the Trustee name, beneficiary or
maker and date of the Trust.
TAX WITHHOLDING
Under Federal income tax law, stockholders are subject to certain penalties
as well as withholding of tax at a rate of 31 percent if they do not complete
this section.
Taxpayer Identification or Social Security Number: ________-________-________
Please check one of the following:
A. ____ The investor has (______ the investor has not) been notified by
the IRS that it is subject to backup withholding as a result of failure to
report dividend or interest income.
B. ____ The IRS has notified the investor that it is no longer subject to
backup withholding.
<PAGE> 36
C. ____ The investor is exempt from backup withholding. (All corporations
and organizations, among others falling within section 501(a) of the
Internal Revenue Code, are exempt.)
DIVIDEND REINVESTMENT
Dividend and capital gain distributions will be reinvested in additional
shares of the Trust unless a separate election form is executed by the
stockholder to receive distributions in cash. To be effective, the election
form must be received not less than five business days prior to the payment
date for the dividend or distribution. Contact the Trust to obtain the election
form.
WIRE TRANSFER INFORMATION
All cash transfers, including subscriptions and redemptions of Trust
shares, will only be effected by wire transfer through the bank listed below
(call 1-800-336-6986 to obtain the Trust's wire transfer instructions). This
registration form must be accepted by the Trust before redemption of Trust
shares will be effected in accordance with the prospectus.
<TABLE>
<S> <C>
- --------------------------------------------------------- ---------------------------------------------------
Bank Name Street
- --------------------------------------------------------- ---------------------------------------------------
City State Zip Code
- --------------------------------------------------------- ---------------------------------------------------
Bank Account Number ABA Number
- --------------------------------------------------------- ---------------------------------------------------
Bank Phone Number Account Title
</TABLE>
SIGNATURES
The investor understands and agrees that the Trust and its Transfer Agent
will not be liable for any loss, cost or expense for acting on instructions
(whether in writing or by telephone) believed by the party receiving such
instructions to be genuine and in accordance with the procedures in the
prospectus. The investor understands the investment objectives and policies
stated in the prospectus and represents that such objectives and policies are
consistent with the investment objectives, investment experience and financial
condition of investor. The investor also represents that the shares subscribed
for hereby, and any shares of the Trust purchased by such investor in the
future, will be acquired for the investor's own account and not with a view to,
or for resale in connection with, any distribution thereof.
INSTITUTIONAL ACCOUNTS:
Please type or print names and titles of authorized signers. Persons
signing as representatives for an institutional account warrant as individuals
that each person signing is an authorized representative, that each person is
empowered to effect securities transactions for the investor on the terms
described in the prospectus, that the account and privileges selected have been
duly authorized, that all signatures hereon are genuine and that the persons
indicated hereon are authorized to sign.
<TABLE>
<S> <C>
- --------------------------------------------------------- ---------------------------------------------------
Signature Signature of Date
- --------------------------------------------------------- ---------------------------------------------------
Signature Signature of Date
- --------------------------------------------------------- ---------------------------------------------------
Signature Signature of Date
</TABLE>
<PAGE> 37
SIGNATURE GUARANTEE
A signature guarantee must be provided by an "eligible guarantor
institution," which includes a bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. You should verify with the institution that it is an
"eligible guarantor institution" prior to signing. A guarantee from a notary is
not acceptable.
Affix Signature Guarantee Stamp
- ----------------------------------
Signature Guaranteed By
- ----------------------------------
Authorized Signature
- ----------------------------------
Date
Mail Registration Form To:
The BFM Institutional Trust Inc.
State Street Bank-Global Client Support
P.O. Box 1978
Boston, Massachusetts 02105
<PAGE> 38
INDIVIDUAL CLIENT REGISTRATION FORM
The undersigned acknowledges receipt of a copy of the current prospectus of
The BFM Institutional Trust Inc. (the "Trust"), and subscribes for shares of
the Trust as specified below and in accordance with the prospectus and terms
and instructions contained therein:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF
SUBSCRIPTION
------------------
<S> <C>
The Investment Grade Multi-Sector Portfolio . . . . . . . . . . . $
The Multi-Sector Portfolio II . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio IV . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio V . . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio VI . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio VII . . . . . . . . . . . . . . . . . . $
The Multi-Sector Portfolio VIII . . . . . . . . . . . . . . . . . $
------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . $
============
</TABLE>
The Trust reserves the right, in its sole discretion, to suspend the
offering of shares of any Portfolio or to reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interests
of the Trust; to waive the minimum initial investment of certain investors; to
redeem shares if information provided in this Client Registration Form should
prove to be incorrect in any material manner (e.g., in a manner such as to
render the stockholder ineligible to purchase shares of the Trust); and to pay
all redemption requests made with at least thirty (30) days' advance notice in
cash. Redemption requests in excess of $250,000 by any single shareholder from
a particular Portfolio within any three-month period may be paid in kind unless
the Trust has received at least thirty (30) days' advance notice and will be
paid in kind if the redeeming shareholder so requests and such payment will not
adversely affect other shareholders. Redemption requests in excess of $250,000
by any single shareholder from a particular portfolio within any three-month
period may be paid in kind unless the Trust has received at least thirty (30)
days' advance notice. Shares will not be offered or sold in any jurisdiction
to any person to whom it would be unlawful to make such offer or sale in such
jurisdiction.
REGISTRATION OF SHARES
Shares are to be registered in the name(s) and address indicated below
(please type or print).
- ------------------------------------------------------------------------------
Name of Account
- ------------------------------------------------------------------------------
Street or P.O. Box
- ------------------------------------------------------------------------------
City State Zip Code
Telephone Number (______)__________________
State of Residence: ______________________
Type of Account: _______________ Individual
INVESTMENT OBJECTIVES
Check:
<TABLE>
<S> <C>
____ growth ____ investment company
____ income ____ capital preservation
____ growth & income ____ aggressive growth
____ speculation
</TABLE>
As of the most recent fiscal year end, the investor had total assets of
approximately $ ____________ and net assets of approximately $ ____________.
INDIVIDUAL ACCOUNT INFORMATION
Check type of account:
<TABLE>
<S> <C>
____ Individual ____ Joint Tenant
____ Custodial ____ Trust
</TABLE>
If the account is a Trust, include above the Trustee name, beneficiary or
maker and date of the Trust.
<PAGE> 39
TAX WITHHOLDING
Under Federal income tax law, stockholders are subject to certain penalties
as well as withholding of tax at a rate of 31 percent if they do not complete
this section.
Taxpayer Identification or Social Security Number: ________-________-________
Please check one of the following:
A. _____ The investor has (______ the investor has not) been notified by
the IRS that it is subject to backup withholding as a result of failure to
report dividend or interest income.
B. _____ The IRS has notified the investor that it is no longer subject to
backup withholding.
C. _____ The investor is exempt from backup withholding. (All corporations
and organizations, among others falling within section 501(a) of the
Internal Revenue Code, are exempt.)
DIVIDEND REINVESTMENT
Dividend and capital gain distributions will be reinvested in additional
shares of the Trust unless a separate election form is executed by the
stockholder to receive distributions in cash. To be effective, the election
form must be received not less than five business days prior to the payment
date for the dividend or distribution. Contact the Trust to obtain the election
form.
WIRE TRANSFER INFORMATION
All cash transfers, including subscriptions and redemptions of Trust
shares, will only be effected by wire transfer through the bank listed below
(call 1-800-336-6986 to obtain the Trust's wire transfer instructions). This
registration form must be accepted by the Trust before redemption of Trust
shares will be effected in accordance with the prospectus.
<TABLE>
<S> <C>
- --------------------------------------------------------- ---------------------------------------------------
Bank Name Street
- --------------------------------------------------------- ---------------------------------------------------
City State Zip Code
- --------------------------------------------------------- ---------------------------------------------------
Bank Account Number ABA Number
- --------------------------------------------------------- ---------------------------------------------------
Bank Phone Number Account Title
</TABLE>
SIGNATURES
The investor understands and agrees that the Trust and its Transfer Agent
will not be liable for any loss, cost or expense for acting on instructions
(whether in writing or by telephone) believed by the party receiving such
instructions to be genuine and in accordance with the procedures in the
prospectus. The investor understands the investment objectives and policies
stated in the prospectus and represents that such objectives and policies are
consistent with the investment objectives, investment experience and financial
condition of investor. The investor also represents that the shares subscribed
for hereby, and any shares of the Trust purchased by such investor in the
future, will be acquired for the investor's own account and not with a view to,
or for resale in connection with, any distribution thereof.
INDIVIDUAL ACCOUNTS:
<TABLE>
<S> <C>
- --------------------------------------------------------- ---------------------------------------------------
Signature Signature of Date
- --------------------------------------------------------- ---------------------------------------------------
Signature Signature of Date
</TABLE>
<PAGE> 40
SIGNATURE GUARANTEE
A signature guarantee must be provided by an "eligible guarantor
institution," which includes a bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. You should verify with the institution that it is an
"eligible guarantor institution" prior to signing. A guarantee from a notary is
not acceptable.
Affix Signature Guarantee Stamp
- ----------------------------------
Signature Guaranteed By
- ----------------------------------
Authorized Signature
- ----------------------------------
Date
Mail Registration Form To:
The BFM Institutional Trust Inc.
State Street Bank-Global Client Support
P.O. Box 1978
Boston, Massachusetts 02105
<PAGE> 1
EXHIBIT (17)(q)
THE BFM INSTITUTIONAL TRUST INC.
Statement of Additional Information
dated April 3, 1995
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company currently consisting of sixteen investment
portfolios. The eight non-diversified investment portfolios (the
"Portfolios") described in this Statement of Additional Information consist of
The Investment Grade Multi-Sector Mortgage Securities Portfolio (the
"Investment Grade Multi-Sector Portfolio"), The Multi-Sector Mortgage
Securities Portfolio II and The Multi-Sector Mortgage Securities Portfolios
III-VIII (collectively, the "Multi-Sector Portfolios II-VIII"). BlackRock
Financial Management Inc. (formerly, BlackRock Financial Management L.P.)
serves as investment adviser (the "Adviser") to the Trust.
The Trust's address is 345 Park Avenue, New York, New York 10154, and its
telephone number is (212) 754-5560.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Trust's Prospectus dated April 3, 1995 a copy of
which may be obtained from the Trust upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Objective and Policies . . . . . . . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . B-10
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . B-11
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . B-13
Distribution and Stockholder Servicing Plan . . . . . . . . . . . . . B-15
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . B-16
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . B-18
Taxes, Dividends and Distributions . . . . . . . . . . . . . . . . . B-18
Performance Information . . . . . . . . . . . . . . . . . . . . . . . B-20
Custodian, Transfer and Dividend Disbursing Agents . . . . . . . . . B-20
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-21
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-22
</TABLE>
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<PAGE> 2
INVESTMENT OBJECTIVES AND POLICIES
For a description of the objectives and policies of the Portfolios, see
"Description of the Trust -- Investment Objectives and Policies" in the
Prospectus. In accordance with the applicable provisions of the 1940 Act, a
Portfolio will maintain with its custodian a segregated account of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt to the
extent a Portfolio's obligations require segregation from the use of investment
practices listed below. The following information is provided for those
investors desiring information in addition to that contained in the Prospectus.
OTHER INVESTMENT PRACTICES
Interest Rate Transactions. Each Portfolio may enter into interest rate
swaps and the purchase or sale of interest rate caps and floors. A Portfolio
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio as a duration
management technique or to protect against any increase in the price of
securities that the Portfolio anticipates purchasing at a later date. The
Portfolios will ordinarily use these transactions as a hedge or for duration or
risk management although each Portfolio (other than Multi-Sector Portfolio III)
is permitted to enter into them to enhance income or gain. A Portfolio will
not sell interest rate caps or floors that it does not own. Interest rate
swaps involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest
rate floor entitles the purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest rate floor.
Each Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with a Portfolio receiving or paying, as the case may be, only the net
amount of the two payments on the payment dates. A Portfolio will accrue the
net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate swap on a daily basis and will
segregate with a custodian an amount of cash or liquid high grade securities
having an aggregate net asset value at all times at least equal to the accrued
excess. If there is a default by the other party to such a transaction, the
Portfolio will have contractual remedies pursuant to the agreements related to
the transaction.
Futures Contracts and Options on Futures Contracts. Each Portfolio may
also enter into contracts for the purchase or sale for future delivery
("futures contracts") of debt securities, aggregates of debt securities or
indices or prices thereof, other financial indices and U.S. government debt
securities or options on the above. A Portfolio will ordinarily engage in such
transactions only for bona fide hedging, risk management (including duration
management) and other portfolio management purposes. However, each Portfolio
(other than Multi-Sector Portfolio III) may also enter into such transactions
to enhance income or gain, in accordance with the rules and regulations of the
CFTC, which currently provide that no such transaction may be entered into for
non-bona fide hedging purposes if at such time more than 5% of a Portfolio's
net assets would be posted as initial margin or premiums with respect to such
non-bona fide transactions.
Calls on Securities, Indices and Futures Contracts. Each portfolio may
sell or purchase call options ("calls") on U.S. Treasury securities, corporate
debt securities, mortgage-backed securities, asset-backed securities, zero
coupon securities, other debt securities, indices, Eurodollar instruments that
are traded on U.S. and foreign securities exchanges and in the over-the-
counter markets and future contracts. A call gives the purchaser of the option
the right to buy, and obligates the seller to sell, the underlying
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<PAGE> 3
security, futures contract or index at the exercise price at any time or at a
specified time during the option period. All such calls sold by a Portfolio
must be "covered" as long as the call is outstanding (i.e., the Portfolio must
own the securities or futures contract subject to the call or other securities
acceptable for applicable escrow requirements). A call sold by a Portfolio
exposes the Portfolio during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security, index or futures contract and may require a Portfolio to hold a
security or futures contract which it might otherwise have sold. The purchase
of a call gives a Portfolio the right to buy a security, futures contract or
index at a fixed price. Calls on futures on U.S. Treasury securities,
Mortgage-Backed Securities, other debt securities and Eurodollar instruments
must also be covered by deliverable securities or the futures contract or by
liquid high grade debt securities segregated to satisfy a Portfolio's
obligations pursuant to such instruments.
Puts on Securities, Indices and Futures Contracts. Each Portfolio may
purchase put options ("puts") that relate to U.S. Treasury securities,
Mortgage-Backed Securities, other debt securities and Eurodollar instruments
(whether or not it holds such securities in its portfolio), indices or futures
contracts. A Portfolio may also sell puts on U.S. Treasury securities,
Mortgage-Backed Securities, other debt securities, Eurodollar instruments,
indices or futures contracts on such securities if the Portfolio's contingent
obligations on such puts are secured by segregated assets consisting of cash or
liquid high grade debt securities having a value not less than the exercise
price. A Portfolio will not sell puts if, as a result, more than 50% of the
Portfolio's assets would be required to cover its potential obligations under
its hedging and other investment transactions. In selling puts, there is a
risk that the Portfolio may be required to buy the underlying instrument at a
price higher than the current market price.
Short Sales. Each Portfolio (other than Multi-Sector Portfolio III) may
make short sales of securities. A short sale is a transaction in which a
Portfolio sells a security it does not own in anticipation that the market
price of that security will decline. A Portfolio may make short sales to hedge
positioning for duration and risk management in order to maintain portfolio
flexibility or to enhance income or gain. Short sales will be made in
compliance with applicable regulatory requirements and will be fully
collateralized at all times.
When a Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. A Portfolio may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
A Portfolio's obligation to replace the borrowed security will be secured
by collateral deposited with the broker-dealer, usually cash, U.S. government
securities or other high grade liquid securities. The Portfolio will also be
required to segregate similar collateral with its custodian to the extent, if
any, necessary so that the aggregate collateral value is at all times at least
equal to the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over of any payments received by the Portfolio on such
security, a Portfolio may not receive any payments (including interest) on its
collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time of the
short sale and the time a Portfolio replaces the borrowed security, the
Portfolio will incur a loss; conversely, if the price declines, the Portfolio
will realize a gain. Any gain will be decreased, and any loss increased, by
the transaction costs described above. Although a Portfolio's gain is limited
to the price at which it sold the security short, its potential loss is
theoretically unlimited.
No Portfolio will make a short sale if, after giving effect to such sale,
the market value of all securities sold short exceeds 25% of the value of its
total assets and the Portfolio's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. A
Portfolio may
B-3
<PAGE> 4
also make short sales "against the box" without respect to such limitations.
In this type of short sale, at the time of the sale, the Portfolio owns or has
the immediate and unconditional right to acquire at no additional cost the
identical security.
When-Issued and Forward Commitment Securities. Each Portfolio may also
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" basis. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. When-issued securities and forward commitments may
be sold prior to the settlement date, but a Portfolio will enter into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. If the Portfolio
disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss. At the time a Portfolio enters into a
transaction on a when-issued or forward commitment basis, it will segregate
with its custodian cash or other liquid high grade debt securities with a value
not less than the value of the when-issued or forward commitment securities.
The value of these assets will be monitored daily to ensure that their marked
to market value will at all times equal or exceed the corresponding obligations
of the Portfolio. There is always a risk that the securities may not be
delivered and that a Portfolio may incur a loss. Settlements in the ordinary
course, which typically occur monthly for mortgage-related securities, are not
treated by a Portfolio as when-issued or forward commitment transactions and
accordingly are not subject to the foregoing restrictions.
Repurchase Agreements. Each Portfolio may invest temporarily, without
limitation, in repurchase agreements, which are agreements pursuant to which
securities are acquired by a Portfolio from a third party with the
understanding that they will be repurchased by the seller at a fixed price on
an agreed date. These agreements may be made with respect to any of the
portfolio securities in which the Portfolios are authorized to invest.
Repurchase agreements may be characterized as loans secured by the underlying
securities and will be entered into in accordance with the requirements of the
SEC. Each Portfolio may enter into repurchase agreements with (i) member banks
of the Federal Reserve System having total assets in excess of $500 million and
(ii) securities dealers, provided that such banks or dealers meet the
creditworthiness standards established by the Trust's board of directors
("Qualified Institutions"). The Adviser will monitor the continued
creditworthiness of Qualified Institutions, subject to the supervision of the
Trust's Board of Directors. The resale price reflects the purchase price plus
an agreed upon market rate of interest which is unrelated to the coupon rate or
date of maturity of the purchased security. The collateral is marked to market
daily. Such agreements permit the Portfolio to keep all its assets earning
interest while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature.
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, a Portfolio will seek to dispose of such securities,
which action could involve costs or delays. If the seller becomes insolvent
and subject to liquidation or reorganization under applicable bankruptcy or
other laws, a Portfolio's ability to dispose of the underlying securities may
be restricted. Finally, it is possible that a Portfolio may not be able to
substantiate its interest in the underlying securities. To minimize this risk,
the securities underlying the repurchase agreement will be held by the
custodian at all times in an amount at least equal to the repurchase price,
including accrued interest. If the seller fails to repurchase the securities,
a Portfolio may suffer a loss to the extent proceeds from the sale of the
underlying securities are less than the repurchase price.
Restricted and Illiquid Securities. Each Portfolio may purchase certain
restricted securities ("Rule 144A securities") eligible for sale to qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933. Rule 144A provides an exemption from the registration requirements of
the Securities Act of 1933 for the resale of certain restricted securities to
qualified institutional buyers. One effect of Rule 144A is that certain
restricted securities may now be liquid, though no assurance can be given that
a liquid market for Rule 144A securities will develop or be maintained. A
Portfolio's holdings
B-4
<PAGE> 5
of Rule 144A securities which are liquid securities will not be subject to its
limitation on investment in illiquid securities. The Trust's board of
directors has adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A are liquid or
illiquid. The board of directors will periodically review the Portfolio's
purchases and sales of Rule 144A securities.
Lending of Securities. Each Portfolio (other than Multi-Sector Portfolio
III) may lend its portfolio securities to Qualified Institutions. By lending
its portfolio securities, a Portfolio attempts to increase its income through
the receipt of interest on the loan. Any gain or loss in the market price of
the securities loaned that may occur during the term of the loan will be for
the account of the Portfolio. A Portfolio may lend its portfolio securities so
long as the terms and the structure of such loans are not inconsistent with the
requirements of the 1940 Act, which currently require that (a) the borrower
pledge and maintain with the Portfolio collateral consisting of cash, a letter
of credit issued by a domestic U.S. bank, or securities issued or guaranteed by
the U.S. government having a value at all times not less than 100% of the
value of the securities loaned, (b) the borrower add to such collateral
whenever the price of the securities loaned rises (i.e., the value of the loan
is "marked to the market" on a daily basis), (c) the loan be made subject to
termination by the Portfolio at any time and (d) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio's investing
any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
A Portfolio will not lend portfolio securities if, as a result, the aggregate
of such loans exceeds 33 1/3% of the value of the Portfolio's total assets
(including such loans). Loan arrangements made by a Portfolio will comply with
all other applicable regulatory requirements, including the rules of the New
York Stock Exchange, which rules presently require the borrower, after notice,
to redeliver the securities within the normal settlement time of five business
days. All relevant facts and circumstances, including the creditworthiness of
the Qualified Institution, will be monitored by the Adviser, and will be
considered in making decisions with respect to lending of securities, subject
to review by the Trust's board of directors.
Each Portfolio may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract and
approved by the Trust's board of directors. In addition, voting rights may
pass with the loaned securities, but if a material event were to occur
affecting such a loan, the loan must be called and the securities voted.
OTHER INVESTMENTS
U.S. Government Securities
U.S. Government securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years), all of which
are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the
U.S. Government which are backed by the full faith and credit of the
United States. Among the agencies and instrumentalities issuing such
obligations are the Federal Housing Administration, the Government
National Mortgage Association (GNMA), the Department of Housing and
Urban Development, the Export-Import Bank, the Farmers Home
Administration (FHA), the General Services Administration, the
Maritime Administration and the Small Business Administration. The
maturities of such obligations range from three months to 30 years.
(3) Securities issued by agencies and instrumentalities which
are not backed by the full faith and credit of the United States, but
whose issuing agency or instrumentality may borrow,
B-5
<PAGE> 6
to meet its obligations, from the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee
Valley Authority, the Federal National Mortgage Association (FNMA),
the Federal Home Loan Mortgage Corporation (FHLMC) and the U.S.
Postal Service.
(4) Securities issued by agencies and instrumentalities which
are not backed by the full faith and credit of the United States, but
which are backed by the credit of the issuing agency or
instrumentality. Among the agencies and instrumentalities issuing
such obligations are the Federal Farm Credit System and the Federal
Home Loan Bank.
Neither the value nor the yield of the Portfolio's shares or of the U.S.
Government securities which may be invested in by the Portfolio are guaranteed
by the U.S. Government. Such values and yield will fluctuate with changes in
prevailing interest rates and other factors. Generally, as prevailing interest
rates rise, the value of any U.S. Government securities held by the Portfolio
will fall. Such securities with longer maturities generally tend to produce
higher yields and are subject to greater market fluctuation, as a result of
changes in interest rates, than debt securities with shorter maturities.
The Portfolios (except for Multi-Sector Portfolio III) may purchase "zero
coupon" Treasury securities. These are U.S. Treasury bills, notes and bonds
which have been stripped of their unmatured interest coupons or which are
certificates representing interests in such stripped debt obligations. Such
securities are purchased at a discount from their face amount giving the
purchaser the right to receive their full value at maturity. A zero coupon
security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
The interest rate on such securities is automatically compounded and paid
out at maturity. While such compounding at a constant rate eliminates the risk
of receiving lower yields upon reinvestment of interest if prevailing interest
rates decline, the owner of a zero coupon security will be unable to
participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that
a holder (such as a Portfolio) of a zero coupon security accrue a portion of
the discount at which the security was purchased as income each year even
though the Portfolio receives no interest payments in cash on the security
during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, a number of banks and brokerage firms have separated
(stripped) the principal portions from the coupon portions of U.S. Treasury
bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account.
Mortgage-Backed Securities
As discussed in the Prospectus, the Mortgage-Backed securities purchased
by the Portfolio evidence an interest in a specific pool of mortgages. Such
securities are issued by GNMA, FNMA and FHLMC and by private issuers, such as
depository institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing.
GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of
the United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the Housing Act), authorized GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing
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<PAGE> 7
Administration under the Housing Act, or Title V of the Housing Act of 1949
(FHA Loans), or guaranteed by the Veterans' Administration under the
Servicemen's Readjustment Act of 1944, as amended (VA Loans), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith
and credit of the U.S. Government is pledged to the payment of all amounts that
may be required to be paid under the guarantee. In order to meet its
obligations under such guarantee, GNMA is authorized to borrow from the U.S.
Treasury with no limitations as to amount.
The GNMA certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used
to reduce the borrower's monthly payments during the early years of the
mortgage loans ("buydown" mortgage loans); (viii) mortgage loans that provide
for adjustments in payments based on periodic changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except
as otherwise specified above, will be fully-amortizing loans secured by first
liens on one-to four-family housing units.
FNMA Certificates. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
Government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to
purchase home mortgage loans from many capital market investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total
amount of funds available for housing.
Each FNMA certificate will entitle the registered holder thereof to
receive amounts representing such holder's pro rata interest in scheduled
principal payments and interest payments (at such FNMA certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments on the mortgage loans
in the pool represented by such FNMA certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
otherwise finally liquidated mortgage loan. The full and timely payment of
principal of and interest on each FNMA certificate will be guaranteed by FNMA,
which guarantee is not backed by the full faith and credit of the U.S.
Government.
Each FNMA certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
graduated payment mortgage loans; and (iii) adjustable rate mortgage loans.
FHLMC Certificates. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the FHLMC Act). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily FHLMC certificates.
FHLMC guarantees to each registered holder of a FHLMC certificate the
timely payment of interest at the rate provided for by such FHLMC certificate,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment
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<PAGE> 8
of scheduled principal. FHLMC may remit the amount due on account of its
guarantee of collection of principal at any time after default on an underlying
mortgage loan, but not later than 30 days following (i) foreclosure sale, (ii)
payment of a claim by any mortgage insurer or (iii) the expiration of any right
of redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. The obligations of FHLMC under its guarantee are obligations solely
of FHLMC and are not backed by the full faith and credit of the U.S.
Government.
FHLMC certificates represent a pro rata interest in a group of mortgage
loans (a FHLMC certificate group) purchased by FHLMC. The mortgage loans
underlying the FHLMC certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
the applicable standards set forth in the FHLMC Act. A FHLMC certificate group
may include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC
certificate group.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates ("ARMs"). ARMs eligible for inclusion in a
mortgage pool generally provide for a fixed initial mortgage interest rate for
either the first three, six, twelve, thirteen, thirty-six or sixty scheduled
monthly payments. Thereafter, the interest rates are subject to periodic
adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the mortgage. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
Collateralized Mortgage Obligations and Multi-class Pass-Through
Securities. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (collectively, "Mortgage Assets"). Multi-class pass-through
securities are equity interests in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multi-class pass-through certificates. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income thereon, provide the funds to
pay debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. Government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. The issuer of CMOs or
multi-class pass-through securities may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a CMO series in a
number
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<PAGE> 9
of different ways. Generally, the purpose of the allocation of the cash flow of
a CMO to the various classes is to obtain a more predictable cash flow to the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow is on a CMO tranche, the lower
the anticipated yield will be on that tranche at the time of issuance relative
to prevailing market yields on Mortgage-Backed securities.
The Portfolio also may invest in, among other things, parallel-pay CMOs
and Planned Amortization Class CMOs ("PAC Bonds"). Parallel-pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating
the stated maturity date or final distribution date of each class, which, as
with other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds are
parallel-pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
The Portfolios may invest in CMO residuals. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs and
related administrative expenses of the issuer.
Types of Credit Enhancement
Mortgage-Backed Securities and Asset-Backed Securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least
a portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Portfolios will
not pay any additional fees for credit support, although the existence of
credit support may increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"reserve funds" (where cash or investments, sometimes funded from a portion of
the payments on the underlying assets, are held in reserve against future
losses) and "overcollateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceeds that required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
Risk Factors Relating to Mortgage-Backed and Asset-Backed Securities
The yield characteristics of Mortgage-Backed and Asset-Backed Securities
differ from traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if a
Portfolio purchases such a security at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity,
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<PAGE> 10
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Alternatively, if the Portfolio
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to
maturity. The Portfolios may (except Multi-Sector Portfolio III) invest a
portion of their assets in derivative Mortgage-Backed Securities such as
Stripped Mortgage-Backed Securities, which are highly sensitive to changes in
prepayment and interest rates. The Advisor will seek to manage these risks
(and potential benefits) by diversifying its investments in such securities and
through hedging techniques.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Portfolios are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates.
Asset-Backed Securities, although less likely to experience the same prepayment
rates as Mortgage-Backed Securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors will
predominate. Mortgage-Backed Securities and Asset-Backed Securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because
of the risk of prepayment.
Asset-Backed Securities present certain risks that are not presented by
Mortgage-Backed Securities. Primarily, Asset-Backed Securities do not have the
benefit of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of Asset-Backed
Securities backed by automobile receivables permit the services of such
receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related Asset-Backed Securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of Asset-Backed Securities backed by
automobile receivable may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Different types of Asset-Backed Securities and the assets supporting such
securities may be subject to additional restrictions, and may be affected by
economic, legal and other changes, unique to such securities and assets. For
example, a recent legislative proposal to limit credit card interest rates had
a significant adverse effect on the market for credit card receivables.
INVESTMENT RESTRICTIONS
The Trust has no fundamental objectives as a whole. Each Portfolio
of the Trust has its own objectives. On November 10, 1994, the Board of
Directors of the Trust adopted and approved several non-fundamental portfolio
investment limitations strictly with respect to the Multi-Sector Portfolio III
that differ from those of Multi-Sector Portfolio II and IV-VIII, as set forth
herein and in the Prospectus. The following restrictions are fundamental
policies. Fundamental policies are those which cannot be changed without the
approval of holders of a majority of the outstanding voting securities of the
affected Portfolio. "A majority of the outstanding voting securities," when
used in this Statement of Additional Information, means the lesser of (i) 67%
of the shares represented at a meeting at which more than 50% of the
outstanding shares are present in person or represented by proxy or (ii) more
than 50% of the outstanding shares. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing market values
will not be considered a deviation from policy. No Portfolio may:
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<PAGE> 11
(1) invest 25% or more of the value of its total assets in any one
industry (Mortgage-Backed Securities and other securities issued or
guaranteed by the U.S. government or any agency or instrumentality
thereof are not treated as industries); provided, however, that each
Portfolio will, except for temporary defensive purposes, invest at
least 25% of the value of its total assets in securities which
represent interests in mortgages or liens on real property;
(2) issue senior securities (including borrowing money, including on
margin if margin securities are owned) in excess of 33 1/3% of its
total assets (including the amount of senior securities issued but
excluding any liabilities and indebtedness not constituting senior
securities) except that each Portfolio may borrow up to an additional
5% of its total assets for temporary purposes; or pledge its assets
other than to secure such issuances or in connection with hedging
transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies. Each Portfolio's
obligations under interest rate swaps are not treated as senior
securities;
(3) make loans of money or property to any person, except through loans
of portfolio securities, the purchase of fixed income securities
consistent with each Portfolio's investment objective and policies or
the acquisition of securities subject to repurchase agreements;
(4) underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities or the
sale of its own shares each Portfolio may be deemed to be an
underwriter;
(5) invest for the purpose of exercising control over management of any
company other than issuers of collateralized mortgage obligations;
(6) purchase real estate or interests therein other than Commercial and
Residential Mortgage-Backed Securities and similar instruments;
(7) purchase or sell commodities or commodity contracts for any purposes
except as, and to the extent, permitted by applicable law without the
Portfolio becoming subject to registration with the Commodity Futures
Trading Commission as a commodity pool; or
(8) make any short sale of securities except in conformity with
applicable laws, rules and regulations and unless, giving effect to
such sale, the market value of all securities sold short does not
exceed 25% of the value of each Portfolio's total assets and each
Portfolio's aggregate short sales of a particular class of securities
does not exceed 25% of the then outstanding securities of that class.
DIRECTORS AND OFFICERS
The officers of the Trust manage its day to day operations. The officers
are directly responsible to the Trust's Board of Directors, which sets broad
policies for the Trust and chooses its officers. The following is a list of
the directors and officers of the Trust and a brief statement of their present
positions and principal occupations during the past five years. Unless
otherwise indicated, each of the directors is also a director of, and each
officer holds the same position with, The BlackRock Income Trust Inc., The
BlackRock Target Term Trust Inc., The BlackRock Advantage Term Trust Inc., The
BlackRock Strategic Term Trust Inc., The BlackRock 1998 Term Trust Inc., The
BlackRock Municipal Target Term Trust Inc., The BlackRock North American
Government Income Trust Inc., The BlackRock Insured Municipal Target Term Trust
Inc., The BlackRock Investment Quality Term Trust Inc., The BlackRock 2001 Term
Trust, Inc., The BlackRock Insured Municipal 2008 Term Trust Inc., The
BlackRock California Insured Municipal 2008 Term Trust Inc., The BlackRock
Florida Insured Municipal 2008 Term Trust Inc., The BlackRock New York Insured
Municipal 2008 Term Trust Inc., The BlackRock 1999 Term Trust Inc.,
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<PAGE> 12
The BlackRock Investment Quality Municipal Trust Inc., The BlackRock Broad
Investment Grade 2009 Term Trust Inc., The BlackRock California Investment
Quality Municipal Trust Inc., The BlackRock Florida Investment Quality
Municipal Trust Inc., The BlackRock New Jersey Investment Quality Municipal
Trust Inc. and The BlackRock New York Investment Quality Municipal Trust Inc.
Messrs. Fink and Schlosstein serve on the Trust's executive committee, which
has full authority to exercise all of the powers permitted to such a committee
under Maryland law. Unless specified otherwise below, the business address of
the directors and officers of the Trust is 345 Park Avenue, New York, New York
10154.
<TABLE>
<CAPTION>
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ----- ----------------------------
<S> <C> <C>
Kent Dixon Director, Consultant/Investor. Former President and Chief
200 Whitfield Street Treasurer Executive Officer of Empire Federal Savings Bank
Guilford, CT 06437 and Secretary of America and BancPLUS Savings Association, former Chairman of the Board,
President and Chief Executive Officer of Northeast Savings. Former Director of
ISFA (the owner of INVEST, a national securities brokerage service designed for
banks and thrift institutions). Director, Empire of America Realty Credit
Corporation.
Frank J. Fabozzi Director Consultant. Editor of The Journal of Portfolio
225 Summit Avenue Management and Adjunct Professor of Finance
Summit, NJ 07901 at the School of Organization and Management at Yale University. Director,
Guardian Mutual Funds Group. Author and editor of several books on fixed
income portfolio management. Visiting Professor of Finance and Accounting at
the Sloan School of Management, Massachusetts Institute of Technology from 1986
to August 1992.
James Grosfeld Director and Consultant/Investor. Formerly Chairman of the
755 West Big Beaver President Board and Chief Executive Officer of PHM Cor-
Road #2200 poration (homebuilding and mortgage banking and
Troy, MI 48084 finance) (May 1974 - April 1990).
</TABLE>
Directors of the Trust who are not affiliated persons of the Adviser
are compensated by the Trust by payment of an annual fee of $2,500 each, plus
out-of-pocket expenses.
The following table sets forth certain information regarding the
compensation of the Trust's directors and officers. Except as disclosed below,
no executive officer or person affiliated with the Trust received compensation
from the Trust for the calendar year ended June 30, 1994 in excess of $60,000.
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<PAGE> 13
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Com- Pension or Estimated Annual Total
Position pensation from Retirement Benefits Benefits Upon Compensation from
Registrant Accrued as Part of Retirement Registrant and Fund
(fiscal year) Fund Expenses Complex Paid to
Directors*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kent Dixon $2,500 ** ** $162,500 (22)
Director,
Treasurer
and
Secretary
Frank J. Fabozzi 2,500 ** ** 162,500 (22)
Director
James Grosfeld 2,500 ** ** 162,500 (26)
Director
and
President
</TABLE>
------------------------
* Represents the total compensation paid to such persons during the
calendar year ending December 31, 1994 (and, with respect to the
Trust, estimated to be paid during a full calendar year). The
parenthetical number represents the number of investment companies
(including the Trust) from which such person receives compensation
that are considered part of the same fund complex as the Trust,
because, among other things, they have a common investment adviser.
** Not applicable.
MANAGEMENT OF THE TRUST
INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement (the "Advisory Agreement"),
the Trust has retained the Adviser to manage the investment of the Portfolio's
assets and to provide such investment research, advice and supervision, in
conformity with the Portfolio's investment objective and policies, as may be
necessary for the operations of the Trust.
The Advisory Agreement provides, among other things, that the Adviser will
bear all expenses of its partners and employees and overhead incurred in
connection with its duties under the Advisory Agreement, and will pay all
directors' fees and salaries of the Trust's directors and officers who are
affiliated persons (as such term is defined in the Investment Company Act) of
the Adviser. The Advisory Agreement provides that each Portfolio will pay to
the Adviser for its services a monthly fee in an amount equal to the following
percentages of each Portfolio's average daily net asset value on an annualized
basis: .40% for the Investment Grade Multi-Sector Portfolio and .50% for each
Multi-Sector Portfolios II and IV - VIII. On November 10, 1994, the Board of
Directors of the Trust adopted and approved the Investment Advisory Agreement
for Multi-Sector Portfolio III which provides that the Advisor will be
compensated at the end of each calendar quarter at an annualized rate of .25%
of the Portfolio's average month end net assets.
Although the Adviser intends to devote such time and effort to the business
of the Trust as is reasonably necessary to perform its duties to the Trust, the
services of the Adviser are not exclusive and
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<PAGE> 14
the Adviser provides similar services to other investment companies and other
clients and may engage in other activities.
The Advisory Agreement also provides that, in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations
thereunder, the Adviser is not liable to the Trust or any of the Trust's
stockholders for any act or omission by the Adviser or for any loss sustained
by the Trust or the Trust's stockholders, and (other than Multi-Sector
Portfolio III) provides for indemnification by the Trust of the Adviser, its
partners, employers, agents and affiliates for liabilities incurred by them in
connection with their services to the Trust, subject to certain limitations and
conditions.
The Portfolios' Advisory Agreement was approved by the Trust's Board of
Directors, including a majority of the directors who are not parties to the
Advisory Agreement or interested persons of any such party (as such term is
defined in the Investment Company Act), on February 10, 1994. The Advisory
Agreement will continue in effect until February 10, 1996, and if not sooner
terminated, will continue in effect for successive periods of 12 months
thereafter, provided that each continuance with respect to a Portfolio is
specifically approved at least annually by both (1) the vote of a majority of
the Trust's Board of Directors or the vote of a majority of the outstanding
voting securities of the Portfolio (as such term is defined in the Investment
Company Act) and (2) by the vote of a majority of the Directors who are not
parties to the Advisory Agreement or interested persons (as such term is
defined in the Investment Company Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated as to any Portfolio at any time by the Trust,
without the payment of any penalty, upon the vote of a majority of the Trust's
Board of Directors or a majority of the outstanding voting securities of the
Portfolio or by the Adviser, on 60 days' written notice by either party to the
other. Except as otherwise provided by order of the SEC or any rule or
provision of the Investment Company Act, the Advisory Agreement will terminate
automatically in the event of its assignment (as such term is defined in the
Investment Company Act and the rules thereunder).
The Adviser has granted the Trust a non-exclusive license to use the term
"BFM" in its name. The Trust has agreed to cease using such name as promptly
as practicable in the event that the Adviser ceases to be the investment
adviser of the Trust.
THE ADMINISTRATION AGREEMENT
State Street Bank and Trust Company (the "Administrator"), 1776 Heritage
Drive, North Quincy, Massachusetts, acts as the administrator for the
Portfolios. Under the administration agreement (the "Administration
Agreement") with the Trust, the Administrator administers corporate affairs of
the Portfolios subject to the supervision of the Trust's Board of Directors and
in connection therewith furnishes the Trust with office facilities together
with such clerical services (e.g., preparation of annual and other reports to
stockholders and the SEC and Federal, state and local income tax returns) as
are not being furnished by the Custodian. In connection with its
administration of the corporate affairs of the Portfolios, the Administrator
bears the expense of the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms indicated in the
Administration Agreement. State Street receives an annual fee equal to .08% of
each Portfolio's net asset value up to $75 million, .06% of the next $75
million and .04% in excess of $150 million, subject to certain minimum
requirements. Such rate is .04% with respect to Multi-Sector Portfolio III.
The Administration Agreement will automatically continue in effect until
terminated. It is terminable by either party on 60 days' prior written notice.
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<PAGE> 15
EXPENSES OF THE TRUST
Except as indicated above, each Portfolio will pay all of its expenses.
Expenses directly attributable to a Portfolio are charged to that Portfolio;
other expenses are allocated proportionally among all the Portfolios in
relation to the net assets of each Portfolio. Expenses include fees of the
Directors not affiliated with the Adviser and Board meeting expenses; fees of
the Adviser and the Administrator; interest charges; taxes; organization
expenses; charges and expenses of the Trust's legal counsel and independent
accountants, and of the transfer agent, registrar and dividend disbursing agent
of the Trust; expenses of printing and mailing stock certificates, stockholder
reports, notices, proxy statements and reports to governmental offices;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions; expenses connected with
negotiating, effecting purchase or sale, or registering privately issued
portfolio securities; custodial fees and expenses for all services to the
Trust, including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating and publishing the net asset value
of each Portfolio's shares; expenses of membership in investment company
associations; expenses of fidelity bonding and other insurance expenses,
including insurance premiums; expenses of stockholders meetings; and SEC and
state registration fees. The Adviser has agreed to cap the expenses of
Multi-Sector Portfolio III (other than advisory fees) at no more than .12% of
average net assets per year.
DISTRIBUTION AND STOCKHOLDER SERVICING PLAN
The Trust, on behalf of each Portfolio, has entered into a Distribution
Agreement dated as of March 28, 1995, with Provident Distributors, Inc., 259
Radnor-Chester Road, Suite 120, Radnor, Pennsylvania, 19087 (the
"Distributor"). The terms of the Distribution Agreement were approved on
February 16, 1995 by the vote of a majority of the Directors of the Trust who
are not parties to the Distribution Agreement or "interested persons" (as such
term is defined by the Investment Company Act) of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval.
Pursuant to the terms of the Distribution Agreement, the Distributor serves as
the principal underwriter and distributor of the Trust's shares, and in that
capacity makes a continuous offering of the Trust's shares and bears the costs
and expenses of printing and distributing any copies of any prospectuses and
annual and interim reports for the Trust (after such items have been prepared
and set in type) which are used in connection with the offering of shares to
securities dealers or investors, and the cost and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by securities dealers in connection with the offering
of the shares for sale to the public. There is no fee payable by the Trust or
any Portfolio pursuant to the Distribution Agreement, and there is no sales or
redemption charge. The Distribution Agreement provides for indemnification by
the Trust of the Distributor, its partners, employees, agents and affiliates
for liabilities incurred by them in connection with their services to the
Trust, subject to certain limitations and conditions. The continuance of the
Distribution Agreement must be approved in the same manner as the Investment
Advisory Agreement, and the Distribution Agreement will terminate automatically
if assigned by either party thereto and is terminable with respect to any
Portfolio at any time without penalty by the Rule 12b-1 Directors (as defined
below) or by vote of a majority of the outstanding shares of the Portfolio (as
such term is defined in the Investment Company Act) on not more than 60 days'
nor less than 30 days' written notice to the Distributor and by the Distributor
on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(i) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(the "Rule 12b-1 Directors"). The Plan permits the Adviser to pay fees to the
Distributor. The Trust
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<PAGE> 16
is not required or permitted under the Plan to make payments over and above the
amount of the advisory fee to promote the sale of its shares; the Plan merely
permits the reallocation of a portion of the advisory fee the Adviser receives
to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such
office space, equipment, telephone facilities and various personnel as may be
necessary or beneficial to establish and maintain stockholders' accounts and
records, process purchase and redemption transactions, answer routine client
inquiries and provide such other services to the Trust and the Portfolios as
may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Portfolios, the selection of brokers and dealers to effect the transactions and
the negotiation of prices and any brokerage commissions. The securities in
which the Portfolios invest are traded principally in the over-the-counter
market. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a
mark-up to the dealer. Securities purchased in underwritten offerings generally
include, in the price, a fixed amount of compensation for the manager(s),
underwriter(s) and dealer(s). The Portfolios may also purchase certain money
market instruments directly from an issuer, in which case no commissions or
discounts are paid. Purchases and sales of debt securities on a stock exchange
are effected through brokers who charge a commission for their services.
The Adviser's primary considerations in selecting the manner of executing
securities transactions for the Portfolios will be prompt execution of orders,
the size and breadth of the market for the security, the reliability, integrity
and financial condition and execution capability of the firm, the size of and
difficulty in executing the order, and the best net price. There are many
instances when, in the judgement of the Adviser, more than one firm can offer
comparable execution services. In selecting among such firms, consideration is
given to those firms which supply research and other services in addition to
execution services. However, it is not the policy of the Adviser, absent
special circumstances, to pay higher commissions to a firm because it has
supplied such services.
The Adviser is able to fulfill its obligations to furnish a continuous
investment program to the Portfolios without receiving such information from
brokers; however, it considers access to such information to be an important
element of financial management. Although such information is considered
useful, its value is not determinable, as it must be reviewed and assimilated
by the Adviser, and does not reduce the Adviser's normal research activities in
rendering investment advice under the Advisory Agreement. It is possible that
the Adviser's expenses could be materially increased if it attempted to
purchase this type of information or generate it through its own staff.
B-16
<PAGE> 17
One or more of the other accounts which the Adviser manages may own from
time to time the same investments as the Portfolio. Investment decisions for
the Trust are made independently from those of such other accounts; however,
from time to time, the same investment decision may be made for more than one
company or account. When two or more companies or accounts seek to purchase or
sell the same securities, the securities actually purchased or sold will be
allocated among the companies and accounts on a good faith equitable basis by
the Adviser in its discretion in accordance with the accounts' various
investment objectives. In some cases, this system may adversely affect the
price or size of the position obtainable for the Portfolio. In other cases,
however, the ability of the Portfolio to participate in volume transactions may
produce better execution for the Portfolios.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the policy of the Portfolios to engage in transactions with
the objective of seeking profits from short-term trading. It is expected that
the annual portfolio turnover rate of the Portfolios will not exceed 400%,
excluding securities having a maturity of one year or less. Because it is
difficult to predict accurately portfolio turnover rates, actual turnover may
be higher or lower. Higher portfolio turnover results in increased Portfolio
expenses, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on reinvestment in other
securities. The Adviser will monitor the tax status of the Portfolios under
the Internal Revenue Code during periods in which the annual turnover rate of
the Portfolios exceeds 100%. To the extent that increased portfolio turnover
results in sales at a profit of securities held less than three months, the
Portfolio's ability to qualify as a "regulated investment company" under the
Internal Revenue Code may be affected. See "Taxes, Dividends and
Distributions" below.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined by
subtracting from the value of the assets of the Portfolio the amount of its
liabilities, and dividing the remainder by the number of outstanding shares of
the Portfolio. The Board of Directors has fixed the specific time of day for
the computation of the Portfolios' net asset value to be as of 4:00 p.m., New
York time. Portfolio securities are valued based on market quotations or, if
not readily available, at fair value as determined in good faith under
procedures established by the Trust's Board of Directors.
Each Portfolio will compute its net asset value once daily on days that the
New York Stock Exchange is open for trading, except on days on which no orders
to purchase, sell or redeem shares have been received. The New York Stock
Exchange is closed on the following holidays: New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
Each Portfolio values Commercial Mortgage-Backed Securities, Residential
Mortgage-Backed Securities, and other debt securities on the basis of
valuations provided by dealers or by a pricing service, approved by the Trust's
Board of Directors, which uses information with respect to transactions in such
securities, quotations from dealers, market transactions in comparable
securities, various relationships between securities and yield to maturity in
determining value. Debt securities having a remaining maturity of sixty days
or less when purchased and debt securities originally purchased with maturities
in excess of sixty days but which currently have maturities of sixty days or
less are valued at cost adjusted for amortization of premiums and accretion of
discounts. Any securities or other assets for which current market quotations
are not readily available are valued at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Trust's Board of Directors.
B-17
<PAGE> 18
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolio may be purchased and redeemed directly from the
Trust or through the Distributor. The Trust expects to pay all redemption
requests made with at least thirty (30) days' advance notice in cash.
Redemption requests in excess of $250,000 by any single shareholder from a
particular portfolio within any three-month period may be paid in kind unless
the Trust has received at least thirty (30) days' advance notice and will be
paid in kind if the redeeming shareholder so requests and such payment will not
adversely affect other shareholders. See "Purchase and Redemption of Shares --
How to Purchase Shares" in the Prospectus. Upon the initial purchase of shares
of a Portfolio, a stockholder investment account is established for each
investor under which a record of the shares held is maintained by one of the
Transfer Agents. The Adviser may at its discretion agree to accept securities
rather than cash to fund the purchase of shares in the Trust.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of a Portfolio with
respect to which the dividend or distribution was made at net asset value per
share on the payment date, unless the Board of Directors determines otherwise.
A stockholder may direct the Transfer Agent in writing not less than five full
business days prior to the payment date to have subsequent dividends and/or
distributions sent in cash rather than reinvested.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Portfolio intends to elect to qualify and to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code). This relieves the Portfolio (but
not its stockholders) from paying federal income tax on income which is
distributed to stockholders, and permits net long-term capital gains of the
Portfolio (i.e., the excess of net long-term capital gains over net short-term
capital losses) to be treated as long-term capital gains of stockholders,
regardless of how long stockholders have held their shares in the Portfolio.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Portfolio's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, options, futures
contracts, forward contracts and foreign currencies, and certain other income
derived with respect to its business of investing in stock, securities or
currencies; (b) the Portfolio derive less than 30% of its gross income from
gains (without reduction for losses) from the sale or other disposition of
securities, options thereon, futures contracts, options thereon and forward
contracts, in each case held for less than three months; (c) the Portfolio
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Portfolio's assets is represented
by cash and cash items (including receivables), U.S. Government obligations,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater than 5% of the
Portfolio's assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government obligations). In
addition, in order not to be subject to federal income tax, the Portfolio must
distribute to its stockholders at least 90% of its net investment income and
short-term capital gains earned in each year.
Gains or losses on sales of securities by a Portfolio generally will be
treated as long-term capital gains or losses if the securities have been held
by it for more than one year. Other gains or losses on the sale of securities
will be short-term capital gains or losses.
B-18
<PAGE> 19
Gains or losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as "Section 1256 contracts"). Certain
of the Portfolio's transactions may be subject to wash sale and short sale
provisions of the Internal Revenue Code. In addition, debt securities acquired
by the Portfolio may be subject to original issue discount and market discount
rules.
"Regulated futures contracts" and certain listed options which are not
"equity options" constitute "Section 1256 contracts" and will be required to be
"marked to market" (that is, treated as having been sold at market value) for
federal income tax purposes at the end of the Portfolio's taxable year. Sixty
percent of any gain or loss recognized on such "deemed sales" and on actual
dispositions will be treated as long-term capital gain or loss and the
remainder will be treated as short-term capital gain or loss. In addition,
positions which are part of a "straddle" are subject to rules which apply
certain wash sale and short sale provisions of the Internal Revenue Code. A
Portfolio may be required to defer the recognition of losses on positions it
holds to the extent of any unrecognized gain on offsetting positions held by
the Portfolio. Because only a few regulations implementing the straddle rules
have been promulgated, the tax consequences to the Portfolio of some hedging
transactions may not be entirely clear. A Portfolio's ability to enter into
futures contracts, options thereon and options on securities may be affected by
the 30% limitation on gains derived from securities held less than three
months, discussed above. Because application of the straddle rules may affect
the character of gains or losses, defer losses or accelerate the recognition of
gains or losses from the affected straddle positions, the amount that will be
distributed to stockholders, and that will be taxed to stockholders as ordinary
income or long-term capital gains, may be increased or decreased as compared to
a fund that did not engage in hedging transactions.
Distributions of net investment income and net short-term capital gains
will be taxable to the stockholder at ordinary income rates regardless of
whether the stockholder receives such distributions in additional shares or
cash. Distributions of net long-term capital gains, if any, are taxable as
long-term capital gains regardless of how long the Portfolio shares have been
held. However, if a stockholder holds shares in the Portfolio six months or
less, then any loss recognized on the sale of such shares will be treated as
long-term capital loss to the extent of any distribution on the shares which
was treated as long-term capital gain. Stockholders will be notified annually
by the Trust as to the federal tax status of distributions made by the
Portfolio.
Each Portfolio is subject to a nondeductible 4% excise tax if it does not
distribute 98% of its ordinary income on a calendar year basis and 98% of its
capital gains on an October 31 year-end basis. The Portfolio intends to
distribute its income and capital gains in the manner necessary to avoid
imposition of the 4% excise tax. Dividends and distributions generally are
taxable to stockholders in the year in which they are received; however,
dividends declared in October, November and December payable to stockholders of
record on a specified date in October, November and December and paid in the
following January will be treated as having been paid by the Portfolio and
received by stockholders in such prior year. Under this rule, a stockholder
may be taxed in one year on dividends or distributions actually received in
January of the following year.
Any loss realized on a sale, redemption or exchange of shares of the
Portfolio by a stockholder will be disallowed to the extent the shares are
replaced within a 61-day period beginning 30 days before the disposition of the
shares. Shares purchased pursuant to the reinvestment of a dividend will
constitute a replacement of shares.
Each Portfolio declares dividends daily based on actual net investment
income determined in accordance with generally accepted accounting principles.
A portion of such dividends may also include projected net investment income.
Each Portfolio's net capital gains, if any, will be distributed at least
annually. In determining the amount of capital gains to be distributed, any
capital loss carry forwards from prior years will be offset against capital
gains. In the event that a stockholder's shares are redeemed on a date other
than the monthly dividend payment date, the proceeds of such redemption will
equal the
B-19
<PAGE> 20
net asset value of the shares redeemed plus the amount of all dividends
declared through the date of redemption.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. Therefore, prior to purchasing shares of the
Portfolio, the investor should carefully consider the impact of dividends or
capital gains distributions which are expected to be or have been announced.
Distributions also may be subject to state, local and foreign taxes.
The foregoing is a general and abbreviated discussion of tax consequences
of investment in the Portfolio. Investors are urged to consult their own tax
advisers to determine the effect of investment in the Portfolio upon their
individual tax situations.
PERFORMANCE INFORMATION
Each Portfolio may from time to time advertise its yield as calculated over
a 30-day period. This yield will be computed by dividing the Portfolio's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
a-b 6
YIELD = 2[( ------- +1) -1]
cd
Where: a= dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursements).
c= the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d= the maximum offering price per share on the last day of
the period.
Total return of the Portfolio is computed by finding the average annual
compounded rates of return over the 1, 5, or 10 year periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1+T) =ERV
Where: P= a hypothetical initial payment of $1000.
T= average annual total return.
n= number of years.
ERV= ending redeemable value of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year
periods at the end of the 1, 5 or 10 year periods
(or fractional portion thereof).
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), Global Client
Support, P.O. Box 1978, Boston, Massachusetts 02105, serves as Custodian for
the Portfolio's securities and cash, and in that capacity maintains certain
financial and accounting books and records pursuant to an agreement with the
Trust.
B-20
<PAGE> 21
State Street also serves as the Transfer Agent and the Dividend Disbursing
Agent for the Portfolio. It provides customary transfer agency and dividend
disbursing services to the Portfolio. It provides customary transfer agency
and dividend disbursing services to the Portfolio, including the handling of
stockholder communications, the processing of stockholder transactions, the
maintenance of stockholder account records, the payment of dividends and
distributions and related functions.
EXPERTS
Deloitte & Touche LLP, New York, New York, has been selected as the
independent auditors for the Trust and in that capacity audits the Portfolios'
annual financial statements.
B-21
<PAGE> 1
EXHIBIT (17)(r)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
April 27, 1995
Dear Shareholder:
We are pleased to present the Semi-Annual Report to Shareholders of The PNC
Fund covering the six months ended March 31, 1995. This report includes security
listings and performance results for the money market portfolios of The PNC
Fund.
These portfolios cover a wide range of money market fund objectives,
allowing shareholders to more precisely match their investments with their
overall financial goals. The portfolios are managed with a sophisticated blend
of discipline, experience and expertise. Each of the money market portfolios
continues to provide investors with a competitive short-term investment product
that seeks a high level of current income consistent with maintaining liquidity
and stability of principal.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
Sincerely,
/s/ G. WILLING PEPPER
----------------------
G. Willing Pepper
Chairman and President
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 2
THE PNC FUND
SEMI-ANNUAL REPORT OF THE INVESTMENT ADVISER
Last year, the fixed income markets were hard hit by rising interest rates
and derivative-related losses. The first quarter of 1995 got off to an
inauspicious start with another increase in short-term interest rates, the
financial crisis in Mexico, and the decline in the dollar. One area that does
appear to be experiencing a trend change is the pace of business activity. In
the fourth quarter of last year, the economy grew by a revised 4.6%, pushing the
annual rate of growth to 4.0%, the strongest showing in ten years. Estimates for
the first quarter average around 3%, based on signs of lower consumer spending,
declining auto sales and a softer housing market. In recent congressional
testimony, Fed Chairman Greenspan indicated that the FOMC expects the economy to
expand at a 2-3% rate in 1995. Greenspan even used the word "ease" in his
February 1995 testimony, causing the markets to rally strongly, but temporarily,
on the belief that the year long rise in interest rates was about over.
The Fed also has reason to be pleased with the inflation numbers. The
fourth quarter GDP report revealed that prices advanced only 1.3%, versus 1.9%
in the previous quarter. For 1994, consumer prices were up 2.7%, exactly the
same as in 1993. The FOMC is estimating that consumer prices will average
3.0-3.5% in 1995.
Short-term interest rates continued their upward climb during the last two
quarters. The Federal Reserve tightened policy twice, in November 1994 and
February 1995, for a total of 125 basis points, bringing the federal funds rate
to 6.00%. Fourth quarter economic reports continued to suggest that business was
expanding, and that further Fed action was likely in the new year. On February
1, 1995, the FOMC voted to increase the federal funds target and discount rates
by 50 basis points to 6.00% and 5.25%, respectively. Although this was the first
interest rate hike of 1995, market expectations that it would also be the last
ignited a strong rally that flattened the yield curve. Three-month and six-month
Treasury bill yields fell to 5.83% and 6.11%, respectively, while the
three-month and six-month LIBOR decreased to 6.19% and 6.38%, respectively.
The big story in the municipal market was the bankruptcy filing of Orange
County, CA in December 1994. This action shocked the short-term tax-free
markets, causing yields to rise by more than 50 basis points. In the wake of
Orange County's bankruptcy filing, there have been reports of other derivative-
related losses in Florida and Wisconsin, but the markets have calmed down
considerably from year-end levels. The start of the new year saw the expected
increase in short-term tax-free assets from bond coupon payments and called
bonds. Increased demand for liquid, short-term investments due to anticipation
of another rate increase by the Fed also contributed to the inflow of money into
short-term tax-exempt securities.
The last few months also saw a decrease in long-term yields as economic
activity started to show signs of slowing. The 2-year Treasury bond began the
period at 7.69% and steadily declined to 6.78% by March 31, 1995. The
intermediate sector experienced a similar decline in rates with the 5-year
Treasury bond decreasing from 7.83% at the end of December to 7.07% by March 31,
1995. Longer yields followed a similar pattern as the 30-year Treasury bond,
which began the period at 7.88%, ended March 1995 at 7.43%.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
April 27, 1995
<PAGE> 3
THE PNC(R) FUND
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
BANK NOTES -- 1.2%
BANKS
NationsBank North Carolina
5.35% 06/07/95 $ 5,000 $ 4,999,958
Northern Trust Bank
5.25% 06/16/95 10,000 9,998,605
------------
TOTAL BANK NOTES
(Cost $14,998,563) 14,998,563
------------
CERTIFICATES OF DEPOSIT -- 17.0%
BANKS -- 2.1%
First National Bank of Boston
6.16% 06/26/95 25,000 25,000,000
------------
YANKEE DOLLAR -- 14.9%
Banque National de Paris
7.025% 02/09/96 25,000 25,003,147
Banque Paribas
6.14% 05/10/95 25,000 25,001,574
Industrial Bank of Japan
6.28% 04/28/95 25,000 25,000,185
Societe Generale
6.06% 05/01/95 25,000 25,000,207
Sumitomo Bank
6.27% 04/28/95 30,000 30,000,000
6.18% 06/30/95 25,000 25,000,000
Svenska Handelsbanken, Inc.
6.25% 04/28/95 25,000 25,000,000
------------
180,005,113
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $205,005,113) 205,005,113
------------
COMMERCIAL PAPER -- 32.3%
AEROSPACE -- 2.0%
Rockwell International Corp.
6.15% 09/06/95 25,000 24,325,208
------------
BANKS -- 5.3%
AMRO N.A. Finance, Inc.
6.22% 08/10/95 30,000 29,320,983
National City Corp.
6.07% 06/27/95 20,000 19,706,617
Toronto Dominion Holdings
USA, Inc.
5.73% 05/02/95 15,000 14,925,988
------------
63,953,588
------------
BROKERAGE -- 1.2%
Morgan Stanley Group
6.22% 08/21/95 15,000 14,631,983
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
CONSUMER NON-DURABLES -- 2.1%
Newell Co.
6.15% 04/27/95 $25,000 $ 24,888,958
------------
CREDIT INSTITUTIONS -- 15.2%
Ciesco L.P.
6.09% 05/08/95 20,000 19,874,817
C.I.T. Group Holdings, Inc.
6.10% 06/29/95 25,000 24,622,986
Ford Motor Credit Corp.
6.16% 09/11/95 40,000 38,884,356
General Motors Acceptance Corp.
6.08% 04/17/95 25,000 24,932,444
6.10% 05/02/95 25,000 24,868,681
Sanwa Business Credit Corp.
6.16% 04/27/95 20,000 19,911,022
Sears Roebuck Acceptance Corp.
6.27% 04/10/95 30,000 29,952,975
------------
183,047,281
------------
DRUGS & HEALTH CARE -- 1.6%
Eli Lilly & Co.
6.20% 06/01/95 20,000 19,789,889
------------
FINANCE -- 4.9%
Beta Finance, Inc.
5.65% 04/04/95 10,000 9,995,292
Corporate Receivables Corp.
6.10% 05/08/95 15,100 15,005,331
McKenna Triangle National Corp.
6.30% 08/07/95 10,000 9,776,000
Sears Roebuck Acceptance Corp.
6.24% 06/05/95 25,000 24,718,333
------------
59,494,956
------------
TOTAL COMMERCIAL PAPER
(Cost $390,131,863) 390,131,863
------------
TIME DEPOSITS -- 4.1%
BANKS
Society National Bank Cleveland
6.4375% 04/03/95 50,000 50,000,000
------------
(Cost $50,000,000)
VARIABLE RATE OBLIGATIONS -- 37.0%
BANKS -- 7.9%
Comerica Bank -- Detroit
5.93%** 04/04/95 50,000 49,973,885
First National Bank Chicago
6.31%** 04/03/95 45,000 44,996,240
------------
94,970,125
------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
VARIABLE RATE OBLIGATIONS (CONTINUED)
BROKERAGE -- 16.8%
Bear Stearns & Co., Inc.
6.04%** 04/04/95 $45,000 $ 45,000,000
Bear Stearns Treasury Rate Notes
6.03%** 04/04/95 15,000 15,000,000
Goldman Sachs Group L.P.
6.4375%** 04/08/95 47,000 47,000,000
Lehman Brothers Holdings, Inc.
6.40%** 06/07/95 50,000 50,000,000
Morgan Stanley Group
6.225%** 04/19/95 15,000 15,000,000
Morgan Stanley Group Mtn C
5.92%** 04/04/95 30,000 29,999,663
------------
201,999,663
------------
BUSINESS SERVICES -- 1.0%
PHH Corp.
6.04%** 04/04/95 12,000 12,000,000
------------
FINANCE -- 4.6%
J. P. Morgan Securities, Inc.
6.175%** 04/10/95 55,000 55,000,000
------------
STUDENT LOAN MARKETING ASSOCIATION -- 6.7%
5.97%** 04/04/95 25,000 25,000,000
6.01%** 04/04/95 20,000 20,000,000
6.02%** 04/04/95 21,000 20,996,046
6.03%** 04/04/95 15,000 14,992,363
------------
80,988,409
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $444,958,197) 444,958,197
------------
REPURCHASE AGREEMENTS -- 7.9%
Morgan Stanley & Co.
6.40% 04/03/95 95,000 95,000,000
(Agreement dated 03/31/95 to ------------
be repurchased at $95,050,667.
Collateralized by $216,098,879
Federal National Mortgage As-
sociation 6.00% to 12.00% due
06/01/05 to 03/01/25. The
market value of the collateral
is $97,036,450.)
(Cost $95,000,000)
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------------
<S> <C> <C>
INFINITY CASH RESERVE --
PRIME -- 0.6%
(Cost $7,115,490) 7,115,490 $ 7,115,490
--------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,207,209,226*) 100.1% 1,207,209,226
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1%) (739,423)
--------- --------------
NET ASSETS (Equivalent to $1.00
per share based on
593,927,411 Institutional
shares, 605,221,765 Service
shares and 7,301,881 Series A
Investor shares outstanding) 100.0% $1,206,469,803
====== ==============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($1,206,469,803 / 1,206,451,057) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of March 31, 1995, and maturities shown are the
longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
4
<PAGE> 5
THE PNC(R) FUND
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
ALABAMA -- 4.8%
Birmingham-Baptist Medical
Centers Special Care Facilities
Financing Authority (Senior
Living Communities, Inc.
Project) Series 1990A DN
4.25% ** 04/07/95 $ 7,240 $ 7,240,000
Port City Medical Clinic Board of
Mobile (Mobile Infirmary
Association Project)
Series 1992A MB
4.00% 05/01/95 1,000 1,000,000
4.10% 05/09/95 2,600 2,600,000
-----------
10,840,000
-----------
ALASKA -- 1.4%
Valdez Marine Terminal Refunding
(ARCO Transportation Project)
Series 1994A MB
4.30% 05/01/95 2,125 2,125,000
4.25% 05/05/95 1,000 1,000,000
-----------
3,125,000
-----------
ARIZONA -- 2.2%
Apache County IDA (Tucson
Electric Power Company
Springerville Project)
Series 1983B DN
4.25%** 04/07/95 2,600 2,600,000
Apache County IDA (Tucson
Electric Power Company
Springerville Project)
Series 1985A DN
4.20%** 04/07/95 2,200 2,200,000
Phoenix IDA Multifamily Housing
Refunding (Paradise Shadows II
Apartments Project)
Series 1989 DN
4.05%** 04/07/95 75 75,000
-----------
4,875,000
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
CALIFORNIA -- 7.1%
California Higher Education Loan
Authority Student Loan Refunding
Series 1987A MB
3.60% 05/01/95 $ 1,000 $ 1,000,000
California Series 1994-95A RAN
5.00% 06/28/95 3,000 3,004,352
California Series 1994-95B RAN
4.41% ** 04/03/95 5,000 5,000,000
Los Angeles County
Series 1994 TRAN
4.50% 06/30/95 7,000 7,007,190
-----------
16,011,542
-----------
COLORADO -- 5.4%
Arapahoe County Capital
Improvement Highway Revenue
(E-470 Project)
Series 1986G MB
4.45% 08/31/95 5,000 5,000,000
City & County of Denver Airport
System Subordinated Series 1990B
MB
4.35% 05/08/95 2,000 2,000,000
City & County of Denver Airport
System Subordinated Series 1990E
MB
4.35% 05/08/95 2,375 2,375,000
4.40% 05/09/95 2,700 2,700,000
-----------
12,075,000
-----------
CONNECTICUT -- 1.1%
Connecticut Housing Finance
Authority (Housing Mortgage
Finance Program Project)
Series 1993E, Subseries E-1 MB
4.40% 11/15/95 2,500 2,500,000
-----------
DISTRICT OF COLUMBIA -- 0.9%
District of Columbia (The
American University Project)
Series 1985 DN
4.30%** 04/07/95 700 700,000
District of Columbia Hospital
(Columbia Hospital for Women
Project) Series 1988A DN
4.10%** 04/07/95 1,300 1,300,000
-----------
2,000,000
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
FLORIDA -- 0.9%
Putnam County Development Au-
thority (Seminole Electric Coop-
erative Project) Series 1984D MB
4.25% 06/15/95 $ 2,000 $ 2,000,000
-----------
GEORGIA -- 2.2%
Burke County Development
Authority PCR (Oglethorpe Power
Corporation Vogtle Project)
Series 1994A MB
4.25% 05/04/95 4,000 4,000,000
Municipal Association Pooled
Bonds Series 1990 DN
4.125%** 04/07/95 1,020 1,020,000
-----------
5,020,000
-----------
HAWAII -- 2.4%
Hawaii Refunding (Topstar
Custodial Receipts) Series 1993C
DN
4.35%** 04/07/95 5,400 5,400,000
-----------
ILLINOIS -- 9.0%
Chicago Gas Supply (Peoples Gas &
Light Company Project) Series
1993B MB
4.95% 12/01/95 2,000 2,000,000
Chicago GO Tender Notes
Series 1994A-2 MB
4.15% 07/19/95 2,000 2,000,000
Chicago O'Hare International
Airport (American Airlines
Project) Series 1983C DN
4.55%** 04/03/95 1,400 1,400,000
Illinois Development Finance
Authority IDRB (6 West Hubbard
Street Project) Series 1986 DN
4.05%** 04/07/95 3,410 3,410,000
Illinois Development Finance
Authority PCR (Illinois Power
Company Project) Series 1993C MB
4.10% 05/31/95 2,600 2,600,000
Illinois Education Facilities
Authority (Art Institute of
Chicago Project) Series 1995 DN
4.25%** 04/07/95 3,000 3,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
ILLINOIS (CONTINUED)
Illinois Health Facilities
Authority (Evanston Hospital
Corporation Project) Series
1985B MB
4.65% 02/15/96 $ 3,000 $ 3,000,000
Illinois Health Facilities
Authority (The Streeterville
Corporation Project) Series 1994
DN
4.20%** 04/07/95 1,000 1,000,000
Village of North Aurora IDA
(Oberweis Dairy Incorporated
Project) Series 1995 DN
4.30%** 04/07/95 2,000 2,000,000
-----------
20,410,000
-----------
INDIANA -- 2.4%
Fort Wayne Hospital Authority
(Parkview Memorial Hospital
Project) Series 1989B DN
4.25%** 04/07/95 300 300,000
Indiana Housing Finance Authority
(Single Family Mortgage Project)
Series 1994D MB
4.30% 07/03/95 1,290 1,290,000
Petersburg PCR (Indianapolis
Power & Light Company Project)
Series 1991 MB
4.30% 05/01/95 2,700 2,700,000
Sullivan Floating Fixed Rate
PCR MB
4.15% 04/07/95 1,110 1,110,000
-----------
5,400,000
-----------
KENTUCKY -- 1.6%
Clark County PCR (Eastern
Kentucky Power Cooperative
Project) Series 1984 MB
3.75% 04/17/95 2,500 2,500,000
Maysville Solid Waste Disposal
Facilities (Inland Container
Corporation Project) Series 1992
TECP
4.00% 04/05/95 1,000 1,000,000
-----------
3,500,000
-----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
LOUISIANA -- 2.4%
Louisiana GO (Custodial
Receipts -- Topstar) Series 1993A-6 DN
4.35%** 04/07/95 $ 3,000 $ 3,000,000
Plaquemines Port Harbor and Ter-
minal District of Marine
Terminal Facilities Refunding
(Electro-Coal Transfer Project)
Series 1985C TECP
4.00% 04/26/95 2,525 2,525,000
-----------
5,525,000
-----------
MASSACHUSETTS -- 1.1%
Commonwealth of Massachusetts GO
Notes Series 1994A
5.00% 06/15/95 2,500 2,504,006
-----------
MICHIGAN -- 0.9%
Northville IDA (Thrifty
Northville Project) Series 1984
DN
4.325%** 04/07/95 2,000 2,000,000
-----------
MINNESOTA -- 2.2%
University of Minnesota (Full
Faith & Credit Project) Series
1985F MB
4.50% 08/01/95 3,000 3,000,000
University of Minnesota (Full
Faith & Credit Project) Series
1985I MB
4.25% 05/15/95 2,000 2,000,000
-----------
5,000,000
-----------
MISSOURI -- 0.6%
Kansas City IDA (Mid America
Health Services Project) Series
1984 DN
4.50%** 04/07/95 1,400 1,400,000
-----------
MONTANA -- 0.5%
Forsyth PCR (Portland General
Electric Company Project) Series
1983D DN
4.15%** 04/07/95 1,200 1,200,000
-----------
NEW HAMPSHIRE -- 9.3%
Business Finance Authority PCR
(New England Power Company
Project) Series 1990A TECP
4.00% 04/05/95 3,500 3,500,000
Business Finance Authority PCR
(New England Power Company
Project) TECP
4.25% 05/10/95 3,000 3,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
NEW HAMPSHIRE (CONTINUED)
New Hampshire Higher Education &
Health Facilities Authority (VHA
of New England Capital Asset
Financing Program Project)
Series 1985G DN
4.10%** 04/07/95 $ 4,900 $ 4,900,000
New Hampshire IDA Solid Waste
Disposal Facility (United
Illuminating Company Project)
Series A MB
4.50% 09/01/95 9,700 9,700,000
-----------
21,100,000
-----------
NEW JERSEY -- 0.9%
New Jersey Series 1994A TRAN
5.00% 06/15/95 2,000 2,003,790
-----------
NEW MEXICO -- 0.7%
Farmington PCR (Arizona Public
Service Co. Four Corners
Project) Series 1994B DN
4.55%** 04/03/95 1,500 1,500,000
-----------
NEW YORK -- 3.5%
New York City GO Series 1995B DN
4.0625%** 04/07/95 8,000 8,000,000
-----------
NORTH CAROLINA -- 1.5%
North Carolina Eastern Municipal
Power Agency (Power System
Project) Series 1988B MB
4.15% 04/12/95 1,650 1,650,000
North Carolina Medical Care
Commission Hospital (Pooled
Financing Project) Series 1991B
DN
4.55%** 04/03/95 1,700 1,700,000
-----------
3,350,000
-----------
NORTH DAKOTA -- 0.9%
Mercer County (United Power
Association Project) Pooled
Series 1995A MB
4.35% 09/01/95 2,000 2,000,000
-----------
OKLAHOMA -- 1.3%
Muskogee Industrial Trust
Adjustable Rate PCR (Oklahoma
Gas and Electric Company
Project) Series 1995A DN
4.20%** 04/07/95 3,000 3,000,000
-----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
PENNSYLVANIA -- 1.5%
Delaware County IDA PCR (Phila-
delphia Electric Company Pro-
ject) Series 1988C MB
4.20% 05/16/95 $ 3,300 $ 3,300,000
-----------
SOUTH DAKOTA -- 3.4%
Lawrence County PCR (Homestake
Mining Company Project) Series
1983 DN
4.25%** 04/07/95 5,700 5,700,000
South Dakota Housing Development
Authority (Homeownership
Mortgage Project) Series 1994H
MB
4.95% 12/13/95 2,000 2,000,000
-----------
7,700,000
-----------
TENNESSEE -- 1.3%
Montgomery County Public Building
Authority GO (Tennessee County
Loan Pool Project) Series 1995
DN
4.30%** 04/07/95 3,000 3,000,000
-----------
TEXAS -- 13.9%
Austin Combined Utility Systems
(Travis and Williamson Counties
Project) MB
4.25% 05/12/95 5,000 5,000,000
Board of Regents University of
Texas TECP
4.00% 05/10/95 3,746 3,746,000
Corpus Christi Port Authority of
Nueces County (Union Pacific
Resource Company Project) Series
1989 MB
4.30% 05/05/95 5,500 5,500,000
Dallas-Fort Worth International
Airport Joint Refunding Series
1992 MB
4.00% 04/06/95 6,500 6,500,000
Harris County Health Facilities
Development Corporation (San
Jacinto Hospital Project) Series
1987A MB
4.20% 06/01/95 4,600 4,600,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- -----------
<S> <C> <C> <C>
TEXAS (CONTINUED)
Texas Public Finance Authority GO
Series 1993A TECP
4.40% 05/18/95 $ 4,000 $ 4,000,000
Texas Series 1994 TRAN
5.00% 08/31/95 2,000 2,002,073
-----------
31,348,073
-----------
UTAH -- 5.0%
Salt Lake City (Pooled Hospital
Financing Program Project)
Series 1990 MB
4.15% 04/10/95 5,705 5,705,000
Utah Housing Finance Agency
(Single Family Mortgage Project)
Series 1993C DN
4.25%** 04/07/95 5,500 5,500,000
-----------
11,205,000
-----------
VIRGINIA -- 1.6%
Chesterfield County IDA PCR
(Virginia Electric & Power
Company Project) Series 1985 MB
4.10% 05/08/95 1,000 1,000,000
Virginia Housing Development
Authority (Commonwealth Mortgage
Project) Series 1993I, Subseries
I-Stem MB
4.20% 05/11/95 2,500 2,500,000
-----------
3,500,000
-----------
WASHINGTON -- 4.6%
Washington Public Power Supply
System (Nuclear Project No. 3)
Refunding Series 3A-2 DN
4.25%** 04/07/95 10,400 10,400,000
-----------
WISCONSIN -- 1.2%
Oak Creek PCR (Wisconsin
Electric Power Company Project)
Series 1986 DN
4.20%** 04/07/95 2,700 2,700,000
-----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $224,892,411*) 99.7% $224,892,411
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.3% 672,187
------ ------------
NET ASSETS (Equivalent to $1.00
per share based on 34,751,840
Institutional shares,
190,819,260
Service shares, and 28,814
Series A Investor shares
outstanding) 100.0% $225,564,598
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($225,564,598 / 225,599,914) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of March 31, 1995, and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
9
<PAGE> 10
THE PNC(R) FUND
GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 51.3%
FEDERAL FARM CREDIT BANK NOTES -- 5.1%
6.20% 04/07/95 $10,000 $ 10,000,000
5.84% 05/17/95 12,000 11,910,453
6.05% 06/01/95 10,000 10,000,000
------------
31,910,453
------------
FEDERAL HOME LOAN BANK
CONSOLIDATED NOTES -- 11.3%
5.57% 04/19/95 13,000 12,963,795
6.00% 04/28/95 20,000 19,910,000
6.06% 04/28/95 15,000 14,931,825
5.97% 07/03/95 12,360 12,169,378
6.787% 02/15/96 10,000 10,009,104
------------
69,984,102
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION DISCOUNT
NOTES -- 17.9%
5.90% 04/03/95 55,000 54,981,972
6.00% 04/03/95 6,090 6,087,970
5.90% 04/04/95 50,000 49,975,417
------------
111,045,359
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION DISCOUNT
NOTES -- 13.0%
6.02% 06/12/95 20,000 19,759,200
6.41% 06/12/95 17,000 16,782,060
5.97% 06/20/95 25,000 24,668,333
5.95% 06/26/95 20,000 19,715,722
------------
80,925,315
------------
TENNESSEE VALLEY AUTHORITY -- 4.0%
5.92% 04/06/95 25,000 24,979,444
------------
TOTAL AGENCY OBLIGATIONS
(Cost $318,844,673) 318,844,673
------------
VARIABLE RATE OBLIGATIONS -- 22.8%
FEDERAL HOME LOAN BANK CONSOLIDATED DISCOUNT NOTES -- 5.6%
6.20%** 04/03/95 25,000 24,995,004
6.0925%** 05/02/95 10,000 9,994,133
------------
34,989,137
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
VARIABLE RATE OBLIGATIONS (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
NOTES -- 7.2%
6.16%** 04/03/95 $25,000 $ 25,000,000
6.07%** 04/04/95 20,000 20,000,000
------------
45,000,000
------------
STUDENT LOAN MARKETING ASSOCIATION
NOTES -- 10.0%
6.00%** 04/04/95 5,000 5,000,000
6.01%** 04/04/95 10,000 9,997,551
6.02%** 04/04/95 6,000 6,000,000
6.04%** 04/04/95 5,000 5,001,926
6.12%** 04/04/95 5,500 5,500,950
6.17%** 04/04/95 20,600 20,654,204
6.195%** 04/04/95 4,000 4,009,358
6.245%** 04/04/95 5,825 5,852,449
------------
62,016,438
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $142,005,575) 142,005,575
------------
REPURCHASE AGREEMENTS -- 26.1%
Lehman Government Securities,
Inc.
6.50% 04/03/95 36,900 36,900,000
(Agreement dated 03/31/95 to
be repurchased at
$36,919,987. Collateralized
by 41,270,181 Federal Home
Loan Bank and Federal Home
Loan Mortgage Corporation
Notes, 3.785% to 12.5% due
12/01/15 to 02/01/24. The
market value of the
collateral is $37,952,546).
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley & Co.
6.40% 04/03/95 $75,000 $ 75,000,000
(Agreement dated 03/31/95 to
be repurchased at
$75,040,000. Collateralized
by 102,899,221 Federal
National Mortgage
Association, 5.5% to 9.5% due
01/01/06 to 03/01/25. The
market value of the
collateral is $77,261,569).
First Boston Corporation
6.03% 04/10/95 50,000 50,000,000
------------
(Agreement dated 03/09/95
to be repurchased at
$50,268,000. Collateralized
by 89,055,000. Federal
National Mortgage Association
and Federal Home Loan
Mortgage Corporation, 5.791%
to 6.399% due 11/01/23 to
06/01/29. The market value of
the collateral is
$88,685,121).
<CAPTION>
VALUE
------------
<S> <C> <C>
TOTAL REPURCHASE AGREEMENTS
(Cost $161,900,000) $161,900,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $622,750,248*) 100.2% 622,750,248
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.2%) (1,287,160)
------- ------------
NET ASSETS (Equivalent to $1.00 per share
based on 113,704,861 Institutional
shares, 505,347,225 Service shares and
2,399,857 Series A Investor shares
outstanding) 100.0% $621,463,088
======= ============
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($621,463,088 / 621,451,943) $1.00
=====
</TABLE>
- ---------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of March 31, 1995 and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
11
<PAGE> 12
THE PNC(R) FUND
OHIO MUNICIPAL MONEY MARKET
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO -- 97.9%
Clermont County Hospital
Facilities (Mercy Health Care
System Project) Series 1985B DN
4.00%** 04/07/95 $ 294 $ 294,000
Erie County IDRB (Brighton Manor
Company Project) Series 1986 DN
4.45%** 04/07/95 3,000 3,000,000
Evendale IDRB (SHV Real Estate,
Inc. Project) Series 1985 DN
4.15%** 04/07/95 1,700 1,700,000
Findlay Water Series 1984 DN
3.85%** 04/03/95 6,500 6,500,000
Franklin County IDRB (Alco
Standard Corp. Project) Series
1994 DN
4.35%** 04/07/95 2,000 2,000,000
Lucas County IDRB (Vega
Industries, Inc. Project) Series
1995 DN
4.50%** 04/07/95 2,300 2,300,000
Montgomery County BAN Series 1994B
4.50% 04/27/95 2,000 2,000,980
Montgomery County Hospital (Miami
Valley Hospital Project) Series
1985B TECP
3.65% 04/05/95 1,000 1,000,000
Montgomery County Hospital (Miami
Valley Hospital Project) Series
1985C TECP
4.20% 05/02/95 2,000 2,000,000
Muskingum County Hospital
Facilities (Bethesda Care Systems
Project) Series 1991 DN
4.25%** 04/07/95 1,900 1,900,000
Ohio Air Quality Development
Authority (Cincinnati Gas &
Electric Project) Series 1985
TECP
4.10% 04/03/95 2,000 2,000,000
Ohio Air Quality Development
Authority (Duquesne Light Co.
Project) Series 1988 MB
3.80% 04/06/95 2,000 2,000,000
Ohio Air Quality Development
Authority (JMG Funding L.P.
Project) Series 1994B DN
4.25%** 04/05/95 200 200,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Ohio Air Quality Development
Authority (PPG Industries, Inc.
Project) Series 1988A DN
4.15%** 04/07/95 $ 500 $ 500,000
Ohio Air Quality Development
Authority (Timken Co. Project)
Series 1992 DN
4.15%** 04/05/95 100 100,000
Ohio GO MB Series 1995
4.50% 08/01/95 3,000 3,000,000
Ohio Housing Finance Agency
Multifamily Housing (Lincoln Park
Assoc. Project) Series 1985 MB
3.95% 05/01/95 650 650,000
Ohio State Environmental
Improvement PCRB (U.S. Steel
Corp. Project) Series 1986 DN
4.30%** 04/07/95 1,000 1,000,000
Ohio State IDRB (Anomatic Corp.
Project) Series 1994 DN
4.50%** 04/06/95 1,000 1,000,000
Ohio Water Development Authority
PCRB (Cleveland Electric
Illuminating Co. Project) Series
1988A TECP
4.15% 04/03/95 2,000 2,000,000
Ohio Water Development Authority
PCRB (Duquesne Light Co. Project)
Series 1988 MB
3.80% 04/04/95 1,600 1,600,000
4.15% 05/11/95 3,050 3,050,000
Ohio Water PCRB (Ohio Edison
Company Project) Series 1988B MB
4.25% 09/01/95 1,750 1,750,000
Olmstead Falls School District BAN
Series 1995
5.00% 05/31/95 1,500 1,501,865
Sandusky County IDRB (Brighton
Manor Co. Project) Series 1986 DN
4.45%** 04/07/95 1,000 1,000,000
Student Loan Funding Corporation
Series 1983A DN
4.20%** 04/07/95 1,100 1,100,000
Student Loan Funding Corporation
Series 1990A-3 DN
4.30%** 04/07/95 1,900 1,900,000
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
OHIO MUNICIPAL MONEY MARKET
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Student Loan Funding Corporation
Series 1990A-1 DN
4.30%** 04/07/95 $1,000 $ 1,000,000
Student Loan Funding Corporation
Series 1990A-2 DN
4.30%** 04/07/95 1,000 1,000,000
Summit County IDRB (Austin
Printing Company, Inc. Project)
Series 1994 DN
4.50%** 04/07/95 650 650,000
Summit County IDRB (Forest
Manufacturing Project) Series
1994 DN
4.50%** 04/06/95 500 500,000
Summit County IDRB (Steffen
Bookbinders Project) Series 1991
DN
4.50%** 04/07/95 200 200,000
Toledo-Lucas County Port Authority
(CSX Transportation, Inc.
Project) Series 1992 TECP
3.65% 04/11/95 2,000 2,000,000
Toledo City Services Special
Assessment Notes Series 1994 MB
4.80% 07/27/95 2,500 2,503,920
West Clermont School District BAN
5.25% 08/09/95 1,800 1,803,465
Westlake Economic Development
(Oaks Development Company
Project) Series 1994 DN
4.35%** 04/07/95 2,020 2,020,000
Wooster IDRB (Allen Group, Inc.
Project) Series 1985 DN
4.05%** 04/05/95 200 200,000
-----------
58,924,230
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PUERTO RICO -- 0.3%
Puerto Rico Government Development
Bank Series 1985 DN
4.10%** 04/07/95 $ 200 $ 200,000
-----------
VIRGIN ISLANDS -- 1.7%
Virgin Islands Housing Finance
Authority Single Family Revenue
Series 1995B MB
4.375% 02/01/96 1,000 1,000,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $60,124,230*) 99.9% 60,124,230
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 64,569
------ -----------
NET ASSETS (Equivalent to $1.00 per
share based on 12,191,502
Institutional shares, 47,994,948
Service shares and 4,634 Series A
Investor shares outstanding). 100.0% $60,188,799
====== ===========
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES
A INVESTOR SHARE
($60,188,799 / 60,191,084) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of March 31, 1995, and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
13
<PAGE> 14
THE PNC(R) FUND
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- 95.1%
Allegheny County (Duquesne Light
Co. Project) Series 1992 MB
4.75% 11/30/95 $ 6,000 $ 6,000,000
Allegheny County (Duquesne Light
Co. Project) Series 1990 MB
4.40% 12/07/95 5,000 5,000,000
Allegheny County Higher
Education Building Authority
(University of Pittsburgh
Project) Series 1985C DN
4.025%** 04/07/95 360 360,000
Allegheny County IDA (Duquesne
Light Co. Project) Series 1992A
MB
4.80% 10/17/95 2,000 2,000,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1990A
DN
4.25%** 04/07/95 5,100 5,100,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1990B
DN
4.25%** 04/07/95 4,500 4,500,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1990C
MB
4.00% 05/12/95 2,500 2,500,000
Beaver County IDA PCRB (Duquesne
Light Co. Project) Series 1993A
MB
4.35% 04/13/95 1,500 1,500,000
4.30% 05/12/95 2,000 2,000,000
4.45% 05/12/95 300 300,000
4.35% 08/09/95 4,900 4,900,000
Beaver County IDA PCRB (Toledo
Edison Co. Project) Series
1992E MB
4.20% 05/03/95 3,250 3,250,000
Bedford County IDA IDRB (Sepa,
Inc. Facility Project) Series
1985 DN
4.05%** 04/07/95 2,000 2,000,000
Berks County IDA Commercial
Development (Sixth and Penn
Street Project) Series 1988 DN
4.20%** 04/07/95 300 300,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- (CONTINUED)
Bradford County IDA Commercial
Development (Guthrie Inn
Project) Series 1984 DN
4.10%** 04/03/95 $ 2,200 $ 2,200,000
Bucks County IDA (SHV Real
Estate, Inc. Project) Series
1985 DN
4.15%** 04/07/95 1,300 1,300,000
Bucks County IDA (Sunstrand
Corp. Project) Series 1991 DN
4.25%** 04/07/95 1,505 1,505,000
Cambria County IDA Resource
Recovery (Cambria Cogen Co.
Project) Series 1989V-1 DN
4.25%** 04/07/95 1,700 1,700,000
Cambria County IDA Resource
Recovery (Cambria Cogen Co.
Project) Series 1989V-2 DN
4.25%** 04/07/95 100 100,000
Cambria County IDA Resource
Recovery (Cambria Cogen Co.
Project) Series 1991V-1 DN
4.25%** 04/07/95 4,400 4,400,000
Carbon County IDA Resource
Recovery (Panther Creek Partner
Project) Series 1990A MB
4.15% 04/10/95 300 300,000
4.20% 04/12/95 2,000 2,000,000
4.35% 04/13/95 2,000 2,000,000
4.00% 05/09/95 500 500,000
3.95% 05/10/95 750 750,000
4.45% 05/12/95 2,810 2,810,000
4.30% 05/26/95 1,200 1,200,000
4.15% 06/09/95 1,355 1,355,000
4.35% 08/08/95 2,550 2,550,000
4.35% 08/09/95 1,400 1,400,000
4.40% 08/15/95 5,000 5,000,000
Cumberland County IDA IDRB (Lane
Enterprises, Inc. Project)
Series 1994 DN
4.75%** 04/07/95 1,000 1,000,000
Cumberland County Municipal
Authority (Presbyterian Homes
Project) Series 1993A DN
4.125%** 04/07/95 6,000 6,000,000
Delaware County IDA
(Philadelphia Electric Co.
Project) 1988C MB
3.75% 05/11/95 1,000 1,000,000
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- (CONTINUED)
Delaware County IDA PCRB
4.30% 04/21/95 $ 2,000 $ 2,000,000
4.00% 05/01/95 900 900,000
4.20% 05/11/95 4,200 4,200,000
4.00% 05/19/95 1,300 1,300,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984A DN
4.30%** 04/07/95 2,000 2,000,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984B DN
4.30%** 04/07/95 2,500 2,500,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984C DN
4.30%** 04/07/95 5,400 5,400,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984D DN
4.25%** 04/07/95 1,200 1,200,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series 1984E DN
4.25%** 04/07/95 5,300 5,300,000
East Hempfield Township IDA
(Yellow Freight System, Inc.
Project) Series 1985 DN
4.25%** 04/07/95 500 500,000
Emmaus General Authority Pooled
Loan Series 1989C DN
4.25%** 04/07/95 2,800 2,800,000
Emmaus General Authority Pooled
Loan Series 1989D DN
4.25%** 04/07/95 7,600 7,600,000
Emmaus General Authority Pooled
Loan Series 1989H DN
4.25%** 04/07/95 5,000 5,000,000
Harrisburg Redevelopment
Authority Multifamily Housing
(Washington Square Apartments
Project) Series 1985 DN
3.95%** 04/07/95 4,500 4,500,000
Lehigh County Authority Water
Series 1984 DN
4.10%** 04/07/95 6,545 6,545,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- (CONTINUED)
Lehigh County IDA PCRB
(Allegheny Electric Co-op, Inc.
Project) Series 1985A DN
4.15%** 04/07/95 $ 100 $ 100,000
Lehigh County Sewer Authority
Series 1985B DN
4.10%** 04/07/95 180 180,000
Littlestown IDA (Hanover House
Industries Project) Series 1987
DN
4.30%** 04/07/95 2,000 2,000,000
Montgomery County IDA (PECO
Energy Project) TECP
3.85% 04/27/95 1,000 1,000,000
Montgomery County Higher
Education & Health Authority
Hospital Series 1988 DN
4.10%** 04/07/95 4,800 4,800,000
Montgomery County IDA
(Philadelphia Electric Co.
Project) Series 1994A MB
3.90% 06/01/95 2,000 2,000,000
Montgomery County IDA (Three
Valley Square Associates
Project) Series 1987 DN
4.20%** 04/07/95 2,800 2,800,000
Northampton County IDA IDRB
(Citizens Utility Project)
Series 1991 MB
4.00% 06/08/95 2,000 2,000,000
Northeastern Pennsylvania
Hospital & Education Authority
(Wyoming Valley Health Care
Project) Series 1994A DN
4.10%** 04/07/95 4,000 4,000,000
Northumberland County IDA
Resource Recovery (Foster
Wheeler Mt. Carmel Project)
Series 1987A DN
4.40%** 04/07/95 4,000 4,000,000
Northumberland County IDA
Resource Recovery (Foster
Wheeler Mt. Carmel Project)
Series 1987B DN
4.40%** 04/07/95 590 590,000
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- (CONTINUED)
Pennsylvania Commonwealth TRAN
4.75% 06/30/95 $15,850 $ 15,879,627
Pennsylvania Energy Development
Authority (B&W Ebensburg Pro-
ject) Series 1988 DN
4.25%** 04/07/95 2,800 2,800,000
Pennsylvania Energy Development
Authority (Piney Creek Project)
Series 1986A DN
4.25%** 04/05/95 6,550 6,550,000
Pennsylvania Energy Development
Authority (Piney Creek Project)
Series 1986C DN
4.25%** 04/07/95 2,700 2,700,000
Pennsylvania Energy Development
Authority (B&W Ebensburg
Project) Series 1986 DN
4.25%** 04/07/95 3,590 3,590,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1994A DN
4.20%** 04/05/95 5,000 5,000,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1984A DN
3.85%** 04/07/95 1,500 1,500,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988A DN
4.20%** 04/07/95 7,800 7,800,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988B DN
4.20%** 04/07/95 2,620 2,620,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988C DN
4.20%** 04/07/95 6,500 6,500,000
Pennsylvania Higher Education
Facility Authority (Temple
University Project) Series 1984
DN
3.24%** 04/01/95 2,000 2,000,000
Philadelphia Authority IDRB
(Commercial Development Airport
Hotel Project) Series 1990 DN
4.15%** 04/07/95 1,400 1,400,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- (CONTINUED)
Philadelphia Gas Works TECP
3.85% 05/09/95 $ 1,800 $ 1,800,000
4.00% 08/01/95 6,000 6,000,000
Philadelphia GO Series 1990 MB
4.15% 04/06/95 5,000 5,000,000
4.05% 06/09/95 1,000 1,000,000
Philadelphia Hospital & Higher
Educational Facility Authority
(Frankford Hospital Project)
Series 1993B DN
4.20%** 04/07/95 2,400 2,400,000
Philadelphia IDA (30th Street
Station Project) Series 1987 DN
3.50%** 04/07/95 3,000 3,000,000
Philadelphia TRAN Series A
4.75% 06/15/95 1,000 1,001,405
Quakertown General Authority
Health Facilities (Lifequest &
Affiliates Project) Series 1991
DN
4.05%** 04/07/95 2,900 2,900,000
Radnor Township GO TRAN
6.00% 12/29/95 1,500 1,510,675
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985A
DN
4.00%** 04/07/95 1,300 1,300,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985B
DN
4.00%** 04/07/95 5,235 5,235,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985F
DN
4.00%** 04/07/95 3,200 3,200,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985I
DN
4.00%** 04/07/95 2,600 2,600,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985J
DN
4.00%** 04/07/95 4,500 4,500,000
Sayre Health Care Facility
Authority (VHA Capital
Financing Project) Series 1985K
DN
4.00%** 04/07/95 3,400 3,400,000
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- (CONTINUED)
Schuylkill County IDA Resource
Recovery (Gilberton Power Pro-
ject) Series 1985 DN
4.25%** 04/07/95 $ 8,700 $ 8,700,000
Schuylkill County IDA Resource
Recovery (Northeastern Power
Co. Project) Series 1986B DN
4.60%** 04/01/95 22,600 22,600,000
St. Mary Hospital Authority
(Franciscan Health System
Project) Series 1985A DN
4.60%** 04/01/95 400 400,000
St. Mary Hospital Authority
(Franciscan Health System
Project) Series 1985B DN
4.60%** 04/01/95 500 500,000
University of Pittsburgh
Commonwealth System of Higher
Education (University Capital
Project) Series 1989A DN
3.90%** 04/07/95 500 500,000
Venango IDA Resource Recovery
Series 1993 MB
4.15% 04/10/95 910 910,000
4.35% 04/13/95 3,150 3,150,000
4.00% 05/09/95 1,475 1,475,000
4.30% 05/12/95 950 950,000
4.45% 05/12/95 1,300 1,300,000
4.15% 06/09/95 1,300 1,300,000
4.30% 08/04/95 2,300 2,300,000
4.35% 08/09/95 1,500 1,500,000
Washington County Authority
Lease Series 1985 DN
4.25%** 04/05/95 4,400 4,400,000
York County IDA PCRB
(Philadelphia Electric Co.)
Series 1993A DN
4.15%** 04/07/95 2,000 2,000,000
------------
309,166,707
------------
PUERTO RICO -- 4.7%
Puerto Rico Government
Development Bank Refunding
Series 1985 DN
4.10%** 04/07/95 500 500,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PUERTO RICO -- (CONTINUED)
Puerto Rico Industrial Medical
and Higher Education and
Environmental Pollution Control
Facilities Authority (Ana G.
Mendez Foundation Project)
Series 1985 DN
4.05%** 04/07/95 $ 2,800 $ 2,800,000
Puerto Rico Industrial Medical
and Higher Education and
Environmental Pollution Control
Facilities Authority
(InterAmerican University of
Puerto Rico Project)
Series 1988 MB
4.20% 04/13/95 1,700 1,700,000
3.95% 05/01/95 1,000 1,000,000
Puerto Rico Industrial Medical
and Higher Education and
Environmental Pollution Control
Facilities Authority (Reynolds
Metals Co. Project) MB
4.00% 09/01/95 600 600,245
Puerto Rico Maritime Shipping
Authority TECP
3.85% 04/19/95 8,800 8,800,000
------------
15,400,245
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $324,566,952*) 99.8% 324,566,952
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.2% 693,203
------- ------------
NET ASSETS (Equivalent to $1.00
per share based on 187,857,855
Institutional shares,
137,296,821 Service shares and
105,349 Series A Investor shares
outstanding). 100.0% $325,260,155
======= ============
NET ASSET VALUE OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($325,260,155 / 325,260,025) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of March 31, 1995, and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
17
<PAGE> 18
THE PNC(R) FUND
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
NORTH CAROLINA -- 86.4%
Asheville Certificates of
Participation Series 1993A DN
3.85%** 04/07/95 $1,500 $ 1,500,000
Bladen County Industrial
Facilities and Pollution Control
Financing Authority Industrial
(Harriet and Henderson Yarns)
Series 1993 DN
4.45%** 04/07/95 775 775,000
Bladen County Industrial
Facilities and Pollution Control
Financing Authority Resource
Recovery (BCH Energy L.P.
Project) Series 1993 DN
4.00%** 04/07/95 2,000 2,000,000
Catawba County Industrial
Facilities and Pollution Control
Financing Authority (WSMP, Inc.
Project) Series 1992 DN
4.45%** 04/07/95 500 500,000
Charlotte Airport Revenue
Refunding Series 1993A DN
4.15%** 04/07/95 5,500 5,500,000
Cumberland County GO Series 1994
MB
4.90% 04/03/95 125 125,000
Durham County Public Improvement
Series 1993 DN
4.05%** 04/07/95 2,350 2,350,000
Durham Public Improvement Series
1993 DN
4.05%** 04/07/95 3,535 3,535,000
Greensboro Certificates of
Participation (Greensboro
Coliseum Complex Improvement
Project) Series 1995A DN
4.00%** 04/07/95 1,600 1,600,000
Greensboro Public Improvement
Series 1994B DN
4.25%** 04/07/95 850 850,000
Haywood County Industrial
Facilities and Pollution Control
Financing Authority (Champion
International Corporation
Project) Series 1995 DN
4.05%** 04/07/95 2,200 2,200,000
Mecklenburg County GO DN
4.10%** 04/07/95 500 500,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
NORTH CAROLINA -- (CONTINUED)
Mecklenburg County GO DN
4.10%** 04/07/95 $2,000 $ 2,000,000
Mecklenburg County Industrial
Facilities and Pollution Control
Financing Authority Industrial
(Otto Industries, Inc. Project)
Series 1988 DN
4.45%** 04/07/95 1,200 1,200,000
New Hanover County Industrial
Facilities and Pollution Control
Financing Authority (Interroll
Corp. Project) Series 1989 DN
4.45%** 04/06/95 1,395 1,395,000
North Carolina Eastern Municipal
Power Agency Power System
Revenue Series 1988B MB
4.25% 05/01/95 2,100 2,100,000
3.95% 06/08/95 1,500 1,500,000
North Carolina Eastern Municipal
Power Agency TECP
3.80% 05/23/95 2,000 2,000,000
4.00% 06/08/95 1,071 1,071,000
North Carolina Education
Facilities Finance Agency (The
Bowman Gray School of Medicine
Project) Series 1990 DN
4.10%** 04/07/95 4,600 4,600,000
North Carolina Educational
Facilities Finance Agency (Duke
University Project) Series 1987A
DN
4.075%** 04/07/95 1,100 1,100,000
North Carolina Educational
Facilities Finance Agency (Duke
University Project) Series 1991B
DN
4.075%** 04/07/95 5,100 5,100,000
North Carolina Industrial
Facilities and Pollution Control
Financing Authority Qualified
Small Issue Industrial (GVK
America, Inc. Project) Series
1990 MB
5.00% 12/01/95 2,970 2,970,000
North Carolina Medical Care
Commission (Baptist Hospital
Project) Series 1992B DN
4.10%** 04/07/95 5,600 5,600,000
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
NORTH CAROLINA -- (CONTINUED)
North Carolina Medical Care
Commission (Pooled Equipment
Financing Project)
Series 1985 DN
4.20%** 04/07/95 $ 800 $ 800,000
North Carolina Medical Care
Commission (Pooled Financing
Project) Series 1991B DN
4.55%** 04/03/95 2,100 2,100,000
North Carolina Medical Care
Commission Refunding (Moses H.
Cone Memorial Hospital Project)
Series 1993 DN
4.10%** 04/07/95 5,100 5,100,000
North Carolina Medical Care
Community Hospital Access
(Pooled Financing Project)
Series 1991A DN
4.55%** 04/03/95 2,800 2,800,000
North Carolina Municipal Power
Agency (Catawba Project) TECP
4.20% 04/17/95 2,000 2,000,000
4.15% 05/31/95 3,000 3,000,000
Person County Industrial
Facilities and Pollution Control
Financing Authority (Carolina
Power & Light Project) Series
1986 DN
4.40%** 04/03/95 1,600 1,600,000
Person County Industrial
Facilities and Pollution Control
Financing Authority (Carolina
Power & Light Project) Series
1992 DN
4.30%** 04/07/95 7,700 7,700,000
Surry County GO Series 1995 BAN
4.25% 10/25/95 3,680 3,682,422
Union County Industrial
Facilities and Pollution Control
Financing Authority IDR (Square
D Company Project) Series 1988
DN
4.125%** 04/07/95 2,000 2,000,000
University of North Carolina
Chapel Hill (School of Medicine
Ambulatory Care Clinic) Series
1990 TECP
4.00% 04/07/95 1,000 1,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
NORTH CAROLINA -- (CONTINUED)
Wake County Industrial Facilities
and Pollution Control Financing
Authority (Carolina Power &
Light Project) Series 1985B DN
4.20%** 04/07/95 $6,900 $ 6,900,000
Wake County Industrial Facilities
and Pollution Control Financing
Authority (Carolina Power &
Light Project) Series 1985C DN
4.20%** 04/07/95 4,400 4,400,000
Wake County Industrial Facilities
and Pollution Control Financing
Authority (Carolina Power &
Light Project) Series 1990 TECP
4.20% 05/10/95 1,000 1,000,000
4.20% 05/30/95 2,000 2,000,000
Wilson County Industrial
Facilities Pollution Control
Financing Authority Industrial
(Chip Project) Series 1989 DN
4.45%** 04/07/95 1,000 1,000,000
Winston-Salem Certificates of
Participation (Risk Acceptance
Management Corp.) Series 1988 DN
4.30%** 04/07/95 500 500,000
Winston-Salem Water and Sewer
System Series 1994 DN
4.10%** 04/07/95 2,800 2,800,000
------------
102,453,422
------------
PUERTO RICO -- 12.7%
Puerto Rico Government
Developmental Bank Refunding
Series 1985 DN
4.10%** 04/07/95 9,000 9,000,000
Puerto Rico Industrial Medical
and Environmental Higher
Education and Pollution Control
Finance Authority
(Inter-American University of
Puerto Rico Project) Series 1988
TECP
3.65% 05/11/95 2,300 2,300,000
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 20
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
PUERTO RICO (CONTINUED)
Puerto Rico Industrial Medical
and Higher Education
Environmental and Pollution
Control Facilities Funding
Authority (Ana G. Mendez
Project) Series 1985 DN
4.05%** 04/07/95 $3,800 $ 3,800,000
------------
15,100,000
------------
VIRGIN ISLANDS -- 0.8%
Virgin Islands Housing Finance
Authority Single Family Revenue
Series 1995B MB
4.375% 02/01/96 1,000 1,000,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $118,553,422*) 99.9% 118,553,422
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 80,035
------ ------------
<CAPTION>
VALUE
------------
<S> <C> <C>
NET ASSETS (Equivalent to $1.00 per
share based on 118,224,341
Institutional shares, 406,625
Service shares and 2,603 Series A
Investor shares outstanding). 100.0% $118,633,457
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER INSTITUTIONAL,
SERVICE AND SERIES A INVESTOR
SHARE
($118,633,457 / 118,633,569) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of March 31, 1995, and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
20
<PAGE> 21
THE PNC(R) FUND
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
VIRGINIA -- 94.8%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria
Arlington Waste-to-Energy
Facility) Series 1986A DN
4.70%** 04/03/95 $ 700 $ 700,000
Arlington County GO Pre-refunded
Series 1985 MB
9.00% 06/01/95 250 253,360
Charles County IDA Solid Waste
(Chambers Development Virginia
Project) Series 1989 DN
4.45%** 04/07/95 500 500,000
Chesterfield County IDA PCR
(Virginia Electric & Power Co.)
Series 1985 MB
4.25% 05/11/95 500 500,000
Culpeper IDA (Baptist Homes)
Series 1992 DN
4.30%** 04/07/95 1,000 1,000,000
Fairfax County IDA (Fairfax
Hospital System, Inc.) Series
1988C DN
4.10%** 04/07/95 300 300,000
Greensville County IDA (Perdue
Farms, Inc. Project) Series 1986
DN
4.35%** 04/03/95 600 600,000
Hanover County IDA (Carter
Machine Company Project) Series
1983 DN
4.30%** 04/05/95 600 600,000
Henrico County IDA (Cedarfield
Hermitage Project) Series 1994
DN
4.50%** 04/03/95 700 700,000
Henrico County IDA (Monument
Association Urology Labs) Series
1988 DN
4.30%** 04/07/95 330 330,000
Henrico County IDA (Strawberry
Hill Outdoor Amphitheatre)
Series 1991 DN
4.30%** 04/07/95 388 388,000
Louisa IDA PCR (Virginia Electric
& Power Co.) Series 1984 MB
4.00% 05/26/95 1,000 1,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
VIRGINIA -- (CONTINUED)
Lynchburg IDA Hospital Facilities
(VHA Mid-Atlantic States Capital
Asset Finance Program) Series
1985C DN
4.10%** 04/07/95 $ 300 $ 300,000
Lynchburg IDA Hospital Facilities
(VHA Mid-Atlantic States Capital
Asset Finance Program) Series
1985E DN
4.10%** 04/07/95 1,000 1,000,000
Norfolk GO Series 1985 MB
8.50% 04/03/95 200 200,030
Norfolk IDA (Sentara Hospitals --
Norfolk Project) Series 1990A MB
4.05% 05/15/95 600 600,000
Peninsula Port Authority of
Virginia Coal Terminal (Dominion
Terminal Associates Project)
Series 1987D DN
4.60%** 04/03/95 2,100 2,100,000
Peninsula Port Authority of
Virginia IDA (Kinyo Virginia,
Inc. Project) Series 1988 DN
4.60%** 04/03/95 700 700,000
Peninsula Port Authority of
Virginia Port Facility (CSX
Transportation, Inc. Project)
Series 1992 TECP
3.85% 05/01/95 1,000 1,000,000
Peninsula Port Authority of
Virginia Port Facility (Shell
Coal and Terminal Company)
Series 1987 DN
4.45%** 04/03/95 800 800,000
Prince William County IDA PCR
(Virginia Electric & Power Co.)
Series 1986 MB
4.10% 05/01/95 300 300,000
Roanoke IDA Hospital (Carilion
Health System) Series 1992A DN
4.50%** 04/03/95 700 700,000
South Hill IDA (South Hill
Veneers, Inc. Project) Series
1987 DN
4.10%** 04/07/95 600 600,000
Southeastern Public Service
Authority (Regional Solid Waste
System) Series 1984A MB
10.50% 07/01/95 300 307,958
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 22
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
VIRGINIA -- (CONTINUED)
Virginia College Building
Authority (Equipment Leasing
Program) Series 1994 MB
4.10% 08/01/95 $ 400 $ 400,122
Virginia Housing Development
Authority (AHC Service
Corporation -- Woodbury Park
Project) Series 1987A MB
4.15%** 04/07/95 1,070 1,070,000
Virginia Housing Development
Authority Commonwealth Mortgage
Series 1993F Subseries F-Stem MB
3.90% 05/10/95 400 400,020
Virginia Housing Development
Authority Commonwealth Mortgage
Series 1993I Sub Series I-Stem
MB
4.20% 05/11/95 500 500,000
York County IDA PCR (Virginia
Electric & Power Co.) Series
1985 MB
4.10% 05/01/95 200 200,000
-----------
18,049,490
-----------
PUERTO RICO -- 4.2%
Government Development Bank
Series 1985 DN
4.10%** 04/07/95 200 200,000
Puerto Rico Maritime Shipping
Authority TECP
3.85% 04/19/95 600 600,000
-----------
800,000
-----------
<CAPTION>
VALUE
-----------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $18,849,490*) 99.0% $18,849,490
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.0% 184,825
------ -----------
NET ASSETS (Equivalent to $1.00 per
share based on 18,634,190
Institutional shares and 400,105
Service shares outstanding) 100.0% $19,034,315
====== ===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER INSTITUTIONAL
AND SERVICE SHARE
($19,034,315 / 19,034,295) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for federal tax purposes.
** Rates shown are the rates as of March 31, 1995, and the
maturities shown are the longer of the next interest
readjustment date or the date the principal amount owed
can be recovered through demand.
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
BAN................ Bond Anticipation Note
DN................. Demand Note
GO................. General Obligation
IDA................ Industrial Development Authority
IDR................ Industrial Development Revenue
IDRB............... Industrial Development Revenue Bond
MB................. Municipal Bond
PCR................ Pollution Control Revenue
PCRB............... Pollution Control Revenue Bond
TAN................ Tax Anticipation Note
TECP............... Tax-Exempt Commercial Paper
TRAN............... Tax and Revenue Anticipation Note
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $36,312,611 $3,959,375 $16,188,882 $1,097,216 $6,315,344
------------ ------------ ------------ ------------ ------------
Expenses:
Investment advisory fee.................. 2,775,547 469,233 1,278,894 131,086 772,434
Administration fee....................... 844,302 156,411 417,822 43,695 257,478
Custodian fee............................ 107,268 30,200 51,225 10,710 37,701
Transfer agent fee....................... 21,219 18,712 24,932 11,234 10,686
Service fees............................. 924,049 260,837 761,644 66,976 170,233
Distribution fees........................ 11,985 84 4,673 67 316
Legal and audit.......................... 63,302 9,888 26,706 5,040 15,394
Printing................................. 44,741 6,409 17,241 4,466 13,560
Registration fees and expenses........... 49,196 22,483 51,719 1,247 13,828
Organization............................. 3,456 374 469 2,362 2,275
Trustees' fees and officer's salary...... 9,963 2,011 4,151 480 2,706
Other.................................... 20,982 2,787 10,143 931 3,567
------------ ------------ ------------ ------------ ------------
4,876,010 979,429 2,649,619 278,294 1,300,178
Less fees voluntarily waived and expenses
reimbursed............................. (2,361,082) (457,824) (1,172,805) (138,426) (700,499)
------------ ------------ ------------ ------------ ------------
Total expenses......................... 2,514,928 521,605 1,476,814 139,868 599,679
------------ ------------ ------------ ------------ ------------
Net investment income..................... 33,797,683 3,437,770 14,712,068 957,348 5,715,665
Net realized gain (loss) on investments... 19,382 (12,356) 6,023 -- --
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations............................... $33,817,065 $3,425,414 $14,718,091 $ 957,348 $5,715,665
============ ============ ============ ============ ============
<CAPTION>
NORTH CAROLINA VIRGINIA
MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
-------------- ------------
<S> <C> <C>
Investment income:
Interest $1,612,760 $270,624
-------------- ------------
Expenses:
Investment advisory fee.................. 197,127 34,404
Administration fee....................... 65,709 11,468
Custodian fee............................ 14,088 8,000
Transfer agent fee....................... 15,458 7,480
Service fees............................. 179 267
Distribution fees........................ 1 --
Legal and audit.......................... 5,558 1,005
Printing................................. 6,378 1,125
Registration fees and expenses........... 3,451 1,397
Organization............................. 2,837 2,738
Trustees' fees and officer's salary...... 639 119
Other.................................... 1,210 306
-------------- ------------
312,635 68,309
Less fees voluntarily waived and expenses
reimbursed............................. (242,460) (60,397)
-------------- ------------
Total expenses......................... 70,175 7,912
-------------- ------------
Net investment income..................... 1,542,585 262,712
Net realized gain (loss) on investments... -- --
-------------- ------------
Net increase in net assets resulting from
operations............................... $1,542,585 $262,712
============== ============
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
-------------------------------------- --------------------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
MARCH 31,1995 SEPTEMBER 30, MARCH 31,1995 SEPTEMBER 30,
(UNAUDITED) 1994 (UNAUDITED) 1994
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net Investment income...................... $ 33,797,683 $ 33,422,550 $ 3,437,770 $ 3,835,438
Net gain (loss) on investment.............. 19,382 (16,921) (12,356) (19,387)
------------------ ------------------ ------------------ ------------------
Net increase in net assets resulting from
operations............................... 33,817,065 33,405,629 3,425,414 3,816,051
------------------ ------------------ ------------------ ------------------
Distributions to shareholders from
Net investment income
Institutional Shares....................... (17,684,158) (15,773,507) (608,174) (774,065)
Service Shares............................. (15,992,677) (17,580,544) (2,829,092) (3,060,695)
Series A Investor Shares................... (120,848) (68,499) (504) (678)
------------------ ------------------ ------------------ ------------------
Total distributions to shareholders...... (33,797,683) (33,422,550) (3,437,770) (3,835,438)
------------------ ------------------ ------------------ ------------------
Capital share transactions.................... 123,188,773 232,315,691 61,570,199 30,926,057
------------------ ------------------ ------------------ ------------------
Total increase in net assets............. 123,208,155 232,298,770 61,557,843 30,906,670
Net assets:
Beginning of period........................ 1,083,261,648 850,962,878 164,006,755 133,100,085
------------------ ------------------ ------------------ ------------------
End of period.............................. $1,206,469,803 $1,083,261,648 $225,564,598 $164,006,755
================== ================== ================== ==================
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
MARCH 31,1995 SEPTEMBER 30,
(UNAUDITED) 1994
------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations
Net Investment income...................... $ 14,712,068 $ 9,723,460
Net gain (loss) on investment.............. 6,023 13,624
------------------ ------------------
Net increase in net assets resulting from
operations............................... 14,718,091 9,737,084
------------------ ------------------
Distributions to shareholders from
Net investment income
Institutional Shares....................... (1,624,576) (1,018,580)
Service Shares............................. (13,041,461) (8,701,808)
Series A Investor Shares................... (46,031) (3,072)
------------------ ------------------
Total distributions to shareholders...... (14,712,068) (9,723,460)
------------------ ------------------
Capital share transactions.................... 209,449,309 213,031,001
------------------ ------------------
Total increase in net assets............. 209,455,332 213,044,625
Net assets:
Beginning of period........................ 412,007,756 198,963,131
------------------ ------------------
End of period.............................. $621,463,088 $412,007,756
================== ==================
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
OHIO MUNICIPAL PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------------- --------------------------------------
FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
MARCH 31,1995 SEPTEMBER 30, MARCH 31,1995 SEPTEMBER 30,
(UNAUDITED) 1994 (UNAUDITED) 1994
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income...................... $ 957,348 $ 1,180,384 $ 5,715,665 $ 2,154,769
Net gain (loss) on investments............. -- (2,285) -- 130
------------------ ------------------ ------------------ ------------------
Net increase in net assets resulting from
operations............................... 957,348 1,178,099 5,715,665 2,154,899
------------------ ------------------ ------------------ ------------------
Distributions to shareholders from
Net investment income
Institutional Shares....................... (240,158) (343,817) (3,914,773) (1,675,898)
Service Shares............................. (716,793) (835,590) (1,799,051) (478,057)
Series A Investor Shares................... (397) (977) (1,841) (814)
------------------ ------------------ ------------------ ------------------
Total distributions to shareholders...... (957,348) (1,180,384) (5,715,665) (2,154,769)
------------------ ------------------ ------------------ ------------------
Capital share transactions.................... 5,574,273 27,351,445 106,459,075 207,640,309
------------------ ------------------ ------------------ ------------------
Total increase in net assets............. 5,574,273 27,349,160 106,459,075 207,640,439
Net assets:
Beginning of period........................ 54,614,526 27,265,366 218,801,080 11,160,641
------------------ ------------------ ------------------ ------------------
End of period.............................. $ 60,188,799 $ 54,614,526 $325,260,155 $218,801,080
================== ================== ================== ==================
<CAPTION>
NORTH CAROLINA MUNICIPAL
MONEY MARKET PORTFOLIO
--------------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
MARCH 31,1995 SEPTEMBER 30,
(UNAUDITED) 1994
------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income...................... $ 1,542,585 $ 1,405,051
Net gain (loss) on investments............. -- --
------------------ ------------------
Net increase in net assets resulting from
operations............................... 1,542,585 1,405,051
------------------ ------------------
Distributions to shareholders from
Net investment income
Institutional Shares....................... (1,540,603) (1,404,199)
Service Shares............................. (1,972) (852)
Series A Investor Shares................... (10) --
------------------ ------------------
Total distributions to shareholders...... (1,542,585) (1,405,051)
------------------ ------------------
Capital share transactions.................... 48,960,560 35,537,466
------------------ ------------------
Total increase in net assets............. 48,960,560 35,537,466
Net assets:
Beginning of period........................ 69,672,897 34,135,431
------------------ ------------------
End of period.............................. $118,633,457 $ 69,672,897
================== ==================
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 26
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL MONEY
MARKET PORTFOLIO
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED JULY 25, 1994(1)
MARCH 31, 1995 THROUGH
(UNAUDITED) SEPTEMBER 30, 1994
-------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income..................................... $ 262,712 $ 57,403
Net gain on investments................................... -- 20
-------------- ----------------
Net increase in net assets resulting...................... 262,712 57,423
-------------- ----------------
Distributions to shareholders from net investment income
Institutional Shares...................................... (259,836) (57,403)
Service Shares............................................ (2,876) --
Series A Investor Shares.................................. -- --
-------------- ----------------
Total distributions to shareholders..................... (262,712) (57,403)
-------------- ----------------
Capital share transactions................................... 5,203,197 13,831,098
-------------- ----------------
Total increase in net assets............................ 5,203,197 13,831,118
Net assets:
Beginning of period....................................... 13,831,118 --
-------------- ----------------
End of period............................................. $ 19,034,315 $ 13,831,118
============== ================
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
26
<PAGE> 27
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
--------------------------------- ---------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 8/2/93(1) ENDED YEAR YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- --------- ---------
Income from investment operations
Net investment income............................ 0.0274 0.0359 0.0054 0.0259 0.0333 0.0274
Net realized gain (loss) on investments.......... -- -- -- -- -- --
----------- -------- -------- ----------- --------- ---------
Total from investment operations............. 0.0274 0.0359 0.0054 0.0259 0.0333 0.0274
----------- -------- -------- ----------- --------- ---------
Less distributions
Distributions from net investment income......... (0.0274) (0.0359) (0.0054) (0.0259) (0.0333) (0.0274)
Distributions from net realized capital gains.... -- -- -- -- -- --
----------- -------- -------- ----------- --------- ---------
Total distributions.......................... (0.0274) (0.0359) (0.0054) (0.0259) (0.0333) (0.0274)
----------- -------- -------- ----------- --------- ---------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ======== ======== =========== ========= =========
Total return........................................ 2.77% 3.64% 0.54% 2.61% 3.37% 2.77%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $ 593,948 $502,972 $435,586 $ 605,220 $575,948 $415,328
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.25%(2) 0.25% 0.27%(2) 0.55%(2) 0.51% 0.59%
Before advisory/administration fee waivers..... 0.62%(2) 0.66% 0.38%(2) 0.92%(2) 0.92% 0.70%
Ratios of net investment income to average net
assets
After advisory/administration fee waivers...... 5.51%(2) 3.64% 3.01%(2) 5.19%(2) 3.35% 2.73%
Before advisory/administration fee waivers..... 5.13%(2) 3.23% 2.90%(2) 4.82%(2) 2.95% 2.62%
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------
SERVICE CLASS
------------------------------
FOR THE
PERIOD
YEAR YEAR 10/4/89(1)
ENDED ENDED THROUGH
9/30/92 9/30/91 9/30/90
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income............................ 0.0391 0.0645 0.0778
Net realized gain (loss) on investments.......... -- -- --
-------- -------- --------
Total from investment operations............. 0.0391 0.0645 0.0778
-------- -------- --------
Less distributions
Distributions from net investment income......... (0.0391) (0.0645) (0.0778)
Distributions from net realized capital gains.... -- -- --
-------- -------- --------
Total distributions.......................... (0.0391) (0.0645) (0.0778)
-------- -------- --------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return........................................ 4.05% 6.64% 8.07%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $838,012 $637,076 $628,075
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.61% 0.62% 0.62%(2)
Before advisory/administration fee waivers..... 0.66% 0.67% 0.70%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers...... 3.86% 6.45% 7.83%(2)
Before advisory/administration fee waivers..... 3.81% 6.40% 7.75%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
27
<PAGE> 28
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------
SERIES A INVESTOR CLASS
--------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 1/13/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- -------- --------
<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 0.0308 0.0188
Net realized gain (loss) on investments.................. -- -- --
----------- -------- --------
Total from investment operations..................... 0.0249 0.0308 0.0188
----------- -------- --------
Less distributions
Distributions from net investment income................. (0.0249) (0.0308) (0.0188)
Distributions from net realized capital gains............ -- -- --
----------- -------- --------
Total distributions.................................. (0.0249) (0.0308) (0.0188)
----------- -------- --------
Net asset value at end of period............................ $ 1.00 $ 1.00 $ 1.00
=========== ======== ========
Total return................................................ 2.51% 3.12% 1.89%
Ratios/Supplemental data
Net assets at end of period (in thousands)............... $ 7,302 $ 4,342 $ 49
Ratios of expenses to average net assets
After advisory/administration fee waivers.............. 0.75%(2) 0.75% 0.67%(2)
Before advisory/administration fee waivers............. 1.12%(2) 1.16% 0.78%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............. 5.04%(2) 3.39% 2.62%(2)
Before advisory/administration fee waivers............. 4.67%(2) 2.98% 2.51%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
28
<PAGE> 29
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
--------------------------------- ---------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 8/2/93(1) ENDED YEAR YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- --------- --------
Income from investment operations
Net investment income........................... 0.0176 0.0246 0.0040 0.0161 0.0219 0.0205
Net realized gain (loss)........................ -- -- -- -- -- --
----------- -------- -------- ----------- --------- --------
Total from investment operations............ 0.0176 0.0246 0.0040 0.0161 0.0219 0.0205
----------- -------- -------- ----------- --------- --------
Less distributions
Distributions from net investment income.......... (0.0176) (0.0246) (0.0040) (0.0161) (0.0219) (0.0205)
Distributions from net realized capital gains... -- -- -- -- -- --
----------- -------- -------- ----------- --------- --------
Total distributions......................... (0.0176) (0.0246) (0.0040) (0.0161) (0.0219) (0.0205)
----------- -------- -------- ----------- --------- --------
Net asset value at end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ======== ======== =========== ========= ========
Total return....................................... 1.78% 2.48% 0.40% 1.62% 2.20% 2.10%
Ratios/Supplemental data
Net assets at end of period (in thousands)...... $ 34,747 $30,608 $39,148 $ 190,789 $133,358 $93,937
Ratios of expenses to average net assets
After advisory/administration fee waivers..... 0.25%(2) 0.25% 0.25%(2) 0.55%(2) 0.51% 0.61%
Before advisory/administration fee waivers.... 0.69%(2) 0.73% 0.36%(2) 0.99%(2) 0.99% 0.72%
Ratios of net investment income to average
net assets
After advisory/administration fee waivers..... 3.51%(2) 2.48% 2.45%(2) 3.25%(2) 2.18% 2.02%
Before advisory/administration fee waivers.... 3.07%(2) 2.01% 2.34%(2) 2.81%(2) 1.71% 1.91%
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------
SERVICE CLASS
---------------------------------
FOR THE
PERIOD
YEAR YEAR 11/1/89(1)
ENDED ENDED THROUGH
9/30/92 9/30/91 9/30/90
-------- -------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period............. $ 1.00 $ 1.00 $ 1.00
--------- -------- ---------
Income from investment operations
Net investment income........................... 0.0281 0.0438 0.0486
Net realized gain (loss)........................ -- -- --
--------- -------- ---------
Total from investment operations............ 0.0281 0.0438 0.0486
--------- -------- ---------
Less distributions
Distributions from net investment income.......... (0.0281) (0.0438) (0.0486)
Distributions from net realized capital gains... -- -- --
--------- -------- ---------
Total distributions......................... (0.0281) (0.0438) (0.0486)
--------- -------- ---------
Net asset value at end of period................... $ 1.00 $ 1.00 $ 1.00
========= ======== =========
Total return....................................... 2.85% 4.47% 4.97%
Ratios/Supplemental data
Net assets at end of period (in thousands)...... $125,152 $89,312 $112,108
Ratios of expenses to average net assets
After advisory/administration fee waivers..... 0.63% 0.65% 0.65%(2)
Before advisory/administration fee waivers.... 0.68% 0.70% 0.70%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers..... 2.78% 4.40% 5.31%(2)
Before advisory/administration fee waivers.... 2.73% 4.35% 5.26%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
29
<PAGE> 30
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET
PORTFOLIO
--------------------------------------
SERIES A INVESTOR CLASS
--------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 11/02/92(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- -------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 1.00 $ 1.00 $ 1.00
----------- -------- ---------
Income from investment operations
Net investment income.................................... 0.0151 0.0193 0.0181
Net realized gain (loss) on investments.................. -- -- --
----------- -------- ---------
Total from investment operations..................... 0.0151 0.0193 0.0181
----------- -------- ---------
Less distributions
Distributions from net investment income................. (0.0151) (0.0193) (0.0181)
Distributions from net realized capital gains............ -- -- --
----------- -------- ---------
Total distributions.................................. (0.0151) (0.0193) (0.0181)
----------- -------- ---------
Net asset value at end of period............................ $ 1.00 $ 1.00 $ 1.00
=========== ======== =========
Total return................................................ 1.52% 1.95% 1.83%
Ratios/Supplemental data
Net assets at end of period (in thousands)............... $ 29 $ 41 $ 15
Ratios of expenses to average net assets
After advisory/administration fee waivers.............. 0.75%(2) 0.75% 0.72%(2)
Before advisory/administration fee waivers............. 1.19%(2) 1.23% 0.83%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............. 3.00%(2) 2.05% 2.23%(2)
Before advisory/administration fee waivers............. 2.56%(2) 1.58% 2.12%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
30
<PAGE> 31
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
--------------------------------- -----------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 8/2/93(1) ENDED YEAR YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- --------- ---------
Income from investment operations
Net investment income............................ 0.0269 0.0357 0.0049 0.0254 0.0331 0.0269
Net realized gain (loss)......................... -- -- -- -- -- --
----------- -------- -------- ----------- --------- ---------
Total from investment operations............. 0.0269 0.0357 0.0049 0.0254 0.0331 0.0269
----------- -------- -------- ----------- --------- ---------
Less distributions
Distributions from net investment income......... (0.0269) (0.0357) (0.0049) (0.0254) (0.0331) (0.0269)
Distributions from net realized capital gains.... -- -- -- -- -- --
----------- -------- -------- ----------- --------- ---------
Total distributions.......................... (0.0269) (0.0357) (0.0049) (0.0254) (0.0331) (0.0269)
----------- -------- -------- ----------- --------- ---------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ======== ======== =========== ========= =========
Total return........................................ 2.72% 3.63% 0.49% 2.57% 3.36% 2.72%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $ 113,707 $37,519 $13,513 $ 505,356 $372,883 $185,400
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.25%(2) 0.25% 0.25%(2) 0.55%(2) 0.52% 0.60%
Before advisory/administration fee waivers..... 0.66%(2) 0.70% 0.38%(2) 0.96%(2) 0.97% 0.73%
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 5.53%(2) 3.69% 3.01%(2) 5.14%(2) 3.42% 2.68%
Before advisory/administration fee waivers..... 5.12%(2) 3.24% 2.88%(2) 4.72%(2) 2.97% 2.55%
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------
SERVICE CLASS
---------------------------------
FOR THE
PERIOD
YEAR YEAR 11/1/89(1)
ENDED ENDED THROUGH
9/30/92 9/30/91 9/30/90
--------- --------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Income from investment operations
Net investment income............................ 0.0394 0.0627 0.0697
Net realized gain (loss)......................... -- -- --
--------- --------- ---------
Total from investment operations............. 0.0394 0.0627 0.0697
--------- --------- ---------
Less distributions
Distributions from net investment income......... (0.0394) (0.0627) (0.0697)
Distributions from net realized capital gains.... -- -- --
--------- --------- ---------
Total distributions.......................... (0.0394) (0.0627) (0.0697)
--------- --------- ---------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00
========= ========= =========
Total return........................................ 4.01% 6.46% 7.29%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $160,269 $180,776 $146,148
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.62% 0.65% 0.65%(2)
Before advisory/administration fee waivers..... 0.67% 0.70% 0.70%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 3.91% 6.27% 7.62%(2)
Before advisory/administration fee waivers..... 3.86% 6.22% 7.57%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
31
<PAGE> 32
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
-------------------------------------
SERIES A INVESTOR CLASS
-------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 1/14/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period....................... $ 1.00 $ 1.00 $ 1.00
----------- -------- --------
Income from investment operations
Net investment income..................................... 0.0245 0.0309 0.0183
Net realized gain (loss) on investments................... -- -- --
----------- -------- --------
Total from investment operations...................... 0.0245 0.0309 0.0183
----------- -------- --------
Less distributions
Distributions from net investment income.................. (0.0245) (0.0309) (0.0183)
Distributions from net realized capital gains............. -- -- --
----------- -------- --------
Total distributions................................... (0.0245) (0.0309) (0.0183)
----------- -------- --------
Net asset value at end of period............................. $ 1.00 $ 1.00 $ 1.00
=========== ======== ========
Total return................................................. 2.47% 3.11% 1.85%
Ratios/Supplemental data
Net assets at end of period (in thousands)................ $ 2,400 $ 1,656 $ 50
Ratios of expenses to average net assets
After advisory/administration fee waivers............... 0.75%(2) 0.75% 0.65%(2)
Before advisory/administration fee waivers.............. 1.16%(2) 1.20% 0.78%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............... 4.93%(2) 3.60% 2.57%(2)
Before advisory/administration fee waivers.............. 4.51%(2) 3.14% 2.44%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
32
<PAGE> 33
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
--------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED YEAR 6/10/93(1) ENDED YEAR 6/1/93(1)
3/31/95 ENDED THROUGH 3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- --------
Income from investment operations
Net investment income................................ 0.0174 0.0252 0.0073 0.0159 0.0225 0.0074
Net realized gain (loss) on investments.............. -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total from investment operations................. 0.0174 0.0252 0.0073 0.0159 0.0225 0.0074
----------- -------- -------- ----------- -------- --------
Less distributions
Distributions from net investment income............. (0.0174) (0.0252) (0.0073) (0.0159) (0.0225) (0.0074)
Distributions from net realized capital gains........ -- -- -- -- -- --
----------- -------- -------- ----------- -------- --------
Total distributions.............................. (0.0174) (0.0252) (0.0073) (0.0159) (0.0225) (0.0074)
----------- -------- -------- ----------- -------- --------
Net asset value at end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ======== ======== =========== ======== ========
Total return............................................ 1.76% 2.55% 0.73% 1.60% 2.27% 0.75%
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $ 12,191 $10,521 $12,026 $ 47,993 $44,066 $15,239
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 0.25%(2) 0.13% 0.10%(2) 0.55%(2) 0.40% 0.23%(2)
Before advisory/administration fee waivers......... 0.73%(2) 0.77% 0.83%(2) 1.03%(2) 1.04% 0.96%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......... 3.54%(2) 2.56% 2.45%(2) 3.21%(2) 2.29% 2.23%(2)
Before advisory/administration fee waivers......... 3.06%(2) 1.93% 1.72%(2) 2.74%(2) 1.65% 1.50%(2)
<CAPTION>
OHIO MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------------
SERIES A
INVESTOR CLASS
----------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED 10/5/93(1)
3/31/95 THROUGH
(UNAUDITED) 9/30/94
----------- --------
<S> <C> <C>
Net asset value at beginning of period.................. $ 1.00 $ 1.00
----------- --------
Income from investment operations
Net investment income................................ 0.0150 0.0199
Net realized gain (loss) on investments.............. -- --
----------- --------
Total from investment operations................. 0.0150 0.0199
----------- --------
Less distributions
Distributions from net investment income............. (0.0150) (0.0199)
Distributions from net realized capital gains........ -- --
----------- --------
Total distributions.............................. (0.0150) (0.0199)
----------- --------
Net asset value at end of period........................ $ 1.00 $ 1.00
=========== ========
Total return............................................ 1.50% 2.01%
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $ 5 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 0.75%(2) 0.62%(2)
Before advisory/administration fee waivers......... 1.22%(2) 1.26%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......... 2.94%(2) 1.94%(2)
Before advisory/administration fee waivers......... 2.47%(2) 1.30%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
33
<PAGE> 34
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(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 FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED YEAR 6/1/93(1) ENDED YEAR 6/11/93(1) ENDED 12/28/93(1)
3/31/95 ENDED THROUGH 3/31/95 ENDED THROUGH 3/31/95 THROUGH
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94
----------- --------- -------- ----------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- --------- -------- ----------- -------- -------- ----------- ---------
Income from investment
operations
Net investment income... 0.0170 0.0247 0.0078 0.0156 0.0221 0.0074 0.0146 0.0153
Net realized gain (loss)
on investments........ -- -- -- -- -- -- -- --
----------- --------- -------- ----------- -------- -------- ----------- ---------
Total from
investment
operations......... 0.0170 0.0247 0.0078 0.0156 0.0221 0.0074 0.0146 0.0153
----------- --------- -------- ----------- -------- -------- ----------- ---------
Less distributions
Distributions from net
investment income..... (0.0170) (0.0247) (0.0078) (0.0156) (0.0221) (0.0074) (0.0146) (0.0153)
Distributions from net
realized capital
gains................. -- -- -- -- -- -- -- --
----------- --------- -------- ----------- -------- -------- ----------- ---------
Total
distributions...... (0.0170) (0.0247) (0.0078) (0.0156) (0.0221) (0.0074) (0.0146) (0.0153)
----------- --------- -------- ----------- -------- -------- ----------- ---------
Net asset value at end of
period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ========= ======== =========== ======== ======== =========== =========
Total return............... 1.72% 2.49% 0.78% 1.57% 2.24% 0.74% 1.47% 1.58%
Ratios/Supplemental data
Net assets at end of
period (in
thousands)............ $ 187,858 $158,102 $ 2,242 $ 137,297 $60,560 $ 8,919 $ 105 $ 139
Ratios of expenses to
average net assets
After
advisory/administration
fee waivers......... 0.25%(2) 0.16% 0.09%(2) 0.55%(2) 0.42% 0.32%(2) 0.75%(2) 0.65%(2)
Before
advisory/administration
fee waivers......... 0.66%(2) 0.73% 0.97%(2) 0.96%(2) 0.99% 1.20%(2) 1.16%(2) 1.22%(2)
Ratios of net investment
income to average
net assets
After
advisory/administration
fee waivers......... 3.41%(2) 2.64% 2.15%(2) 3.17%(2) 2.31% 2.42%(2) 2.91%(2) 2.11%(2)
Before
advisory/administration
fee waivers......... 3.00%(2) 2.07% 1.27%(2) 2.76%(2) 1.75% 1.54%(2) 2.50%(2) 1.54%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
34
<PAGE> 35
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------------------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
------------------------------------- ------------------------ -----------
FOR THE FOR THE
FOR THE FOR THE PERIOD FOR THE PERIOD
SIX MONTHS PERIOD 11/01/94(4) PERIOD 2/14/95(1)
ENDED YEAR 5/4/93(1) THROUGH 4/29/94(1) THROUGH
3/31/95 ENDED THROUGH 3/31/95 THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94 (UNAUDITED)
----------- -------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- ----------- -------- -----------
Income from investment operations
Net investment income................... 0.0174 0.0249 0.0097 0.0135 0.0099 0.0041
Net realized gain (loss) on
investments........................... -- -- -- -- -- --
----------- -------- -------- ----------- -------- -----------
Total from investment operations.... 0.0174 0.0249 0.0097 0.0135 0.0099 0.0041
----------- -------- -------- ----------- -------- -----------
Less distributions
Distributions from net investment
income................................ (0.0174) (0.0249) (0.0097) (0.0135) (0.0099) (0.0041)
Distributions from net realized capital
gains................................. -- -- -- -- -- --
----------- -------- -------- ----------- -------- -----------
Total distributions................. (0.0174) (0.0249) (0.0097) (0.0135) (0.0099) (0.0041)
----------- -------- -------- ----------- -------- -----------
Net asset value at end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ======== ======== =========== ======== ===========
Total return............................... 1.75% 2.52% 0.97% 1.35% 0.99% 0.41%
Ratios/Supplemental data
Net assets at end of period (in
thousands)............................ $ 118,224 $69,673 $34,135 $ 406 $ -- (3) $ 3
Ratios of expenses to average net assets
After advisory/administration fee
waivers............................. 0.16%(2) 0.10% 0.10%(2) 0.53%(2) 0.36%(2) 0.66%(2)
Before advisory/administration fee
waivers............................. 0.71%(2) 0.76% 0.81%(2) 1.19%(2) 1.02%(2) 2.99%(2)
Ratios of net investment income to
average net assets
After advisory/administration fee
waivers............................. 3.52%(2) 2.53% 2.35%(2) 3.30%(2) 2.54%(2) 3.32%(2)
Before advisory/administration fee
waivers............................. 2.97%(2) 1.87%(2) 1.64%(2) 2.64%(2) 1.87%(2) 1.00%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service shares outstanding as of September 30, 1994.
(4) Reissuance of shares.
See accompanying notes to financial statements.
35
<PAGE> 36
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
----------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
------------------------ -----------
FOR THE
FOR THE FOR THE PERIOD
SIX MONTHS PERIOD 10/11/94(1)
ENDED 7/25/94(1) THROUGH
3/31/95 THROUGH 3/31/95
(UNAUDITED) 9/30/94 (UNAUDITED)
----------- -------- -----------
<S> <C> <C> <C>
Net asset value at beginning of period....................... $ 1.00 $ 1.00 $ 1.00
----------- -------- -----------
Income from investment operations
Net investment income..................................... 0.0171 0.0053 0.0149
Net realized gain (loss) on investments................... -- -- --
----------- -------- -----------
Total from investment operations...................... 0.0171 0.0053 0.0149
----------- -------- -----------
Less distributions
Distributions from net investment income.................. (0.0171) (0.0053) (0.0149)
Distributions from net realized capital gains............. -- -- --
----------- -------- -----------
Total distributions................................... (0.0171) (0.0053) (0.0149)
----------- -------- -----------
Net asset value at end of period............................. $ 1.00 $ 1.00 $ 1.00
=========== ======== ===========
Total return................................................. 1.72% 0.53% 1.50%
Ratios/Supplemental data
Net assets at end of period (in thousands)................ $ 18,634 $13,831 $ 400
Ratios of expenses to average net assets
After advisory/administration fee waivers............... 0.10%(2) 0.10%(2) 0.40%(2)
Before advisory/administration fee waivers.............. 0.70%(2) 1.02%(2) 1.00%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............... 3.44%(2) 2.89%(2) 3.23%(2)
Before advisory/administration fee waivers.............. 2.84%(2) 1.97%(2) 2.63%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
36
<PAGE> 37
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
The PNC Fund (the "Fund") was organized on December 22, 1988 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-five separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed Income Portfolio and
Government Income Portfolio. As of March 31, 1995, the International Fixed
Income Portfolio had not commenced operations. This report relates solely to
Money Market Portfolio, Municipal Money Market Portfolio, Government Money
Market Portfolio, Ohio Municipal Money Market Portfolio, Pennsylvania Municipal
Money Market Portfolio, North Carolina Municipal Money Market Portfolio and
Virginia Municipal Money Market Portfolio (the "Portfolios").
Each Portfolio (except Money Market Portfolio) has three classes of shares,
one class being referred to as the Service shares, one class being referred to
as the Institutional shares and one class being referred to as the Series A
Investor shares. Money Market Portfolio has a fourth class of shares being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for the Money Market Portfolio through March 31, 1995. Series A
Investor, Series B Investor, Institutional and Service shares in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Series A Investor shares bear the expense of the Series A
Distribution and Service Plan at an annual rate not to exceed .55% of the
average daily net asset value of each Portfolio's outstanding Series A Investor
shares. Series B Investor shares bear the expense of the Series B Distribution
Plan at an annual rate not to exceed .75% of the average daily net asset value
of each Portfolio's outstanding Series B Investor shares. Series B Investor
shares also bear the expense of the Series B Service Plan at an annual rate not
to exceed .25% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Under the Fund's Service Plan, Service
shares bear the expense of fees at an annual rate not to exceed .15% of the
average daily net asset value of each Portfolio's outstanding Service shares.
Service shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of each Portfolio's outstanding
Service shares for other shareholder support activities provided by service
organizations. Institutional shares do not bear the expense of the Series A
Distribution and Service Plan, the Service Plan, the Series B Distribution Plan
or the Series B Service Plan. The Series A Investor and Service classes are
currently bearing such respective expenses at annual rates of .50% of the
average daily net asset value of Series A Investor shares and at rates
aggregating .30% of the average daily net asset value of Service shares.
37
<PAGE> 38
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities are valued under the amortized
cost method which approximates current market value. Under this method,
securities are valued at cost when purchased and thereafter, a constant
proportionate amortization of any discount or premium is recorded until the
maturity of the security. Regular review and monitoring of the valuation is
performed in an attempt to avoid dilution or other unfair results to
shareholders. The Fund seeks to maintain the net asset value per share of each
Portfolio at $1.00.
Dividends to Shareholders -- Dividends from net investment income are
declared daily and paid monthly. Net realized short-term capital gains, if any,
will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Certain expenses, principally fees relating to the Service Plan, the Series A
Distribution and Service Plan, the Series B Distribution Plan and the Series B
Service Plan, are class specific expenses. Expenses not directly attributable to
a specific Portfolio or class are allocated among all of the Portfolios or
classes of the Fund based on their relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group,
Inc. ("PAMG"), which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment adviser for each of the Fund's
Portfolios. PNC Bank serves as the sub-adviser for each of the Funds'
Portfolios. PNC Bank is an indirect wholly-owned subsidiary of PNC Bank Corp.
38
<PAGE> 39
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
For its advisory services, PIMC is entitled to receive fees, computed daily
and payable monthly based on each Portfolio's average daily net assets, at the
following annual rates: .45% of the first $1 billion, .40% of the next $1
billion, .375% of the next $1 billion, and .35% of net assets in excess of $3
billion.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any Portfolio. For the six months ended March 31, 1995,
advisory fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS
ADVISORY NET
FEE WAIVER ADVISORY FEE
---------- ---------- ------------
<S> <C> <C> <C>
Money Market Portfolio.................................. $2,775,547 $2,210,453 $565,094
Municipal Money Market Portfolio........................ 469,233 364,959 104,274
Government Money Market Portfolio....................... 1,278,894 994,695 284,199
Ohio Municipal Money Market Portfolio................... 131,086 103,820 27,266
Pennsylvania Municipal Money Market Portfolio........... 772,434 573,971 198,463
North Carolina Municipal Money Market Portfolio......... 197,127 179,846 17,281
Virginia Municipal Money Market Portfolio............... 34,404 34,404 --
</TABLE>
PIMC pays PNC Bank for its sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
The combined administration fee is computed daily and payable monthly, based on
a percentage of the average daily net assets of each Portfolio, at the following
annual rates: .15% of the first $500 million, .13% of the next $500 million,
.11% of the next $1 billion and .10% of net assets in excess of $2 billion.
PFPC and PDI may, at their discretion, voluntarily waive all or any portion
of their administration fees for any Portfolio. For the six months ended March
31, 1995, administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION FEE WAIVER ADMINISTRATION FEE
------------------- -------- -------------------
<S> <C> <C> <C>
Money Market Portfolio.......................... $ 844,302 $150,629 $ 693,673
Municipal Money Market Portfolio................ 156,411 92,865 63,546
Government Money Market Portfolio............... 417,822 178,110 239,712
Ohio Municipal Money Market Portfolio........... 43,695 34,606 9,089
Pennsylvania Municipal Money Market Portfolio... 257,478 126,528 130,950
North Carolina Municipal Money Market
Portfolio..................................... 65,709 59,949 5,760
Virginia Municipal Money Market Portfolio....... 11,468 11,468 --
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also voluntarily agreed to reimburse expenses in
the amount of $2,665 with respect to the North Carolina Municipal Money Market
Portfolio and $14,525 with respect to the Virginia Municipal Money Market
Portfolio for the six months ended March 31, 1995.
39
<PAGE> 40
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the six months ended March
31, 1995.
(C) CAPITAL SHARES
The Portfolios have each sold and redeemed shares only at a constant net
asset value of $1.00 per share, the number of shares represented by such sales,
acquisitions, reinvestments, and redemptions is the same as the dollar amounts
shown below for such transactions.
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO ------------------------------
---------------------------------- FOR THE
FOR THE SIX MONTHS
SIX MONTHS FOR THE YEAR ENDED FOR THE YEAR
ENDED ENDED MARCH 31, ENDED
MARCH 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30,
(UNAUDITED) 1994 (UNAUDITED) 1994
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 547,501,995 $ 1,541,859,975 $ 73,868,151 $ 112,801,931
Service Class............... 2,076,774,716 3,340,513,140 482,372,726 626,534,455
Series A Investor Class..... 12,592,799 10,165,172 2,151 57,540
Shares issued in acquisition:
Institutional Class......... -- -- -- --
Service Class............... -- 3,334,564 -- --
Series A Investor Class..... -- -- -- --
Shares issued in reinvestment
of dividends:
Institutional Class......... 2,758 1,406 -- --
Service Class............... 2,462,395 2,125,570 273,748 305,101
Series A Investor Class..... 105,983 54,629 507 619
Shares redeemed:
Institutional Class......... (456,540,033) (1,474,467,520) (69,728,311) (121,338,119)
Service Class............... (2,049,972,828) (3,185,344,683) (425,203,730) (587,403,447)
Series A Investor Class..... (9,739,012) (5,926,562) (15,043) (32,023)
--------------- --------------- ------------- -------------
Net increase.................. $ 123,188,773 $ 232,315,691 $ 61,570,199 $ 30,926,057
=============== =============== ============= =============
</TABLE>
40
<PAGE> 41
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
OHIO MUNICIPAL
GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO ------------------------------
---------------------------------- FOR THE
FOR THE SIX MONTHS
SIX MONTHS FOR THE YEAR ENDED FOR THE YEAR
ENDED ENDED MARCH 31, ENDED
MARCH 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30,
(UNAUDITED) 1994 (UNAUDITED) 1994
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 389,009,440 $ 228,682,656 $ 70,320,128 $ 125,595,359
Service Class............... 1,418,765,208 1,915,338,460 49,146,606 158,217,405
Series A Investor Class..... 3,964,892 1,753,740 30,000 115,346
Shares issued in reinvestment
of dividends:
Institutional Class......... -- -- 3,177 15,291
Service Class............... 1,969,671 1,768,196 168,283 194,375
Series A Investor Class..... 36,900 1,952 391 909
Shares redeemed:
Institutional Class......... (312,822,300) (204,678,202) (68,652,896) (127,116,173)
Service Class............... (1,288,216,761) (1,729,686,389) (45,388,076) (129,582,395)
Series A Investor Class..... (3,257,741) (149,412) (53,340) (88,672)
--------------- --------------- ------------- -------------
Net increase.................. $ 209,449,309 $ 213,031,001 $ 5,574,273 $ 27,351,445
=============== =============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA MUNICIPAL
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO ------------------------------
---------------------------------- FOR THE
FOR THE SIX MONTHS
SIX MONTHS FOR THE YEAR ENDED FOR THE YEAR
ENDED ENDED MARCH 31, ENDED
MARCH 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30,
(UNAUDITED) 1994 (UNAUDITED) 1994
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 296,066,267 $ 376,513,609 $ 223,865,692 $ 323,582,453
Service Class............... 179,596,703 130,876,896 1,578,675 648,753
Series A Investor Class..... 57,551 161,583 2,600 --
Shares issued in reinvestment
of dividends:
Institutional Class......... 14,962 4,063 11,094 20,890
Service Class............... 253,373 271,409 370 806
Series A Investor Class..... 1,738 595 3 --
Shares redeemed:
Institutional Class......... (266,325,553) (220,657,499) (175,325,454) (288,065,877)
Service Class............... (103,113,017) (79,507,178) (1,172,420) (649,559)
Series A Investor Class..... (92,949) (23,169) -- --
--------------- --------------- ------------- -------------
Net increase.................. $ 106,459,075 $ 207,640,309 $ 48,960,560 $ 35,537,466
=============== =============== ============= =============
</TABLE>
41
<PAGE> 42
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
MONEY MARKET PORTFOLIO
---------------------------
FOR THE
FOR THE PERIOD
SIX MONTHS JULY 25,
ENDED 1994(1)
MARCH 31, THROUGH
1995 SEPTEMBER
(UNAUDITED) 30, 1994
------------ -----------
<S> <C> <C>
Shares sold:
Institutional Class.................................................. $ 19,128,990 $15,828,907
Service Class........................................................ 634,255 --
Series A Investor Class.............................................. -- --
Shares issued in reinvestment of dividends:
Institutional Class.................................................. -- --
Service Class........................................................ -- --
Series A Investor Class.............................................. -- --
Shares redeemed:
Institutional Class.................................................. (14,325,898) (1,997,809)
Service Class........................................................ (234,150) --
Series A Investor Class.............................................. -- --
------------ -----------
Net increase........................................................... $ 5,203,197 $13,831,098
============ ===========
</TABLE>
- -------------
(1) Commencement of operations.
(D) AT MARCH 31, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
OHIO
MUNICIPAL GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid in....................... $1,206,451,057 $225,599,914 $621,451,943 $ 60,191,084
Accumulated net realized gain (loss)
on investment transactions............ 18,746 (35,316) 11,145 (2,285)
-------------- ------------ ------------ ------------
$1,206,469,803 $225,564,598 $621,463,088 $ 60,188,799
============== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NORTH
PENNSYLVANIA CAROLINA VIRGINIA
MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Capital paid in........................................ $325,260,025 $118,633,569 $ 19,034,295
Accumulated net realized gain (loss)
on investment transactions............................. 130 (112) 20
------------ ------------ ------------
$325,260,155 $118,633,457 $ 19,034,315
============ ============ ============
</TABLE>
42
<PAGE> 43
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
(E) CAPITAL LOSS CARRYOVER
At September 30, 1994, capital loss carryovers were available to offset
possible future realized capital gains as follows: $637 in the Money Market
Portfolio which expire in 2002, $22,960 in the Municipal Money Market Portfolio
which expire in 2002, $2,285 in the Ohio Municipal Money Market Portfolio which
expire in 2002, and $112 in the North Carolina Municipal Money Market Portfolio
which expire in 2001.
(F) ACQUISITION OF THE MONEY MARKET PORTFOLIO OF THE PNC FINANCIAL COMMON TRUST
FOR RETIREMENT ASSETS
On December 27, 1993, The PNC Fund acquired all the assets of the Money
Market Portfolio of the PNC Financial Common Trust for Retirement Assets from
the participants of these accounts. The acquisition was accomplished by a
tax-free exchange of assets with a value of $3,334,564 for 3,334,564 shares of
the Service class of the Money Market Portfolio at $1.00 per share.
43
<PAGE> 44
====================================================
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01M
====================================================
====================================================
[PNC FUNDS LOGO]
THE PNC(R) FUND
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
GOVERNMENT MONEY MARKET PORTFOLIO
OHIO MUNICIPAL MONEY
MARKET PORTFOLIO
PENNSYLVANIA MUNICIPAL MONEY
MARKET PORTFOLIO
NORTH CAROLINA MUNICIPAL MONEY
MARKET PORTFOLIO
VIRGINIA MUNICIPAL MONEY
MARKET PORTFOLIO
Semi-Annual Report to Shareholders
March 31, 1995
====================================================
<PAGE> 1
EXHIBIT (17)(s)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
April 27, 1995
Dear Shareholder:
We are pleased to present the Semi-Annual Report to Shareholders of The PNC
Fund covering the six months ended March 31, 1995. This report includes security
listings and performance results for the fixed income portfolios of The PNC
Fund.
The fixed income portfolios focus on a specific client need -- income. The
range of portfolios allows shareholders to pick investments best suited to
meeting their financial and tax objectives. These portfolios are managed with a
sophisticated blend of discipline, experience and expertise. The goal of the PNC
fixed income portfolios is to provide you with consistent returns and
above-average results.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
Sincerely,
/s/ G. WILLING PEPPER
---------------------------
G. Willing Pepper
Chairman and President
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.
<PAGE> 2
THE PNC FUND
SEMI-ANNUAL INVESTMENT ADVISER'S REPORT
Last year, the fixed income markets were hard hit by rising interest rates
and derivative-related losses. The first quarter of 1995 got off to an
inauspicious start with another increase in short-term interest rates, the
financial crisis in Mexico, and the decline in the dollar. One area that does
appear to be experiencing a trend change is the pace of business activity. In
the fourth quarter of last year, the economy grew by a revised 4.6%, pushing the
annual rate of growth to 4.0%, the strongest showing in ten years. Estimates for
the first quarter average around 3%, based on signs of lower consumer spending,
declining auto sales and a softer housing market. In recent congressional
testimony, Fed Chairman Greenspan indicated that the FOMC expects the economy to
expand at a 2-3% rate in 1995. Greenspan even used the word "ease" in his
February 1995 testimony, causing the markets to rally strongly, but temporarily,
on the belief that the year long rise in interest rates was about over.
The Fed also has reason to be pleased with the inflation numbers. The
fourth quarter GOP report revealed that prices advanced only 1.3%, versus 1.9%
in the previous quarter. For 1994, consumer prices were up 2.7%, exactly the
same as in 1993. The FOMC is estimating that consumer prices will average
3.0-3.5% in 1995.
Short-term interest rates continued their upward climb during the last two
quarters. The Federal Reserve tightened policy twice, in November 1994 and
February 1995, for a total of 125 basis points, bringing the federal funds rate
to 6.00%. Fourth quarter economic reports continued to suggest that business was
expanding, and that further Fed action was likely in the new year. On February
1, 1995 the FOMC voted to increase the federal funds target and discount rates
by 50 basis points to 6.00% and 5.25%, respectively. Although this was the first
interest rate hike of 1995, market expectations that it would also be the last
ignited a strong rally that flattened the yield curve. Three-month and six-month
Treasury bill yields fell to 5.83% and 6.11%, respectively, while the
three-month and six-month LIBOR decreased to 6.19% and 6.38%, respectively.
The last few months also saw a decrease in long-term yields as economic
activity started to show signs of slowing. The 2-year Treasury bond began the
period at 7.69% and steadily declined to 6.78% by March 31, 1995. The
intermediate sector experienced a similar decline in rates with the 5-year
Treasury bond decreasing from 7.83% at the end of December 1994 to 7.07% by
March 31, 1995. Longer yields followed a similar pattern as the 30-year Treasury
bond, which began the period at 7.88%, ended March 1995, at 7.43%.
In the corporate bond market, the spread widening which occurred during the
fourth quarter reversed itself during the first few months of 1995. Bank bonds,
which suffered the most spread widening late last year, tightened early in 1995
as rates stabilized and then declined. Yankee corporate spreads experienced some
volatility during the period as Canadian budget concerns initially pushed the
entire sector wider. As the details of some provincial budgets became public,
spreads in the corporate sector narrowed.
On February 28, 1995, PNC Bank N.A. completed the acquisition of BlackRock
Financial Management. BlackRock joins PNC as a subsidiary of PNC Asset
Management Group and will assume management of the PNC fixed income mutual funds
and common trusts.
BlackRock is a registered investment adviser which specializes in managing
high quality fixed income securities, both taxable and tax-exempt. BlackRock
currently manages over $27 billion of net assets in more than 75 portfolios of
government, mortgage, corporate and municipal securities. These assets are
managed on behalf of many individual investors in twenty-one closed-end funds
and several
2
<PAGE> 3
open-end funds and on behalf of more than 80 institutional clients in the United
States and overseas. BlackRock's institutional investor base includes Chrysler
Corporation Master Retirement Trust, Ford Motor Company Pension Plan, State
Treasurer of Florida, General Electric Pension Trust and Unisys Corporation
Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who sought
to create an asset management firm specializing in managing fixed income
securities for individual and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities.
BlackRock retains its name and continues to operate out of its New York
office. All members of BlackRock's management team have signed long-term
employment contracts and will continue to be responsible for managing
BlackRock's business.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
April 27, 1995
3
<PAGE> 4
THE PNC(R) FUND
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 35.0%
FEDERAL HOME LOAN
BANK BONDS -- 4.2%
5.82% 05/17/95 $ 5,000 $ 4,987,300
6.50% 08/19/95 5,245 5,258,113
6.109% 07/07/97 5,000 5,003,125
7.46% 09/09/04 6,000 5,983,499
------------
21,232,037
------------
FEDERAL HOME LOAN BANK
DISCOUNT NOTES -- 8.2%
6.25% 04/03/95 40,635 40,620,891
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 2.7%
7.50% 10/01/98 4,684 4,637,486
6.50% 10/15/20 10,000 9,101,655
------------
13,739,141
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 11.8%
8.50% 08/25/95 6,101 6,162,373
7.50% 06/25/97 10,000 9,974,532
6.95% 11/01/98 4,200 4,086,197
7.50% 03/25/00 10,000 9,748,878
8.25% 12/18/00 12,000 12,562,079
7.30% 07/10/02 5,000 4,835,550
6.50% 09/25/02 5,100 4,608,369
6.40% 03/25/03 3,000 2,773,980
7.65% 04/29/04 5,000 4,913,300
------------
59,665,258
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 7.1%
9.00% 01/15/96 4,029 4,162,927
10.00% 11/15/98 154 161,873
9.00% 03/15/00 1,149 1,187,408
9.00% 06/15/00 34 35,258
9.50% 06/15/00 192 201,318
9.00% 08/15/00 3,738 3,861,998
9.00% 04/15/01 324 335,135
8.50% 07/05/01 351 356,474
8.50% 08/15/01 600 608,305
8.50% 09/15/01 214 217,629
9.50% 12/15/01 4,771 4,957,872
9.50% 12/15/02 1,001 1,040,019
8.00% 02/15/03 6,048 5,994,786
8.00% 03/15/03 2,447 2,425,536
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(CONTINUED)
8.00% 05/15/03 $ 5,978 $ 5,925,394
7.00% 02/15/05 1,378 1,290,636
6.50% 06/15/05 3,448 3,118,635
------------
35,881,203
------------
TENNESSEE VALLEY AUTHORITY -- 1.0%
7.318% 05/31/99 5,000 5,018,750
------------
TOTAL AGENCY OBLIGATIONS
(Cost $178,379,926) 176,157,280
------------
ASSET BACKED SECURITIES -- 4.3%
AUTOMOTIVE -- 2.0%
Premier Auto Trust
6.35% 04/02/97 5,000 4,925,000
6.85% 03/02/99 5,000 4,972,000
------------
9,897,000
------------
BROKERAGE -- 0.3%
Merrill Lynch Asset Backed Corp.
5.50% 07/15/95 1,724 1,705,927
------------
CREDIT INSTITUTIONS -- 1.0%
Discover Card Master Trust
6.315% 04/15/95 5,000 5,000,000
------------
FINANCE -- 1.0%
United Companies Financial Corp.
6.575% 04/10/96 5,240 5,192,166
------------
TOTAL ASSET BACKED SECURITIES
(Cost $21,946,301) 21,795,093
------------
CORPORATE BONDS -- 19.1%
AUTOMOTIVE -- 2.0%
Ford Motor Co.
8.00% 10/01/96 7,000 7,096,250
9.00% 09/15/01 3,000 3,202,500
------------
10,298,750
------------
BANKS -- 3.2%
Comerica Bank
7.25% 10/15/02 6,000 5,820,000
National Bank of Canada
8.125% 08/15/04 5,000 5,031,250
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
BANKS (CONTINUED)
NationsBank
7.50% 02/15/97 $ 5,000 $ 5,025,000
------------
15,876,250
------------
BROKERAGE -- 1.9%
Morgan Stanley Group
7.50% 09/01/99 5,000 4,950,000
PaineWebber Group
6.25% 06/15/98 5,000 4,743,750
------------
9,693,750
------------
DRUGS & HEALTHCARE -- 1.0%
American Home Products
7.90% 02/15/05 5,000 5,062,500
------------
ENERGY & UTILITIES -- 1.9%
Idaho Power Co.
8.75% 03/15/27 4,000 4,141,250
Texas Utilities Electric Co.
9.75% 05/01/21 5,000 5,450,000
------------
9,591,250
------------
FINANCE -- 1.0%
Household International Corp.
6.00% 03/15/99 5,000 4,756,250
------------
MISCELLANEOUS -- 0.0%
Larwin Group -- Participation in
Asset Exchange
8.00% 12/01/99 3 2,596
------------
PAPER & FOREST PRODUCTS -- 1.0%
Georgia Pacific
8.25% 03/01/23 5,000 4,762,500
------------
TELECOMMUNICATIONS -- 2.9%
AT&T Corp.
6.40% 06/02/99 10,000 10,012,500
Illinois Bell Telephone
7.25% 03/15/24 5,000 4,500,000
------------
14,512,500
------------
YANKEE -- 4.2%
Bell Telephone, Canada
7.75% 04/01/06 5,000 5,006,250
Noranda, Inc.
8.00% 06/01/03 6,500 6,508,125
8.125% 06/15/04 4,500 4,533,750
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
YANKEE (CONTINUED)
Westpac Banking Corp.
9.125% 08/15/01 $ 5,000 $ 5,300,000
------------
21,348,125
------------
TOTAL CORPORATE BONDS
(Cost $97,224,090) 95,904,471
------------
MEDIUM TERM NOTES -- 1.8%
AUTOMOTIVE -- 1.0%
General Motors Acceptance Corp.
6.30% 03/31/97 5,000 4,906,250
------------
BROKERAGE -- 0.8%
Salomon Brothers, Inc.
5.26% 02/10/99 4,000 3,805,000
------------
TOTAL MEDIUM TERM NOTES
(Cost $8,962,960) 8,711,250
------------
U.S. TREASURY OBLIGATIONS -- 35.5%
U.S. TREASURY BONDS -- 12.7%
8.125% 08/15/19 24,000 25,440,238
7.875% 02/15/21 6,000 6,198,538
8.00% 11/15/21 20,000 20,999,798
7.125% 02/15/23 12,000 11,448,600
------------
64,087,174
------------
U.S. TREASURY NOTES -- 22.8%
7.875% 07/31/96 19,000 19,305,138
7.125% 10/15/98 5,000 5,039,200
7.50% 10/31/99 10,000 10,164,799
8.75% 08/15/00 7,000 7,510,229
8.00% 05/15/01 18,000 18,763,198
7.875% 08/15/01 15,800 16,391,866
6.375% 08/15/02 6,750 6,438,825
7.25% 05/15/04 21,000 21,025,200
7.875% 11/15/04 9,500 9,918,189
------------
114,556,644
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $178,015,037) 178,643,818
------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
VARIABLE RATE OBLIGATIONS -- 3.0%
AUTOMOBILES -- 1.0%
Ford Motor Credit Corp.
6.53%** 06/23/95 $ 5,000 $ 4,987,500
------------
BROKERAGE -- 2.0%
Morgan Stanley Group
6.68%** 06/09/95 10,000 9,900,000
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $15,000,000) 14,887,500
------------
NUMBER
OF
SHARES
-------
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money Market Fund
(Cost $36,604) 36,604 36,604
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $499,564,918*) 98.7% 496,136,016
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.3% 6,648,749
------
NET ASSETS (Applicable to
40,994,210 Institutional shares,
8,393,997 Service shares and
1,081,161 Series A Investor
shares outstanding) 100.0% $502,784,765
======
<CAPTION>
VALUE
------------
<S> <C>
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($502,784,765 / 50,469,368) $9.96
=====
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $9.96
=====
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($9.96 / .955) $10.43
======
</TABLE>
- -------------
* Cost for Federal income tax purposes at March 31, 1995 was $501,229,217. The
gross unrealized appreciation (depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 5,953,615
Gross unrealized depreciation (11,046,816)
------------
$ (5,093,201)
=============
</TABLE>
** Rates shown are rates as of March 31, 1995, and the maturities shown are the
longer of the next interest readjustment date or the date the principal
amount can be recovered through demand.
See accompanying notes to financial statements.
6
<PAGE> 7
THE PNC(R) FUND
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ----------
<S> <C> <C> <C>
ARIZONA -- 2.1%
Phoenix General Obligation Bonds
Series 1992
6.375% 07/01/13 $ 200 $ 206,250
----------
COLORADO -- 3.0%
Jefferson County School District
General Obligation Bonds Series
1992
6.00% 12/15/12 300 302,250
----------
DELAWARE -- 2.4%
University of Delaware Housing
and Dining Revenue Bonds Series
1993
5.50% 11/01/15 250 241,875
----------
FLORIDA -- 4.2%
Florida Department of
Transportation General Obligation
Bonds Series 1991
6.25% 07/01/07 400 417,500
----------
GEORGIA -- 11.4%
Georgia General Obligation Bonds
Series 1992B
6.30% 03/01/10 310 334,025
Georgia Municipal Electric
Authority Revenue Bonds Series
1992B
6.125% 01/01/14 400 402,000
Gwinnett County General Obligation
Bonds Series 1992
6.00% 01/01/10 400 406,000
----------
1,142,025
----------
KANSAS -- 13.4%
Johnson County General Obligation
Bonds Series 1992A (Internal
Inspection)
6.00% 09/01/07 400 410,000
Kansas Department of
Transportation Revenue Bonds
Series 1992A
6.125% 09/01/10 500 523,125
Kansas Department of
Transportation Revenue Bonds
Series 1994
6.00% 09/01/12 400 403,500
----------
1,336,625
----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ----------
<S> <C> <C> <C>
KENTUCKY -- 4.0%
Louisville Kentucky Water Supply
Revenue Bonds Series 1992
(Louisville Water Company)
6.00% 11/15/14 $ 400 $ 402,500
----------
LOUISIANA -- 0.2%
Louisiana Housing Finance
Authority Revenue Bonds Series
1985A (Single Family Mortgage)
9.375% 02/01/15 15 15,525
----------
MARYLAND -- 4.0%
Baltimore Port Facility Industrial
Development Revenue Bonds Series
1984A (E.I. Dupont Company)
6.50% 10/01/11 100 104,375
Maryland Health and Higher
Education Authority Revenue Bonds
Series 1993 (Johns Hopkins
Hospital)
5.60% 07/01/09 300 295,125
----------
399,500
----------
NEBRASKA -- 2.9%
Omaha Public Power District
Revenue Bonds Series 1993A
5.50% 02/01/07 300 294,375
----------
NEW JERSEY -- 1.1%
New Jersey Turnpike Authority
Revenue Bonds Series 1991C
6.50% 01/01/16 100 107,250
----------
NEW MEXICO -- 5.0%
New Mexico State University
Revenue Bonds Series 1994
5.70% 04/01/09 500 498,750
----------
NEW YORK -- 5.0%
New York City General
Obligation Bonds
4.30% 10/01/22 500 500,000
----------
NORTH CAROLINA -- 3.1%
North Carolina Municipal Power
Agency Revenue Bonds Series 1992A
(Catawba Electric)
6.00% 01/01/10 300 306,000
----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ----------
<S> <C> <C> <C>
OHIO -- 8.0%
Ohio State University Revenue
Bonds Series 1992A
5.75% 12/01/09 $ 500 $ 490,625
Ohio Water Development Authority
Revenue Bonds Series 1992 (Clean
Water Series)
5.65% 12/01/05 300 305,250
----------
795,875
----------
OREGON -- 3.1%
Portland Sewer System Revenue
Bonds Series 1992A
6.00% 10/01/12 300 308,625
----------
SOUTH CAROLINA -- 4.2%
South Carolina Public Service
Authority Revenue Bonds Series
1991D (Santee Cooper Project)
6.50% 07/01/14 100 103,500
Spartanburg Water Works
Improvement Revenue Bonds Series
1992
6.20% 06/01/09 300 307,500
----------
411,000
----------
TEXAS -- 5.4%
Sabine River Authority Pollution
Control Revenue Bonds Series 1986
(Southwestern Electric Power
Project)
8.20% 07/01/14 85 89,993
San Antonio General Obligation
Bonds Series 1992
5.75% 08/01/13 450 444,938
----------
534,931
----------
UTAH -- 1.1%
Salt Lake City Hospital Revenue
Bonds Series 1988A
8.125% 05/15/15 100 110,750
----------
VIRGINIA -- 11.7%
Hampton General Obligation Bonds
Series 1995
6.00% 01/15/08 400 414,500
Richmond General Obligation Bonds
Series 1993A
5.50% 01/15/13 400 375,500
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ----------
<S> <C> <C> <C>
VIRGINIA (CONTINUED)
Virginia Transportation Board
Revenue Bonds Series 1993A
5.25% 05/15/12 $ 400 $ 374,000
----------
1,164,000
----------
TOTAL MUNICIPAL BONDS
(Cost $9,437,982) 9,495,606
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C> <C>
TEMPORARY INVESTMENTS -- 3.5%
Smith Barney Tax-Free Money
Market Fund
(Cost $351,968) 351,968 351,968
----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $9,789,950*) 98.8% 9,847,574
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.2% 134,418
--------- ----------
NET ASSETS (Applicable to 1,133
Institutional shares, 297,405
Service shares and 662,291 Series
A Investor shares outstanding) 100.0% $9,981,992
======== ==========
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($9,981,992 / 960,829) $10.39
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $10.39
======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE ($10.39 / .955) $10.88
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 172,112
Gross unrealized depreciation (114,488)
----------
$ 57,624
==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
THE PNC(R) FUND
INTERMEDIATE GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 56.1%
FEDERAL HOME LOAN BANK BONDS -- 8.1%
6.109% 07/07/97 $ 5,000 $ 5,003,124
6.44% 07/25/97 5,000 4,937,400
7.00% 03/09/98 5,000 5,020,313
------------
14,960,837
------------
FEDERAL HOME LOAN BANK
DISCOUNT NOTES -- 4.7%
6.25% 04/03/95 8,785 8,781,950
------------
FEDERAL HOME LOAN MORTGAGE CORP. -- 18.2%
7.00% 08/01/96 809 760,378
6.95% 09/15/96 5,197 5,054,027
6.50% 10/15/96 3,885 3,535,993
7.00% 06/15/97 3,000 2,821,263
7.00% 07/01/97 585 582,222
7.37% 10/17/97 5,000 4,996,300
7.31% 09/03/99 8,000 7,940,000
6.55% 04/02/03 4,000 3,740,360
5.78% 10/22/03 5,000 4,429,250
------------
33,859,793
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 18.5%
7.50% 06/25/95 2,000 1,994,906
8.50% 08/25/95 2,615 2,641,017
8.80% 11/10/95 3,000 3,042,810
7.50% 03/25/97 5,000 4,874,439
8.15% 05/11/98 2,500 2,573,100
6.50% 09/25/98 5,000 4,518,008
8.35% 11/10/99 5,000 5,225,250
6.625% 04/10/03 5,000 4,694,000
5.75% 12/25/03 5,000 4,758,097
------------
34,321,627
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 6.6%
7.00% 10/15/98 5,000 4,894,922
7.00% 01/15/99 2,328 2,263,060
6.50% 05/01/99 3,655 3,469,665
7.50% 06/01/00 1,748 1,689,728
------------
12,317,375
------------
TOTAL AGENCY OBLIGATIONS
(Cost $107,655,168) 104,241,582
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 42.5%
U.S. TREASURY NOTES
5.875% 05/15/95 $11,000 $ 10,999,118
7.875% 07/15/96 5,000 5,077,650
6.50% 11/30/96 5,000 4,984,699
6.25% 01/31/97 5,000 4,961,300
5.50% 07/31/97 5,000 4,857,500
5.50% 09/30/97 3,000 2,908,620
5.75% 10/31/97 6,000 5,841,898
6.00% 12/31/97 5,000 4,893,400
5.625% 01/31/98 5,000 4,835,700
5.25% 07/31/98 5,000 4,747,900
5.125% 12/31/98 5,000 4,696,800
6.375% 07/15/99 5,000 4,878,150
6.00% 10/15/99 3,000 2,878,319
7.50% 10/31/99 7,000 7,115,359
7.25% 08/15/04 5,000 5,006,050
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $80,839,694) 78,682,463
------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C> <C>
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money Market Fund
(Cost $8,158) 8,158 8,158
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $188,503,020*) 98.6% 182,932,203
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.4% 2,511,301
--------- ------------
NET ASSETS (Applicable to
12,963,965 Institutional
shares, 5,125,610 Service
shares, and 937,019 Series A
Investor shares outstanding) 100.0% $185,443,504
======== =============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
INTERMEDIATE GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----------
<S> <C>
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE ($185,443,504 / 19,026,594) $9.75
=====
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $9.75
=====
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE ($9.75 / .955) $10.21
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 125,344
Gross unrealized depreciation (5,696,161)
-----------
$(5,570,817)
===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
THE PNC(R) FUND
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO -- 92.5%
Akron, Bath, Copley Joint Township
Hospital District Revenue Bonds
Series 1993
5.50% 11/15/03 $250 $ 221,875
Akron, Bath, Copley Revenue Bonds
Series 1990 (Children's Hospital
Medical Center)
7.45% 11/15/00 100 113,375
Berea City School District Unlimited
Tax General Obligation Bonds Series
1993
7.50% 12/15/03 75 87,000
Brunswick Limited Tax Improvement
General Obligation Bonds Series 1994
6.30% 12/01/05 210 212,100
Butler County Hospital Facilities
Refunding Improvement Revenue Bonds
Series 1991 (Middletown Regional
Hospital)
6.75% 11/15/03 50 53,313
Cincinnati City School District
Unlimited Tax General Obligation
Bonds Series 1986
7.125% 12/01/02 60 65,250
Cincinnati Unlimited Tax General
Obligation Bonds Series 1995
5.40% 12/01/01 115 117,731
Clark County Public Improvement
General Obligation Bonds Series 1993
5.55% 12/01/03 200 192,250
Cleveland Airport System Improvement
Revenue Bonds Series 1994B
5.70% 01/01/04 150 150,562
Cleveland Public Power System
Improvement Revenue Bonds Series
1991B (First Mortgage)
7.00% 11/15/01 100 103,625
Columbus General Obligation Bonds
Series 1991
9.00% 09/15/96 100 106,250
Columbus Municipal Airport Authority
Revenue Bonds Series 1994A (Port
Columbus International Airport)
6.00% 01/01/04 150 150,938
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Columbus Park, Recreation and Zoo
Unlimited Tax General Obligation
Bonds Series 1986
7.25% 07/01/01 $ 25 $ 28,094
Columbus Sewer Improvement Unlimited
Tax General Obligation Bonds Series
1991
9.00% 09/15/97 175 192,719
Cuyahoga County Hospital Improvement
Revenue Bonds (Cleveland Clinic
Foundation) Series 1989
6.75% 12/01/99 200 210,250
Cuyahoga County Hospital Refunding
Revenue Bonds Series 1994A (Fairview
General Hospital Project)
5.50% 02/15/04 200 180,750
Fairfield City School District
Unlimited Tax General Obligation
Bonds Series 1994
7.45% 12/01/14 300 332,250
Franklin County Hospital Revenue
Bonds Series 1991A (Children's
Hospital Project)
6.60% 11/01/11 150 155,625
Franklin County Hospital Revenue
Refunding and Improvement Bonds
Series 1993 (Doctor's Hospital
Project)
5.875% 12/01/03 330 297,824
Greene County Sewer System Revenue
Bonds Series 1993
5.50% 12/01/03 160 152,600
Hamilton County General Obligation
Bonds Series 1993
5.10% 12/01/03 200 182,500
Hamilton Waterworks Mortgage Revenue
Bonds Series 1991A
6.40% 10/15/07 25 26,469
Kettering Local School District
Unlimited Tax General Obligation
Bonds Series 1994
5.30% 12/01/05 250 231,250
Kings Local School District Unlimited
Tax General Obligation Bonds Series
1994
7.60% 12/01/05 200 221,000
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Loveland City School District
Unlimited Tax General Obligation
Bonds Series 1992
6.65% 12/01/02 $145 $ 153,700
Medina Unlimited Tax General
Obligation Bonds Series 1986
7.25% 12/01/03 50 56,813
Montgomery County Hospital Revenue
Bonds Series 1989 (Kettering
Memorial Hospital)
7.375% 04/01/99 200 218,750
North Royalton City School District
Unlimited Tax General Obligation
Bonds Series 1994
6.625% 12/01/06 100 110,625
Northwestern Local School District
Wayne and Ashland Counties School
Improvement Unlimited Tax General
Obligation Bonds Series 1994
7.20% 12/01/10 300 342,750
Ohio Air Quality Development
Authority Revenue Bonds Series 1985
(Dayton Power and Light Company
Project)
9.50% 12/01/95 250 263,437
Ohio Building Authority Facilities
Pre-refunded Revenue Bonds Series
1988 (DAS Data Center Project A)
7.80% 10/01/97 45 49,106
Ohio Housing Finance Agency
Residential Mortgage Revenue Bonds
Series 1994B-2
6.35% 09/01/04 150 151,875
Ohio Housing Finance Agency Revenue
Bonds Series 1992A-2 (Single Family
Mortgage)
6.125% 03/01/05 275 275,343
Ohio State Building Authority Revenue
Bonds Series 1985A (Toledo
Government Center)
8.80% 10/01/95 25 26,188
Ohio State Building Authority Revenue
Bonds Series 1993A (Administration
Building Fund Project)
5.50% 10/01/03 200 190,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Ohio State Higher Education
Facilities Commission Revenue Bonds
Series 1986 (Kenyon College Project)
7.125% 12/01/96 $ 55 $ 58,231
Ohio State Higher Education
Facilities Commission Revenue Bonds
Series 1994 (Ohio Dominican College)
6.625% 12/01/04 250 251,875
Ohio State Higher Education
Facilities Commission Revenue Bonds
Series 1994 (University of Dayton
Project)
5.80% 12/01/04 250 246,562
Ohio State Unlimited Tax General
Obligation Bonds Series 1995
6.00% 08/01/05 225 236,250
Ohio State Water Development
Authority Revenue Bonds Series 1989I
(Pure Water)
7.25% 06/01/97 50 54,188
Olentangy Local School District
Unlimited Tax General Obligation
Bonds Series 1995A
6.00% 12/01/08 225 229,780
Orville Water System Revenue Bonds
6.00% 11/15/02 50 50,438
Ottawa County Sanitary Sewer System
Refunding Revenue Bonds Series 1989
(Danbury Project)
7.375% 10/01/99 100 111,500
Rural Loraine Water Authority
Resource Revenue Bonds Series 1988
7.75% 10/01/98 85 94,350
Summit County Hospital Revenue Bonds
Series 1994A (Cuyahoga Falls General
Hospital Project)
6.65% 07/01/14 200 193,750
University of Cincinnati General
Receipts Revenue Bonds Series 1991G
7.00% 06/01/01 250 270,000
University of Toledo General Receipts
Revenue Bonds Series 1992A
5.75% 12/01/02 200 198,500
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Wadsworth Housing Development Cor-
poration Mortgage Revenue Bonds
Series 1993
(Medina Metropolitan Housing Au-
thority Projects)
5.75% 03/01/06 $130 $ 127,238
Warren County Sewer System Revenue
Bonds Series 1992
6.70% 12/01/02 115 122,763
Worthington City School District
Pre-refunded Unlimited Tax General
Obligation Bonds Series 1989
7.45% 12/01/99 45 50,456
----------
7,920,068
----------
GUAM -- 2.9%
Guam Power Authority Revenue Bonds
Series 1994A
6.625% 10/01/04 250 250,625
----------
PUERTO RICO -- 2.7%
Puerto Rico Commonwealth Highway and
Transportation Authority Refunding
Revenue Bonds Series 1993W
5.50% 07/01/03 250 227,188
----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $8,508,579) 98.1% 8,397,881
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.9% 160,303
--------- ----------
<CAPTION>
VALUE
----------
<S> <C> <C>
NET ASSETS (Applicable to 8,419
Institutional shares, 511,635 Service
shares, 343,288 Series A Investor shares
and 6,353 Series B Investor shares
outstanding) 100.0% $8,558,184
======= ==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL
AND SERVICE SHARE
($5,117,564 / 520,054) $9.84
=====
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A INVESTOR SHARE
($3,378,107 / 343,288) $9.84
=====
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($9.84 / .955) $10.30
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE (SUBJECT TO
CONTINGENT DEFERRED SALES CHARGE) PER
SERIES B INVESTOR SHARE
($62,513 / 6,353) $9.84
=====
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 118,942
Gross unrealized depreciation (229,640)
---------
$(110,698)
==========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 14
THE PNC(R) FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 96.8%
PENNSYLVANIA -- 95.5%
Allegheny County General
Obligation Bonds Series 1991C-38
6.20% 09/01/01 $ 250 $ 265,000
Allegheny County General
Obligation Bonds Series 1993C-42
5.00% 10/01/10 1,000 902,500
Allegheny County Hospital
Development Authority Revenue
Bonds (Mercy Hospital of
Pittsburgh) Series 1986
7.375% 04/01/15 750 771,563
Allegheny County Hospital
Development Authority Revenue
Bonds (Mercy Hospital of
Pittsburgh) Series 1991
6.35% 04/01/00 300 315,375
Allegheny County Residential
Finance Authority Mortgage
Revenue Bonds Single Family
Series 1994Y
6.20% 05/01/17 400 397,500
Berks County General Obligation
Bonds Series 1992
5.75% 11/15/12 300 295,125
Bristol Township School District
Series 1993A
5.10% 02/15/08 1,000 942,500
Cambria County General Obligation
Bonds Series 2000
8.25% 06/01/00 600 658,500
Central Bucks School District
General Obligation Revenue Bonds
Series 1993A
5.15% 05/15/08 1,015 964,250
Centre County General Obligation
Bonds Series 1993A
5.30% 07/01/18 530 480,975
Charleroi School District Revenue
Bonds Series 1992C
5.75% 11/15/13 300 295,875
Chester County General Obligation
Bonds Series 1991
6.70% 12/15/04 385 410,506
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Chester County Solid Waste
Authority -- Guaranteed Solid
Waste Revenue Bonds Series 1990A
6.75% 01/01/99 $ 250 $ 263,750
Chester Upland School Authority
Revenue Bonds Series 1994
5.60% 11/15/14 850 802,188
Coatesville School District
General Obligation Bonds Series
1991
6.40% 01/15/05 500 534,375
Dauphin County General Authority
Revenue Bonds Series 1986
5.30% 06/01/05 535 508,250
5.40% 06/01/06 565 534,631
5.50% 06/01/07 550 519,063
6.85% 06/01/09 800 842,000
Deer Lakes School District General
Obligation Bonds Series 1995
6.35% 01/15/14 1,000 1,018,750
6.45% 01/15/19 1,300 1,329,250
Delaware County Authority Health
Care Revenue Bonds (Mercy Health
Corporation of Southeastern)
Series 1993B
6.00% 11/15/07 2,000 1,855,000
Duquesne School District General
Obligation Bonds Series 1993
5.75% 10/01/18 1,000 926,250
Erie County Prison Authority Lease
Revenue Bonds Series 1991
6.25% 11/01/01 500 533,125
Fox Chapel School District General
Obligation Bonds Series 1993
5.50% 08/15/11 575 543,375
Harrisburg Authority Lease Revenue
Bonds Series 1991
6.50% 06/01/04 500 533,125
Indiana County Hospital Authority
Revenue Bonds Series 1992A
7.125% 07/01/23 1,500 1,490,624
Lancaster County Hospital
Authority Revenue Bonds (Health
Center-Masonic Homes Project)
Series 1994
5.30% 11/15/08 500 468,750
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Lancaster Higher Education Author-
ity College Revenue Bonds
(Franklin and Marshall College
Project) Series 1993
5.65% 04/15/10 $ 500 $ 489,375
Lebanon County Good Samaritan
Hospital Authority Revenue Bonds
(Good Samaritan Hospital Project)
Series 1993
5.55% 11/15/04 355 333,700
6.00% 11/15/09 500 457,500
6.00% 11/15/18 750 660,938
Ligonier Valley School District
General Obligation Bonds Series
1994
5.65% 03/01/14 2,000 1,932,500
Lycoming County Authority Hospital
Lease Revenue Bonds (Divine
Providence-Sisters) Series 1990B
7.75% 07/01/16 2,000 2,155,000
Montgomery County Higher Education
& Health Authority Revenue Bonds
(Frankford Hospital) Series 1986
7.875% 01/01/19 500 513,750
Moon Township Water and Sewer
Authority Revenue Bonds
6.70% 12/01/19 1,000 1,022,500
New Garden Township Sewer
Authority Revenue Bonds Series
1991
7.00% 03/01/15 420 447,300
Northampton County Higher
Education Authority Revenue Bonds
(Moravian College) Series 1994
6.10% 07/01/12 1,950 1,859,812
Oil City School District Series
1994B
5.30% 05/15/11 565 529,688
Pennsbury School District Series
1994
6.65% 08/15/09 685 734,663
Pennsylvania Certificates of
Participation Series 1993A
5.20% 07/01/05 400 387,500
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Pennsylvania Common Turnpike
Revenue Bonds Series 1991L
6.50% 06/01/04 $ 445 $ 476,706
Pennsylvania Finance Authority
Revenue Bonds (Municipal Capital
Improvement Project) Series 1993
6.60% 11/01/09 2,760 2,863,500
Pennsylvania General Obligation
Bonds Series 1991A
6.50% 11/01/05 250 266,250
Pennsylvania Higher Educational
Facilities Authority Revenue
Bonds (Thomas Jefferson
University) Series 1993A
5.15% 11/01/11 500 453,750
Pennsylvania Higher Educational
Facilities Authority Revenue
Bonds (Philadelphia College of
Textiles and Science) Series 1993
4.95% 02/01/02 255 243,206
5.15% 02/01/04 1,230 1,154,662
5.45% 02/01/07 285 269,681
Pennsylvania Infrastructure
Investment Authority Revenue
Bonds Series 1990B
6.80% 09/01/10 2,000 2,110,000
Pennsylvania Intergovernmental
Cooperative Authority Special Tax
Revenue Bonds (City of
Philadelphia Funding Program)
Series 1993
5.25% 06/15/06 1,000 965,000
5.75% 06/15/15 1,000 956,250
Pennsylvania State University
Revenue Bonds Series 1992
5.50% 08/15/16 2,000 1,870,000
Philadelphia Authority Industrial
Development Revenue Bonds (PGH
Development Corporation) Series
1993
5.25% 07/01/17 1,000 871,250
5.25% 07/01/17 810 705,713
Philadelphia Hospital & Higher
Education Facilities Authority
Revenue Bonds (Frankford
Hospital) Series 1993A
6.00% 06/01/23 815 691,731
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Philadelphia Hospital & Higher
Education Facilities Authority
Revenue Bonds (Children Seashore
House) Series 1988
7.75% 08/15/17 $ 750 $ 845,625
Philadelphia Hospital and Higher
Education Authority Facilities
Authority Revenue Bonds (Friends
Hospital) Series 1993
5.95% 05/01/04 500 483,750
6.20% 05/01/11 500 442,500
Philadelphia Hospital and Higher
Education Facilities Authority
Revenue Bonds (Wills Eye
Hospital) Series 1994
5.25% 07/01/02 500 483,125
Philadelphia Hospital and Higher
Education Facilities Authority
Revenue Bonds (Graduate Health
Systems) Series 1993A
5.10% 07/01/98 470 459,425
Philadelphia Municipal Authority
Revenue Bonds (Justice Lease)
Series 1991B
7.10% 11/15/11 2,500 2,821,874
Philadelphia Municipal Authority
Revenue Bonds Series 1993A
5.625% 11/15/14 1,000 948,750
Philadelphia School District
General Obligation Bonds Series
1991A
6.70% 07/01/99 250 265,938
Pittsburgh Water and Sewer
Authority Revenue Bonds Series
1991A
6.60% 09/01/02 250 274,688
Scranton-Lackawanna Health and
Welfare Authority Revenue Bonds
(University of Scranton Project)
Series 1990B
7.40% 06/15/00 200 223,750
Southeastern Pennsylvania
Transportation Authority Special
Revenue Bonds Series 1995A
5.875% 03/01/09 1,230 1,243,837
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
State Public School Building
Authority College Revenue Bonds
(Delaware County Community
College) Series 1993V
5.375% 10/01/17 $1,000 $ 937,500
Trinity School District General
Obligation Bonds Series 1993A
5.50% 11/01/11 2,000 1,927,500
Westmoreland County Industrial
Development Authority Revenue
Bonds (Westmoreland County Health
Systems) Series 1992A
6.00% 07/01/11 200 201,250
York County Hospital Authority
Revenue Bonds (Hanover General
Hospital) Series 1994A
4.60% 12/01/04 605 564,919
4.70% 12/01/05 680 631,550
4.80% 12/01/06 635 587,375
-----------
58,167,456
-----------
PUERTO RICO -- 1.3%
Puerto Rico Electric Power
Authority Revenue Bonds Series
1991P
6.75% 07/01/03 250 270,000
Puerto Rico Public Buildings
Authority Revenue Bonds Series
1992J
6.50% 07/01/03 500 533,750
-----------
803,750
-----------
TOTAL MUNICIPAL BONDS
(Cost $60,122,932*) 58,971,206
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C> <C>
TEMPORARY INVESTMENTS -- 4.8%
Smith Barney Tax Free Money
Market Fund 1,900,914 1,900,914
Vanguard Pennsylvania Tax Free
Money Market Fund 1,000,000 1,000,000
-----------
(Cost $2,900,914) 2,900,914
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $63,023,846*) 101.6% 61,872,120
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----------
<S> <C> <C> <C>
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.6%) $(1,001,021)
------ ----------
NET ASSETS (Applicable to 115,231
Institutional shares,
1,286,171 Service shares,
4,427,574 Series A Investor
shares and 233,149 Series B
Investor shares outstanding) 100.0% $60,871,099
====== ===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER INSTITUTIONAL AND
SERVICE SHARE
($14,071,836 / 1,401,402) $10.04
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($44,458,184 / 4,427,574) $10.04
======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE
($10.04 / .955) $10.51
======
<CAPTION>
VALUE
-----------
<S> <C>
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE (SUBJECT TO CONTINGENT
DEFERRED SALES CHARGE) PER SERIES B
INVESTOR SHARE
($2,341,079 / 233,149) $10.04
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 418,519
Gross unrealized depreciation (1,570,245)
-----------
$(1,151,726)
===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
THE PNC(R) FUND
SHORT-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 17.4%
FEDERAL FARM CREDIT BANK BONDS -- 12.5%
6.70% 09/30/96 $2,000 $ 1,997,180
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 4.9%
7.25% 04/25/96 792 790,495
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $2,790,178) 2,787,675
-----------
ASSET BACKED SECURITIES -- 42.7%
AUTOMOTIVE -- 0.4%
Toyota Motor Credit Auto
Receivable
3.90% 08/17/98 65 63,113
-----------
BANKS -- 9.9%
CoreStates Home Equity Trust
5.10% 03/15/96 735 677,404
Union Federal Master Trust
4.875% 11/15/95 922 906,312
-----------
1,583,716
-----------
BROKERAGE -- 4.4%
Merrill Lynch Asset Backed Corp.
5.50% 07/15/95 715 708,121
-----------
FINANCE -- 28.0%
Advanta Mortgage Loan Trust
5.55% 03/15/97 825 775,621
John Deere Owner Trust
4.10% 10/15/00 819 802,180
The Money Store Home Equity Trust
5.075% 11/15/95 1,218 1,166,094
United Companies Financial Corp.
6.575% 04/10/96 1,747 1,730,722
-----------
4,474,617
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $7,036,096) 6,829,567
-----------
CORPORATE BONDS -- 17.4%
BROKERAGE -- 6.2%
Lehman Brothers, Inc. Subordinated
Notes
7.375% 08/15/97 1,000 990,000
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
DRUGS & HEALTH CARE -- 5.4%
American Home Products Corp.
7.70% 02/15/00 $ 850 $ 857,437
-----------
FINANCE -- 5.8%
Great Western Financial Corp.
6.375% 07/01/00 1,000 937,188
-----------
TOTAL CORPORATE BONDS
(Cost $2,851,507) 2,784,625
-----------
MEDIUM TERM NOTES -- 15.1%
AUTOMOTIVE -- 6.0%
Chrysler Financial Corp.
5.08% 01/27/97 1,000 968,750
-----------
BROKERAGE -- 6.0%
Salomon Brothers, Inc.
5.26% 02/10/99 1,000 951,250
-----------
TRUCKING & FREIGHT -- 3.1%
Ryder System, Inc.
7.66% 09/15/99 500 500,000
-----------
TOTAL MEDIUM TERM NOTES
(Cost $2,500,000) 2,420,000
-----------
U.S. TREASURY NOTES -- 6.3%
6.875% 02/28/97 1,000 1,001,750
-----------
(Cost $1,003,313)
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
--------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 1.0%
Smith Barney Money Market Fund
(Cost $173,187) 173,187 173,187
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $16,354,281*) 99.9% 15,996,804
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 11,299
------ -----------
NET ASSETS (Applicable to
1,043,327 Institutional shares,
604,373 Service shares and
27,166 Series A Investor shares
outstanding) 100.0% $16,008,103
====== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
SHORT-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----------
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($16,008,103 / 1,674,866) $9.56
=====
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $9.56
=====
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE
($9.56 / .955) $10.01
======
</TABLE>
- -------------
* Also cost for Federal tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 8,487
Gross unrealized depreciation (365,964)
------------
$(357,477)
============
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 20
THE PNC(R) FUND
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 37.8%
FEDERAL HOME LOAN BANK BONDS -- 5.4%
5.82% 05/17/95 $3,000 $ 2,992,350
6.99% 04/25/97 2,500 2,497,000
7.04% 05/24/99 2,000 1,971,660
------------
7,461,010
------------
FEDERAL HOME LOAN BANK DISCOUNT
NOTES -- 5.4%
6.25% 04/03/95 2,350 2,349,184
7.98% 03/15/00 5,000 5,010,938
------------
7,360,122
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 12.1%
4.75% 05/15/96 2,000 1,950,047
4.75% 03/15/97 3,000 2,852,593
5.50% 06/15/97 5,000 4,756,621
9.50% 08/15/97 287 295,486
9.00% 09/15/97 268 270,775
8.50% 08/15/98 191 192,392
8.50% 09/15/98 67 67,376
9.00% 09/15/98 34 33,794
8.50% 10/15/98 66 67,725
7.00% 07/15/00 661 642,442
7.00% 08/15/00 1,241 1,205,910
9.00% 12/01/01 70 70,478
9.50% 07/01/03 155 159,498
7.05% 03/24/04 1,500 1,435,313
7.74% 06/01/04 2,000 1,988,060
9.50% 11/01/04 281 289,134
9.50% 01/01/05 301 309,979
8.50% 01/01/05 63 63,817
9.00% 12/01/16 31 31,491
------------
16,682,931
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 11.7%
8.80% 11/10/95 $6,000 $ 6,085,619
7.60% 01/10/97 2,500 2,528,700
5.75% 06/25/98 3,304 3,209,010
8.70% 06/10/99 1,000 1,052,470
8.25% 12/18/00 2,000 2,093,680
9.00% 08/01/02 137 142,506
6.95% 09/10/02 1,000 958,600
9.50% 03/01/05 38 39,469
------------
16,110,054
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 2.5%
8.00% 05/15/99 $ 342 $ 345,432
7.50% 04/15/07 49 48,808
7.50% 06/15/07 40 40,097
7.50% 07/15/07 57 56,642
7.50% 08/15/07 39 38,736
7.50% 10/15/07 81 79,701
7.50% 12/15/07 2,789 2,765,663
9.50% 08/15/18 29 30,074
9.50% 04/15/19 59 61,838
------------
3,466,991
------------
TENNESSEE VALLEY AUTHORITY -- 0.7%
6.125% 07/15/03 1,000 910,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $52,381,127) 51,991,108
------------
ASSET BACKED SECURITIES -- 7.0%
CREDIT INSTITUTIONS -- 2.2%
Discover Card Master Trust I
6.315% 04/16/02 3,000 3,000,000
------------
FINANCE -- 4.8%
Capital Auto Receivables
Asset Trust
4.90% 02/16/98 1,910 1,902,573
First Chicago Master Trust II
8.40% 06/15/98 500 507,050
Merrill Lynch Asset Backed Corp.
1992-1 Class A2
5.50% 07/15/95 1,431 1,416,242
The Money Store Home Equity Trust
7.625% 12/15/95 1,884 1,883,608
Union Federal Master Trust
4.875% 11/15/95 922 906,312
------------
6,615,785
------------
TOTAL ASSET BACKED SECURITIES
(Cost $9,623,487) 9,615,785
------------
CORPORATE BONDS -- 15.0%
BANKS -- 2.4%
National Westminster Bank
9.45% 05/01/01 1,250 1,354,688
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 21
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
BANKS (CONTINUED)
NationsBank Corp.
7.50% 02/15/97 $2,000 $ 2,010,000
------------
3,364,688
------------
DRUGS & HEALTH CARE -- 3.7%
American Home Products Corp.
7.70% 02/15/00 5,000 5,043,750
------------
FINANCE -- 7.4%
American General Financial Corp.
8.00% 02/15/00 4,000 4,055,000
Associates Corp. of North America
9.70% 05/01/97 1,000 1,047,500
Norwest Financial Corp.
8.375% 01/15/00 5,000 5,145,313
------------
10,247,813
------------
YANKEE -- 1.5%
Bell Telephone, Canada
7.75% 04/01/06 1,000 1,001,250
Noranda, Inc.
8.00% 06/01/03 1,000 1,001,250
------------
2,002,500
------------
TOTAL CORPORATE BONDS
(Cost $20,690,548) 20,658,751
------------
MEDIUM TERM NOTES -- 6.5%
AUTOMOTIVE -- 4.3%
Chrysler Financial Corp.
5.08% 01/27/97 3,500 3,390,625
General Motors Acceptance Corp.
7.75% 01/24/97 2,500 2,518,750
------------
5,909,375
------------
TRUCKING & FREIGHT -- 2.2%
Ryder Systems, Inc.
7.66% 09/15/99 3,000 3,000,000
------------
TOTAL MEDIUM TERM NOTES
(Cost $9,098,282) 8,909,375
------------
U.S. TREASURY OBLIGATIONS -- 32.3%
U.S. TREASURY NOTES
4.25% 05/15/96 4,000 3,903,040
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
6.375% 06/30/97 $1,100 $ 1,090,276
7.875% 01/15/98 3,000 3,073,200
5.25% 07/31/98 10,000 9,495,799
7.50% 10/31/99 4,000 4,065,920
7.75% 12/31/99 10,000 10,268,399
6.375% 01/15/00 1,000 972,850
7.50% 05/15/05 5,000 5,107,550
7.75% 02/15/01 2,300 2,369,299
6.25% 02/15/03 1,000 942,440
7.25% 05/15/04 3,000 3,003,600
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $44,647,832) 44,292,373
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $136,441,276*) 98.6% 135,467,392
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.4% 1,984,647
------ ------------
NET ASSETS (Applicable to
11,099,694 Institutional shares,
3,900,712 Service shares and
48,496 Series A Investor shares
outstanding) 100.0% $137,452,039
====== =============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES
A INVESTOR SHARES
($137,452,039 / 15,048,902) $9.13
=====
OFFERING PRICE PER
INSTITUTIONAL AND
SERVICE SHARE $9.13
=====
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($9.13 / .955) $9.56
=====
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 759,557
Gross unrealized depreciation (1,733,441)
-----------
$ (973,884)
===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 22
THE PNC(R) FUND
GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 44.6%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 14.9%
8.53% 02/02/05 $ 1,000 $1,036,110
----------
FEDERAL NATIONAL MORTGAGE
BONDS -- 14.8%
8.55% 12/10/04 1,000 1,021,540
----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 14.9%
9.00% 11/15/24 998 1,030,812
----------
TOTAL AGENCY OBLIGATIONS
(Cost $2,995,875) 3,088,462
----------
U.S. TREASURY OBLIGATIONS -- 55.4%
U.S. TREASURY NOTES
7.25% 08/15/04 $ 416 $ 416,503
7.875% 11/15/04 2,281 2,381,409
7.50% 02/15/05 1,009 1,030,704
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,758,523) 3,828,616
----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $6,754,398) 100% $6,917,078
====== ==========
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $162,680
========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
THE PNC(R) FUND
GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $6,754,398).......................................... $ 6,917,078
Cash............................................................................ 343
Interest receivable............................................................. 128,029
Advisor reimbursement receivable................................................ 23,313
Capital shares sold receivable.................................................. 365,116
Prepaid expenses................................................................ 59,453
-----------
TOTAL ASSETS............................................................ 7,493,332
-----------
LIABILITIES
Capital shares redeemed payable................................................. 3,990
Dividends payable............................................................... 38,028
Accrued expenses payable........................................................ 60,997
-----------
TOTAL LIABILITIES....................................................... 103,015
-----------
NET ASSETS (Applicable to 162,824 Series A Investor shares and 565,057 Series B
Investor shares outstanding).................................................... $ 7,390,317
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SERIES A INVESTOR SHARE ($1,653,239 /
162,824)........................................................................ $10.15
=======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR SHARE ($10.15 / .955)................ $10.63
=======
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (subject to contingent
deferred sales charge) PER SERIES B INVESTOR SHARE
($5,737,078 / 565,057).......................................................... $10.15
=======
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
OHIO
MANAGED TAX-FREE INTERMEDIATE TAX-FREE
INCOME INCOME GOVERNMENT INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Interest................................................. $17,291,974 $276,312 $ 6,043,328 $ 241,037
----------- -------- ----------- ---------
Expenses:
Investment advisory fee.................................. 1,197,064 23,479 473,522 $ 20,289
Administration fee....................................... 478,826 9,391 189,409 8,116
Custodian fee............................................ 42,618 6,090 20,068 6,484
Transfer agent fee....................................... 13,711 10,645 11,022 9,604
Service fees............................................. 93,276 3,308 71,886 5,745
Distribution fees........................................ 24,408 14,965 10,767 3,581
Legal and audit.......................................... 24,532 464 9,849 1,671
Printing................................................. 15,924 308 6,388 275
Registration fees and expenses........................... 12,465 12,465 13,940 1,247
Organization............................................. 131 5,025 2,706 1,232
Trustees' fees and officer's salary...................... 3,884 75 1,567 67
Other.................................................... 8,702 2,625 4,685 3,606
----------- -------- ----------- ---------
1,915,541 88,840 815,809 61,917
Less fees voluntarily waived and expenses reimbursed..... (481,085) (47,089) (354,339) (48,534)
----------- -------- ----------- ---------
Total expenses......................................... 1,434,456 41,751 461,470 13,383
----------- -------- ----------- ---------
Net investment income...................................... 15,857,518 234,561 5,581,858 227,654
----------- -------- ----------- ---------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions.... (4,136,720) 11,979 (2,977,290) (168,265)
Change in unrealized appreciation of investments......... 13,516,527 325,886 4,953,352 360,574
----------- -------- ----------- ---------
Net gain on investments.................................. 9,379,807 337,865 1,976,062 192,309
----------- -------- ----------- ---------
Net increase in net assets resulting from operations..... $25,237,325 $572,426 $ 7,557,920 $ 419,963
========== ======== ========== =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PENNSYLVANIA
TAX-FREE SHORT-TERM INTERMEDIATE GOVERNMENT
INCOME BOND TERM BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(1)
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Investment Income:
Interest................................................. $ 1,714,147 $ 611,287 $ 3,963,073 $143,912
------------ ---------- ------------ ----------
Expenses:
Investment advisory fee.................................. 141,528 52,691 299,568 9,654
Administration fee....................................... 56,611 21,076 119,827 3,862
Custodian fee............................................ 7,520 8,083 16,923 5,871
Transfer agent fee....................................... 19,548 8,097 10,741 10,548
Service fees............................................. 15,293 6,298 43,521 2,690
Distribution fees........................................ 101,583 354 416 11,525
Legal and audit.......................................... 3,058 1,460 5,972 183
Printing................................................. 2,416 1,143 3,813 114
Registration fees and expenses........................... 2,493 11,628 13,879 1,874
Organization............................................. 1,345 2,182 2,279 2,983
Trustees' fees and officer's salary...................... 601 294 946 28
Other.................................................... 5,601 1,602 3,995 51
------------ ---------- ------------ ----------
357,597 114,908 521,880 49,383
Less fees voluntarily waived and expenses reimbursed..... (99,195) (66,103) (208,332) (35,168)
------------ ---------- ------------ ----------
Total expenses......................................... 258,402 48,805 313,548 14,215
------------ ---------- ------------ ----------
Net investment income...................................... 1,455,745 562,482 3,649,525 129,697
------------ ---------- ------------ ----------
Realized and unrealized gain (loss) on investments:
Net realized loss from investment transactions........... (1,076,333) (273,282) (883,909) (14,621)
Change in unrealized appreciation of investments......... 2,252,735 203,056 2,537,689 162,680
------------ ---------- ------------ ----------
Net gain (loss) on investments........................... 1,176,402 (70,226) 1,653,780 148,059
------------ ---------- ------------ ----------
Net increase in net assets resulting from operations..... $ 2,632,147 $ 492,256 $ 5,303,305 $277,756
========== ========= ========= =========
</TABLE>
- -------------
(1) October 3, 1994 (commencement of operations) through March 31, 1995.
See accompanying notes to financial statements.
25
<PAGE> 26
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO TAX-FREE INCOME PORTFOLIO
------------------------------- -----------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
3/31/95 YEAR ENDED 3/31/95 YEAR ENDED
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94
---------------- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income............................... $ 15,857,518 $ 24,284,351 $ 234,561 $ 437,596
Net gain (loss) on investments...................... 9,379,807 (44,710,814) 337,865 (902,194)
---------------- ------------ --------------- ----------
Net increase (decrease) in net assets resulting
from operations................................... 25,237,325 (20,426,463) 572,426 (464,598)
---------------- ------------ --------------- ----------
Distributions to shareholders from
Net investment income
Institutional Shares.............................. (13,108,767) (21,168,266) (2,451) (27,983)
Service Shares.................................... (2,410,944) (2,559,717) (69,027) (66,611)
Series A Investor Shares.......................... (337,807) (556,368) (163,489) (341,872)
---------------- ------------ --------------- ----------
Total distributions from net investment
income...................................... (15,857,518) (24,284,351) (234,967) (436,466)
---------------- ------------ --------------- ----------
In excess of net investment income
Institutional Shares.............................. (456,516) (955,052) -- --
Service Shares.................................... (83,962) (115,487) -- --
Series A Investor Shares.......................... (11,764) (25,102) -- --
---------------- ------------ --------------- ----------
Total distributions in excess of net
investment income........................... (552,242) (1,095,641) -- --
---------------- ------------ --------------- ----------
Net realized gains
Institutional Shares.............................. -- (4,274,701) (191) (21,944)
Service Shares.................................... -- (352,557) (5,402) (31,866)
Series A Investor Shares.......................... -- (108,326) (13,686) (235,722)
---------------- ------------ --------------- ----------
Total distributions from net realized gains... -- (4,735,584) (19,279) (289,532)
---------------- ------------ --------------- ----------
In excess of net realized gains
Institutional Shares.............................. -- (439,375) -- --
Service Shares.................................... -- (36,239) -- --
Series A Investor Shares.......................... -- (11,134) -- --
---------------- ------------ --------------- ----------
Total distributions in excess of net
realized gains.............................. -- (486,748) -- --
---------------- ------------ --------------- ----------
Total distributions to shareholders........... (16,409,760) (30,602,324) (254,246) (725,998)
---------------- ------------ --------------- ----------
Capital share transactions............................ 20,320,845 160,300,119 450,458 1,264,721
---------------- ------------ --------------- ----------
Total increase in net assets.................. 29,148,410 109,271,332 768,638 74,125
Net assets:
Beginning of period................................. 473,636,355 364,365,023 9,213,354 9,139,229
---------------- ------------ --------------- ----------
End of period....................................... $502,784,765 $473,636,355 $9,981,992 $9,213,354
================ ============= =============== ============
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 27
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
INTERMEDIATE OHIO TAX-FREE PENNSYLVANIA TAX-FREE
GOVERNMENT PORTFOLIO INCOME PORTFOLIO INCOME PORTFOLIO
---------------------------- ------------------------- --------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS SIX MONTHS FOR THE
ENDED YEAR ENDED FOR THE ENDED YEAR
3/31/95 ENDED 3/31/95 YEAR ENDED 3/31/95 ENDED
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94
------------ ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income............... $ 5,581,858 $ 10,008,303 $ 227,654 $ 367,913 $1,455,745.. $ 2,792,738
Net gain (loss) on investments...... 1,976,062 (16,040,314) 192,309 (686,251) 1,176,402.. (4,792,774)
------------ ------------ ----------- ---------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations........................ 7,557,920 (6,032,011) 419,963 (318,338) 2,632,147.. (2,000,036)
------------ ------------ ----------- ---------- ----------- -----------
Distributions to shareholders from
Net investment income
Institutional Shares.............. (3,726,468) (7,450,156) (2,703) (88,527) (21,822) (15,967)
Service Shares.................... (1,651,386) (2,071,221) (127,423) (103,043) (299,022) (490,091)
Series A Investor Shares.......... (248,617) (427,436) (96,887) (176,343) (1,114,668) (2,289,938)
Series B Investor Shares.......... -- -- (641) -- (20,233) --
------------ ------------ ----------- ---------- ----------- -----------
Total distributions from net
investment income........... (5,626,471) (9,948,813) (227,654) (367,913) (1,455,745) (2,795,996)
------------ ------------ ----------- ---------- ----------- -----------
Net realized gains
Institutional Shares.............. -- (1,220,708) -- (4,339) -- (280)
Service Shares.................... -- (251,878) -- (1,752) -- (18,964)
Series A Investor Shares.......... -- (68,191) -- (5,046) -- (108,860)
Series B Investor Shares.......... -- -- -- -- -- --
------------ ------------ ----------- ---------- ----------- -----------
Total distributions from net
realized gains.............. -- (1,540,777) -- (11,137) -- (128,104)
------------ ------------ ----------- ---------- ----------- -----------
Total distributions to
shareholders................ (5,626,471) (11,489,590) (227,654) (379,050) (1,455,745) (2,924,100)
------------ ------------ ----------- ---------- ----------- -----------
Capital share transactions............ (14,781,892) 56,048,683 (14,349) 4,108,295 975,606 23,558,899
------------ ------------ ----------- ---------- ----------- -----------
Total increase (decrease) in
net assets.................. (12,850,443) 38,527,082 177,960 3,410,907 2,152,008.. 18,634,763
Net assets:
Beginning of period............... 198,293,947 159,766,865 8,380,224 4,969,317 58,719,091.. 40,084,328
------------ ------------ ----------- ---------- ----------- -----------
End of period..................... $185,443,504 $198,293,947 $8,558,184 $8,380,224 $60,871,099.. $58,719,091
============= ============= ============ ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 28
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
GOVERNMENT INCOME
INTERMEDIATE-TERM BOND PORTFOLIO
SHORT-TERM BOND PORTFOLIO PORTFOLIO -----------------
------------------------- --------------------------- FOR THE PERIOD
FOR THE FOR THE 10/03/94(1)
SIX MONTHS FOR THE SIX MONTHS FOR THE THROUGH
3/31/95 YEAR ENDED 3/31/95 YEAR ENDED 3/31/95
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94 (UNAUDITED)
----------- ----------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income...................... $ 562,482 $ 1,481,277 $ 3,649,525 $3,655,792 $ 129,697
Net gain (loss) on investments............. (70,226) (1,622,114) 1,653,780 (5,600,277) 148,059
----------- ----------- ------------ ------------ -----------------
Net increase (decrease) in net assets
resulting from operations................ 492,256 (140,837) 5,303,305 (1,944,485) 277,756
----------- ----------- ------------ ------------ -----------------
Distributions to shareholders from
Net investment income
Institutional Shares..................... (424,696) (1,256,883) (2,622,296) (2,313,063) --
Service Shares........................... (130,451) (219,277) (1,024,266) (1,431,162) --
Series A Investor Shares................. (7,335) (5,117) (10,005) (531) (34,065)
Series B Investor Shares................. -- -- -- -- (95,632)
----------- ----------- ------------ ------------ -----------------
Total distribution from net
investment income.................. (562,482) (1,481,277) (3,656,567) (3,744,756) (129,697)
----------- ----------- ------------ ------------ -----------------
Net realized gains
Institutional Shares..................... -- -- -- (166,177) --
Service Shares........................... -- -- -- (34,163) --
Series A Investor Shares................. -- -- -- -- --
Series B Investor Shares................. -- -- -- -- --
----------- ----------- ------------ ------------ -----------------
Total distributions from net realized
gains.............................. -- -- -- (200,340) --
----------- ----------- ------------ ------------ -----------------
Total distributions to
shareholders....................... (562,482) (1,481,277) (3,656,567) (3,945,096) (129,697)
----------- ----------- ------------ ------------ -----------------
Capital share transactions................... (8,048,051) 19,189,531 28,058,273 56,832,649 7,242,258
----------- ----------- ------------ ------------ -----------------
Total increase (decrease) in net
assets............................. (8,118,277) 17,567,417 29,705,011 50,943,068 7,390,317
Net assets:
Beginning of period........................ 24,126,380 6,558,963 107,747,028 56,803,960 --
----------- ----------- ------------ ------------ -----------------
End of period.............................. $16,008,103 $24,126,380 $137,452,039 $107,747,028 $ 7,390,317
=========== =========== ============= ============= =================
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
28
<PAGE> 29
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
-------------------------------------
INSTITUTIONAL CLASS
-------------------------------------
FOR THE
SIX MONTHS
ENDED YEAR YEAR
3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93
----------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period................................................. $ 9.79 $ 11.17 $ 10.74
----------- -------- --------
Income from investment operations
Net investment income............................................................... 0.33 0.64 0.67
Net gain (loss) on investments (both realized and unrealized)....................... 0.18 (1.21) 0.56
----------- -------- --------
Total from investment operations................................................ 0.51 (0.57) 1.23
----------- -------- --------
Less distributions
Distributions from net investment income............................................ (0.34) (0.64) (0.67)
Distribution in excess of net investment income..................................... -- (0.02) --
Distributions from net realized capital gains....................................... -- (0.14) (0.13)
Distributions in excess of net realized gains....................................... -- (0.01) --
----------- -------- --------
Total distributions............................................................. (0.34) (0.81) (0.80)
----------- -------- --------
Net asset value at end of period....................................................... $ 9.96 $ 9.79 $ 11.17
=========== ======= ========
Total return........................................................................... 5.30% (5.27)% 12.13%
Ratios/Supplemental data
Net assets at end of period (in thousands).......................................... $ 408,387 $395,060 $341,791
Ratios of expenses to average net assets
After advisory/administration fee waivers......................................... 0.55%(2) 0.55% 0.74%
Before advisory/administration fee waivers........................................ 0.75%(2) 0.77% 0.78%
Ratios of net investment income to average net assets
After advisory/administration fee waivers......................................... 6.67%(2) 6.11% 6.25%
Before advisory/administration fee waivers........................................ 6.47%(2) 5.89% 6.21%
Portfolio turnover rate................................................................ 18% 61% 72%
<CAPTION>
MANAGED INCOME PORTFOLIO
-------------------------------------
INSTITUTIONAL CLASS
-------------------------------------
FOR THE
PERIOD
YEAR YEAR 11/1/89(1)
ENDED ENDED THROUGH
9/30/92 9/30/91 9/30/90
-------- ------- --------
<S> <C<C> <C> <C>
Net asset value at beginning of period................................................. $ 10.26 $ 9.70 $ 10.00
-------- ------- --------
Income from investment operations
Net investment income............................................................... 0.69 0.74 0.66
Net gain (loss) on investments (both realized and unrealized)....................... 0.48 0.63 (0.29)
-------- ------- --------
Total from investment operations................................................ 1.17 1.37 0.37
-------- ------- --------
Less distributions
Distributions from net investment income............................................ (0.69) (0.73) (0.66)
Distribution in excess of net investment income..................................... -- (0.08) (0.01)
Distributions from net realized capital gains....................................... -- -- --
Distributions in excess of net realized gains....................................... -- -- --
-------- ------- --------
Total distributions............................................................. (0.69) (0.81) (0.67)
-------- ------- --------
Net asset value at end of period....................................................... $ 10.74 $10.26 $ 9.70
======== ======= =========
Total return........................................................................... 11.80% 14.74% 3.80%
Ratios/Supplemental data
Net assets at end of period (in thousands).......................................... $314,075 $52,802 $38,328
Ratios of expenses to average net assets
After advisory/administration fee waivers......................................... 0.80% 0.80% 0.80%(2)
Before advisory/administration fee waivers........................................ 0.80% 0.84% 0.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers......................................... 6.28% 7.36% 7.31%(2)
Before advisory/administration fee waivers........................................ 6.28% 7.32% 7.29%(2)
Portfolio turnover rate................................................................ 56% 38% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
29
<PAGE> 30
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
-------------------------------------------------------
SERIES A
INVESTOR
SERVICE CLASS CLASS
------------------------------------ -----------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 7/29/93(1) ENDED
3/31/95 ENDED THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED)
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............................ $ 9.79 $11.17 $ 10.96 $ 9.79
----------- ------- -------- -----------
Income from investment operations
Net investment income.......................................... 0.32 0.59 0.11 0.30
Net gain (loss) on investments (both realized and
unrealized).................................................. 0.17 (1.18) 0.21 0.19
----------- ------- -------- -----------
Total from investment operations........................... 0.49 (0.59) 0.32 0.49
----------- ------- -------- -----------
Less distributions
Distributions from net investment income....................... (0.32) (0.62) (0.11) (0.32)
Distribution in excess of net investment income................ -- (0.02) -- --
Distributions from net realized capital gains.................. -- (0.14) -- --
Distributions in excess of net realized gains.................. -- (0.01) -- --
----------- ------- -------- -----------
Total distributions........................................ (0.32) (0.79) (0.11) (0.32)
----------- ------- -------- -----------
Net asset value at end of period.................................. $ 9.96 $ 9.79 $ 11.17 $ 9.96
=========== ====== ======= ===========
Total return...................................................... 5.17% (5.49)% 2.93%(3) 5.08%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $83,626 $67,655 $15,322 $10,771
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.80%(2) 0.80% 0.80%(2) 1.00%(2)
Before advisory/administration fee waivers................... 1.00%(2) 1.02% 0.84%(2) 1.20%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 6.43%(2) 5.95% 5.83%(2) 6.22%(2)
Before advisory/administration fee waivers................... 6.23%(2) 5.73% 5.79%(2) 6.02%(2)
Portfolio turnover rate........................................... 18% 61% 72% 18%
<CAPTION>
MANAGED INCOME PORTFOLIO
---------------------------------------
SERIES A INVESTOR CLASS
---------------------------------------
FOR THE
PERIOD
YEAR YEAR 2/05/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................ $11.18 $10.74 $10.40
------- ------- --------
Income from investment operations
Net investment income.......................................... 0.57 0.66 0.46
Net gain (loss) on investments (both realized and
unrealized).................................................. (1.19) 0.57 0.34
------- ------- --------
Total from investment operations........................... (0.62) 1.23 0.80
------- ------- --------
Less distributions
Distributions from net investment income....................... (0.60) (0.66) (0.46)
Distribution in excess of net investment income................ (0.02) -- --
Distributions from net realized capital gains.................. (0.14) (0.13) --
Distributions in excess of net realized gains.................. (0.01) -- --
------- ------- --------
Total distributions........................................ (0.77) (0.79) (0.46)
------- ------- --------
Net asset value at end of period.................................. $ 9.79 $11.18 $10.74
======= ======== ========
Total return...................................................... (5.76)%(3) 12.13%(3) 7.86%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $10,921 $7,252 $1,417
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 1.00% 0.84% 0.80%(2)
Before advisory/administration fee waivers................... 1.22% 0.88% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 5.66% 6.09% 6.28%(2)
Before advisory/administration fee waivers................... 5.44% 6.05% 6.28%(2)
Portfolio turnover rate........................................... 61% 72% 56%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
30
<PAGE> 31
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 1/21/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period........................................ $ 10.04 $11.31 $10.61
----------- ------- --------
Income from investment operations
Net investment income...................................................... 1.48 0.53 0.42
Net gain (loss) on investments (both realized and unrealized).............. (0.84) (0.93) 0.70
----------- ------- --------
Total from investment operations....................................... 0.64 (0.40) 1.12
----------- ------- --------
Less distributions
Distributions from net investment income................................... (0.27) (0.53) (0.42)
Distributions from net realized capital gains.............................. (0.02) (0.34) --
----------- ------- --------
Total distributions.................................................... (0.29) (0.87) (0.42)
----------- ------- --------
Net asset value at end of period.............................................. $ 10.39 $10.04 $11.31
=========== ======= ========
Total return.................................................................. 6.53% (3.77)% 10.72%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $ 12 $ 132 $ 675
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 0.50%(2) 0.50% 0.50%(2)
Before advisory/administration fee waivers............................... 1.50%(2) 1.73% 1.28%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 5.42%(2) 4.97% 5.14%(2)
Before advisory/administration fee waivers............................... 4.42%(2) 3.74% 4.36%(2)
Portfolio turnover rate....................................................... 19% 40% 71%
<CAPTION>
TAX-FREE INCOME PORTFOLIO
------------------------------------
SERVICE CLASS
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 7/29/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C<C> <C> <C>
Net asset value at beginning of period........................................ $ 10.04 $11.31 $10.97
----------- ------- --------
Income from investment operations
Net investment income...................................................... 0.25 0.51 0.09
Net gain (loss) on investments (both realized and unrealized).............. 0.37 (0.93) 0.34
----------- ------- --------
Total from investment operations....................................... 0.62 (0.42) 0.43
----------- ------- --------
Less distributions
Distributions from net investment income................................... (0.25) (0.51) (0.09)
Distributions from net realized capital gains.............................. (0.02) (0.34) --
----------- ------- --------
Total distributions.................................................... (0.27) (0.85) (0.09)
----------- ------- --------
Net asset value at end of period.............................................. $ 10.39 $10.04 $11.31
=========== ======= ========
Total return.................................................................. 6.40% (4.02)% 3.92%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $ 3,090 $2,109 $ 634
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 0.75%(2) 0.75% 0.71%(2)
Before advisory/administration fee waivers............................... 1.75%(2) 1.98% 1.49%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 5.13%(2) 4.75% 4.99%(2)
Before advisory/administration fee waivers............................... 4.13%(2) 3.52% 4.21%(2)
Portfolio turnover rate....................................................... 19% 40% 71%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
31
<PAGE> 32
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
-----------------------------------------------
SERIES A INVESTOR CLASS
-----------------------------------------------
FOR THE
SIX MONTHS
ENDED YEAR YEAR YEAR
3/31/95 ENDED ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93 9/30/92
----------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................................... $ 10.04 $11.31 $10.60 $10.33
----------- ------- ------- -------
Income from investment operations
Net investment income.................................................. 0.24 0.48 0.55 0.58
Net gain (loss) on investments (both realized and unrealized).......... 0.37 (0.93) 0.83 0.49
----------- ------- ------- -------
Total from investment operations................................... 0.61 (0.45) 1.38 1.07
----------- ------- ------- -------
Less distributions
Distributions from net investment income............................... (0.24) (0.48) (0.55) (0.59)
Distributions from net realized capital gains.......................... (0.02) (0.34) (0.12) (0.21)
----------- ------- ------- -------
Total distributions................................................ (0.26) (0.82) (0.67) (0.80)
----------- ------- ------- -------
Net asset value at end of period.......................................... $ 10.39 $10.04 $11.31 $10.60
=========== ======= ======= ======
Total return.............................................................. 6.29%(3) (4.19)%(3) 13.48%(3) 10.67%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................. $ 6,880 $6,972 $7,831 $7,349
Ratios of expenses to average net assets
After advisory/administration fee waivers............................ 0.95%(2) 0.95% 0.57% 0.53%
Before advisory/administration fee waivers........................... 1.95%(2) 2.18% 1.36% 1.67%
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................ 4.94%(2) 4.53% 5.06% 5.56%
Before advisory/administration fee waivers........................... 3.93%(2) 3.30% 4.27% 4.42%
Portfolio turnover rate................................................... 19% 40% 71% 38%
<CAPTION>
TAX-FREE INCOME PORTFOLIO
----------------------------
SERIES A INVESTOR CLASS
----------------------------
FOR THE
PERIOD
YEAR 5/14/90(1)
ENDED THROUGH
9/30/91 9/30/90
------- --------
<S> <C> <C>
Net asset value at beginning of period........................................ $ 9.91 $10.00
------- --------
Income from investment operations
Net investment income...................................................... 0.64 0.25
Net gain (loss) on investments (both realized and unrealized).............. 0.46 (0.11)
------- --------
Total from investment operations....................................... 1.10 0.14
------- --------
Less distributions
Distributions from net investment income................................... (0.66) (0.23)
Distributions from net realized capital gains.............................. (0.02) --
------- --------
Total distributions.................................................... (0.68) (0.23)
------- --------
Net asset value at end of period.............................................. $10.33 $ 9.91
======= ========
Total return.................................................................. 11.40%(3) 1.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $3,510 $4,044
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 1.00% 1.00%(2)
Before advisory/administration fee waivers............................... 1.89% 1.70%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 6.23% 6.56%(2)
Before advisory/administration fee waivers............................... 5.34% 5.86%(2)
Portfolio turnover rate....................................................... 95% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
32
<PAGE> 33
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
----------------------------------
INSTITUTIONAL CLASS
----------------------------------
FOR THE
SIX MONTHS
ENDED YEAR
3/31/95 ENDED
(UNAUDITED) 9/30/94
----------- --------
<S> <C> <C>
Net asset value at beginning of period................................................. $ 9.64 $ 10.60
----------- --------
Income from investment operations
Net investment income............................................................... 0.28 0.55
Net gain (loss) on investments (both realized and unrealized)....................... 0.12 (0.86)
----------- --------
Total from investment operations................................................ 0.40 (0.31)
----------- --------
Less distributions
Distributions from net investment income............................................ (0.29) (0.55)
Distributions from net realized capital gains....................................... -- (0.10)
----------- --------
Total distributions............................................................. (0.29) (0.65)
----------- --------
Net asset value at end of period....................................................... $ 9.75 $ 9.64
=========== =========
Total return........................................................................... 4.22% (3.08)%
Ratios/Supplemental data
Net assets at end of period (in thousands).......................................... $ 126,356 $128,974
Ratios of expenses to average net assets
After advisory/administration fee waivers......................................... 0.40%(2) 0.40%
Before advisory/administration fee waivers........................................ 0.77%(2) 0.80%
Ratios of net investment income to average net assets
After advisory/administration fee waivers......................................... 5.98%(2) 5.48%
Before advisory/administration fee waivers........................................ 5.61%(2) 5.08%
Portfolio turnover rate................................................................ 12% 9%
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
----------------------------------
INSTITUTIONAL CLASS
----------------------------------
FOR THE
PERIOD
YEAR 4/20/92(1)
ENDED THROUGH
9/30/93 9/30/92
-------- --------
<S> <C> <C>
Net asset value at beginning of period................................................... $ 10.46 $ 10.00
-------- --------
Income from investment operations
Net investment income................................................................. 0.54 0.24
Net gain (loss) on investments (both realized and unrealized)......................... 0.16 0.46
-------- --------
Total from investment operations.................................................. 0.70 0.70
-------- --------
Less distributions
Distributions from net investment income.............................................. (0.54) (0.24)
Distributions from net realized capital gains......................................... (0.02) --
-------- --------
Total distributions............................................................... (0.56) (0.24)
-------- --------
Net asset value at end of period......................................................... $ 10.60 $ 10.46
======== ========
Total return............................................................................. 6.88% 7.14%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................ $137,065 $105,620
Ratios of expenses to average net assets
After advisory/administration fee waivers........................................... 0.73% 0.80%(2)
Before advisory/administration fee waivers.......................................... 0.81% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................................... 5.23% 5.28%(2)
Before advisory/administration fee waivers.......................................... 5.15% 5.28%(2)
Portfolio turnover rate.................................................................. 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
33
<PAGE> 34
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
-------------------------------------------------------
SERIES A
INVESTOR
SERVICE CLASS CLASS
------------------------------------ -----------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 7/29/93(1) ENDED
3/31/95 ENDED THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED)
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............................ $ 9.64 $10.60 $ 10.45 $ 9.64
----------- ------- -------- -----------
Income from investment operations
Net investment income.......................................... 0.28 0.53 0.09 0.27
Net gain (loss) on investments (both realized and
unrealized).................................................. 0.11 (0.86) 0.15 0.12
----------- ------- -------- -----------
Total from investment operations........................... 0.39 (0.33) 0.24 0.39
----------- ------- -------- -----------
Less distributions
Distributions from net investment income....................... (0.28) (0.53) (0.09) (0.28)
Distributions from net realized capital gains.................. -- (0.10) -- --
----------- ------- -------- -----------
Total distributions........................................ (0.28) (0.63) (0.09) (0.28)
----------- ------- -------- -----------
Net asset value at end of period.................................. $ 9.75 $ 9.64 $ 10.60 $ 9.75
=========== ======= ======== ===========
Total return...................................................... 4.10% (3.31)% 2.30% 4.10%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $49,954 $60,812 $15,035 $ 9,134
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.65%(2) 0.65% 0.67%(2) 0.65%(2)
Before advisory/administration fee waivers................... 1.02%(2) 1.05% 0.75%(2) 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 5.73%(2) 5.30% 5.14%(2) 5.73%(2)
Before advisory/administration fee waivers................... 5.36%(2) 4.90% 5.06%(2) 5.35%(2)
Portfolio turnover rate........................................... 12% 9% 80% 12%
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
---------------------------------
SERIES A INVESTOR CLASS
---------------------------------
FOR THE
PERIOD
YEAR YEAR 5/11/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................ $10.60 $10.46 $10.05
------- ------- --------
Income from investment operations
Net investment income.......................................... 0.53 0.54 0.24
Net gain (loss) on investments (both realized and
unrealized).................................................. (0.87) 0.16 0.41
------- ------- --------
Total from investment operations........................... (0.34) 0.70 0.65
------- ------- --------
Less distributions
Distributions from net investment income....................... (0.52) (0.54) (0.24)
Distributions from net realized capital gains.................. (0.10) (0.02) --
------- ------- --------
Total distributions........................................ (0.62) (0.56) (0.24)
------- ------- --------
Net asset value at end of period.................................. $ 9.64 $10.60 $10.46
======= ======= ========
Total return...................................................... (3.36)%(3) 6.84%(3) 6.64%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $8,508 $7,666 $1,484
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.65% 0.76% 0.80%(2)
Before advisory/administration fee waivers................... 1.05% 0.84% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 5.24% 5.19% 5.28%(2)
Before advisory/administration fee waivers................... 4.84% 5.11% 5.28%(2)
Portfolio turnover rate........................................... 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
34
<PAGE> 35
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 12/1/92(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period........................................ $ 9.60 $10.53 $10.00
----------- ------- --------
Income from investment operations
Net investment income...................................................... 0.27 0.53 0.36
Net gain (loss) on investments (both realized and unrealized).............. 0.24 (0.91) 0.53
----------- ------- --------
Total from investment operations....................................... 0.51 (0.38) 0.89
----------- ------- --------
Less distributions
Distributions from net investment income................................... (0.27) (0.53) (0.36)
Distributions from net realized capital gains.............................. -- (0.02) --
----------- ------- --------
Total distributions.................................................... (0.27) (0.55) (0.36)
----------- ------- --------
Net asset value at end of period.............................................. $ 9.84 $ 9.60 $10.53
=========== ======= ========
Total return.................................................................. 5.50% (3.75)% 9.10%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $ 83 $ 127 $1,676
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 0.10%(2) 0.10% 0.08%(2)
Before advisory/administration fee waivers............................... 0.80%(2) 1.49% 2.59%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 5.82%(2) 5.16% 4.99%(2)
Before advisory/administration fee waivers............................... 5.12%(2) 3.77% 2.48%(2)
Portfolio turnover rate....................................................... 26% 61% 36%
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
------------------------------------
SERVICE CLASS
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 7/29/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period........................................ $ 9.60 $10.53 $10.24
----------- ------- --------
Income from investment operations
Net investment income...................................................... 0.26 0.49 0.09
Net gain (loss) on investments (both realized and unrealized).............. 0.24 (0.91) 0.29
----------- ------- --------
Total from investment operations....................................... 0.50 (0.42) 0.38
----------- ------- --------
Less distributions
Distributions from net investment income................................... (0.26) (0.49) (0.09)
Distributions from net realized capital gains.............................. -- (0.02) --
----------- ------- --------
Total distributions.................................................... (0.26) (0.51) (0.09)
----------- ------- --------
Net asset value at end of period.............................................. $ 9.84 $ 9.60 $10.53
=========== ======= ========
Total return.................................................................. 5.37% (4.00)% 3.68%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................. $ 5,035 $4,428 $ 907
Ratios of expenses to average net assets
After advisory/administration fee waivers................................ 0.35%(2) 0.35% 0.32%(2)
Before advisory/administration fee waivers............................... 1.05%(2) 1.74% 2.83%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................ 5.58%(2) 5.06% 4.71%(2)
Before advisory/administration fee waivers............................... 4.88%(2) 3.67% 2.20%(2)
Portfolio turnover rate....................................................... 26% 61% 36%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
35
<PAGE> 36
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME
PORTFOLIO
-----------------------
SERIES A
INVESTOR CLASS
-----------------------
FOR THE
SIX MONTHS
ENDED YEAR
3/31/95 ENDED
(UNAUDITED) 9/30/94
----------- -------
<S> <C> <C>
Net asset value at beginning of period............................................................. $ 9.60 $10.53
----------- -------
Income from investment operations
Net investment income........................................................................... 0.26 0.53
Net gain (loss) on investments (both realized and unrealized)................................... 0.24 (0.91)
----------- -------
Total from investment operations............................................................ 0.50 (0.38)
----------- -------
Less distributions
Distributions from net investment income........................................................ (0.26) (0.53)
Distributions from net realized capital gains................................................... -- (0.02)
----------- -------
Total distributions......................................................................... (0.26) (0.55)
----------- -------
Net asset value at end of period................................................................... $ 9.84 $ 9.60
=========== =======
Total return....................................................................................... 5.40%(3) (3.75)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)...................................................... $ 3,378 $3,825
Ratios of expenses to average net assets
After advisory/administration fee waivers..................................................... 0.30%(2) 0.10%
Before advisory/administration fee waivers.................................................... 1.00%(2) 1.49%
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................................................... 5.66%(2) 5.18%
Before advisory/administration fee waivers.................................................... 4.96%(2) 3.79%
Portfolio turnover rate............................................................................ 26% 61%
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
--------------------------------
SERIES A SERIES B
INVESTOR INVESTOR
CLASS CLASS
--------- --------------
FOR THE
FOR THE PERIOD
PERIOD 10/13/94(1)
12/1/92(1) THROUGH
THROUGH 3/31/95
9/30/93 (UNAUDITED)
-------- --------------
<S> <C> <C>
Net asset value at beginning of period............................................................. $10.00 $ 9.58
-------- ------
Income from investment operations
Net investment income........................................................................... 0.36 0.20
Net gain (loss) on investments (both realized and unrealized)................................... 0.53 0.26
-------- ------
Total from investment operations............................................................ 0.89 0.46
-------- ------
Less distributions
Distributions from net investment income........................................................ (0.36) (0.20)
Distributions from net realized capital gains................................................... -- --
-------- ------
Total distributions......................................................................... (0.36) (0.20)
-------- ------
Net asset value at end of period................................................................... $10.53 $ 9.84
======== ======
Total return....................................................................................... 9.10%(3) 4.71%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)...................................................... $2,386 $ 62
Ratios of expenses to average net assets
After advisory/administration fee waivers..................................................... 0.07%(2) 1.09%(2)
Before advisory/administration fee waivers.................................................... 2.58%(2) 1.79%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................................................... 4.90%(2) 4.71%(2)
Before advisory/administration fee waivers.................................................... 2.39%(2) 4.01%(2)
Portfolio turnover rate............................................................................ 36% 26%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
36
<PAGE> 37
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME
PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 12/1/92(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period......................................... $ 9.82 $10.70 $10.00
----------- ------- --------
Income from investment operations
Net investment income....................................................... 0.27 0.53 0.39
Net gain (loss) on investments (both realized and unrealized)............... 0.22 (0.85) 0.73
----------- ------- --------
Total from investment operations........................................ 0.49 (0.32) 1.12
----------- ------- --------
Less distributions
Distributions from net investment income.................................... (0.27) (0.53) (0.39)
Distributions from net realized capital gains............................... -- (0.03) (0.03)
----------- ------- --------
Total distributions..................................................... (0.27) (0.56) (0.42)
----------- ------- --------
Net asset value at end of period............................................... $ 10.04 $ 9.82 $10.70
=========== ======= ========
Total return................................................................... 4.99% (2.96)% 11.69%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................. $ 1,157 $ 639 $ 256
Ratios of expenses to average net assets
After advisory/administration fee waivers................................. 0.50%(2) 0.39% 0.09%(2)
Before advisory/administration fee waivers................................ 0.85%(2) 0.99% 0.97%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................. 5.54%(2) 5.27% 5.19%(2)
Before advisory/administration fee waivers................................ 5.19%(2) 4.67% 4.31%(2)
Portfolio turnover rate........................................................ 30% 30% 40%
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME
PORTFOLIO
------------------------------------
SERVICE CLASS
------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 7/29/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period......................................... $ 9.82 $10.70 $10.43
----------- ------- --------
Income from investment operations
Net investment income....................................................... 0.25 0.51 0.09
Net gain (loss) on investments (both realized and unrealized)............... 0.22 (0.85) 0.28
----------- ------- --------
Total from investment operations........................................ 0.47 (0.34) 0.37
----------- ------- --------
Less distributions
Distributions from net investment income.................................... (0.25) (0.51) (0.09)
Distributions from net realized capital gains............................... -- (0.03) (0.01)
----------- ------- --------
Total distributions..................................................... (0.25) (0.54) (0.10)
----------- ------- --------
Net asset value at end of period............................................... $ 10.04 $ 9.82 $10.70
=========== ======= ========
Total return................................................................... 4.86% (3.20)% 3.54%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................. $12,915 $11,518 $3,894
Ratios of expenses to average net assets
After advisory/administration fee waivers................................. 0.75%(2) 0.55% 0.34%(2)
Before advisory/administration fee waivers................................ 1.10%(2) 1.15% 1.22%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................. 5.29%(2) 4.97% 4.90%(2)
Before advisory/administration fee waivers................................ 4.94%(2) 4.37% 4.02%(2)
Portfolio turnover rate........................................................ 30% 30% 40%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
37
<PAGE> 38
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
-----------------------
SERIES A
INVESTOR CLASS
-----------------------
FOR THE
SIX MONTHS
ENDED YEAR
3/31/95 ENDED
(UNAUDITED) 9/30/94
----------- -------
<S> <C> <C>
Net asset value at beginning of period.............................................................. $ 9.82 $10.70
----------- -------
Income from investment operations
Net investment income............................................................................ 0.25 0.52
Net gain (loss) on investments (both realized and unrealized).................................... 0.22 (0.85)
----------- -------
Total from investment operations............................................................. 0.47 (0.33)
----------- -------
Less distributions
Distributions from net investment income......................................................... (0.25) (0.52)
Distributions from net realized capital gains.................................................... -- (0.03)
----------- -------
Total distributions.......................................................................... (0.25) (0.55)
----------- -------
Net asset value at end of period.................................................................... $ 10.04 $ 9.82
=========== =======
Total return........................................................................................ 4.76%(3) (3.06)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)....................................................... $44,458 $46,563
Ratios of expenses to average net assets
After advisory/administration fee waivers...................................................... 0.95%(2) 0.41%
Before advisory/administration fee waivers..................................................... 1.30%(2) 1.01%
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................................................... 5.11%(2) 5.06%
Before advisory/administration fee waivers..................................................... 4.76%(2) 4.46%
Portfolio turnover rate............................................................................. 30% 30%
<CAPTION>
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
-------------------------------
SERIES A
INVESTOR SERIES B
CLASS INVESTOR CLASS
---------- --------------
FOR THE
FOR THE PERIOD
PERIOD 10/03/94(1)
12/1/92(1) THROUGH
THROUGH 3/31/95
9/30/93 (UNAUDITED)
-------- --------------
<S> <C> <C>
Net asset value at beginning of period.............................................................. $ 10.00 $ 9.82
-------- ------
Income from investment operations
Net investment income............................................................................ 0.42 0.21
Net gain (loss) on investments (both realized and unrealized).................................... 0.73 0.22
-------- ------
Total from investment operations............................................................. 1.15 0.43
-------- ------
Less distributions
Distributions from net investment income......................................................... (0.42) (0.21)
Distributions from net realized capital gains.................................................... (0.03) --
-------- ------
Total distributions.......................................................................... (0.45) (0.21)
-------- ------
Net asset value at end of period.................................................................... $ 10.70 $10.04
======== ======
Total return........................................................................................ 11.69%(3) 4.49%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)....................................................... $35,934 $2,341
Ratios of expenses to average net assets
After advisory/administration fee waivers...................................................... 0.07%(2) 1.49%(2)
Before advisory/administration fee waivers..................................................... 0.95%(2) 1.84%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................................................... 5.19%(2) 4.43%(2)
Before advisory/administration fee waivers..................................................... 4.31%(2) 4.08%(2)
Portfolio turnover rate............................................................................. 40% 30%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
38
<PAGE> 39
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
-------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
------------------------------------ -----------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 9/1/93(1) ENDED YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94
----------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 9.58 $10.00 $10.00 $ 9.58 $10.00
----------- ------- -------- ----------- -------
Income from investment operations
Net investment income............................... 0.26 0.42 0.02 0.25 0.39
Net gain (loss) on investments (both realized and
unrealized)....................................... (0.02) (0.42) -- (0.02) (0.42)
----------- ------- -------- ----------- -------
Total from investment operations................ 0.24 -- 0.02 0.23 (0.03)
----------- ------- -------- ----------- -------
Less distributions
Distributions from net investment income............ (0.26) (0.42) (0.02) (0.25) (0.39)
Distributions from net realized capital gains....... -- -- -- -- --
----------- ------- -------- ----------- -------
Total distributions............................. (0.26) (0.42) (0.02) (0.25) (0.39)
----------- ------- -------- ----------- -------
Net asset value at end of period....................... $ 9.56 $ 9.58 $10.00 $ 9.56 $ 9.58
=========== ======= ======== =========== =======
Total return........................................... 2.53% (0.02)% 0.23% 2.40% (0.26)%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 9,972 $17,619 $3,748 $ 5,777 $6,230
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.40%(2) 0.40% 0.40%(2) 0.65%(2) 0.65%
Before advisory/administration fee waivers........ 1.00%(2) 0.95% 1.42%(2) 1.25%(2) 1.20%
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 5.39%(2) 4.27% 2.92%(2) 5.18%(2) 4.07%
Before advisory/administration fee waivers........ 4.79%(2) 3.72% 1.90%(2) 4.57%(2) 3.52%
Portfolio turnover rate................................ 40% 113% 0% 40% 113%
<CAPTION>
SHORT-TERM BOND PORTFOLIO
----------------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
--------- ------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
9/1/93(1) ENDED 11/17/93(1)
THROUGH 3/31/95 THROUGH
9/30/94 (UNAUDITED) 9/30/94
-------- ----------- --------
<S> <C> <C> <C>
Net asset value at beginning of period................. $10.00 $ 9.58 $ 9.96
-------- ----------- --------
Income from investment operations
Net investment income............................... 0.02 0.25 0.34
Net gain (loss) on investments (both realized and
unrealized)....................................... -- (0.02) (0.38)
-------- ----------- --------
Total from investment operations................ 0.02 0.23 (0.04)
-------- ----------- --------
Less distributions
Distributions from net investment income............ (0.02) (0.25) (0.34)
Distributions from net realized capital gains....... -- -- --
-------- ----------- --------
Total distributions............................. (0.02) (0.25) (0.34)
-------- ----------- --------
Net asset value at end of period....................... $10.00 $ 9.56 $ 9.58
======== =========== ========
Total return........................................... 0.21% 2.40%(3) (0.43)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $2,811 $ 259 $ 277
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.65%(2) 0.65%(2) 0.65%(2)
Before advisory/administration fee waivers........ 1.67% 1.25%(2) 1.20%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 2.57%(2) 5.19%(2) 4.19%(2)
Before advisory/administration fee waivers........ 1.55%(2) 4.58%(2) 3.64%(2)
Portfolio turnover rate................................ 0% 40% 113%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
39
<PAGE> 40
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
-------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
------------------------------------ -----------------------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR 9/17/93(1) ENDED YEAR
3/31/95 ENDED THROUGH 3/31/95 ENDED
(UNAUDITED) 9/30/94 9/30/93 (UNAUDITED) 9/30/94
----------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 9.05 $10.01 $ 10.00 $ 9.05 $10.01
----------- ------- -------- ----------- -------
Income from investment operations
Net investment income............................... 0.28 0.54 0.02 0.27 0.54
Net gain (loss) on investments (both realized and
unrealized)....................................... 0.08 (0.88) (0.01) 0.07 (0.91)
----------- ------- -------- ----------- -------
Total from investment operations................ 0.36 (0.34) 0.01 0.34 (0.37)
----------- ------- -------- ----------- -------
Less distributions
Distributions from net investment income............ (0.28) (0.56) -- (0.26) (0.53)
Distributions from net realized capital gains....... -- (0.06) -- -- (0.06)
----------- ------- -------- ----------- -------
Total distributions............................. (0.28) (0.62) -- (0.26) (0.59)
----------- ------- -------- ----------- -------
Net asset value at end of period....................... $ 9.13 $ 9.05 $ 10.01 $ 9.13 $ 9.05
=========== ======= ======== =========== =======
Total return........................................... 4.02% (3.52)% 0.10% 3.89% (3.80)%
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 101,379 $71,896 $56,713 $35,630 $35,764
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.45%(2) 0.45% 0.45%(2) 0.70%(2) 0.70%
Before advisory/administration fee waivers........ 0.80%(2) 0.88% 0.84%(2) 1.05%(2) 1.13%
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 6.17%(2) 5.54% 4.72%(2) 5.90%(2) 5.33%
Before advisory/administration fee waivers........ 5.82%(2) 5.11% 4.33%(2) 5.56%(2) 4.90%
Portfolio turnover rate................................ 22% 92% 4% 22% 92%
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
--------------------------------------------
SERIES A
SERVICE CLASS INVESTOR CLASS
-------------- ------------------------
FOR THE FOR THE FOR THE
PERIOD SIX MONTHS PERIOD
9/23/93(1) ENDED 5/20/94(1)
THROUGH 3/31/95 THROUGH
9/30/93 (UNAUDITED) 9/30/94
-------- ----------- --------
<S> <C> <C> <C>
Net asset value at beginning of period................. $ 9.99 $ 9.05 $ 9.23
-------- ----------- --------
Income from investment operations
Net investment income............................... -- 0.27 0.20
Net gain (loss) on investments (both realized and
unrealized)....................................... 0.02 0.08 (0.17)
-------- ----------- --------
Total from investment operations................ 0.02 0.35 0.03
-------- ----------- --------
Less distributions
Distributions from net investment income............ -- (0.27) (0.21)
Distributions from net realized capital gains....... -- -- --
-------- ----------- --------
Total distributions............................. -- (0.27) (0.21)
-------- ----------- --------
Net asset value at end of period....................... $10.01 $ 9.13 $ 9.05
======== =========== ========
Total return........................................... 0.20% 3.90%(3) 0.31%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).......... $ 91 $ 443 $ 87
Ratios of expenses to average net assets
After advisory/administration fee waivers......... 0.70%(2) 0.70%(2) 0.85%(2)
Before advisory/administration fee waivers........ 1.09%(2) 1.05%(2) 1.28%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers......... 4.35%(2) 5.91%(2) 5.35%(2)
Before advisory/administration fee waivers........ 3.96%(2) 5.57%(2) 4.92%(2)
Portfolio turnover rate................................ 4% 22% 92%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
40
<PAGE> 41
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
---------------------------------
SERIES A SERIES B
INVESTOR INVESTOR
CLASS CLASS
----------- -----------
FOR THE FOR THE
PERIOD PERIOD
10/04/94(1) 10/04/94(1)
THROUGH THROUGH
3/31/95 3/31/95
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value at beginning of period................................................... $ 10.00 $ 10.00
----------- -----------
Income from investment operations
Net investment income................................................................. 0.34 0.30
Net gain (loss) on investments (both realized and unrealized)......................... 0.15 0.15
----------- -----------
Total from investment operations.................................................. 0.49 0.45
----------- -----------
Distributions from net investment income.............................................. (0.34) (0.30)
Distributions from net realized capital gains......................................... -- --
----------- -----------
Total distributions............................................................... (0.34) (0.30)
----------- -----------
Net asset value at end of period......................................................... $ 10.15 $ 10.15
=========== ===========
Total return............................................................................. 4.97%(3) 4.64%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................ $ 5,737 $ 1,653
Ratios of expenses to average net assets
After advisory/administration fee waivers........................................... 0.24%(2) 0.89%(2)
Before advisory/administration fee waivers.......................................... 2.06%(2) 2.71%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................................... 7.17%(2) 6.48%(2)
Before advisory/administration fee waivers.......................................... 5.35%(2) 4.66%(2)
Portfolio turnover rate.................................................................. 120% 120%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
41
<PAGE> 42
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
The PNC Fund (the "Fund") was organized on December 22, 1988 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-five separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed Income Portfolio and
Government Income Portfolio. As of March 31,1995, the International Fixed Income
Portfolio had not commenced operations. This report relates solely to Managed
Income Portfolio, Tax-Free Income Portfolio, Intermediate Government Portfolio,
Ohio Tax-Free Income Portfolio, Pennsylvania Tax-Free Income Portfolio,
Short-Term Bond Portfolio, Intermediate-Term Bond Portfolio and Government
Income Portfolio (the "Portfolios").
Each Portfolio has four classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Series A Investor shares and one class being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for Managed Income Portfolio, Tax-Free Income Portfolio,
Intermediate Government Portfolio, Short-Term Bond Portfolio, and
Intermediate-Term Bond Portfolio through March 31, 1995. Series A Investor,
Series B Investor, Institutional and Service shares in a Portfolio represent
equal pro rata interests in such Portfolio, except that they bear different
expenses which reflect the difference in the range of services provided to them.
Series A Investor shares bear the expense of the Series A Distribution and
Service Plan at an annual rate not to exceed .55% of the average daily net asset
value of each Portfolio's outstanding Series A Investor shares. Series B
Investor shares bear the expense of the Series B Distribution Plan at an annual
rate not to exceed .75% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Series B Investor shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
shares. Under the Fund's Service Plan, Service shares bear the expense of fees
at an annual rate not to exceed .15% of the average daily net asset value of
each Portfolio's outstanding Service shares. Service shares also bear the
expense of a service fee at an annual rate not to exceed .15% of the average
daily net asset value of each Portfolio's outstanding Service shares for other
shareholder support activities provided by service organizations. Institutional
shares do not bear the expenses of the Series A Distribution and Service Plan,
the Service Plan, the Series B Distribution Plan or the Series B Service Plan.
The Service, Series A Investor and Series B Investor classes are currently
bearing such respective expenses at aggregate annual rates of .30% of the
average daily net asset value of Service shares, .25% to .45% of the average
daily net asset value of Series A Investor shares and .95% to 1.00% of the
average daily net asset value of Series B Investor shares.
42
<PAGE> 43
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds and
tax-exempt bonds are valued on the basis of quotations provided by a pricing
service which uses information with respect to transactions on bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. Short-term obligations
with maturities of 60 days or less are valued at amortized cost which
approximates market value. Discounts and premiums on debt securities are
amortized for book and tax purposes using the effective yield-to-maturity method
over the term of the instrument with the exception of Managed Income Portfolio
which does not amortize discount or premium for tax purposes.
Dividends to Shareholders -- Dividends from net investment income are
declared and paid monthly for each of the Managed Income, Tax-Free Income,
Intermediate Government and Intermediate-Term Bond Portfolios. The net
investment income of each of the Pennsylvania Tax-Free Income, Ohio Tax-Free
Income, Short-Term Bond and Government Income Portfolios is declared daily as a
dividend to investors who are shareholders of such Portfolio at, and whose
payment for share purchases are available to the particular Portfolio in Federal
funds by, the close of business on the day of declaration. Net realized capital
gains, if any, will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Certain expenses, principally fees relating to the Service Plan, the Series A
Distribution and Service Plan, the Series B Distribution Plan and the Series B
Service Plan, are class specific expenses. Expenses not directly attributable to
a specific Portfolio or class are allocated among all of the Portfolios or
classes of the Fund based on their relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method
43
<PAGE> 44
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
over a five-year period beginning on the date on which each Portfolio commenced
its investment activities.
Implementation of AICPA Statement of Position 93-2: -- As of October 1,
1993, the Fund implemented AICPA Statement of Position 93-2 -- Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. Adoption of this
standard results in the reclassification to paid-in capital of permanent
differences between tax and financial reporting of net investment income and net
realized gain (loss). The change has had no material effect on paid-in capital
or other components of the net assets of any of the Portfolios at October 1,
1993. Distributions to shareholders and net asset values were not affected by
this change.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group,
Inc. ("PAMG"), which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as adviser for each of the Fund's Portfolios.
BlackRock Financial Management, Inc. ("BlackRock"), a wholly-owned subsidiary of
PAMG, serves as sub-adviser for the Managed Income Portfolio, Intermediate
Government Portfolio, Ohio Tax-Free Income Portfolio, Pennsylvania Tax-Free
Income Portfolio, Short-Term Bond Portfolio, Intermediate-Term Bond Portfolio
and Government Income Portfolio. PNC Bank serves as sub-adviser for the Tax-Free
Income Portfolio. PNC Bank, PAMG, PIMC and BlackRock are indirect wholly-owned
subsidiary of PNC Bank Corp.
For its advisory services, PIMC is entitled to receive fees at the
following annual rates, computed daily and payable monthly, based on each
Portfolio's average daily net assets: .50% of the first $1 billion, .45% of the
next $1 billion, .425% of the next $1 billion and .40% of net assets in excess
of $3 billion.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any Portfolio. For the six months ended March 31, 1995,
advisory fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET ADVISORY
ADVISORY FEE WAIVER FEE
------------ -------- ------------
<S> <C> <C> <C>
Managed Income Portfolio.......................... $ 1,197,064 $359,119 $837,945
Tax-Free Income Portfolio......................... 23,479 23,479 --
Intermediate Government Portfolio................. 473,522 284,113 189,409
Ohio Tax-Free Income Portfolio.................... 20,289 20,289 --
Pennsylvania Tax-Free Income Portfolio............ 141,528 70,854 70,674
Short-Term Bond Portfolio......................... 52,691 45,484 7,207
Intermediate-Term Bond Portfolio.................. 299,568 148,809 150,759
Government Income Portfolio....................... 9,654 9,654 --
</TABLE>
PIMC pays PNC Bank and BlackRock fees for their sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
The combined administration fee is computed daily and payable monthly, based on
a percentage of the average daily net assets of each
44
<PAGE> 45
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
Portfolio, at the following annual rates: .20% of the first $500 million, .18%
of the next $500 million, .16% of the next $1 billion and .15% of net assets in
excess of $2 billion.
PFPC and PDI may, at their discretion, voluntarily waive all or any portion
of their administration fees for any Portfolio. For the six months ended March
31, 1995, administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------- --------------
<S> <C> <C> <C>
Managed Income Portfolio........................ $478,826 $121,966 $356,860
Tax-Free Income Portfolio....................... 9,391 9,391 --
Intermediate Government Portfolio............... 189,409 70,226 119,183
Ohio Tax-Free Income Portfolio.................. 8,116 8,116 --
Pennsylvania Tax-Free Income Portfolio.......... 56,611 28,341 28,270
Short-Term Bond Portfolio....................... 21,076 18,193 2,883
Intermediate-Term Bond Portfolio................ 119,827 59,523 60,304
Government Income Portfolio..................... 3,862 3,862 --
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also voluntarily agreed to reimburse expenses in
the amount of $14,219 with respect to the Tax-Free Income Portfolio, $20,129
with respect to the Ohio Tax-Free Income Portfolio, $2,426 with respect to the
Short-Term Bond Portfolio and $21,652 with respect to the Government Income
Portfolio for the six months ended March 31, 1995.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the six months ended March
31, 1995.
(C) PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 1995, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Managed Income Portfolio...................................... $42,779,033 $49,497,092
Tax-Free Income Portfolio..................................... 1,964,936 1,772,971
Intermediate Government Portfolio............................. 10,000,000 18,256,434
Ohio Tax-Free Income Portfolio................................ 2,160,627 2,252,616
Pennsylvania Tax-Free Income Portfolio........................ 15,574,387 14,586,191
Short-Term Bond Portfolio..................................... 5,369,311 6,209,510
Intermediate-Term Bond Portfolio.............................. 33,362,908 17,416,427
Government Income Portfolio................................... 2,998,125 --
</TABLE>
45
<PAGE> 46
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
For the six months ended March 31, 1995, purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Managed Income Portfolio................................... $44,931,953 $33,327,980
Intermediate Government Portfolio.......................... 12,152,500 16,696,906
Short-Term Bond Portfolio.................................. 2,006,719 6,032,492
Intermediate-Term Bond Portfolio........................... 19,113,750 6,755,219
Government Income Portfolio................................ 7,728,369 3,925,170
</TABLE>
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
------------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
----------------------------- ---------------------------
SHARES VALUE SHARES VALUE
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.............. 40,394,956 $ 401,653,573 12,186,561 $124,468,452
Service Class.................... 8,234,192 81,494,027 8,352,936 87,090,065
Series A Investor Class.......... 142,386 1,395,579 628,230 6,631,737
Shares issued in acquisition:
Institutional Class.............. -- -- 3,649,044 36,599,918
Service Class.................... -- -- -- --
Series A Investor Class.......... -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class.............. 1,257,732 12,238,111 2,074,139 21,617,113
Service Class.................... 172,567 1,680,033 205,275 2,116,342
Series A Investor Class.......... 32,211 313,239 59,113 615,438
Shares redeemed:
Institutional Class.............. (41,019,095) (407,709,303) (8,140,174) (85,121,512)
Service Class.................... (6,924,615) (68,704,691) (3,017,544) (31,450,922)
Series A Investor Class.......... (209,193) (2,039,723) (220,470) (2,266,512)
------------ ------------- ----------- ------------
Net increase.......................... 2,081,141 $ 20,320,845 15,777,110 $160,300,119
============= ============== ============ =============
</TABLE>
46
<PAGE> 47
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
-----------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
------------------------ ------------------------
SHARES VALUE SHARES VALUE
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................... -- $ -- 30,016 $ 320,369
Service Class......................... 191,527 1,942,030 299,743 3,207,629
Series A Investor Class............... 33,097 333,928 102,083 1,081,748
Shares issued in reinvestment of dividends:
Institutional Class................... 2 23 3,035 33,037
Service Class......................... 2,139 21,027 4,080 43,401
Series A Investor Class............... 14,363 141,687 43,152 463,438
Shares redeemed:
Institutional Class................... (12,063) (122,546) (79,482) (827,433)
Service Class......................... (106,375) (1,075,859) (149,752) (1,559,420)
Series A Investor Class............... (79,759) (789,832) (142,876) (1,498,048)
-------- ----------- -------- -----------
Net increase............................... 42,931 $ 450,458 109,999 $ 1,264,721
========= ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
-------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 13,240,821 $ 128,733,215 5,241,062 $ 53,297,377
Service Class........................ 5,691,727 55,233,299 7,063,429 70,892,359
Series A Investor Class.............. 154,907 1,487,931 319,769 3,266,107
Shares issued in reinvestment of
dividends:
Institutional Class.................. 316,360 3,023,513 515,901 5,204,029
Service Class........................ 127,624 1,218,598 162,581 1,624,604
Series A Investor Class.............. 25,512 243,749 48,076 484,534
Shares redeemed:
Institutional Class.................. (13,977,621) (135,580,177) (5,308,429) (53,437,379)
Service Class........................ (7,004,560) (67,932,032) (2,334,076) (23,159,926)
Series A Investor Class.............. (126,383) (1,209,988) (208,394) (2,123,022)
----------- ------------- ---------- ------------
Net increase (decrease)................... (1,551,613) $ (14,781,892) 5,499,919 $ 56,048,683
============ ============== ========== =============
</TABLE>
47
<PAGE> 48
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
-----------------------------------------------------
FOR THE SIX MONTHS
ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
---------------------- -------------------------
SHARES VALUE SHARES VALUE
------- --------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class..................... -- $ -- 175,112 $ 1,807,527
Service Class........................... 93,086 869,281 422,283 4,189,332
Series A Investor Class................. 27,256 252,907 191,083 1,965,179
Series B Investor Class................. 6,331 60,009 -- --
Shares issued in reinvestment of dividends:
Institutional Class..................... 113 1,063 5,038 51,291
Service Class........................... 1,987 18,626 3,851 38,380
Series A Investor Class................. 7,910 74,368 17,230 172,308
Series B Investor Class................. 22 219 -- --
Shares redeemed:
Institutional Class..................... (4,891) (44,724) (326,154) (3,233,385)
Service Class........................... (44,655) (415,512) (51,056) (506,812)
Series A Investor Class................. (90,208) (830,586) (36,633) (375,525)
Series B Investor Class................. -- -- -- --
-------- --------- -------- -----------
Net increase (decrease)...................... (3,049) $ (14,349) 400,754 $ 4,108,295
======== ========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
-----------------------------------------------------
FOR THE SIX MONTHS
ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
----------------------- --------------------------
SHARES VALUE SHARES VALUE
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class..................... 50,221 $ 499,500 64,868 $ 647,801
Service Class........................... 292,124 2,830,955 1,233,208 12,861,509
Series A Investor Class................. 251,527 2,426,449 2,269,114 23,724,954
Series B Investor Class................. 232,263 2,264,933 -- --
Shares issued in reinvestment of dividends:
Institutional Class..................... -- -- 325 3,463
Service Class........................... 6,576 62,462 15,516 158,276
Series A Investor Class................. 94,405 942,908 212,735 2,147,477
Series B Investor Class................. 1,460 14,256 -- --
Shares redeemed:
Institutional Class..................... -- -- (24,130) (253,996)
Service Class........................... (184,783) (1,760,059) (440,397) (4,431,356)
Series A Investor Class................. (660,699) (6,300,128) (1,097,528) (11,299,229)
Series B Investor Class................. (574) (5,670) -- --
-------- ----------- ---------- ------------
Net increase................................. 82,520 $ 975,606 2,233,711 $ 23,558,899
========= ============ ========== =============
</TABLE>
48
<PAGE> 49
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
--------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................ 795,364 $ 7,563,337 3,720,716 $ 37,120,901
Service Class...................... 221,683 2,110,317 755,330 7,473,735
Series A Investor Class............ 3,114 29,697 29,976 294,033
Shares issued in reinvestment of
dividends:
Institutional Class................ 8,955 85,129 21,968 214,759
Service Class...................... 8,077 76,763 14,450 141,147
Series A Investor Class............ 761 7,244 532 5,175
Shares redeemed:
Institutional Class................ (1,600,803) (15,239,852) (2,277,873) (22,096,796)
Service Class...................... (275,950) (2,627,296) (400,419) (3,947,645)
Series A Investor Class............ (5,585) (53,390) (1,632) (15,778)
---------- ------------ ---------- ------------
Net increase (decrease)................... (844,384) $ (8,048,051) 1,863,048 $ 19,189,531
========== ============= ========== =============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
----------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
---------------------------- --------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class............... 15,177,386 $ 137,702,920 2,440,016 $ 22,611,998
Service Class..................... 3,217,701 29,314,020 2,720,032 25,860,499
Series A Investor Class........... 43,232 388,603 9,574 87,478
Shares issued in acquisition:
Institutional Class............... -- -- 3,673,356 33,684,821
Service Class..................... -- -- 3,055,695 29,793,024
Series A Investor Class........... -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class............... 241,540 2,172,370 84,197 768,975
Service Class..................... 80,054 718,965 101,940 943,961
Series A Investor Class........... 1,113 10,005 58 531
Shares redeemed:
Institutional Class............... (12,265,967) (111,692,110) (3,917,113) (38,816,847)
Service Class..................... (3,349,940) (30,507,444) (1,933,866) (18,101,776)
Series A Investor Class........... (5,479) (49,056) (2) (15)
----------- ------------- ---------- ------------
Net increase............................. 3,139,640 $ 28,058,273 6,233,887 $ 56,832,649
============ ============== ========== =============
</TABLE>
49
<PAGE> 50
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
GOVERNMENT INCOME
PORTFOLIO
--------------------------
FOR THE PERIOD
OCTOBER 3, 1994(1)
THROUGH
MARCH 31, 1995
(UNAUDITED)
--------------------------
SHARES VALUE
------- ----------
<S> <C> <C>
Shares sold:
Series A Investor Class................. 571,024 $5,678,249
Series B Investor Class................. 171,632 1,711,063
Shares issued in reinvestment of dividends:
Series A Investor Class................. 3,362 33,498
Series B Investor Class................. 2,462 24,048
Shares redeemed:
Series A Investor Class................. (9,329) (93,059)
Series B Investor Class................. (11,270) (111,541)
------- ----------
Net increase................................. 727,881 $7,242,258
======== ==========
</TABLE>
- -------------
(1) Commencement of operations.
(E) AT MARCH 31, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
OHIO
MANAGED TAX-FREE INTERMEDIATE TAX-FREE
INCOME INCOME GOVERNMENT INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Capital paid-in........................... $516,166,457 $9,906,360 $194,540,456 $8,937,517
Undistributed net investment income....... -- 668 -- --
Distributions in excess of net investment
income.................................. (1,827,120) -- (27,038) --
Accumulated net realized gain (loss) on
investment transactions................. (8,125,670) 17,340 (3,499,097) (268,635)
Net unrealized appreciation (depreciation)
on investments.......................... (3,428,902) 57,624 (5,570,817) (110,698)
------------ ---------- ------------ ----------
$502,784,765 $9,981,992 $185,443,504 $8,558,184
============= ========== ============= ==========
</TABLE>
50
<PAGE> 51
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PENNSYLVANIA
TAX-FREE SHORT-TERM INTERMEDIATE- GOVERNMENT
INCOME BOND TERM BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Capital paid-in................ $63,390,467 $ 17,703,380 $140,472,405 $7,242,258
Undistributed net investment
income....................... -- -- 6,566 --
Distributions in excess of net
investment income............ (3,258) -- -- --
Accumulated net realized loss
on investment transactions... (1,364,384) (1,337,797) (2,053,048) (14,621)
Net unrealized appreciation
(depreciation) on
investments.................. (1,151,726) (357,480) (973,884) 162,680
----------- ------------ ------------ ----------
$60,871,099 $ 16,008,103 $137,452,039 $7,390,317
============ ============= ============= ==========
</TABLE>
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1994, capital loss carryovers were available to offset
possible future realized capital gains as follows: $3,617,069 in the Managed
Income Portfolio which expire in the year 2002, $521,807 in the Intermediate
Government Portfolio which expire in the year 2002, and $1,064,515 in the
Short-Term Bond Portfolio which expire in the year 2002. At September 30, 1994,
the deferred post-October losses were as follows: $371,881 for the Managed
Income Portfolio, $100,370 for the Ohio Tax-Free Income Portfolio, $285,131 for
the Pennsylvania Tax-Free Income Portfolio, and $1,155,530 for the
Intermediate-Term Bond Portfolio.
(G) ACQUISITION OF PNC COLLECTIVE FUNDS
On December 28, 1993, The PNC Fund acquired all the assets of the PNC
Financial Common Trust for Retirement Assets Fixed Income Portfolio from
participants of such fund. The acquisition was accomplished by a tax-free
exchange of assets with a value of $29,793,024 for 3,055,695 Service shares of
the Intermediate-Term Bond Portfolio at $9.75 per share. The Fixed Income
Portfolio's net assets on that date included $1,173,313 in unrealized
appreciation of securities.
On May 26, 1994, The PNC Fund acquired all the assets of the PNC Pension
Plan Assets Fixed Income Portfolio from participants of such fund. The
acquisition was accomplished by a tax-free exchange of assets with a value of
$22,388,535 for 2,444,163 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.16 per share and a value of $24,915,125 for 2,484,060
Institutional shares of the Managed Income Portfolio at $10.03 per share.
On June 21, 1994, The PNC Fund acquired all the assets of the PNC Incentive
Savings Plan Assets Fixed Income Portfolio from participants of such fund. The
acquisition was accomplished by a tax-free exchange of assets with a value of
$11,296,286 for 1,229,193 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.19 per share and a value of $11,684,793 for 1,164,984
Institutional shares of the Managed Income Portfolio at $10.03 per share.
51
<PAGE> 52
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
(H) SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders (the "Meeting") of the Managed Income,
Intermediate Government, Ohio Tax-Free Income, Pennsylvania Tax-Free Income,
Short-Term Bond, Intermediate-Term Bond and Government Income Portfolios was
held on March 29, 1995. At the Meeting, the shareholders of each Portfolio
listed above voted to approve sub-advisory agreements between PIMC and BlackRock
with respect to the Portfolio. The result of the voting with respect to the
approval of BlackRock as sub-adviser for each of the above-referenced Portfolios
was as follows:
<TABLE>
<CAPTION>
PORTFOLIO FOR AGAINST ABSTAIN
- ----------------------------------------------------------- ----------- ------- --------
<S> <C> <C> <C>
Managed Income............................................. 49,082,482 13,104 46,316
Intermediate Government.................................... 18,184,904 31,212 17,073
Ohio Tax-Free Income....................................... 786,976 2,705 8,647
Pennsylvania Tax-Free Income............................... 4,705,437 29,387 109,687
Short-Term Bond............................................ 1,398,018 0 1,614
Intermediate-Term Bond..................................... 14,915,739 18,931 3,767
Government Income.......................................... 519,789 3,892 308
</TABLE>
52
<PAGE> 53
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 54
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 55
====================================================
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser -- Managed Income
Portfolio, Intermediate Government
Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio,
Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio and
Government Income Portfolio
BlackRock Financial Management, Inc.
New York, New York 10154
Sub-Adviser -- Tax-Free
Income Portfolio and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01F
====================================================
====================================================
[PNC FUNDS LOGO]
THE PNC(R) FUND
MANAGED INCOME PORTFOLIO
TAX-FREE INCOME PORTFOLIO
INTERMEDIATE GOVERNMENT PORTFOLIO
OHIO TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
SHORT-TERM BOND PORTFOLIO
INTERMEDIATE-TERM BOND PORTFOLIO
GOVERNMENT INCOME PORTFOLIO
Semi-Annual Report to Shareholders
March 31, 1995
====================================================
<PAGE> 1
EXHIBIT (17)(t)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
April 27, 1995
Dear Shareholder:
We are pleased to present the Semi-Annual Report to Shareholders of The PNC
Fund covering the six months ended March 31, 1995. This report includes security
listings and performance results for the equity portfolios of The PNC Fund.
Each equity portfolio focuses on a specific equity investment style. This
array of portfolios enables shareholders to more precisely structure their
investments according to their overall financial goals. These portfolios are
managed with a sophisticated blend of discipline, experience and expertise. The
goal of the PNC equity portfolios is to provide you with consistency as well as
above-average results.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
Sincerely,
/s/ G. Willing Pepper
-------------------------
G. Willing Pepper
Chairman and President
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.
<PAGE> 2
THE PNC FUND
SEMI-ANNUAL INVESTMENT ADVISER'S REPORT
Last year, the fixed income markets were hard hit by rising interest rates
and derivative-related losses. The first quarter of 1995 got off to an
inauspicious start with another increase in short-term interest rates, the
financial crisis in Mexico, and the decline in the dollar. One area that does
appear to be experiencing a trend change is the pace of business activity. In
the fourth quarter of last year, the economy grew by a revised 4.6%, pushing the
annual rate of growth to 4.0%, the strongest showing in ten years. Estimates for
the first quarter average around 3%, based on signs of lower consumer spending,
declining auto sales and a softer housing market. In recent congressional
testimony, Fed Chairman Greenspan indicated that the FOMC expects the economy to
expand at a 2-3% rate in 1995. Greenspan even used the word "ease" in his
February 1995 testimony, causing the markets to rally strongly, but temporarily,
on the belief that the year long rise in interest rates was about over.
The Fed also has reason to be pleased with the inflation numbers. The
fourth quarter GDP report revealed that prices advanced only 1.3%, versus 1.9%
in the previous quarter. For 1994 consumer prices were up 2.7%, exactly the same
as in 1993. The FOMC is estimating that consumer prices will average 3.0-3.5% in
1995.
Equity securities were clearly the asset of choice during the first quarter
of 1995. The S&P 500 produced a total return of approximately 9.7%. During the
quarter, the market was paced by transportation (S&P Transports up 15.2%) and
financial issues (S&P Financials up 12.7%). Small cap stocks fared less well, as
the Russel 2000 rose approximately 4.2% during the first quarter, after a
decline of 2.2% in the fourth quarter of last year.
The surge in stock prices has been fueled by a number of important factors:
- Continued strong earnings gains, as reduced costs, the weak dollar and
healthy demand have been the major contributors;
- Declining long-term interest rates and the belief that Federal Reserve
tightening has been successful in bringing about a soft landing;
- Steady flows into equity mutual funds and a net liquidation of equity
supply through mergers and acquisitions and corporate stock buybacks; and
- The weaker dollar and more rapid growth overseas have provided for faster
earnings growth in those companies which derive a more significant
portion of their operating income from foreign operations.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
APRIL 27, 1995
<PAGE> 3
THE PNC(R) FUND
VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS -- 98.2%
AEROSPACE -- 4.8%
Boeing Co. 321,700 $ 17,331,588
United Technologies Corp. 187,050 12,929,831
------------
30,261,419
------------
AIR TRANSPORT -- 1.5%
British Airways PLC ADR 149,100 9,803,325
------------
APPAREL -- 1.2%
Fruit of the Loom, Inc. 285,800** 7,502,250
------------
AUTOMOTIVE -- 4.3%
Chrysler Corp. 216,100 9,049,188
Ford Motor Co. 374,900 10,122,300
General Motors Corp. 182,804 8,089,077
------------
27,260,565
------------
BANKS -- 9.7%
Bank of New York Co., Inc. 197,500 6,492,813
Comerica, Inc. 294,200 8,090,500
CoreStates Financial Corp. 348,426 11,149,632
First Chicago Corp. 242,800 12,170,350
Meridian Bancorp, Inc. 288,900 8,847,563
NationsBank Corp. 148,500 7,536,375
Republic New York Corp. 151,800 7,457,175
------------
61,744,408
------------
CHEMICALS -- 10.4%
Dow Chemical Co. 190,000 13,870,000
E.I. Du Pont de Nemours & Co. 177,825 10,758,413
IMC Global, Inc. 264,050 12,905,444
Lubrizol Corp. 459,200 16,186,800
Monsanto Co. 154,800 12,422,700
------------
66,143,357
------------
COMPUTER & OFFICE
EQUIPMENT -- 0.9%
Xerox Corp. 51,200 6,009,600
------------
COMPUTER SOFTWARE &
SERVICES -- 2.6%
Stratus Computer, Inc. 182,500** 5,703,125
Sun Microsystems, Inc. 304,200** 10,570,950
------------
16,274,075
------------
CONGLOMERATES -- 1.1%
ITT Corp. 66,000 6,773,250
------------
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
CONSUMER NON-DURABLES -- 0.8%
First Brands Corp. 133,559 $ 5,025,157
------------
DRUGS & HEALTH CARE -- 7.8%
American Home Products Corp. 181,800 12,953,250
Bristol Meyers Squibb Co. 175,700 11,069,100
Eli Lilly, & Co. 188,200 13,762,125
Merck & Co., Inc. 283,350 12,077,790
------------
49,862,265
------------
ENERGY & RAW MATERIALS -- 4.4%
Elf Aquitaine ADR 258,100 10,001,375
Royal Dutch Petroleum Co. 83,400 10,008,000
Ultramar PLC ADR 294,500 7,657,000
------------
27,666,375
------------
ENERGY & UTILITIES -- 6.2%
Entergy Corp. 200,000 4,175,000
Nipsco 100,000 3,112,500
Ohio Edison Co. 223,900 4,478,000
PECO Energy Co. 446,900 11,228,363
Southern Co. 316,300 6,444,613
Unicom Corp. 425,430 10,103,963
------------
39,542,439
------------
FINANCE -- 2.9%
AMBAC, Inc. 176,400 7,166,250
Dean Witter Discover & Co. 281,936 11,488,892
------------
18,655,142
------------
INSURANCE -- 8.5%
American General Corp. 211,600 6,824,100
American International Group,
Inc. 93,250 9,721,313
AON Corp. 220,300 8,040,950
CHUBB Corp. 97,500 7,702,500
General Reinsurance Corp. 50,600 6,679,200
MBIA, Inc. 117,500 7,387,813
Reliastar Financial Corp. 90,000 3,060,000
TIG Holdings, Inc. 194,100 4,367,250
------------
53,783,126
------------
MANUFACTURING -- 1.5%
AlliedSignal, Inc. 238,400 9,357,200
------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 1.3%
Beckman Instruments, Inc. 279,000 8,265,375
------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
METALS & MINING -- 1.6%
Phelps Dodge Corp. 179,300 $ 10,197,688
------------
OIL DOMESTIC -- 5.6%
Atlantic Richfield Co. 104,800 12,052,000
Diamond Shamrock, Inc. 229,400 6,050,425
Phillips Petroleum Co. 186,900 6,845,213
Tenneco, Inc. 232,700 10,965,988
------------
35,913,626
------------
OIL INTERNATIONAL -- 4.6%
Chevron Corp. 135,300 6,494,400
Exxon Corp. 116,200 7,756,350
Mobil Corp. 92,500 8,567,813
Texaco, Inc. 96,600 6,423,900
------------
29,242,463
------------
PAPER & FOREST PRODUCTS -- 1.9%
Federal Paper Board Co., Inc. 157,600 4,491,600
International Paper Co. 100,000 7,512,500
------------
12,004,100
------------
PRODUCER GOODS -- 1.9%
General Electric Co. 221,900 12,010,338
------------
RAILROADS & SHIPPING -- 2.5%
Conrail Corp. 157,500 8,839,688
Norfolk Southern Corp. 106,100 7,095,438
------------
15,935,126
------------
RETAIL MERCHANDISING -- 3.7%
Fingerhut Companies, Inc. 395,400 4,695,370
K Mart Corp. 723,000 9,941,250
Sears, Roebuck & Co. 165,500 8,833,563
------------
23,470,183
------------
TELECOMMUNICATIONS -- 3.5%
NYNEX Corp. 286,800 11,364,450
U.S. West, Inc. 268,500 10,740,000
------------
22,104,450
------------
TIRES & RUBBER -- 1.7%
Goodyear Tire & Rubber Co. 298,000 10,951,500
------------
TOBACCO -- 1.3%
UST, Inc. 267,800 8,502,650
------------
TOTAL COMMON STOCKS
(Cost $556,070,599) 624,261,452
------------
TEMPORARY INVESTMENTS -- 2.2%
Smith Barney Money Market Fund
(Cost $14,342,831) 14,342,831 14,342,831
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $570,413,430*) 100.4% 638,604,283
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.4%) (2,716,389)
------ ------------
NET ASSETS (Applicable to
40,984,991 Institutional
shares, 10,371,904 Service
shares, and 1,035,874 Series
A Investor
shares outstanding) 100.0% $635,887,894
====== ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE, AND SERIES A
INVESTOR SHARE
($635,887,894 / 52,392,769) $12.14
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $12.14
======
MAXIMUM OFFERING PRICE PER SERIES A
INVESTOR SHARE
($12.14 / .955) $12.71
======
</TABLE>
- -------------
* Also for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 82,437,462
Gross unrealized depreciation (14,246,609)
------------
$ 68,190,853
============
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
4
<PAGE> 5
THE PNC(R) FUND
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 11.7%
FEDERAL HOME LOAN BANK DISCOUNT
NOTES
6.25% 04/03/95 $26,240 $ 26,230,889
(Cost $26,230,889) ------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 88.2%
ADVERTISING -- 2.2%
Interpublic Group of Cos.,
Inc. 73,900 2,762,013
Omnicom Group, Inc. 40,000 2,190,000
------------
4,952,013
------------
APPAREL -- 0.8%
Cintas Corp. 46,300 1,736,250
------------
AUTOMOTIVE -- 1.0%
Echlin, Inc. 60,000 2,310,000
------------
BANKS -- 1.7%
BankAmerica Corp. 45,500 2,195,375
Boatmen's Bancshares, Inc. 50,000 1,512,500
------------
3,707,875
------------
BEVERAGES -- 3.6%
Anheuser-Busch Cos., Inc. 51,000 2,989,875
Coca-Cola Co. 44,500 2,514,250
Pepsico, Inc. 65,300 2,546,700
------------
8,050,825
------------
BROADCASTING -- 1.3%
Capital Cities ABC, Inc. 24,300 2,144,475
Viacom, Inc. Class B 18,000** 805,500
------------
2,949,975
------------
CHEMICALS -- 3.5%
Air Products & Chemical, Inc. 39,000 2,032,875
Dow Chemical Co. 36,000 2,628,000
E. I. Du Pont de Nemours & Co. 34,000 2,057,000
PPG Industries, Inc. 30,000 1,132,500
------------
7,850,375
------------
COMPUTER & OFFICE EQUIPMENT -- 3.5%
Compaq Computer Corp. 46,000** 1,587,000
HBO & Co. 29,100 1,265,850
Intel Corp. 25,700 2,181,288
International Business
Machines Corp. 19,700 1,612,938
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMPUTER & OFFICE EQUIPMENT (CONTINUED)
Xerox Corp. 9,200 $ 1,079,850
------------
7,726,926
------------
COMPUTER SOFTWARE & SERVICES -- 5.2%
Automatic Data Processing,
Inc. 42,000 2,646,000
Cisco Systems, Inc. 60,500** 2,306,563
Computer Sciences Corp. 29,000** 1,431,875
First Data Corp. 27,700 1,436,938
Microsoft Corp. 34,000** 2,418,250
Oracle Systems Corp. 42,000** 1,312,500
------------
11,552,126
------------
CONSTRUCTION -- 0.2%
Foster Wheeler Corp. 15,000 508,125
------------
CONSUMER NON-DURABLES -- 4.3%
Colgate-Palmolive Co. 20,000 1,320,000
Dial Corp. 86,000 2,182,250
Lancaster Colony Corp. 43,333 1,538,322
Newell Co. 55,600 1,417,800
Procter & Gamble Co. 33,500 2,219,375
Rubbermaid, Inc. 30,000 990,000
------------
9,667,747
------------
ELECTRONICS -- 10.6%
AMP, Inc. 30,000 1,080,000
Atmel Corp. 21,200** 818,850
Emerson Electric Co. 45,000 2,992,500
General Electric Co. 84,000 4,546,500
General Instruments Corp. 74,000** 2,571,500
Hewlett Packard Co. 13,400 1,613,025
LSI Logic Corp. 36,000** 1,890,000
Micron Technology, Inc. 13,700 1,041,200
Molex, Inc. Class A 53,750 1,814,062
Motorola, Inc. 37,100 2,026,588
Texas Instruments, Inc. 12,500 1,106,250
Varian Associates, Inc. 53,200 2,241,050
------------
23,741,525
------------
FINANCE -- 3.0%
Dean Witter Discover & Co. 36,000 1,467,000
Federal Home Loan Mortgage
Corp. 10,000 605,000
Federal National Mortgage
Association 10,000 813,750
First Financial Management
Corp. 30,000 2,167,500
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCE (CONTINUED)
Reuters Holdings PLC ADR 36,000 $ 1,656,000
------------
6,709,250
------------
FOOD & AGRICULTURE -- 5.1%
Conagra, Inc. 46,000 1,523,750
CPC International, Inc. 54,000 2,922,750
Nabisco Holdings Corp. 36,000** 1,030,500
Philip Morris Cos., Inc. 34,500 2,251,125
Sara Lee Corp. 80,000 2,090,000
Tyson Foods, Inc. 60,500 1,459,562
------------
11,277,687
------------
INSURANCE -- 2.8%
American International Group,
Inc. 27,000 2,814,750
General Re Corp. 10,000 1,320,000
Humana, Inc. 80,000** 2,050,000
------------
6,184,750
------------
MACHINERY & HEAVY EQUIPMENT -- 0.7%
Clark Equipment Co. 18,700** 1,542,750
------------
MANUFACTURING -- 5.6%
Allied-Signal, Inc. 67,000 2,629,750
Illinois Tool Works, Inc. 68,000 3,323,500
Millipore Corp. 40,000 2,230,000
Minnesota Mining &
Manufacturing Co. 45,000 2,615,625
Parker-Hannifin Corp. 40,000 1,770,000
------------
12,568,875
------------
MEDICAL & MEDICAL SERVICES -- 4.5%
Columbia HCA Healthcare Corp. 50,000 2,150,000
Healthsouth Corp. 75,000** 3,046,875
Manor Care, Inc. 55,000 1,670,625
Pacificare Health Systems,
Inc. Class B 45,000** 3,251,250
------------
10,118,750
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 0.3%
Forest Laboratories, Inc. 15,000** 714,375
------------
PAPER & FOREST PRODUCTS -- 1.0%
Scott Paper Co. 25,000 2,234,375
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
PERSONAL SERVICES -- 0.9%
Service Corp. International 75,000 $ 2,100,000
------------
PHARMACEUTICAL PREPARATIONS -- 6.6%
Abbott Laboratories, Inc. 70,000 2,493,750
Amgen, Inc. 30,000** 2,021,250
Johnson & Johnson 42,000 2,499,000
Merck & Co., Inc. 50,000 2,131,250
Pfizer, Inc. 25,000 2,143,750
Teva Pharmaceutical Industries
LTD. ADR 70,000 2,108,750
Warner-Lambert Co. 17,000 1,330,250
------------
14,728,000
------------
PUBLISHING -- 2.5%
McGraw-Hill, Inc. 34,800 2,496,900
R. R. Donnelley & Sons Co. 40,000 1,375,000
Readers Digest Association,
Inc. 35,400 1,703,625
------------
5,575,525
------------
RESTAURANTS -- 0.9%
McDonalds Corp. 62,000 2,115,750
------------
RETAIL MERCHANDISING -- 6.0%
Albertson's, Inc. 60,000 1,935,000
Home Depot, Inc. 25,000 1,106,250
Kroger Co. 77,200** 2,036,150
Lowe's Cos., Inc. 31,000 1,069,500
Mattel, Inc. 64,062 1,577,526
Officemax, Inc. 93,400** 2,393,374
Petsmart, Inc. 29,000** 1,015,000
Staples, Inc. 60,000** 1,582,500
Wal-Mart Stores, Inc. 24,000 612,000
------------
13,327,300
------------
SOAPS & COSMETICS -- 1.3%
Gillette Co. 36,000 2,938,500
------------
TELECOMMUNICATIONS -- 2.0%
AT&T Corp. 32,000 1,656,000
DSC Communications Corp. 37,500** 1,221,093
Equifax, Inc. 50,000 1,687,500
------------
4,564,593
------------
TIRES & RUBBER -- 0.9%
Cooper Tire & Rubber Co. 70,000 1,986,250
------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TOBACCO -- 0.9%
UST, Inc. 60,000 $ 1,905,000
------------
TRAVEL & RECREATION -- 5.3%
Hospitality Franchise System,
Inc. 91,000** 2,912,000
La Quinta Inns, Inc. 90,000 2,441,250
Marriot International, Inc. 83,000 2,884,250
Mirage Resorts, Inc. 39,800** 1,114,400
Promus Cos., Inc. 14,000** 525,000
Walt Disney Co. 38,000 2,028,250
------------
11,905,150
------------
TOTAL COMMON STOCKS
(Cost $177,888,181) 197,250,642
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $204,119,070*) 99.9% 223,481,531
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 54,119
--------- ------------
NET ASSETS (Applicable to
15,220,512 Institutional
shares, 4,599,623 Service
shares and 655,763 Series A
Investor shares outstanding) 100.0% $223,535,650
======== =============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($166,209,725 / 15,220,512) $10.92
======
<CAPTION>
VALUE
------------
<S> <C> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE
SHARE
($50,177,330 / 4,599,623) $10.91
======
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A INVESTOR
SHARE ($7,148,595 / 655,763) $10.90
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.90 / .955) $11.41
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $20,367,871
Gross unrealized depreciation (1,005,410)
--------------
$19,362,461
=============
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
7
<PAGE> 8
THE PNC(R) FUND
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C>
AGENCY OBLIGATIONS -- 12.4%
FEDERAL HOME LOAN BANK DISCOUNT NOTES
6.25% 04/03/95 $16,350 $ 16,344,323
------------
(Cost $16,344,323)
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 88.3%
APPAREL -- 2.4%
Nautica Enterprises 30,600** 956,250
St. John Knits, Inc. 30,000 1,095,000
Tommy Hilfiger Corp. 50,000** 1,100,000
------------
3,151,250
------------
BUSINESS SERVICES -- 5.6%
ABR Information Services 19,200** 475,200
Accustaff, Inc. 27,600** 527,850
Brandon Systems Corp. 20,000 437,500
HCIA, Inc. 64,000** 1,568,000
Norrell Corp. 40,900 899,800
Paychex, Inc. 9,500 437,000
Quintiles Transnational Corp. 37,000** 1,341,250
Wackenhut Corrections Corp. 61,100** 1,733,713
------------
7,420,313
------------
COMPUTER & OFFICE EQUIPMENT -- 9.3%
Cognex Corp. 54,500** 1,566,875
DH Technology, Inc. 26,500** 550,438
HBO & Co. 26,000 1,131,000
Hyperion Software Corp. 29,000** 1,355,750
Microcom, Inc. 97,320** 1,103,974
National Computer Systems,
Inc. 33,800 566,150
Opti, Inc. 53,000** 854,625
Pairgain Technologies, Inc. 22,700** 541,963
Peak Technologies Group 40,000** 800,000
Proxima Corp. 31,500 815,063
Remedy Corporation 1,000** 35,875
Software Artistry, Inc. 30,000** 720,000
System Software Associates,
Inc. 23,000 575,000
TGV Software, Inc. 14,000** 315,000
Tivoli Systems, Inc. 35,100** 1,298,700
------------
12,230,413
------------
COMPUTER SOFTWARE & SERVICES -- 17.3%
Acxiom Corp. 70,000** 1,172,500
Alias Research, Inc. 40,000** 1,220,000
American Management Systems,
Inc. 61,900** 1,199,313
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES
(CONTINUED)
Applied Voice Technology, Inc. 32,500** $ 662,188
Aspen Technology, Inc. 35,600** 703,100
Atria Software, Inc. 43,500** 2,066,250
Concentra Corporation 54,800** 753,500
Davidson & Associates, Inc. 12,000** 402,000
Electronics For Imaging Inc. 20,400** 1,091,400
Epic Design Technology, Inc. 12,200** 326,350
Fair, Issac & Co., Inc. 17,000 816,000
FTP Software, Inc. 37,200** 1,181,100
Macromedia, Inc. 28,600** 965,250
Medic Computer Systems, Inc. 35,800** 1,557,300
Microtec Research, Inc. 59,600** 745,000
Netmanage, Inc. 36,500** 1,533,000
Network General Corp. 48,700** 1,387,950
Shiva Corp. 30,000** 978,750
Softkey International, Inc. 53,000** 1,444,250
SPS Transaction Co. 32,000** 1,120,000
The Learning Company 50,000** 1,493,750
------------
22,818,951
------------
DRUGS & HEALTH CARE -- 0.6%
Dura Pharmaceuticals 50,000** 743,750
------------
ELECTRONICS -- 14.1%
Act Manufacturing, Inc. 11,400** 162,450
AFC Cable Systems, Inc. 29,300** 454,150
Amphenol Corp. 48,500** 1,212,500
ASM Lithography Holding 33,600** 945,000
Electro Scientific Industries,
Inc. 25,300** 610,363
Fore Systems, Inc. 33,000** 1,303,500
Harman International
Industries, Inc. 34,000 1,262,250
Information Storage Devices,
Inc. 2,700** 58,050
Integrated Silicon Solution,
Inc. 39,000** 1,365,000
International Rectifier Corp. 43,300** 1,039,200
Lam Research Corp. 22,400** 1,002,400
Micrel, Inc. 66,400** 1,162,000
Photronics, Inc. 67,500** 1,535,625
Silicon Valley Group, Inc. 40,000** 1,125,000
Stratacom, Inc. 56,000** 2,408,000
Tencor Instruments 11,400** 675,450
Tower Semiconductor Ltd. 32,400** 639,900
Trimble Navigation, Ltd. 50,000** 950,000
Ultratech Stepper, Inc. 12,000** 583,500
------------
18,494,338
------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MACHINERY & HEAVY EQUIPMENT -- 1.0%
FSI International, Inc. 33,100** $ 1,336,413
------------
MEDICAL & MEDICAL SERVICES -- 8.6%
American Homepatient Inc. 42,000** 1,175,125
American Medical Response,
Inc. 20,000** 502,500
Cycare Systems, Inc. 27,000** 590,625
Health Care & Retirement 38,900** 1,225,350
Medaphis Corp. 22,300** 1,404,900
Medpartners, Inc. 11,100** 245,588
Orthodontic Centers of
America, Inc. 71,300** 1,256,663
Phycor, Inc. 46,800** 1,602,900
Sun Healthcare Group, Inc. 45,000** 1,147,500
Vencor, Inc. 35,500** 1,264,688
Vivra, Inc. 29,300** 944,925
------------
11,360,764
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 5.6%
Arrow International, Inc. 16,400 578,100
Gulf South Medical Supply,
Inc. 30,000** 1,222,500
IDEXX Laboratories, Inc. 35,000** 1,452,500
Isolyser Company, Inc. 44,400** 799,200
Omnicare, Inc. 25,000 1,312,500
Orthofix International, N.V. 75,000** 1,331,250
Technol Medical Products, Inc. 33,600** 638,400
------------
7,334,450
------------
PERSONAL SERVICES -- 1.9%
Robert Half International,
Inc. 52,800** 1,346,400
Storage USA, Inc. 40,000 1,165,000
------------
2,511,400
------------
PUBLISHING -- 2.0%
Gartner Group Inc. New Class A
40,000** 1,720,000
Scientific Games Holding
Corp., Inc. 44,000** 913,000
------------
2,633,000
------------
RESTAURANTS -- 3.6%
Bugaboo Creek Steak House,
Inc. 16,400** 205,000
Landry's Seafood Restaurants,
Inc. 44,500** 1,362,813
Morrison Restaurants, Inc. 43,600 959,200
O'Charley's, Inc. 18,000** 211,500
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
RESTAURANTS (CONTINUED)
Papa John's International,
Inc. 18,500** $ 663,686
Quality Dining, Inc. 9,700** 118,825
Rock Bottom Restaurants, Inc. 60,000** 1,237,500
------------
4,758,524
------------
RETAIL MERCHANDISING -- 5.8%
Books-A-Million, Inc. 70,000** 1,023,750
Just for Feet, Inc. 52,600** 1,321,575
Micro Warehouse, Inc. 29,900** 926,900
Movie Gallery, Inc. 40,000** 1,075,000
Petco Animal Supplies, Inc. 32,800** 688,800
Piercing Pagoda, Inc. 24,300** 206,550
Quicksilver, Inc. 26,500** 571,253
Sunglass Hut International,
Inc. 45,500** 1,347,938
Trend-Lines, Inc. 31,000** 406,875
------------
7,568,641
------------
TELECOMMUNICATIONS -- 6.1%
Adtran, Inc. 30,000** 1,672,500
Cascade Communications Corp.
15,000** 1,035,000
Coherent Communications System
Corp. 34,000** 658,750
Dialogic Corp. 20,800** 590,200
EIS International, Inc. 71,000** 1,189,250
Gilat Satellite Networks 55,000** 893,750
LDDS Communications, Inc. 23,400** 546,970
U.S. Robotics Corp. 23,000** 1,437,500
------------
8,023,920
------------
TRAVEL & RECREATION -- 1.9%
Doubletree Corp. 51,000** 1,032,750
Regal Cinemas, Inc. 41,800** 1,034,550
Speedway Motorsports, Inc. 27,600** 496,800
------------
2,564,100
------------
TRUCKING & FREIGHT -- 1.5%
Landstar System, Inc. 32,700** 1,030,050
M.S. Carriers, Inc. 22,700** 510,750
Swift Transportation Co., Inc. 30,000** 465,000
------------
2,005,800
------------
WASTE MANAGEMENT -- 1.0%
United Waste Systems, Inc. 45,500** 1,285,375
------------
TOTAL COMMON STOCKS
(Cost $90,569,688) 116,241,402
------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 1.0%
Sholodge, Inc.
7.50% 05/01/04 $ 1,500 $ 1,297,500
(Cost $1,500,000) ------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $108,414,011*) 101.7% 133,883,225
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.7%) (2,248,573)
------ ------------
NET ASSETS (Applicable to
8,295,570 Institutional
shares, 2,733,726 Service
shares and 279,175 Series A
Investor shares outstanding) 100.0% $131,634,652
======= ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($96,600,862 / 8,295,570) $11.64
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE
SHARE
($31,794,267 / 2,733,726) $11.63
======
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A INVESTOR
SHARE ($3,239,523 / 279,175) $11.60
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($11.60 / .955) $12.15
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $26,506,032
Gross unrealized depreciation (1,036,818)
-----------
$25,469,214
===========
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
10
<PAGE> 11
THE PNC(R) FUND
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C>
AGENCY OBLIGATIONS -- 16.9%
FEDERAL HOME LOAN BANK DISCOUNT NOTES
6.25% 04/03/95 $28,355 $ 28,345,155
------------
(Cost $28,345,155)
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 82.1%
AEROSPACE -- 2.2%
Boeing Co. 48,000 2,586,000
United Technologies Corp. 15,000 1,036,875
------------
3,622,875
------------
APPAREL -- 0.7%
Limited, Inc. 50,000 1,156,250
------------
AUTOMOTIVE -- 0.8%
Ford Motor Co. 52,000 1,404,000
------------
BANKS -- 1.8%
BankAmerica Corp. 14,000 675,500
Citicorp 25,000 1,062,500
NationsBank Corp. 26,000 1,319,500
------------
3,057,500
------------
BEVERAGES -- 0.8%
Coca-Cola Co. 17,500 988,750
Pepsico, Inc. 8,500 331,500
------------
1,320,250
------------
BROADCASTING -- 0.7%
British Sky Broadcasting Group
PLC 46,000** 1,132,750
------------
CHEMICALS -- 5.3%
Air Products & Chemicals, Inc. 27,000 1,407,375
Dow Chemical Co. 40,000 2,920,000
E.I. Dupont de Nemours & Co. 45,000 2,722,500
PPG Industries, Inc. 22,000 830,500
Rohm & Haas Co. 18,000 1,062,000
------------
8,942,375
------------
COMPUTER & OFFICE EQUIPMENT -- 2.4%
Intel Corp. 30,000 2,546,250
Pitney Bowes, Inc. 41,000 1,476,000
------------
4,022,250
------------
COMPUTER SOFTWARE & SERVICES -- 0.3%
Microsoft Corp. 8,000** 569,000
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
CONSTRUCTION -- 2.6%
Fluor Corp. 46,000 $ 2,219,500
Foster Wheeler Corp. 33,000 1,117,875
Masco Corp. 38,000 1,049,750
------------
4,387,125
------------
CONSUMER NON-DURABLES -- 1.6%
Dial Corp. 105,000 2,664,375
------------
DRUGS & HEALTH CARE -- 2.2%
American Home Products Corp. 35,000 2,493,750
Tambrands, Inc. 28,000 1,249,500
------------
3,743,250
------------
ELECTRONICS -- 7.4%
AMP, Inc. 58,000 2,088,000
Emerson Electric Co. 27,000 1,795,500
General Electric Co. 73,100 3,956,538
General Instruments Corp. 46,000** 1,598,500
Motorola, Inc. 43,000 2,348,875
W. W. Grainger, Inc. 10,000 630,000
------------
12,417,413
------------
ENERGY & RAW MATERIALS -- 0.6%
Schlumberger, Ltd. 18,000 1,073,250
------------
ENERGY & UTILITIES -- 1.4%
Cinergy Corp. 20,200 502,475
PECO Energy Co. 76,000 1,909,500
------------
2,411,975
------------
FINANCE -- 3.2%
Dean Witter Discover & Co. 31,000 1,263,250
Federal National Mortgage
Association 39,000 3,173,625
First Financial Management
Corp. 12,000 867,000
------------
5,303,875
------------
FOOD & AGRICULTURE -- 1.9%
CPC International, Inc. 15,000 811,875
H.J. Heinz Co. 23,000 885,500
Sara Lee Corp. 57,000 1,489,125
------------
3,186,500
------------
INSURANCE -- 2.8%
American International Group,
Inc. 25,000 2,606,250
General Re Corp. 7,000 924,000
United Healthcare Corp. 26,000 1,215,500
------------
4,745,750
------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MACHINERY & HEAVY EQUIPMENT -- 1.4%
Novellus System, Inc. 37,000** $ 2,294,000
------------
MANUFACTURING -- 2.5%
Illinois Tool Works, Inc. 43,000 2,101,625
Minnesota Mining &
Manufacturing Co. 35,000 2,034,375
------------
4,136,000
------------
MEDICAL & MEDICAL SERVICES -- 1.6%
Columbia Healthcare, Corp. 61,000 2,623,000
------------
OIL DOMESTIC -- 3.1%
Atlantic Richfield Co. 12,000 1,380,000
Noble Affiliates, Inc. 32,000 876,000
Sun, Inc. 39,000 1,111,500
Unocal Corp. 62,000 1,782,500
------------
5,150,000
------------
OIL INTERNATIONAL -- 5.1%
Amoco Corp. 40,000 2,545,000
Chevron Corp. 41,700 2,001,600
Mobil Corp. 21,000 1,945,125
Royal Dutch Petroleum Co. 17,000 2,040,000
------------
8,531,725
------------
PAPER & FOREST PRODUCTS -- 1.6%
International Paper Co. 12,000 901,500
Temple Inland, Inc. 21,000 942,375
Union Camp Corp. 15,000 778,125
------------
2,622,000
------------
PHARMACEUTICAL PREPARATIONS -- 2.9%
Eli Lilly & Co. 21,000 1,535,624
Johnson & Johnson 37,000 2,201,500
Pfizer, Inc. 14,400 1,234,800
------------
4,971,924
------------
PUBLISHING -- 1.0%
News Corp. Ltd. ADR 90,000 1,721,250
------------
RAILROADS & SHIPPING -- 4.3%
Burlington Northern, Inc. 41,000 2,434,375
Conrail Corp. 45,000 2,525,625
CSX Corp. 30,000 2,362,500
------------
7,322,500
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
RESTAURANTS -- 1.3%
Brinker International, Inc. 65,000** $ 1,080,625
McDonalds Corp. 33,000 1,126,125
------------
2,206,750
------------
RETAIL MERCHANDISING -- 4.1%
J. C. Penney Co., Inc. 34,000 1,525,750
K Mart Corp. 44,000 605,000
May Department Stores Co. 44,000 1,628,000
Toys 'R' Us, Inc. 35,000* 896,875
Wal-Mart Stores, Inc. 91,000 2,320,500
------------
6,976,125
------------
SOAPS & COSMETICS -- 0.4%
Colgate-Palmolive Co. 11,000 726,000
------------
TELECOMMUNICATIONS -- 8.8%
Adobe Systems, Inc. 15,000 742,500
Alltel Corp. 94,000 2,702,500
AT&T Corp. 82,000 4,243,500
Bell Atlantic Corp. 34,000 1,793,500
GTE Corp. 49,000 1,629,250
Oracle Systems Corp. 37,000** 1,156,250
SBC Communications, Inc. 58,000 2,443,250
------------
14,710,750
------------
TOBACCO -- 1.5%
Philip Morris Cos., Inc. 40,000 2,610,000
------------
TRAVEL & RECREATION -- 3.8%
Mirage Resorts, Inc. 94,000** 2,632,000
Promus Cos., Inc. 60,000** 2,250,000
Walt Disney Co. 28,000 1,494,500
------------
6,376,500
------------
TOTAL COMMON STOCKS
(Cost $127,666,565) 138,139,287
------------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 0.9%
MANUFACTURING
Apache Corp.
6.00% 01/15/02 $ 1,400 $ 1,526,000
(Cost $1,400,000) ------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $157,411,720*) 99.9% 168,010,442
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 231,409
------ -----------
NET ASSETS (Applicable to
10,547,693 Institutional
shares, 5,441,696 Service
shares and 158,961 Series A
Investor shares outstanding) 100.0% 168,241,851
===== ===========
NET ASSET VALUE AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($168,241,851 / 16,148,350) $10.42
======
OFFERING PRICE PER
INSTITUTIONAL AND SERVICE
SHARE $10.42
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($10.42 / .955) $10.91
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $12,468,778
Gross unrealized depreciation (1,870,056)
-----------
$10,598,722
===========
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
13
<PAGE> 14
THE PNC(R) FUND
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C>
AGENCY OBLIGATIONS -- 13.6%
FEDERAL HOME LOAN MORTGAGE CORPORATION
DISCOUNT NOTES
5.91% 04/03/95 $ 5,000 $ 4,998,358
6.25% 04/03/95 19,745 19,738,144
5.93% 04/10/95 2,000 1,997,035
------------
TOTAL AGENCY OBLIGATIONS
(Cost $26,733,537) 26,733,537
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCK -- 85.8%
ADVERTISING -- 0.0%
Interpublic Group of Cos.,
Inc. 200 7,475
------------
AEROSPACE -- 1.6%
Boeing Co. 16,200 872,774
General Dynamics Corp. 3,100 145,700
Lockheed Martin Corp. 9,553 505,115
Mc Donnell Douglas Corp. 5,400 301,050
Northrop Grumman Corp. 2,200 107,524
Rockwell International Corp. 10,200 397,800
Textron, Inc. 4,400 249,150
United Technologies Corp. 5,800 400,924
------------
2,980,037
------------
AIR TRANSPORT -- 0.4%
A.M.R. Corp. 3,500** 226,624
Delta Air Lines, Inc. 2,500 156,874
Federal Express Corp. 2,700** 182,587
Southwest Airlines Co. 6,600 117,974
U.S. Air Group, Inc. 2,800** 17,150
------------
701,209
------------
APPAREL -- 0.7%
Brown Group, Inc. 600 17,400
Charming Shoppes, Inc. 4,900 27,562
Gap, Inc. 7,100 252,050
Hartmarx Corp. 1,500 8,062
Limited, Inc. 16,900 390,812
Liz Claiborne, Inc. 3,900 69,224
Nike, Inc. 3,600 268,650
Oshkosh B' Gosh, Inc. 800 11,400
Reebok International, LTD. 3,900 138,937
Russell Corp. 1,900 56,287
Spring Industries, Inc. 600 22,500
Stride Rite Corp. 2,500 31,562
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
APPAREL (CONTINUED)
V.F. Corp. 3,000 $ 159,374
------------
1,453,820
------------
AUTOMOTIVE -- 2.3%
Chrysler Corp. 16,900 707,687
Cummins Engine Co., Inc. 2,100 93,974
Dana Corp. 4,700 119,850
Eaton Corp. 3,500 189,874
Echlin, Inc. 2,900 111,650
Ford Motor Co. 47,900 1,293,300
General Motors Corp. 35,400 1,566,450
Genuine Parts Co. 5,800 231,274
Navistar International Corp. 1,620** 20,654
S.P.X. Corp. 800 11,600
Skyline Corp. 600 10,650
Strattec Security Corp. 320** 3,600
T.R.W., Inc. 3,200 220,400
------------
4,580,963
------------
BANKS -- 4.4%
Banc One Corp. 19,845 565,582
Bank of Boston Corp. 5,600 166,600
BankAmerica Corp. 17,612 849,778
Bankers Trust New York Corp. 3,500 182,874
Barnett Banks, Inc. 5,000 227,500
Boatmens Bancshares, Inc. 5,500 166,374
Chase Manhattan Corp. 8,900 317,062
Chemical Banking Corp. 12,430 469,232
Citicorp 18,900 803,250
CoreStates Financial Corp. 7,400 236,800
First Chicago Corp. 4,700 235,587
First Fidelity Bancorp 4,000 198,000
First Interstate Bancorp 3,900 308,100
First Union Corp. 8,460 366,952
Fleet Financial Group, Inc. 6,900 223,387
Keycorp 12,000 339,000
MBNA Corp. 9,450 274,050
Mellon Bank Corp. 5,250 213,937
N.B.D. Bancorp, Inc. 7,950 258,374
Nationalcity Corp. 7,500 199,687
NationsBank Corp. 13,047 662,134
Norwest Corp. 15,300 388,237
Shawmut National Corp. 6,200 163,524
Suntrust Banks, Inc. 6,200 331,700
U.S. Bancorp 4,950 128,700
Wells Fargo & Co. 2,700 422,212
------------
8,698,633
------------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
BEVERAGES -- 3.2%
Anheuser-Busch Cos., Inc. 12,400 $ 726,950
Brown Forman Corp. 3,400 113,474
Coca Cola Co. 61,100 3,452,150
Coors (Adolph) Co. "B" 1,700 27,837
Pepsico, Inc. 37,700 1,470,300
Seagram Co., LTD. 17,800 565,150
------------
6,355,861
------------
BROADCASTING -- 0.8%
CBS, Inc. 3,000 192,000
Capital Cities A.B.C., Inc. 5,000 441,250
Comcast Corp. Special Class A
Non-Voting 1,650 25,780
Cox Communications, Inc. Class
A 3,282** 54,973
Tele Communications, Inc.
Class A New 26,300** 552,300
Viacom, Inc. Common Non Voting
7,213 322,781
------------
1,589,084
------------
BUSINESS MACHINES -- 1.7%
D.S.C. Communication Corp. 5,200** 169,324
Harris Computer Systems Corp. 90** 1,574
Intergraph Corp. 2,000** 23,750
International Business
Machines Corp. 27,800 2,276,124
Pitney Bowes, Inc. 7,500 270,000
Unisys Corp. 8,100** 74,924
Xerox Corp. 5,200 610,350
------------
3,426,046
------------
BUSINESS SERVICES -- 0.6%
Alco Standard Corp. 2,800 203,000
Automatic Data Processing,
Inc. 6,700 422,100
Deluxe Corp. 4,000 114,000
Ecolab, Inc. 2,800 67,900
First Data Corp. 5,000 259,374
John H. Harland Co. 1,500 33,937
Moore Corp., LTD. 4,600 89,700
National Education Corp. 1,300** 4,224
Ogden Corp. 2,000 40,250
Shared Medical Systems Corp. 900 32,962
------------
1,267,447
------------
CHEMICALS -- 3.3%
Air Products & Chemicals, Inc. 5,300 276,262
B.F. Goodrich Co. 1,000 44,374
CHEMICALS (CONTINUED)
Dow Chemical Co. 13,300 970,900
E.I. Dupont de Nemours & Co. 32,200 1,948,100
Eastman Chemical Co. 3,925 218,327
Engelhard Corp. 4,425 131,090
F.M.C. Corp. 1,600 96,800
First Mississippi Corp. 1,200 31,500
Great Lakes Chemical Corp. 3,400 212,074
Hercules, Inc. 5,400 251,774
Mallinckrodt Group, Inc. 3,700 124,874
Monsanto Co. 5,500 441,374
Morton International, Inc. 6,900 200,100
Nalco Chemical Co. 3,300 110,963
P.P.G. Industries, Inc. 9,900 373,725
Praxair, Inc. 6,600 153,450
Rohm & Haas Co. 3,400 200,600
Safety-Kleen Corp. 2,700 48,263
Sherwin Williams Co. 4,000 135,500
Sigma Aldrich Corp. 2,300 89,125
Union Carbide Corp. 7,300 223,563
W.R. Grace & Co. 4,300 228,975
------------
6,511,713
------------
COMPUTER AND OFFICE EQUIPMENT -- 3.4%
Amdahl Corp. 5,600** 61,600
Apple Computer, Inc. 5,700 200,925
Autodesk, Inc. 2,300 96,888
Ceridian Corp. 2,000** 66,750
COMPAQ Computer Corp. 12,100** 417,450
Computer Associates
International, Inc. 7,800 463,125
Computer Sciences Corp. 2,500 123,438
Cray Research, Inc. 1,100** 20,213
Data General Corp. 1,500** 11,063
Digital Equipment Corp. 6,300** 238,613
INTEL Corp. 20,000 1,697,500
Lotus Development Corp. 2,400** 91,800
Microsoft Corp. 27,300** 1,941,713
Novell, Inc. 17,400** 330,600
Oracle Systems Corp. 20,400** 637,500
Sun Microsystems, Inc. 4,360** 151,510
Tandem Computers, Inc. 5,500** 85,250
------------
6,635,938
------------
CONGLOMERATES -- 0.3%
I.T.T. Corp. 4,900 502,863
------------
CONSTRUCTION -- 1.0%
Armstrong World Industries,
Inc. 1,700 77,563
Centex Corp. 1,300 31,363
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
CONSTRUCTION (CONTINUED)
Corning, Inc. 10,000 $ 360,000
Fluor Corp. 3,900 188,175
Foster Wheeler Corp. 1,600 54,200
Halliburton Co. 5,300 192,788
Home Depot, Inc. 21,582 955,004
Kaufman & Broad Home Corp. 1,700 20,188
Morrison Knudson Corp. 1,300 7,800
Owens-Corning Fiberglass Corp. 1,900** 68,400
Pulte Corp. 1,100 25,850
------------
1,981,331
------------
CONSUMER DURABLES -- 0.3%
Bassett Furniture, Inc. 750 19,688
Black & Decker Corp. 4,000 115,500
Maytag Corp. 5,300 90,763
Newell Co. 7,600 193,800
Outboard Marine Corp. 700 14,700
Whirlpool Corp. 3,600 197,100
Zenith Electronics Corp. 1,800** 13,950
------------
645,501
------------
CONSUMER NON-DURABLES -- 0.3%
Brunswick Corp. 4,300 86,538
Handleman Co. 1,500 16,125
Premark International, Inc. 2,800 123,550
Rubbermaid, Inc. 7,500 247,500
Service Corp. International 4,100 114,800
------------
588,513
------------
CONTAINERS -- 0.1%
Ball Corp. 1,600 55,000
Crown Cork & Seal Co., Inc. 4,200 184,275
------------
239,275
------------
DRUGS AND HEALTH CARE -- 6.5%
Abbott Laboratories, Inc. 38,900 1,385,813
Allergan, Inc. 3,000 88,500
Alza Corp. 3,900** 82,875
American Home Products Corp. 14,400 1,026,000
Amgen, Inc. 6,100 410,988
Beverly Enterprises, Inc. 3,800** 55,100
Bristol-Myers Squibb Co. 24,200 1,524,600
Columbia HCA Healthcare Corp. 500 21,500
Community Psychiatric Centers 2,100 27,038
Eli Lilly & Co. 13,800 1,009,125
Johnson & Johnson 30,700 1,826,650
Manor Care, Inc. 2,950 89,606
Merck & Co., Inc. 56,700 2,416,838
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
DRUGS AND HEALTH CARE (CONTINUED)
Pfizer, Inc. 14,700 $ 1,260,525
Schering Plough Corp. 9,100 676,813
U. S. Surgical, Corp. 2,700 61,425
Upjohn Co. 8,300 296,725
Warner Lambert Co. 6,300 492,975
------------
12,753,096
------------
ELECTRONICS -- 3.4%
A.M.P., Inc. 10,200 367,200
Advanced Micro Devices, Inc. 4,700** 159,213
Andrew Corp. 1,725** 70,294
E Systems, Inc. 1,400 63,525
E.G.& G., Inc. 2,800 42,000
Emerson Electric Co. 10,800 718,200
General Signal Corp. 2,300 81,938
Harris Corp. 1,800 86,175
Hewlett Packard Co. 11,400 1,372,275
Honeywell, Inc. 6,400 239,200
Johnson Controls, Inc. 1,800 91,575
Loral Corp. 3,900 165,750
M.A. Communications, Inc. 1,500 14,813
Micron Technology, Inc. 4,550 345,800
Motorola, Inc. 26,900 1,469,413
National Semiconductor Corp. 5,800** 101,500
Raytheon Co. 6,500 473,688
Scientific Atlanta Corp. 3,600 84,150
Tektronix, Inc. 1,200 48,000
Teledyne, Inc. 2,800 73,500
Texas Instruments, Inc. 4,400 389,400
Thomas & Betts Corp. 1,100 71,225
Westinghouse Electric Corp. 16,500 233,063
------------
6,761,897
------------
ENERGY AND RAW MATERIALS -- 2.2%
Baker Hughes, Inc. 6,700 136,513
Dresser Industries, Inc. 7,900 167,875
Eastern Enterprises 1,100 30,525
Helmerich & Payne, Inc. 1,000 27,125
Royal Dutch Petroleum Co. 25,500 3,060,000
Schlumberger, LTD. 11,400 679,725
USX-Marathon Group, Inc. 13,800 241,500
------------
4,343,263
------------
ENERGY AND UTILITIES -- 3.9%
American Electric Power Co.,
Inc. 8,800 279,400
Baltimore Gas & Electric Co. 7,200 170,100
Carolina Power & Light Co. 7,500 203,438
Central & South West Corp. 9,000 218,250
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
ENERGY AND UTILITIES (CONTINUED)
Cinergy Corp. 3,375 $ 83,953
Coastal Corp. 4,850 139,438
Columbia Gas System, Inc. 2,500** 74,063
Consolidated Edison Co., Inc. 11,200 305,200
Consolidated Natural Gas Co. 4,500 173,813
Detroit Edison Co. 7,100 194,363
Dominion Resources, Inc. 8,150 293,400
Duke Power Co. 9,700 373,450
Enron Corp. 11,800 389,400
Enserch Corp. 3,400 50,575
Entergy Corp. 10,700 223,363
F.P.L. Group, Inc. 8,600 312,825
Houston Industries, Inc. 6,000 228,750
Niagara Mohawk Power Corp. 6,600 90,750
Nicor, Inc. 2,700 67,500
Noram Energy Corp. 6,000 32,250
Northern States Power Co. 3,200 140,800
Ohio Edison Co. 7,200 144,000
Oneok, Inc. 1,100 20,763
Oryx Energy Co. 4,400 55,550
Pacific Enterprises 4,000 99,000
Pacific Gas & Electric Co. 20,100 499,988
Pacificorp 13,400 259,625
Panhandle Eastern Corp. 5,500 126,500
PECO Energy Co. 10,300 258,788
Peoples Energy Corp. 1,500 37,500
Public Service Enterprise
Group, Inc. 11,800 323,025
SCECORP 21,200 331,250
Sonat, Inc. 4,100 123,000
Southern Co. 31,000 631,625
Texas Utilities Co. 10,400 330,200
Transco Energy Co. 572 10,868
Unicom Corp. 10,300 244,625
Union Electric Co. 4,900 173,338
------------
7,714,726
------------
FINANCE -- 2.6%
Beneficial Corp. 4,200 164,850
Dean Witter Discover & Co. 9,811 399,798
Federal Home Loan Mortgage
Corp. 8,800 532,400
Federal National Mortgage
Association 14,000 1,139,250
Golden West Financial Corp. 4,500 172,125
Great Western Financial Corp. 9,700 181,875
H.F. Ahmanson & Co. 8,900 160,200
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
FINANCE (CONTINUED)
Household International, Inc. 5,900 $ 256,650
J.P. Morgan & Co., Inc. 8,800 536,800
Merrill Lynch & Co., Inc. 11,000 468,875
Salomon, Inc. 6,600 223,575
Travelers, Inc. 17,547 677,753
Wachovia Corp. 6,000 213,000
------------
5,127,151
------------
FOOD AND AGRICULTURE -- 2.6%
Archer-Daniels-Midland Co. 24,715 460,317
C.P.C. International, Inc. 6,900 373,463
Campbell Soup Co. 11,900 575,663
Conagra, Inc. 12,000 397,500
Fleming Cos., Inc. 1,700 38,463
General Mills, Inc. 7,300 435,263
H.J. Heinz Co. 11,900 458,150
Hershey Foods Corp. 4,000 204,500
Kellogg Co. 10,600 618,775
Pioneer HI Bred International,
Inc. 300 10,800
Quaker Oats Co. 6,600 218,625
Ralcorp Holdings, Inc. 2,033** 48,284
Ralston Purina Group 4,800 229,200
Sara Lee Corp. 22,700 593,038
Sysco Corp. 8,900 233,625
W.M. Wrigley Jr. Co. 5,400 239,625
------------
5,135,291
------------
INSURANCE -- 3.0%
Aetna Life & Casualty Co. 5,100 290,700
Alexander & Alexander
Services, Inc. 1,900 44,888
American General Corp. 10,000 322,500
American International Group,
Inc. 14,775 1,540,294
CHUBB Corp. 4,100 323,900
Cigna Corp. 3,400 254,150
Continental Corp. 2,700 52,988
General Re Corp. 4,000 528,000
Jefferson Pilot Corp. 2,250 133,031
Lincoln National Corp. 4,300 173,075
Marsh & Mc Lennan Cos., Inc. 3,600 295,650
Providian Corp. 4,500 158,063
Safeco Corp. 3,200 175,200
St. Paul Cos., Inc. 4,200 210,000
Torchmark Corp 3,300 136,950
Transamerica Corp. 3,200 181,200
U.S. Life Corp. 850 32,406
U.S.F. & G. Corp. 4,200 58,800
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
INSURANCE (CONTINUED)
United Healthcare Corp. 8,200 $ 383,350
UNUM Corp. 3,500 158,375
US Healthcare, Inc. 7,800 345,150
------------
5,798,670
------------
MACHINERY AND HEAVY EQUIPMENT -- 0.5%
Caterpillar, Inc. 9,600 534,000
Clark Equipment Co. 600** 49,500
Deere & Co. 4,300 349,375
Giddings & Lewis, Inc. 1,800 30,600
Mc Dermott International, Inc. 2,600 71,175
------------
1,034,650
------------
MANUFACTURING -- 1.1%
AlliedSignal, Inc. 13,200 518,100
Masco Corp. 7,200 198,900
Millipore Corp. 1,200 66,900
Minnesota Mining &
Manufacturing Co. 19,900 1,156,688
Nacco Industries, Inc. 500 27,250
National Service Industries,
Inc. 2,500 67,500
Whitman Corp. 4,800 91,800
------------
2,127,138
------------
MEDIA -- 0.8%
Gannett Co., Inc. 7,000 373,625
King World Productions, Inc. 1,600** 63,000
Knight-Ridder, Inc. 2,300 129,950
New York Times Co. 4,700 108,688
Time-Warner, Inc. 17,800 671,950
Tribune Co. 3,400 187,850
------------
1,535,063
------------
MEDICAL AND MEDICAL SERVICES -- 0.1%
National Medical Enterprises,
Inc. 7,700 122,238
------------
MEDICAL INSTRUMENTS AND SUPPLIES -- 0.7%
Bausch & Lomb, Inc. 3,000 107,250
Baxter International, Inc. 13,400 438,850
Becton, Dickinson & Co. 3,600 195,300
Biomet, Inc. 5,600** 94,500
C.R. Bard, Inc. 2,500 69,063
Medtronic, Inc. 5,500 381,563
Perkin Elmer Corp. 2,000 58,250
St. Jude Medical, Inc. 2,300 99,475
------------
1,444,251
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
METALS AND MINING -- 1.2%
Alcan Aluminum, LTD. 10,700 $ 284,888
Aluminum Co. of America 8,000 331,000
Asarco, Inc. 1,900 50,113
Barrick Gold Corp. 16,400 410,000
Cyprus Amax Minerals Co. 4,550 129,106
Echo Bay Mines, LTD. 5,200 53,950
Homestake Mining Co. 6,500 120,250
Inco, LTD. 5,400 150,525
Newmont Mining Corp. 3,992 170,658
Phelps Dodge Corp. 3,500 199,063
Placer Dome, Inc. 11,400 277,875
Reynolds Metals Co. 3,000 147,750
Santa Fe Pacific Gold Corp. 5,551** 70,081
------------
2,395,259
------------
OIL DOMESTIC -- 1.6%
Ashland, Inc. 2,800 99,750
Atlantic Richfield Co. 7,700 885,500
Burlington Resources, Inc. 400 16,300
Kerr-McGee Corp. 2,300 117,300
Louisiana Land & Exploration
Co. 1,700 63,538
Occidental Petroleum Corp. 15,000 328,125
Pennzoil Co. 2,300 108,963
Phillips Petroleum Co. 12,600 461,475
Rowan Cos., Inc. 3,900 25,350
Santa Fe Energy Resources,
Inc. 3,980** 38,308
Sun Co., Inc. 4,700 133,950
Tenneco, Inc. 8,100 381,713
Unocal Corp. 11,300 324,875
Western Atlas, Inc. 2,200** 94,875
Williams Cos., Inc. 5,000 153,125
------------
3,233,147
------------
OIL INTERNATIONAL -- 5.0%
Amerada Hess Corp. 4,500 222,188
Amoco Corp. 23,600 1,501,550
Chevron Corp. 30,800 1,478,400
Exxon Corp. 58,900 3,931,575
Maxus Energy Corp. 6,700 36,850
Mobil Corp. 18,800 1,741,350
Texaco, Inc. 12,300 817,950
------------
9,729,863
------------
PAPER AND FOREST PRODUCTS -- 1.7%
Avery Dennison Corp. 2,500 99,688
Bemis Co., Inc. 2,300 67,563
Boise Cascade Corp. 1,700 59,075
Champion International, Inc. 4,200 181,650
Federal Paper Board, Inc. 1,900 54,150
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
PAPER AND FOREST PRODUCTS (CONTINUED)
Georgia Pacific Corp. 4,200 $ 334,950
International Paper Co. 5,700 428,213
James River Corp. 4,000 104,000
Kimberly Clark Corp. 7,800 405,600
Louisiana-Pacific Corp. 5,100 140,888
Mead Corp. 3,000 160,875
Potlatch Corp. 1,200 50,550
Scott Paper Co. 3,300 294,938
Stone Container Corp. 4,086 93,467
Temple Inland, Inc. 2,800 125,650
Union Camp Corp. 3,300 171,188
Westvaco Corp. 3,400 141,100
Weyerhaeuser Co. 9,800 380,975
------------
3,294,520
------------
PERSONAL SERVICES -- 0.1%
H&R Block, Inc. 5,200 225,550
------------
PHOTOGRAPHIC EQUIPMENT -- 0.5%
Eastman Kodak Co. 15,800 839,375
Polaroid Corp. 2,100 72,975
------------
912,350
------------
PRODUCER GOODS -- 3.1%
Briggs & Stratton Corp. 1,600 59,000
Cincinnati Milacron, Inc. 1,600 36,600
Cooper Industries, Inc. 5,300 205,375
Crane Co. 1,350 41,006
Dover Corp. 2,800 181,300
General Electric Co. 76,200 4,124,325
Harnischfeger Industries, Inc. 1,376 38,528
Illinois Tool Works, Inc. 5,500 268,813
Ingersoll Rand Co. 5,100 167,663
Paccar, Inc. 1,800 76,500
Pall Corp. 5,566 116,886
Parker-Hannifin Corp. 2,300 101,775
Raychem Corp. 1,900 77,188
Snap ON, Inc. 2,000 73,000
Stanley Works 1,900 74,813
Timken Co. 1,300 46,150
Trinova Corp. 1,200 36,750
Tyco International, LTD. 2,600 137,475
Varity Corp. 1,490** 56,620
W.W. Grainger, Inc. 2,400 151,200
Worthington Industries, Inc. 4,400 87,450
Zurn Industries, Inc. 700 12,863
------------
6,171,280
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
PUBLISHING -- 0.7%
American Greetings Corp. 3,400 $ 101,575
Dow Jones & Co., Inc. 4,500 170,438
Dun & Bradstreet Corp. 8,300 436,788
Mc Graw Hill, Inc. 2,400 172,200
Meredith Corp. 1,800 46,800
R.R. Donnelly & Sons, Inc. 7,200 247,500
Times Mirror Class A Escrow
Shs 6,000** 0
Times Mirror Co. Series A New 6,000 115,500
------------
1,290,801
------------
RAILROADS AND SHIPPING -- 1.0%
Burlington Northern, Inc. 4,100 243,438
C.S.X. Corp. 5,200 409,500
Consolidated Rail Corp. 3,700 207,663
Norfolk Southern Corp. 6,500 434,688
Santa Fe Pacific Corp. 8,752 201,296
Union Pacific Corp. 9,800 539,000
------------
2,035,585
------------
RESTAURANTS -- 0.7%
Luby's Cafeterias, Inc. 1,150 24,438
Mc Donald's Corp. 33,400 1,139,775
Ryan's Family Steak Houses,
Inc. 2,700** 18,225
Shoney's, Inc. 1,900** 20,425
Wendy's International, Inc. 4,800 78,600
------------
1,281,463
------------
RETAIL MERCHANDISING -- 4.5%
Albertsons, Inc. 12,000 387,000
American Stores Co. 6,900 176,813
Bruno's, Inc. 3,800 34,200
Circuit City Stores, Inc. 4,500 118,688
Dayton Hudson Corp. 3,200 228,800
Dillard Department Stores,
Inc. 5,600 154,700
Giant Food, Inc. 3,000 71,625
Great Atlantic & Pacific Tea
Co., Inc. 1,700 38,463
Harcourt General, Inc. 3,500 136,500
Hasbro, Inc. 4,200 141,750
J.C. Penney Co., Inc. 11,200 502,600
Jostens, Inc. 2,100 41,738
K Mart Corp. 21,700 298,375
Kroger Co. 5,300** 139,788
Longs Drug Stores, Inc. 800 26,500
Lowe's Cos., Inc. 7,600 262,200
Mattel, Inc. 9,062 223,152
May Department Stores Co. 12,000 444,000
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 20
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
RETAIL MERCHANDISING (CONTINUED)
Melville Corp. 5,100 $ 189,975
Mercantile Stores Co., Inc. 1,700 75,863
Nordstrom, Inc. 4,000 163,000
Pep Boys-Manny, Moe & Jack 3,100 96,100
Price Costco, Inc. 6,238** 92,011
Rite Aid Corp. 4,200 102,900
Sears, Roebuck & Co. 16,900 902,038
Super Valu, Inc. 3,400 90,950
T.J.X. Cos., Inc. 3,700 48,563
Tandy Corp. 3,200 152,800
Toys "R" Us, Inc. 7,100** 181,938
Wal-Mart Stores, Inc. 109,000 2,779,500
Walgreen Co. 5,800 279,125
Winn-Dixie Stores, Inc. 3,500 195,563
Woolworth Corp. 6,200 113,925
------------
8,891,143
------------
SOAPS AND COSMETICS -- 2.7%
Alberto-Culver Co. 1,200 35,550
Avon Products, Inc. 3,400 205,700
Clorox Co. 2,700 162,000
Colgate-Palmolive Co. 7,200 475,200
Dial Corp. 4,500 114,188
Gillette Co. 10,300 840,738
International Flavors &
Fragrances, Inc. 5,300 273,613
Proctor & Gamble Co. 32,616 2,160,810
Unilever N.V. 7,700 1,010,625
------------
5,278,424
------------
STEEL -- 0.3%
Armco, Inc. 5,100** 35,063
Bethlehem Steel Corp. 5,000** 80,625
Inland Steel Industries, Inc. 2,100** 57,750
Nucor Corp. 4,100 230,625
USX-US Steel Group, Inc. 3,500 118,125
------------
522,188
------------
TELECOMMUNICATIONS -- 7.4%
Airtouch Communications, Inc. 23,500 640,375
Ameritech Corp. 25,900 1,068,375
AT&T Corp. 74,720 3,866,760
Bell Atlantic Corp. 20,700 1,091,925
Bellsouth Corp. 23,800 1,416,100
G.T.E. Corp. 45,200 1,502,900
MCI Communications Corp. 30,400 627,000
Northern Telecom, LTD. 11,800 446,925
TELECOMMUNICATIONS (CONTINUED)
NYNEX Corp. 20,000 792,500
Pacific Telesis Group 20,000 605,000
Southwestern Bell Corp. 28,400 1,196,350
Sprint Corp. 16,200 490,050
U.S. West, Inc. 21,200 848,000
------------
14,592,260
------------
TIRES AND RUBBER -- 0.2%
Cooper Tire & Rubber Co. 4,000 113,500
Goodyear Tire & Rubber Co. 7,100 260,925
------------
374,425
------------
TOBACCO -- 1.7%
American Brands, Inc. 9,700 380,725
Philip Morris Cos., Inc. 41,300 2,694,825
U.S.T., Inc. 9,800 311,150
------------
3,386,700
------------
TRAVEL AND RECREATION -- 1.0%
Bally Entertainment Corp. 2,200** 18,700
Fleetwood Enterprises, Inc. 2,200 51,975
Hilton Hotels Corp. 2,300 170,488
Marriott International, Inc. 6,000 208,500
Promus Cos., Inc. 5,000** 187,500
Walt Disney Co. 25,600 1,366,400
------------
2,003,563
------------
TRUCKING AND FREIGHT -- 0.1%
Consolidated Freightways, Inc. 1,800 47,925
Pittston Services Group 2,200 60,500
Roadway Services, Inc. 1,800 86,850
Ryder System, Inc. 3,600 86,400
Yellow Corp. 1,100 17,600
------------
299,275
------------
WASTE MANAGEMENT -- 0.5%
Browning Ferris Industries,
Inc. 9,500 323,000
Rollins Environmental
Services, Inc. 2,800 11,900
WMX Technologies, Inc. 23,000 632,500
------------
967,400
------------
TOTAL COMMON STOCK
(Cost $143,284,939) 168,948,339
------------
PREFERRED STOCK -- 0.0%
ELECTRONICS
Teledyne, Inc. 28 417
------------
(Cost $0)
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 21
INDEX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 0.6%
U.S. TREASURY BILLS
5.55% 04/06/95 $ 700*** $ 699,460
5.64% 04/06/95 100*** 99,922
5.70% 04/06/95 400*** 399,683
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,199,065) 1,199,065
------------
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money Fund
(Cost $32,423) 32,423 32,423
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $171,249,964*) $196,913,781
=============
</TABLE>
- -------------
* Cost for Federal income tax purposes is $171,342,095. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $30,626,010
Gross unrealized depreciation (4,962,193)
-----------
$25,663,817
===========
</TABLE>
** Non-income producing security.
*** Principal amount of securities pledged as initial margin requirement of
$920,000 on 92 Standard & Poor's 500 Stock Index futures contracts expiring
June 1995.
See accompanying notes to financial statements.
21
<PAGE> 22
THE PNC(R) FUND
INDEX EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $171,249,964)...................................... $ 196,913,781
Dividends receivable.......................................................... 370,080
Interest receivable........................................................... 185
Capital shares sold receivable................................................ 15,152,108
Prepaid expenses.............................................................. 13,505
-------------
TOTAL ASSETS.......................................................... 212,449,659
-------------
LIABILITIES
Futures margin payable........................................................ 92,000
Capital shares redeemed payable............................................... 73,185
Accrued expenses payable...................................................... 68,820
-------------
TOTAL LIABILITIES..................................................... 234,005
-------------
NET ASSETS (Applicable to 13,608,238 Institutional shares, 4,274,896 Service
shares and 320,840 Series A Investor shares outstanding)...................... $ 212,215,654
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER INSTITUTIONAL
SHARE ($158,645,219 / 13,608,238)............................................. $11.66
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SERVICE SHARE
($49,834,484 / 4,274,896)..................................................... $11.66
=======
NET ASSET VALUE AND REDEMPTION PRICE PER SERIES A INVESTOR SHARE
($3,735,951 / 320,840)........................................................ $11.64
=======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR SHARE
($11.64 / .955)............................................................... $12.19
=======
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
THE PNC(R) FUND
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS -- 93.6%
AEROSPACE -- 0.4%
Coltec Industries, Inc. 53,900** $ 929,775
------------
APPAREL -- 4.6%
CHIC by H.I.S. Inc. 211,000** 2,321,000
Cone Mills Corp. 170,000** 2,082,500
Forstmann & Company, Inc. 60,000** 270,000
Jones Apparel Group, Inc. 79,300** 2,141,100
Phillips-Van Heusen Corp. 140,000 2,205,000
Spring Industries, Inc. 36,000 1,350,000
------------
10,369,600
------------
AUTOMOTIVE -- 2.9%
A.O. Smith Corp. Class B 90,000 2,025,000
Masland Corp. 173,700 2,236,388
Stant Corp. 50,400 693,000
TBC Corp. 166,100** 1,681,763
------------
6,636,151
------------
BANKS -- 7.2%
Albank Financial Corp. 81,600 2,040,000
Amfed Financial, Inc. 82,170 1,910,453
Bankatlantic Bancorp, Inc. 81,000 1,255,500
Banknorth Group, Inc. 90,200 2,119,700
Commerce Bancorp, Inc. 135,100 2,296,700
Long Island Bancorp, Inc. 136,400 2,387,000
Mercantile Bankshares Corp. 46,950 1,038,769
Security Capital Corp. 8,200** 389,500
Southern National Corp. 73,805 1,466,874
Standard Federal Bank 51,300 1,378,688
------------
16,283,184
------------
BUSINESS SERVICES -- 1.3%
Computer Horizons Corp. 162,000** 2,875,500
------------
CHEMICALS -- 4.7%
Bush Boake Allen, Inc. 135,900** 3,669,300
IMC Global, Inc. 56,000 2,737,000
LSB Industries, Inc. 100,000 625,000
Vigoro Corp. 70,100 2,593,700
WD-40 Co. 25,600 1,011,200
------------
10,636,200
------------
CONSTRUCTION -- 2.0%
Beazer Homes USA, Inc. 170,400** 2,300,400
BMC West Corp. 161,850** 2,346,825
------------
4,647,225
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
CONSUMER DURABLES -- 3.2%
Crown Crafts, Inc. 132,000 $ 2,244,000
General Housewares Corp. 17,400 232,725
Libbey, Inc. 146,700 2,732,287
North American Watch Corp. 85,700** 1,178,375
Oroamerica, Inc. 182,000** 910,000
------------
7,297,387
------------
COMPUTER & OFFICE EQUIPMENT -- 4.3%
AST Research, Inc. 170,000** 2,698,750
Conner Peripherals, Inc. 70,000** 665,000
DH Technology, Inc. 110,000** 2,282,500
GBC Technologies, Inc. 275,700** 1,860,975
Nu-Kote Holdings, Inc. 99,900** 2,322,675
------------
9,829,900
------------
COMPUTER SOFTWARE & SERVICES -- 0.6%
MDL Information Systems, Inc. 117,000** 1,374,750
------------
DRUGS & HEALTH CARE -- 0.4%
Herbalife International, Inc. 61,550 830,925
------------
ELECTRONICS -- 10.5%
Aetrium, Inc. 120,400** 1,685,600
Belden, Inc. 95,400 2,098,800
Cable Design Technologies 150,700** 2,260,500
Franklin Electronic
Publishers, Inc. 76,000** 2,137,500
Holophane Corp. 125,800** 2,295,850
Input/Output, Inc. 125,000** 3,296,874
Kemet Corp. 87,700** 3,299,713
Lattice Semiconductor Corp. 137,500** 3,377,343
Mark IV Industries, Inc. 106,040 2,173,820
Marshall Industries 45,200** 1,175,200
------------
23,801,200
------------
FOOD & AGRICULTURE -- 2.1%
Daka International, Inc. 184,400** 3,457,500
Sanderson Farms, Inc. 121,500 1,427,625
------------
4,885,125
------------
INSURANCE -- 14.4%
Acordia, Inc. 57,500 1,868,750
Baldwin & Lyons, Inc. Class B 99,900 1,623,375
Commerce Group, Inc. 134,900 2,259,574
First Colony Corp. 75,000 1,696,875
Harleysville Group, Inc. 75,195 1,832,878
Life USA Holding, Inc. 226,400** 2,264,000
Merchants Group, Inc. 25,600 371,200
National Re Corp. 72,000 2,106,000
Partnerre Holdings, LTD. 89,500 1,901,875
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
Paul Revere Corp. 70,000 $ 1,137,500
Penncorp Financial Group,
Inc. 137,900 2,430,487
Physician Corporation of
America 107,600** 2,421,000
Pxre Corp. 29,200 704,450
State Auto Financial Corp. 138,800 2,324,900
TIG Holdings, Inc. 142,000 3,195,000
United Fire & Casualty Co. 46,200 1,316,700
United Wisconsin Services,
Inc. 60,800 2,394,000
W.R. Berkly Co. 24,500 897,313
------------
32,745,877
------------
MACHINERY & HEAVY EQUIPMENT -- 3.1%
BW IP, Inc. 135,400 2,234,100
CMI Corp. Class A 337,000** 2,232,625
DT Industries, Inc. 62,500 750,000
FSI International, Inc. 43,400** 1,752,275
------------
6,969,000
------------
MANUFACTURING -- 9.5%
Alamo Group, Inc. 105,000 1,811,250
Amtrol, Inc. 65,000 1,153,750
Griffon Corp. 30,550** 259,675
Harmon Industries, Inc. 151,300 2,118,200
ILC Technology, Inc. 20,700** 207,000
Johnstown America Industries,
Inc. 50,400** 680,400
Lydall, Inc. 95,000** 3,206,250
Pentair, Inc. 76,700 3,240,575
Plantronics, Inc. 130,300 3,599,537
US Can Corp. 147,100** 3,125,875
Velcro Industries N.V. 35,900 2,145,025
------------
21,547,537
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 1.1%
Beckman Instruments, Inc. 81,800 2,423,325
------------
MEDICAL & MEDICAL SERVICES -- 0.7%
North American Biology, Inc. 180,000 1,575,000
------------
METALS & MINING -- 2.0%
Mueller Industries, Inc. 65,000** 2,169,375
Wolverine Tube, Inc. 100,000** 2,500,000
------------
4,669,375
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
PAPER & FOREST PRODUCTS -- 3.2%
Caraustar Industries, Inc. 159,000 $ 2,703,000
Chesapeake Corp. 85,100 2,723,200
CSS Industries, Inc. 100,800** 1,789,200
------------
7,215,400
------------
RETAIL MERCHANDISING -- 9.8%
Bombay Company, Inc. 231,000** 2,107,874
Bradlees, Inc. 94,600 1,052,425
Fingerhut Companies, Inc. 148,700 1,765,813
Fred's, Inc. 164,500 1,603,875
J. Baker, Inc. 136,200 2,077,050
Lillian Vernon Corp. 87,600 1,806,750
Little Switzerland, Inc. 125,300** 626,500
Nine West Group, Inc. 86,000** 2,537,000
Roberds, Inc. 114,800** 1,119,300
Stanley Furniture Co., Inc. 155,900** 1,110,788
Stop & Shop Companies, Inc. 55,600** 1,334,400
Value City Department Stores,
Inc. 139,600** 1,134,250
Vons Companies Inc. 114,000** 2,208,750
Waban, Inc. 90,000** 1,777,500
------------
22,262,275
------------
STEEL -- 1.4%
Rouge Steel Co. 110,000 2,695,000
Steel of West Virginia, Inc. 38,300** 445,238
------------
3,140,238
------------
TOBACCO -- 1.0%
Universal Corp. 105,300 2,198,138
------------
TRAVEL & RECREATION -- 2.5%
Cinergi Pictures
Entertainment, Inc. 96,600** 893,550
King World Productions, Inc. 62,700** 2,468,813
Royal Caribbean Cruises LTD. 86,400 2,257,200
------------
5,619,563
------------
TRUCKING & FREIGHT -- 0.4%
Arkansas Best Corp. 70,000 743,750
Arrow Transportation Co. 41,900** 146,650
------------
890,400
------------
WASTE MANAGEMENT -- 0.3%
Dames & Moore, Inc. 64,800 777,600
------------
TOTAL COMMON STOCKS
(Cost $189,619,784) 212,430,650
------------
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 2.6%
U.S. TREASURY BILLS
5.707% 04/06/95 $ 6,000 $ 5,995,317
(Cost $5,995,317) ------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 4.2%
Smith Barney Money Market
Fund
(Cost $9,452,504) 9,452,504 9,452,504
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $205,067,605*) 100.4% 227,878,471
------ ------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (.4%) (845,979)
------ ------------
NET ASSETS (Applicable to
12,121,979 Institutional
shares, 3,681,922 Service
shares, 1,431,522 Series A
Investor shares and 66,812
Series B Investor shares
outstanding) 100.0% $227,032,492
====== ============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE
AND SERVICE SHARE
($207,393,746 / 15,803,901) $13.12
======
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A
INVESTOR SHARE
($18,765,098 / 1,431,522) $13.11
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($13.11 / .955) $13.73
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE (SUBJECT
TO CONTINGENT DEFERRED SALES
CHARGE) PER SERIES B INVESTOR
SHARE
($873,648 / 66,812) $13.08
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 37,661,754
Gross unrealized depreciation (14,850,888)
------------
$ 22,810,866
============
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
25
<PAGE> 26
THE PNC(R) FUND
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS -- 93.7%
ARGENTINA -- 0.3%
Cia Interamericana de
Automovil 256,607 $ 1,321,529
------------
AUSTRALIA -- 1.4%
Australia & New Zealand
Banking Group 695,000 2,448,711
Broken Hill Proprietary Co. 223,000 2,920,653
------------
5,369,364
------------
BELGIUM -- 0.5%
KredietBank NV 8,621 1,922,472
------------
FRANCE -- 11.3%
Alcatel Cable 52,000 3,755,526
Banq National de Paris 62,900 3,191,668
BP France 34,000** 917,298
Cetelem Group 21,000 4,545,605
Ecco SA 30,375 4,009,235
L'Oreal 19,000 5,031,441
Lafarge-Coppee SA 23,000 1,738,425
Marine Wendel 1,890 141,206
PSA Peugeot Citroen 30,600** 4,292,954
Roussel Uclaf 33,725 5,004,332
Societe Nationale Elf
Aquitaine 59,800 4,668,831
Television Francaise 50,200 4,500,654
UAF 28,850 2,993,670
------------
44,790,845
------------
GERMANY -- 5.1%
Deutsche Bank AG 8,250 3,881,968
Gea AG Non Voting PFD 13,225 4,325,578
Henkel KGAA Non Voting PFD 10,000 3,722,022
Spar Handels AG Non Voting
PFD 23,700 5,835,162
Strabag Bau AG 7,825 2,316,426
------------
20,081,156
------------
HONG KONG -- 7.6%
Cathay Pacific Airways Ltd. 843,000 1,302,928
Cheung Kong 1,118,000 4,873,003
Citic Pacific 1,384,000 3,418,963
HSBC Holdings PLC 489,750 5,526,687
Hutchison Whampoa 1,388,000 6,121,655
South China Morning Post 6,990,000 3,910,104
Sun Hung Kai Properties 710,000 4,844,019
------------
29,997,359
------------
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
ITALY -- 1.7%
Rinascente 682,000 $ 3,370,237
Telecom Italia SPA 1,460,000 3,377,719
------------
6,747,956
------------
JAPAN -- 31.4%
Amada Co. Ltd. 319,000 3,382,832
Daiwa House Industry 255,000 4,169,257
East Japan Railway Co. 760 3,719,056
Fukuda Corp. 154,000 1,622,453
Hitachi Ltd. 379,000 3,927,461
Horiba 227,000 3,031,894
Ito-Yokado Co. Ltd. 71,000 3,515,256
Joyo Bank 410,000 3,498,100
Kamigumi 360,000 3,461,140
Keyence Corp. 32,000 3,363,961
Kinden Corp. 225,500 4,647,611
Makita Corp. 129,000 1,901,209
Marui Co. Ltd. 219,000 3,454,577
Matsushita Electric
Industrial Co. 243,000 3,917,098
Mitsubishi Chemical Corp. 800,200 4,413,308
Mitsubishi Heavy Industries
Ltd. 498,000 3,572,297
Mitsubishi Materials Corp. 685,000 3,312,608
Mitsubishi Motors 587,000 5,346,195
Mos Food Services 117,700 3,374,473
Nintendo Corp. Ltd. 68,000 4,141,854
Nippon Sanso 80,000 396,085
Nissan Motor Co. Ltd. 1,000 7,622
Ricoh Co. 397,000 3,720,875
Rinnai Corp. 101,700 2,541,036
Sankyo Co. Ltd. 255,200 5,876,799
Sanyo Shinpan Finance Co. 41,000 3,219,574
Shizouka Bank 269,000 3,252,159
Sumitomo Marine & Fire
Insurance Co. 471,000 4,007,703
Suzuki Motor Co. Ltd. 386,000 4,128,889
TDK Corp. 82,000 3,823,834
Teijin Ltd. 664,000 3,516,868
Toda Construction Co. 416,000 4,258,192
Tokio Marine & Fire
Insurance Co. 343,000 3,890,098
Tokushu Paper Mfg. Co. Ltd. 303,500 3,145,078
Yamato Kogyo Co. Ltd. 346,000 3,581,508
Yamazaki Baking Co. Ltd. 182,000 3,457,686
------------
124,596,646
------------
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 27
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MALAYSIA -- 4.9%
Edaran Otomobil
Nasional BHD 697,000 $ 5,096,640
Magnum Corp. BHD 2,736,000 5,212,458
Malaysian International
Shipping Corp. Ltd
(Foreign) 1,621,000 4,677,194
Public Bank BHD 670,100 1,170,689
The New Straits Times Press
BHD 1,203,000 3,257,134
------------
19,414,115
------------
NETHERLANDS -- 5.1%
Getronics NV 163,716 6,495,828
Grolsch NV 135,000 4,633,548
Hollandsche Beton Groep NV 27,500 4,364,516
Koninklijke Ahold NV 135,000 4,633,548
------------
20,127,440
------------
NEW ZEALAND -- 1.0%
Air New Zealand 'B' Ltd 1,188,000 4,037,062
------------
PORTUGAL -- 0.7%
Espirito Santo Financial
Holdings SA -ADR 283,350 2,939,756
------------
SINGAPORE -- 0.7%
Natsteel Ltd. 1,350,000 2,822,466
United Overseas Bank
(Foreign) 1,990 19,745
------------
2,842,211
------------
SPAIN -- 2.7%
Corporacion Mapfre Cia
Internacional 73,675 2,943,537
Repsol SA ADR 120,000 3,480,000
Sevillana de Electricidad 404,800 1,820,252
Telefonica de Espana ADR 69,000 2,587,500
------------
10,831,289
------------
SWEDEN -- 3.5%
Atlas Copco AB 'B' Free 443,000 5,344,657
Svenska Cellulosa AB 'B'
Free 226,000 3,584,432
Svenska Kullagerfabriken AB
'B' Free 304,000 5,068,796
------------
13,997,885
------------
Hero AG Bearer 5,900 3,250,111
Merkur Holding AG Regd 12,380 3,508,858
Sandoz AG SF20 Regd 7,105 4,608,307
Schweizerischer Bankverein
Bearer 12,700 4,208,885
------------
15,576,161
------------
TAIWAN -- 0.0%
President Enterprises GDR 69** 1,346
------------
UNITED KINGDOM -- 11.9%
Albert Fisher 7,140,000 4,745,315
Bass PLC 392,000 3,488,522
Bat Industries 402,901 2,867,120
British Gas 635,000 2,949,045
British Gas PLC ADR 6,900 322,575
Cable & Wireless PLC 590,000 3,710,793
General Electric PLC 828,000 3,972,876
Hanson PLC 1,000,307 3,761,875
Laporte PLC 269,000 2,952,052
Powerscreen International 1,020,500 4,135,576
Prudential Corp. PLC 535,000 2,688,429
Scapa Group 645,000 2,164,278
Sedgwick Group 685,000 1,665,578
Smithkline Beecham ADR 110,000 4,125,000
Tomkins PLC 1,050,000 3,999,818
------------
47,548,852
------------
TOTAL COMMON STOCKS
(Cost $361,603,879) 372,143,444
------------
WARRANTS -- 0.0%
Ciba-Geigy AG Warrants
06/06/95
(Cost $1,096) 400** 569
------------
<CAPTION>
CURRENCY U.S. DOLLAR
VALUE VALUE
---------- ------------
<S> <C> <C>
INVESTMENTS IN CURRENCY -- 4.8%
Australia (Dollar) 45,471 33,307
Belgium (Franc) 1,542,260 54,161
France (Franc) 2,031,263 421,555
Germany (Deutsche Mark) 4,924,857 3,555,853
Hong Kong (Dollar) 8,659,816 1,120,040
Italy (Lira) 60,218,171 35,092
Japan (Yen) 62,883,936 724,052
Malaysia (Ringgit) 1,526,044 603,179
Netherlands (Guilder) 330,331 213,116
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 28
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY U.S. DOLLAR
VALUE VALUE
---------- ------------
<S> <C> <C>
INVESTMENTS IN CURRENCY (CONTINUED)
New Zealand (Dollar) 6,387,579 $ 4,174,283
Norway (Krone) 1 0
Singapore (Dollar) 439,534 311,505
Spain (Peseta) 88,116,753 1,473,692
Sweden (Krona) 158,707 21,514
Switzerland (Franc) 7,184,753 6,383,613
United Kingdom (Sterling) 25,814 41,845
------------
TOTAL INVESTMENTS IN CURRENCY
(Cost $18,944,008) 19,166,807
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $380,548,983*) 98.5% 391,310,820
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.5% 5,954,881
---- ------------
NET ASSETS (Applicable to
23,866,225 Institutional
shares, 6,779,447 Service
shares, 1,268,582 Series A
Investor shares and 65,120
Series B Investor shares
outstanding) 100.0% $397,265,701
====== ============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE
($296,726,858 / 23,866,225) $12.43
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER SERVICE SHARE
($84,040,736 / 6,779,447) $12.40
======
<CAPTION>
VALUE
------------
<S> <C> <C>
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A INVESTOR
SHARE
($15,694,661 / 1,268,582) $12.37
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($12.37 / .955) $12.95
======
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE (SUBJECT TO CONTINGENT
DEFERRED SALES CHARGE) PER
SERIES B INVESTOR SHARE
($803,446 / 65,120) $12.34
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 26,410,012
Gross unrealized depreciation (15,648,175)
------------
$ 10,761,837
=============
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
28
<PAGE> 29
THE PNC(R) FUND
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 17.3%
FEDERAL HOME LOAN BANK
DISCOUNT NOTES
6.25% 04/03/95 $ 3,110 $ 3,108,920
(Cost $3,108,920) -----------
<CAPTION>
NUMBER
OF SHARES
----------
<S> <C> <C>
COMMON STOCKS -- 85.9%
ARGENTINA -- 10.0%
Banco Frances del Rio Plata 41,850 252,355
Central Costanera SA -- B 111,000 327,450
CIA Interamericana de
Automovil 68,500 352,775
CIA Naviera Perez Companc SA 96,996 360,825
Transportadora de Gas del Sur
SA ADR 52,200 502,425
-----------
1,795,830
-----------
BRAZIL -- 2.0%
Iochpe Maxion SA ADR 5,000 60,500
Iochpe Maxion SA Preferred 600,000 290,323
-----------
350,823
-----------
CHILE -- 5.2%
Antofagasta Holding 80,000 389,040
Compania de Telefonos de Chile
ADR 6,000 400,500
Embotelladora Andina SA ADR 5,200 136,500
-----------
926,040
-----------
CHINA -- 3.3%
Hua Xin Cement Co.
Ltd -- B 1,300,000 330,200
Shandong Huaneng
Power ADR 31,500 283,500
-----------
613,700
-----------
HONG KONG -- 6.7%
Citic Pacific 121,000 298,912
Guangzhou Shipyard
International Co. 750,000 356,487
Qingling Automobiles Co. 900,000 195,559
Shanghai Haixing Shipping
Co. Ltd. 1,832,000 345,942
-----------
1,196,900
-----------
HUNGARY -- 2.1%
Egis Gyogyszergyar 8,400 153,867
Pannonplast Muanyagipari Rt 17,008 152,887
Pick Szeged Szalamigyar Es
Husuzem Rt 1,457 73,208
-----------
379,962
-----------
INDONESIA -- 6.4%
PT Sinar Mas Agro Resources
Agricultural Production and 360,000 390,255
PT Suparma 487,000 299,341
Shiriram Industrial
Enterprises, Ltd. GDR (Reg.
144A) 57,000 448,875
Shiriram Industrial
Enterprises, Ltd. Warrants
(Reg. 144A) 14,000 5,250
-----------
1,143,721
-----------
ISRAEL -- 1.0%
PEC Israel Economic
Corp. ADR 6,700 175,875
-----------
JAPAN -- 2.0%
Samsung Electronics GDR 8,100 360,450
-----------
KOREA -- 5.4%
Hansol Paper GDR 12,331 286,688
Hyundai Motor Co.
Ltd. GDR 17,000 331,500
Korea Electric Power Corp. 10,000 348,446
-----------
966,634
-----------
MALAYSIA -- 13.6%
Bangkok Steel Industry Co. 193,200 257,417
Edaran Otomobil Nasional
Berhard 50,000 365,613
Kian Joo Can Factory Berhard 100,000 365,613
Magnum Corp. Berhard 145,000 276,245
Malaysian International
Shipping Corp. 38,666 97,810
Malaysian International Ship-
ping Corp. (Foreign Shares) 84,000 242,372
NYLEX (Malaysia) Berhard 155,000 367,589
Public Bank 100,000 174,704
The New Straits Times Press 111,000 300,534
-----------
2,447,897
-----------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 30
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MEXICO -- 8.0%
Cementos de Mexico SA -- CPO 54,000 $ 111,195
Cementos de Mexico SA -- CPO
ADR 48,800 202,032
Empaques Ponderosa SA -- B 1,806 2,917
Fomento Economico Mexicano
SA -- B 95,400 160,599
Fotoluz Corporacion SA -- B 250,000 103,550
Grupo Financiero Banamex
Accival -- C 133,700 154,269
Grupo Financiero Banorte -- B 60,000 57,692
Grupo Tribasa SA ADR 3,800 21,850
Telfonos de Mexico -- Class L
ADR 11,000 313,500
Vitro Sociedad Anonima ADR 36,000 310,500
-----------
1,438,104
-----------
PORTUGAL -- 1.5%
Espirito Santo Financial
Holdings ADR 26,200 271,825
-----------
TAIWAN -- 2.8%
China Steel GDR 10,000 207,500
Taiwan Fund, Inc. 14,000 295,750
-----------
503,250
-----------
THAILAND -- 9.2%
Bangkok Bank 35,500 314,849
Bumrungrad Hospital 105,000 226,404
Post Publishing Co., Ltd. 63,000 281,937
Thai Modern Plastic Industry 128,000 460,862
Thai Stanley Electric
Co., Ltd. 90,000 366,151
-----------
1,650,203
-----------
TURKEY -- 3.1%
Aksigorta A.S. 1,500,000 393,795
Cukurova Elektrik A.S. 632,000 154,606
-----------
548,401
-----------
UNITED KINGDOM -- 3.6%
Central European Growth Fund
PLC 1,115,000 641,632
-----------
TOTAL COMMON STOCKS
(Cost $18,344,865) 15,411,247
-----------
CONVERTIBLE BONDS -- 2.9%
Far Eastern Department Stores
3.00% 07/06/01 200 $ 200,000
Yang Ming Marine Transport, Inc.
2.00% 10/06/99 290 313,200
-----------
TOTAL CONVERTIBLE BONDS
(Cost $494,958) 513,200
-----------
TOTAL INVESTMENT IN SECURITIES
(Cost $21,948,743*) 106.1% 19,033,367
LIABILITIES IN EXCESS OF
OTHER ASSETS (Including
$1,311,377 of investment
purchases payable) (6.1%) (1,099,997)
------ -----------
NET ASSETS(Applicable to
1,152,529 Institutional
shares, 803,215 Service shares
and 314,145 Series A Investor
shares outstanding) 100.0% $17,933,370
====== ===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($9,117,124 / 1,152,529) $7.91
=====
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($6,341,606 / 803,215) $7.90
=====
NET ASSET VALUE AND
REDEMPTION PRICE PER SERIES A
INVESTOR SHARE
($2,474,640 / 314,145) $7.88
=====
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($7.88 / .955) $8.25
=====
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 397,361
Gross unrealized depreciation (3,312,737)
-----------
$(2,915,376)
===========
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 31
THE PNC(R) FUND
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 17.7%
FEDERAL FARM CREDIT BANK
BONDS -- 1.2%
6.70% 09/09/97 $ 2,000 $ 1,977,460
------------
FEDERAL HOME LOAN BANK
BONDS -- 0.9%
8.46% 12/20/99 1,500 1,517,220
------------
FEDERAL HOME LOAN BANK
DISCOUNT NOTES -- 7.6%
6.25% 04/03/95 12,335 12,330,717
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 1.6%
8.53% 02/02/05 2,500 2,590,275
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 1.8%
8.25% 10/25/96 750 756,996
8.00% 02/25/02 1,240 1,248,830
6.40% 03/25/03 1,000 924,660
------------
2,930,486
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 3.5%
8.00% 12/15/06 2,840 2,815,057
7.50% 06/15/07 2,906 2,808,976
------------
5,624,033
------------
TENNESSEE VALLEY AUTHORITY -- 1.1%
6.125% 07/15/03 2,000 1,820,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $28,962,358) 28,790,191
------------
ASSET BACKED SECURITIES -- 1.2%
Merrill Lynch Asset Backed Corp.
5.50% 07/15/95 715 708,121
Nissan Auto Receivables
Grantor Trust
6.45% 03/15/96 1,201 1,193,005
------------
TOTAL ASSET BACKED SECURITIES
(Cost $1,911,091) 1,901,126
------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS -- 60.5%
AEROSPACE -- 2.4%
Boeing Co. 40,100 $ 2,160,387
United Technologies Corp. 24,500 1,693,563
------------
3,853,950
------------
APPAREL -- 0.8%
Cintas Corp. 34,200 1,282,500
------------
AUTOMOTIVE -- 1.8%
Chrysler Corp. 18,500 774,687
Ford Motor Co. 39,000 1,053,000
General Motors Corp. 23,500 1,039,875
------------
2,867,562
------------
BANKS -- 3.4%
Comerica, Inc. 45,800 1,259,500
First Chicago Corp. 26,600 1,333,325
Meridian Bancorp, Inc. 44,000 1,347,500
NationsBank Corp. 30,200 1,532,650
------------
5,472,975
------------
BEVERAGES -- 0.9%
Coca-Cola Co. 24,500 1,384,250
------------
CHEMICALS -- 4.8%
Dow Chemical Co. 27,900 2,036,700
E.I. Dupont de Nemours & Co. 32,900 1,990,450
I.M.C. Global, Inc. 26,000 1,270,750
Lubrizol Corp. 36,500 1,286,625
Monsanto Co. 15,800 1,267,950
------------
7,852,475
------------
COMPUTER & OFFICE EQUIPMENT -- 3.3%
Compaq Computer Corp. 25,400 876,300
Intel Corp. 22,000 1,867,250
Pitney Bowes, Inc. 26,100 939,600
Xerox Corp. 13,800 1,619,775
------------
5,302,925
------------
COMPUTER SOFTWARE & SERVICES -- 4.1%
Computer Sciences Corp. 29,300** 1,446,687
First Data Corp. 19,500 1,011,563
Microsoft Corp. 18,600** 1,322,925
Stratus Computer, Inc. 41,300** 1,290,625
Sun Microsystems, Inc. 44,000** 1,529,000
------------
6,600,800
------------
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 32
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONSTRUCTION -- 1.4%
Fluor Corp. 27,500 $ 1,326,875
Foster Wheeler Corp. 30,300 1,026,412
------------
2,353,287
------------
ELECTRONICS -- 4.5%
A.M.P. Inc. 27,000 972,000
Emerson Electric Co. 21,400 1,423,100
General Electric Co. 43,100 2,332,787
General Instruments Corp. 34,500** 1,198,875
Motorola, Inc. 25,000 1,365,625
------------
7,292,387
------------
ENERGY & UTILITIES -- 1.6%
Entergy Corp. 49,800 1,039,575
PECO Energy Co. 64,300 1,615,538
------------
2,655,113
------------
FINANCE -- 1.8%
Dean Witter Discover & Co. 44,300 1,805,225
Federal National Mortgage
Association 13,800 1,122,975
------------
2,928,200
------------
FOOD & AGRICULTURE -- 0.5%
H.J. Heinz Co. 19,600 754,600
------------
INSURANCE -- 3.2%
American International Group,
Inc. 22,450 2,340,412
Chubb Corp. 15,700 1,240,300
General Re Corp. 11,700 1,544,400
------------
5,125,112
------------
MANUFACTURING -- 1.3%
Allied-Signal, Inc. 20,400 800,700
Minnesota Mining &
Manufacturing Co. 23,300 1,354,313
------------
2,155,013
------------
MEDICAL INSTRUMENTS & SUPPLIES -- 1.0%
Beckman Instruments, Inc. 52,500 1,555,312
------------
METALS & MINING -- 0.8%
Phelps Dodge Corp. 21,600 1,228,500
------------
OIL DOMESTIC -- 1.6%
Tenneco, Inc. 28,600 1,347,775
Unocal Corp. 43,000 1,236,250
------------
2,584,025
------------
OIL INTERNATIONAL -- 5.4%
Amoco Corp. 32,300 2,055,087
Chevron Corp. 19,800 950,400
Elf Aquitaine ADR 39,500 1,530,625
Exxon Corp. 18,100 1,208,175
Mobil Corp. 12,700 1,176,337
Royal Dutch Petroleum Co. 15,800 1,896,000
------------
8,816,624
------------
PAPER & FOREST PRODUCTS -- 2.2%
International Paper Co. 20,500 1,540,063
Scott Paper Co. 23,100 2,064,563
------------
3,604,626
------------
PHARMACEUTICAL PREPARATIONS -- 4.9%
American Home Products Corp. 29,300 2,087,625
Bristol-Myers Squibb Co. 18,500 1,165,500
Eli Lilly & Co. 25,400 1,857,375
Johnson & Johnson 19,800 1,178,100
Merck & Co., Inc. 38,600 1,645,325
------------
7,933,925
------------
RAILROADS & SHIPPING -- 1.2%
Conrail Corp. 17,700 993,412
Norfolk Southern Corp. 15,700 1,049,938
------------
2,043,350
------------
RETAIL MERCHANDISING -- 3.1%
J.C. Penney Co., Inc. 27,400 1,229,575
K Mart Corp. 95,000 1,306,250
Sears Roebuck & Co. 23,600 1,259,650
Wal-Mart Stores, Inc. 48,000 1,224,000
------------
5,019,475
------------
TELECOMMUNICATIONS -- 2.4%
AT&T Corp. 34,100 1,764,675
NYNEX Corp. 28,100 1,113,463
SBC Communications, Inc. 25,400 1,069,975
------------
3,948,113
------------
TOBACCO PRODUCTS -- 0.7%
UST, Inc. 36,100 1,146,175
------------
TRAVEL & RECREATION -- 1.4%
La Quinta Motor Inns, Inc. 34,500 935,813
Walt Disney Co. 25,200 1,345,050
------------
2,280,863
------------
TOTAL COMMON STOCKS
(Cost $89,153,193) 98,042,137
------------
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 33
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 8.1%
BANKS -- 1.2%
NationsBank Corp.
7.50% 02/15/97 $ 2,000 $ 2,010,000
------------
CONGLOMERATES -- 1.3%
ITT Corp.
10.125% 04/05/99 2,000 2,155,000
------------
ENERGY & UTILITIES -- 1.9%
Idaho Power Co.
8.75% 03/15/27 3,000 3,060,000
------------
PAPER & FOREST PRODUCTS -- 0.6%
Weyerhaeuser Co.
7.25% 07/01/13 1,000 926,250
------------
PHARMACEUTICAL PREPARATIONS -- 1.6%
American Home Products Corp.
7.70% 02/15/00 2,500 2,521,875
------------
TRUCKING & FREIGHT -- 1.5%
Ryder Systems, Inc.
7.55% 09/15/99 2,500 2,496,875
------------
TOTAL CORPORATE BONDS
(Cost $13,190,641) 13,170,000
------------
MEDIUM TERM NOTES -- 1.5%
FINANCE
General Motors Acceptance Corp.
8.625% 06/15/99 2,400 2,469,000
------------
(Cost $2,478,737)
U.S. TREASURY OBLIGATIONS -- 10.9%
U.S. TREASURY BONDS -- 1.6%
8.125% 08/15/19 2,500 2,650,025
------------
U.S. TREASURY NOTES -- 9.3%
7.625% 05/31/96 500 505,845
5.125% 03/31/98 1,000 952,440
8.25% 07/15/98 2,500 2,593,525
7.125% 09/30/99 5,000 5,012,250
7.25% 08/15/04 6,000 6,007,259
------------
15,071,319
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $17,540,426) 17,721,344
------------
<CAPTION>
VALUE
------------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $153,236,446*) 99.9% $162,093,798
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 154,975
----- ------------
NET ASSETS (Applicable to
1,826,709 Institutional shares,
6,101,013 Service shares,
5,074,659 Series A Investor
shares, and 145,053 Series B
Investor shares outstanding). 100.0% $162,248,773
===== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL AND SERVICE SHARE
($97,832,065 / 7,927,722) $12.34
======
NET ASSET VALUE AND REDEMPTION
PRICE PER SERIES A INVESTOR
SHARE
($62,628,492 / 5,074,659) $12.34
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($12.34 / .955) $12.92
======
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE (SUBJECT
TO CONTINGENT DEFERRED SALES
CHARGE) PER SERIES B INVESTOR
SHARE
($1,788,216 / 145,053) $12.33
======
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis
is as follows:
</TABLE>
<TABLE>
<S> <C>
Gross unrealized appreciation $10,926,093
Gross unrealized depreciation (2,068,741)
-----------
$ 8,857,352
===========
</TABLE>
** Non-income producing security.
See accompanying notes to financial statements.
33
<PAGE> 34
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SMALL CAP
VALUE GROWTH GROWTH CORE
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest............................................ $ 287,963 $ 586,644 $ 472,519 $ 559,298
Dividends........................................... 10,499,938 1,207,746 80,651 1,413,564
----------- ----------- ----------- -----------
Total investment income........................... 10,787,901 1,794,390 553,170 1,972,862
----------- ----------- ----------- -----------
Expenses:
Investment advisory fee............................. 1,759,164 469,375 289,259 341,607
Administration fee.................................. 625,594 170,682 105,185 124,221
Custodian fee....................................... 54,399 23,033 23,150 19,632
Transfer agent fee.................................. 14,714 12,282 12,001 11,878
Service fees........................................ 137,771 51,412 31,520 65,891
Distribution fees................................... 22,847 12,125 4,524 2,256
Legal and audit..................................... 33,374 8,497 5,123 6,091
Printing............................................ 21,667 10,008 3,326 3,958
Registration fees and expenses...................... 12,465 17,106 15,944 14,000
Organization........................................ 7,666 38 2,204 2,199
Trustees' fees and officer's salary................. 5,320 1,326 802 949
Other............................................... 10,481 8,462 2,895 3,162
----------- ----------- ----------- -----------
2,705,462 784,346 495,933 595,844
Less fees voluntarily waived........................ (465,831) (166,241) (75,964) (123,980)
----------- ----------- ----------- -----------
Total expenses.................................... 2,239,631 618,105 419,969 471,864
----------- ----------- ----------- -----------
Net investment income................................. 8,548,270 1,176,285 133,201 1,500,998
----------- ----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment
transactions...................................... 15,118,074 1,227,325 (1,407,028) (411,306)
Change in unrealized appreciation
of investments.................................... 24,669,433 13,986,348 16,205,644 10,164,849
----------- ----------- ----------- -----------
Net gain on investments............................. 39,787,507 15,213,673 14,798,616 9,753,543
----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations................................... $48,335,777 $16,389,958 $14,931,817 $11,254,541
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 35
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
INDEX SMALL CAP INTERNATIONAL
EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -------------
<S> <C> <C> <C>
Investment Income:
Interest........................................................ $ 507,256 $ 301,601 $ 343,443
Dividends....................................................... 2,312,036 1,072,454 2,913,648
Foreign taxes withheld.......................................... -- -- (295,693)
----------- ----------- -------------
Total investment income....................................... 2,819,292 1,374,055 2,961,398
----------- ----------- -------------
Expenses:
Investment advisory fee......................................... 180,359 603,856 1,393,899
Administration fee.............................................. 180,359 219,584 371,706
Custodian fee................................................... 25,647 24,080 241,609
Transfer agent fee.............................................. 12,029 16,292 15,453
Service fees.................................................... 37,477 56,971 97,478
Distribution fees............................................... 5,896 37,738 31,974
Legal and audit................................................. 9,138 11,388 20,344
Printing........................................................ 5,939 7,400 15,230
Registration fees and expenses.................................. 12,465 13,557 14,500
Organization.................................................... 4,428 2,126 1,289
Trustees' fees and officer's salary............................. 1,445 1,810 3,789
Other........................................................... 27,435 5,614 34,589
----------- ----------- -------------
502,617 1,000,416 2,241,860
Less fees voluntarily waived...................................... (323,974) (104,226) (346,795)
----------- ----------- -------------
Total expenses.................................................. 178,643 896,190 1,895,065
----------- ----------- -------------
Net investment income............................................. 2,640,649 477,865 1,066,333
----------- ----------- -------------
Realized and unrealized gain (loss) on investments and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions....................................... 1,338,666 5,067,600 4,749,359
Futures contracts............................................. 1,016,184 -- --
Foreign currency related transactions......................... -- -- 495,653
----------- ----------- -------------
2,354,850 5,067,600 5,245,012
----------- ----------- -------------
Change in unrealized appreciation (depreciation) from:
Investments..................................................... 11,250,960 (3,006,027) (17,740,992)
Futures contracts............................................... 781,600 -- --
Foreign currency related transactions........................... -- -- (6,149,678)
----------- ----------- -------------
12,032,560 (3,006,027) (23,890,670)
----------- ----------- -------------
Net gain (loss) on investments and foreign currency
transactions.................................................... 14,387,410 2,061,573 (18,645,658)
----------- ----------- -------------
Net increase (decrease) in net assets resulting from operations... $17,028,059 $ 2,539,438 $ (17,579,325)
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 36
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
INTERNATIONAL
EMERGING
MARKETS BALANCED
PORTFOLIO PORTFOLIO
----------- -----------
<S> <C> <C>
Investment income:
Interest................................................................... $ 49,956 $ 2,299,628
Dividends.................................................................. 148,312 1,126,053
Foreign taxes withheld..................................................... (3,204) --
----------- -----------
Total investment income.................................................. 195,064 3,425,681
----------- -----------
Expenses:
Investment advisory fee.................................................... 74,804 409,649
Administration fee......................................................... 11,968 148,963
Custodian fee.............................................................. 22,754 21,533
Transfer agent fee......................................................... 12,988 39,458
Service fees............................................................... 6,155 84,823
Distribution fees.......................................................... 5,368 127,340
Legal and audit............................................................ 553 7,343
Printing................................................................... 359 4,868
Registration fees and expenses............................................. 13,466 13,211
Organization............................................................... 4,777 5,171
Trustees' fees and officer's salary........................................ 86 1,193
Other...................................................................... 2,645 4,071
----------- -----------
155,923 867,623
Less fees voluntarily waived............................................... (39,675) (171,330)
----------- -----------
Total expenses........................................................... 116,248 696,293
----------- -----------
Net investment income........................................................ 78,816 2,729,388
----------- -----------
Realized and unrealized gain (loss) on investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions.................................................. 219,999 (5,399,745)
Foreign currency related transactions.................................... (22,985) --
----------- -----------
197,014 (5,399,745)
----------- -----------
Change in unrealized appreciation (depreciation) from:
Investments.............................................................. (3,206,861) 11,766,008
Foreign currency related transactions.................................... (3,638) --
----------- -----------
(3,210,499) 11,766,008
----------- -----------
Net gain (loss) on investments and foreign currency transactions........... (3,013,485) 6,366,263
----------- -----------
Net increase (decrease) in net assets resulting from operations............ $(2,934,669) $ 9,095,651
========== ==========
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 37
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL CAP GROWTH
VALUE EQUITY PORTFOLIO GROWTH EQUITY PORTFOLIO EQUITY PORTFOLIO
-------------------------- -------------------------- -------------------------
FOR THE FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED YEAR ENDED YEAR
3/31/95 ENDED 3/31/95 ENDED 3/31/95 ENDED
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income................... $ 8,548,270 $ 13,916,548 $ 1,176,285 $ 687,322 $ 133,201 $ 148,211
Net gain (loss) on investments.......... 39,787,507 7,078,395 15,213,673 (12,967,582) 14,798,616 2,067,164
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations............. 48,335,777 20,994,943 16,389,958 (12,280,260) 14,931,817 2,215,375
------------ ------------ ------------ ------------ ------------ -----------
Distributions to shareholders from
Net investment income
Institutional Shares.................. (7,303,195) (12,376,684) (853,402) (62,388) (134,031) (10,677)
Service Shares........................ (1,498,601) (1,666,353) (245,262) (1,583) (1,124) (2,037)
Series A Investor Shares.............. (146,586) (170,702) (28,067) -- -- (29)
------------ ------------ ------------ ------------ ------------ -----------
Total distributions from net
investment income............... (8,948,382) (14,213,739) (1,126,731) (63,971) (135,155) (12,743)
------------ ------------ ------------ ------------ ------------ -----------
Net realized gains
Institutional Shares.................. (11,450,041) (8,108,233) -- (831,835) -- --
Service Shares........................ (2,299,900) (850,677) -- (158,279) -- --
Series A Investor Shares.............. (248,638) (106,250) -- (28,957) -- --
------------ ------------ ------------ ------------ ------------ -----------
Total distributions from net
realized gains.................. (13,998,579) (9,065,160) -- (1,019,071) -- --
------------ ------------ ------------ ------------ ------------ -----------
Total distributions to
shareholders.................... (22,946,961) (23,278,899) (1,126,731) (1,083,042) (135,155) (12,743)
------------ ------------ ------------ ------------ ------------ -----------
Capital share transactions................ (82,943,625) 234,949,582 68,637,240 41,981,179 26,957,090 75,416,557
------------ ------------ ------------ ------------ ------------ -----------
Total increase (decrease)
in net assets................... (57,554,809) 232,665,626 83,900,467 28,617,877 41,753,752 77,619,189
Net assets:
Beginning of period..................... 693,442,703 460,777,077 139,635,183 111,017,306 89,880,900 12,261,711
------------ ------------ ------------ ------------ ------------ -----------
End of period........................... $635,887,894 $693,442,703 $223,535,650 $139,635,183 $131,634,652 $89,880,900
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 38
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
SMALL CAP VALUE
CORE EQUITY PORTFOLIO INDEX EQUITY PORTFOLIO EQUITY PORTFOLIO
-------------------------- --------------------------- ---------------------------
FOR THE FOR THE FOR THE
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE ENDED FOR THE
3/31/95 YEAR ENDED 3/31/95 YEAR ENDED 3/31/95 YEAR ENDED
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94
------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income............. $ 1,500,998 $ 1,557,592 $ 2,640,649 $ 5,453,203 $ 477,865 $ 425,335
Net gain (loss) on investments.... 9,753,543 (345,348) 14,387,410 (379,721) 2,061,573 10,798,567
------------ ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations...................... 11,254,541 1,212,244 17,028,059 5,073,482 2,539,438 11,223,902
------------ ----------- ------------ ------------ ------------ ------------
Distributions to shareholders from
Net investment income
Institutional Shares............ (935,598) (1,101,493) (2,325,215) (5,019,786) (497,228) (193,009)
Service Shares.................. (543,028) (541,575) (451,354) (575,649) (35,815) (18,404)
Series A Investor Shares........ (11,349) (5,097) (44,404) (52,872) -- (2,894)
Series B Investor Shares........ -- -- -- -- -- --
------------ ----------- ------------ ------------ ------------ ------------
Total distributions from net
investment income......... (1,489,975) (1,648,165) (2,820,973) (5,648,307) (533,043) (214,307)
------------ ----------- ------------ ------------ ------------ ------------
Net realized gains
Institutional Shares............ (722,978) -- (1,653,604) (1,828,819) (7,036,364) (2,608,236)
Service Shares.................. (611,965) -- (329,586) (163,449) (2,075,543) (541,286)
Series A Investor Shares........ (10,239) -- (31,480) (15,147) (823,691) (206,728)
Series B Investor Shares........ -- -- -- -- (23,641) --
------------ ----------- ------------ ------------ ------------ ------------
Total distributions from net
realized gains............ (1,345,182) -- (2,014,670) (2,007,415) (9,959,239) (3,356,250)
------------ ----------- ------------ ------------ ------------ ------------
Total distributions to
shareholders.............. (2,835,157) (1,648,165) (4,835,643) (7,655,722) (10,492,282) (3,570,557)
------------ ----------- ------------ ------------ ------------ ------------
Capital share transactions.......... 61,805,093 28,481,078 22,269,197 (19,530,455) 4,370,290 63,383,683
------------ ----------- ------------ ------------ ------------ ------------
Total increase (decrease)
in net assets............. 70,224,477 28,045,157 34,461,613 (22,112,695) (3,582,554) 71,037,028
Net assets:
Beginning of period............... 98,017,374 69,972,217 177,754,041 199,866,736 230,615,046 159,578,018
------------ ----------- ------------ ------------ ------------ ------------
End of period..................... $168,241,851 $98,017,374 $212,215,654 $177,754,041 $227,032,492 $230,615,046
============ =========== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
38
<PAGE> 39
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUITY EMERGING MARKETS
PORTFOLIO PORTFOLIO BALANCED PORTFOLIO
-------------------------- ----------------------- --------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS FOR THE SIX MONTHS PERIOD SIX MONTHS FOR THE
ENDED YEAR ENDED 6/17/94(1) ENDED YEAR
3/31/95 ENDED 3/31/95 THROUGH 3/31/95 ENDED
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94
------------ ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income..................... $ 1,066,333 $ 3,079,563 $ 78,816 $ 26,722 $ 2,729,388 $ 3,552,179
Net gain (loss) on investments and foreign
currency related transactions........... (18,645,658) 16,813,095 (3,013,485) 330,075 6,366,263 (5,517,471)
------------ ------------ ----------- ---------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations............... (17,579,325) 19,892,658 (2,934,669) 356,797 9,095,651 (1,965,292)
------------ ------------ ----------- ---------- ------------ ------------
Net investment income
Institutional Shares.................... -- (1,219,026) -- -- (400,510) (518,473)
Service Shares.......................... -- (170,647) -- -- (1,265,062) (1,491,022)
Series A Investor Shares................ -- (42,840) -- -- (1,075,068) (1,542,512)
Series B Investor Shares................ -- -- -- -- (22,432) --
------------ ------------ ----------- ---------- ------------ ------------
Total distributions from net
investment income................. -- (1,432,513) -- -- (2,763,072) (3,552,007)
------------ ------------ ----------- ---------- ------------ ------------
Net realized gains
Institutional Shares.................... (7,774,154) (2,844,395) (85,254) -- (223,248) (74,267)
Service Shares.......................... (2,155,634) (447,150) (106,635) -- (746,415) (125,603)
Series A Investor Shares................ (429,789) (119,272) (55,511) -- (696,601) (232,282)
Series B Investor Shares................ (14,710) -- -- -- (12,892) --
------------ ------------ ----------- ---------- ------------ ------------
Total distributions from net
realized gains.................... (10,374,287) (3,410,817) (247,400) -- (1,679,156) (432,152)
------------ ------------ ----------- ---------- ------------ ------------
Total distributions to
shareholders...................... (10,374,287) (4,843,330) (247,400) -- (4,442,228) (3,984,159)
------------ ------------ ----------- ---------- ------------ ------------
Capital share transactions.................. 50,707,398 212,755,730 12,242,454 8,516,188 11,654,836 83,590,431
------------ ------------ ----------- ---------- ------------ ------------
Total increase in net assets........ 22,753,786 227,805,058 9,060,385 8,872,985 16,308,259 77,640,980
Net assets:
Beginning of period....................... 374,511,915 146,706,857 8,872,985 -- 145,940,514 68,299,534
------------ ------------ ----------- ---------- ------------ ------------
End of period............................. $397,265,701 $374,511,915 $17,933,370 $8,872,985 $162,248,773 $145,940,514
============ ============ =========== ========== ============ ============
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
39
<PAGE> 40
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
---------------------------------------------------
INSTITUTIONAL CLASS
---------------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR YEAR 4/20/92(1)
3/31/95 ENDED ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value at beginning of period...................... $ 11.62 $ 11.68 $ 9.78 $ 10.00
----------- -------- -------- ---------
Income from investment operations
Net investment income.................................... 0.16 0.27 0.22 0.12
Net gain (loss) on investments
(both realized and unrealized)......................... 0.78 0.16 1.91 (0.24)
----------- -------- -------- ---------
Total from investment operations..................... 0.94 0.43 2.13 (.12)
----------- -------- -------- ---------
Less distributions
Distributions from net investment income................. (0.17) (0.27) (0.23) (0.10)
Distributions from net realized capital gains............ (0.25) (0.22) -- --
----------- -------- -------- ---------
Total distributions.................................. (0.42) (0.49) (0.23) (0.10)
----------- -------- -------- ---------
Net asset value at end of period............................ $ 12.14 $ 11.62 $ 11.68 $ 9.78
========== ======= ======= ========
Total return................................................ 8.37% 3.76% 21.92% (1.19)%
Ratios/Supplemental data
Net assets at end of period (in thousands)............... $ 497,418 $577,996 $432,776 $322,806
Ratios of expenses to average net assets
After advisory/administration fee waivers.............. 0.65(2) 0.65% 0.80% 0.85%(2)
Before advisory/administration fee waivers............. 0.80(2) 0.81% 0.83% 0.85%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............. 2.72(2) 2.44% 2.07% 2.62%(2)
Before advisory/administration fee waivers............. 2.58(2) 2.28% 2.04% 2.62%(2)
Portfolio turnover rate..................................... 6% 11% 11% 13%
<CAPTION>
VALUE EQUITY PORTFOLIO
--------------------------------------
SERVICE CLASS
--------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 7/29/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- -------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 11.62 $ 11.68 $ 11.21
----------- -------- ---------
Income from investment operations
Net investment income.................................... 0.14 0.25 0.04
Net gain (loss) on investments
(both realized and unrealized)......................... 0.78 0.16 0.48
----------- -------- ---------
Total from investment operations..................... 0.92 0.41 0.52
----------- -------- ---------
Less distributions
Distributions from net investment income................. (0.15) (0.25) (0.05)
Distributions from net realized capital gains............ (0.25) (0.22) --
----------- -------- ---------
Total distributions.................................. (0.40) (0.47) (0.05)
----------- -------- ---------
Net asset value at end of period............................ $ 12.14 $ 11.62 $ 11.68
========= ======= ========
Total return................................................ 8.24% 3.51% 4.64%
Ratios/Supplemental data
Net assets at end of period (in thousands)............... $ 125,897 $105,035 $23,137
Ratios of expenses to average net assets
After advisory/administration fee waivers.............. 0.90%(2) 0.90% 0.91%(2)
Before advisory/administration fee waivers............. 1.05%(2) 1.06% 0.94%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............. 2.48%(2) 2.24% 2.44%(2)
Before advisory/administration fee waivers............. 2.33%(2) 2.08% 2.41%(2)
Portfolio turnover rate..................................... 6% 11% 11%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
40
<PAGE> 41
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
-----------------------------------------------
SERIES A INVESTOR CLASS
-----------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR YEAR 5/02/92(1)
3/31/95 ENDED ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92
----------- ------- ------- -------
<S> <C> <C>
Net asset value at beginning of period............................. $ 11.62 $11.69 $ 9.78 $10.00
----------- ------- ------- -------
Income from investment operations
Net investment income........................................... 0.13 0.23 0.22 0.12
Net gain (loss) on investments (both realized and unrealized)... 0.79 0.15 1.91 (0.24)
----------- ------- ------- -------
Total from investment operations............................ 0.92 0.38 2.13 (0.12)
----------- ------- ------- -------
Less distributions
Distributions from net investment income........................ (0.15) (0.23) (0.22) (0.10)
Distributions from net realized capital gains................... (0.25) (0.22) -- --
----------- ------- ------- -------
Total distributions......................................... (0.40) (0.45) (0.22) (0.10)
----------- ------- ------- -------
Net asset value at end of period................................... $ 12.14 $11.62 $11.69 $ 9.78
======= ====== ====== ======
Total return....................................................... 8.16%(3) 3.32%(3) 21.95%(3) (1.19)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)...................... $12,573 $10,412 $4,865 $ 16
Ratios of expenses to average net assets
After advisory/administration fee waivers..................... 1.05%(2) 1.05% 0.92% 0.85%(2)
Before advisory/administration fee waivers.................... 1.20%(2) 1.21% 0.95% 0.85%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................... 2.32%(2) 2.08% 1.96% 2.62%2(2)
Before advisory/administration fee waivers.................... 2.17%(2) 1.92% 1.93% 2.62%2(2)
Portfolio turnover rate............................................ 6% 11% 11% 13%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
41
<PAGE> 42
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
------------------------------------
FOR THE
SIX MONTHS
ENDED YEAR YEAR
3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................................. $ 10.19 $11.58 $ 9.92
----------- ------- --------
Income from investment operations
Net investment income........................................................... 0.07 0.06 0.06
Net gain (loss) on investments (both realized and unrealized)................... 0.74 (1.34) 2.07
----------- ------- --------
Total from investment operations............................................ 0.81 (1.28) 2.13
----------- ------- --------
Less distributions
Distributions from net investment income........................................ (0.08) (0.01) (0.07)
Distributions from capital...................................................... -- -- (0.01)
Distributions from net realized capital gains................................... -- (0.10) (0.39)
----------- ------- --------
Total distributions......................................................... (0.08) (0.11) (0.47)
----------- ------- --------
Net asset value at end of period................................................... $ 10.92 $10.19 $ 11.58
========== ====== =======
Total return....................................................................... 8.04% (11.14)% 22.18%
Ratios/Supplemental data
Net assets at end of period (in thousands)...................................... $ 166,210 $97,834 $100,049
Ratios of expenses to average net assets
After advisory/administration fee waivers..................................... 0.65%(2) 0.65% 0.81%
Before advisory/administration fee waivers.................................... 0.84%(2) 0.89% 0.87%
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................................... 1.45%(2) 0.62% 0.50%
Before advisory/administration fee waivers.................................... 1.26%(2) 0.38% 0.44%
Portfolio turnover rate............................................................ 34% 212% 175%
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
------------------------------------
FOR THE
PERIOD
YEAR YEAR 11/1/89(1)
ENDED ENDED THROUGH
9/30/92 9/30/91 9/30/90
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................................. $ 10.28 $ 9.98 $ 10.00
------- ------- --------
Income from investment operations
Net investment income........................................................... 0.21 0.24 0.31
Net gain (loss) on investments (both realized and unrealized)................... 0.30 1.51 (0.26)
------- ------- --------
Total from investment operations............................................ 0.51 1.75 0.05
------- ------- --------
Less distributions
Distributions from net investment income........................................ (0.37) (0.32) (0.07)
Distributions from capital...................................................... -- -- --
Distributions from net realized capital gains................................... (0.50) (1.13) --
------- ------- --------
Total distributions......................................................... (0.87) (1.45) (0.07)
------- ------- --------
Net asset value at end of period................................................... $ 9.92 $ 10.28 $ 9.98
====== ======= =======
Total return....................................................................... 4.98% 19.47% 0.40%
Ratios/Supplemental data
Net assets at end of period (in thousands)...................................... $58,372 $54,912 $39,790
Ratios of expenses to average net assets
After advisory/administration fee waivers..................................... 0.85% 0.85% 0.85%(2)
Before advisory/administration fee waivers.................................... 0.86% 0.91% 0.88%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................................... 2.07% 2.59% 2.75%(2)
Before advisory/administration fee waivers.................................... 2.06% 2.53% 2.72%(2)
Portfolio turnover rate............................................................ 162% 211% 149%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
42
<PAGE> 43
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
-----------------------------------------
SERVICE CLASS
-----------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 7/28/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- ---------
<S> <C>
Net asset value at beginning of period............................... $ 10.18 $11.57 $10.54
----------- ------- -------
Income from investment operations
Net investment income............................................. 0.06 0.03 --
Net gain (loss) on investments (both realized and unrealized)..... 0.73 (1.32) 1.03
----------- ------- -----
Total from investment operations.............................. 0.79 (1.29) 1.03
----------- ------- ------
Less Distributions
Distributions from net investment income.......................... (0.06) -- --
Distributions from capital........................................ -- -- --
Distributions from net realized capital gains..................... -- (0.10) --
----------- ------- ------
Total distributions........................................... (0.06) (0.10) --
----------- ------- ------
Net asset value at end of period..................................... $ 10.91 $10.18 $11.57
=========== ======= ======
Total return......................................................... 7.84% (11.20)% 9.77%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................ $50,177 $36,752 $8,606
Ratios of expenses to average net assets
After advisory/administration fee waivers....................... 0.90%(2) 0.90% 0.89%(2)
Before advisory/administration fee waivers...................... 1.09%(2) 1.14% 0.95%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................... 1.20%(2) 0.51% (0.03)%
Before advisory/administration fee waivers...................... 1.00%(2) 0.26% (0.09)%
Portfolio turnover rate.............................................. 34% 212% 175%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
43
<PAGE> 44
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
-------------------------------------------------
SERIES A INVESTOR CLASS
-------------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR YEAR 3/14/92(1)
3/31/95 ENDED ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92
----------- ------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period.............................. $ 10.16 $11.57 $ 9.92 $10.09
----------- ------- ------- -------
Income from investment operations
Net investment income............................................ 0.05 0.02 0.02 0.08
Net gain (loss) on investments (both realized and unrealized).... 0.74 (1.33) 2.10 (0.10)
----------- ------- ------- -------
Total from investment operations............................. 0.79 (1.31) 2.12 (0.02)
----------- ------- ------- -------
Less distributions
Distributions from net investment income......................... (0.05) -- (0.07) (0.15)
Distributions from capital....................................... -- -- (0.01) --
Distributions from net realized capital gains.................... -- (0.10) (0.39) --
----------- ------- ------- -------
Total distributions.......................................... (0.05) (0.10) (0.47) (0.15)
----------- ------- ------- -------
Net asset value at end of period.................................... $ 10.90 $10.16 $11.57 $ 9.92
========= =========== ======= ======
Total return........................................................ 7.81%(3) (11.38)%(3) 22.08%(3) (0.17)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)....................... $ 7,149 $5,049 $2,362 $ 239
Ratios of expenses to average net assets
After advisory/administration fee waivers...................... 1.05%(2) 1.05% 0.91% 0.85%(2)
Before advisory/administration fee waivers..................... 1.24%(2) 1.29% 0.97% 0.86%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................... 1.05%(2) 0.29% 0.18% 2.07%(2)
Before advisory/administration fee waivers..................... 0.85%(2) 0.05% 0.12% 2.06%(2)
Portfolio turnover rate............................................. 34% 212% 175% 162%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
44
<PAGE> 45
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY
PORTFOLIO
--------------------------------
INSTITUTIONAL CLASS
--------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 9/14/931
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- -------- -------
<S> <C> <C> <C>
Net asset value at beginning of period.............................................. $ 10.16 $ 10.47 $10.00
----------- -------- -------
Income from investment operations
Net investment income............................................................ 0.01 0.03 --
Net gain (loss) on investments (both realized and unrealized).................... 1.49 (0.33) 0.47
----------- -------- -------
Total from investment operations............................................. 1.50 (0.30) 0.47
----------- -------- -------
Less distributions
Distributions from net investment income......................................... (0.02) (0.01) --
Distributions from net realized capital gains.................................... -- -- --
----------- -------- -------
Total distributions.......................................................... (0.02) (0.01) --
----------- -------- -------
Net asset value at end of period.................................................... $ 11.64 $ 10.16 $10.47
=========== ======== =======
Total return........................................................................ 14.78% (2.89)% 4.70%
Ratios/Supplemental data
Net assets at end of period (in thousands)....................................... $96,601 $65,612 $11,310
Ratios of expenses to average net assets
After advisory/administration fee waivers...................................... 0.73%(2) 0.48% 0.73%(2)
Before advisory/administration fee waivers..................................... 0.87%(2) 1.04% 1.42%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................................... 0.32%(2) 0.45% (0.11)%(2)
Before advisory/administration fee waivers..................................... 0.18%(2) (0.10)% (0.80)%(2)
Portfolio turnover rate............................................................. 41% 89% 9%
<CAPTION>
SERVICE CLASS
--------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 9/15/931
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.............................................. $ 10.14 $10.47 $ 9.96
----------- ------- --------
Income from investment operations
Net investment income............................................................ -- 0.01 --
Net gain (loss) on investments (both realized and unrealized).................... 1.49 (0.34) 0.51
----------- ------- --------
Total from investment operations............................................. 1.49 (0.33) 0.51
----------- ------- --------
Less distributions
Distributions from net investment income......................................... -- -- --
Distributions from net realized capital gains.................................... -- -- --
----------- ------- --------
Total distributions.......................................................... -- -- --
----------- ------- --------
Net asset value at end of period.................................................... $ 11.63 $10.14 $10.47
=========== ====== ========
Total return........................................................................ 14.70% (3.12)% 5.12%
Ratios/Supplemental data
Net assets at end of period (in thousands)....................................... $31,794 $22,648 $ 911
Ratios of expenses to average net assets
After advisory/administration fee waivers...................................... 0.98%(2) 0.71% 0.99%(2)
Before advisory/administration fee waivers..................................... 1.12%(2) 1.27% 1.68%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................................... 0.07%(2) 0.21% (0.34)%(2)
Before advisory/administration fee waivers..................................... (0.08)%(2) (0.34)% (1.03)%(2)
Portfolio turnover rate............................................................. 41% 89% 9%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
45
<PAGE> 46
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-------------------------------------
SERIES A INVESTOR CLASS
-------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 9/15/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period........................... $ 10.12 $10.47 $ 9.96
------- ------ ------
Income from investment operations
Net investment income......................................... -- -- --
Net gain (loss) on investments (both realized and unrealized). 1.48 (0.35) 0.51
----- ------- ------
Total from investment operations.......................... 1.48 (0.35) 0.51
------- ------- ------
Less distributions
Distributions from net investment income...................... -- -- --
Distributions from net realized capital gains................. -- -- --
------- ------- ------
Total distributions....................................... -- -- --
------- ------- ------
Net asset value at end of period................................. $ 11.60 $10.12 $10.47
======== ====== ======
Total return..................................................... 14.62%(3) (3.33)%(3) 5.12%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).................... $ 3,240 $1,620 $ 41
Ratios of expenses to average net assets
After advisory/administration fee waivers................... 1.13%(2) 0.86% 1.13%(2)
Before advisory/administration fee waivers.................. 1.27%(2) 1.42% 1.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................... (0.06)%(2) 0.07% (0.48)%(2)
Before advisory/administration fee waivers.................. (0.20)%(2) (0.49)% (1.17)%(2)
Portfolio turnover rate.......................................... 41% 89% 9%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
46
<PAGE> 47
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
-----------------------------------
INSTITUTIONAL CLASS
-----------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 9/13/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period...................................... $ 9.92 $ 9.97 $10.00
----------- ------- -------
Income from investment operations
Net investment income.................................................... 0.11 0.22 0.01
Net gain (loss) on investments (both realized and unrealized)............ 0.62 (0.04) (0.04)
----------- ------- -------
Total from investment operations..................................... 0.73 0.18 (0.03)
----------- ------- -------
Less distributions
Distributions from net investment income................................. (0.11) (0.23) --
Distributions from net realized capital gains............................ (0.12) -- --
----------- ------- -------
Total distributions.................................................. (0.23) (0.23) --
----------- ------- -------
Net asset value at end of period............................................ $ 10.42 $ 9.92 $ 9.97
========== ====== ======
Total return................................................................ 7.52% 1.79% (0.30)%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................... $ 109,896 $48,123 $69,268
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................. 0.65%(2) 0.65% 0.65%(2)
Before advisory/administration fee waivers............................. 0.84%(2) 0.93% 0.87%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................. 2.51%(2) 2.11% 2.17%(2)
Before advisory/administration fee waivers............................. 2.32%(2) 1.82% 1.95%(2)
Portfolio turnover rate..................................................... 28% 88% 2%
<CAPTION>
CORE EQUITY PORTFOLIO
-----------------------------------
SERVICE CLASS
-----------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 9/15/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period...................................... $ 9.92 $ 9.97 $10.00
----------- ------- -------
Income from investment operations
Net investment income.................................................... 0.10 0.19 --
Net gain (loss) on investments (both realized and unrealized)............ 0.62 (0.04) (0.03)
----------- ------- -------
Total from investment operations..................................... 0.72 0.15 (0.03)
----------- ------- -------
Less distributions
Distributions from net investment income................................. (0.10) (0.20) --
Distributions from net realized capital gains............................ (0.12) -- --
----------- ------- -------
Total distributions.................................................. (0.22) (0.20) --
----------- ------- -------
Net asset value at end of period............................................ $ 10.42 $ 9.92 $ 9.97
========= ====== ======
Total return................................................................ 7.38% 1.55% (0.30)%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................... $56,690 $49,293 $ 704
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................. 0.90%(2) 0.90% 0.90%(2)
Before advisory/administration fee waivers............................. 1.11%(2) 1.18% 1.12%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................. 2.30%(2) 1.96% 1.92%(2)
Before advisory/administration fee waivers............................. 2.08%(2) 1.68% 1.70%(2)
Portfolio turnover rate..................................................... 28% 88% 2%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
47
<PAGE> 48
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
------------------------------
SERIES A INVESTOR CLASS
------------------------------
FOR THE
SIX MONTHS PERIOD
ENDED 10/13/93(1)
3/31/95 THROUGH
(UNAUDITED) 9/30/94
----------- --------
<S> <C> <C>
Net asset value at beginning of period.................................... $ 9.92 $ 9.96
------- --------
Income from investment operations
Net investment income.................................................. 0.11 0.18
Net gain (loss) on investments (both realized and unrealized).......... 0.61 (0.03)
------- --------
Total from investment operations................................... 0.72 0.15
------- --------
Less distributions
Distributions from net investment income............................... (0.10) (0.19)
Distributions from net realized capital gains.......................... (0.12) --
-------- --------
Total distributions................................................ (0.22) (0.19)
------ --------
Net asset value at end of period.......................................... $ 10.42 $ 9.92
======= =======
Total Return.............................................................. 7.32%(3) 1.54%(3)
Ratios/Supplemental data
Net Assets at end of period (in thousands)............................. $ 1,656 $ 601
Ratios of expenses to average net assets
After advisory/administration fee waivers............................ 1.05%(2) 1.05%(2)
Before advisory/administration fee waivers........................... 1.25%(2) 1.34%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................ 2.12%(2) 1.89%(2)
Before advisory/administration fee waivers........................... 1.92%(2) 1.60%(2)
Portfolio turnover rate................................................... 28% 88%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
48
<PAGE> 49
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
--------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR YEAR 4/20/92(1)
3/31/95 ENDED ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......................... $ 10.93 $ 11.02 $ 10.06 $ 10.00
Income from investment operations
Net investment income....................................... 0.16 0.31 0.27 0.13
Net gain (loss) on investments
(both realized and unrealized)............................ 0.86 0.03 0.97 0.03
----------- -------- -------- --------
Total from investment operations........................ 1.02 0.34 1.24 0.16
----------- -------- -------- --------
Less distributions
Distributions from net investment income.................... (0.17) (0.32) (0.28) (0.10)
Distributions from net realized capital gains............... (0.12) (0.11) -- --
----------- -------- -------- --------
Total distributions..................................... (0.29) (0.43) (0.28) (0.10)
----------- -------- -------- --------
Net asset value at end of period............................... $ 11.66 $ 10.93 $ 11.02 $ 10.06
================ =========== =========== ===========
Total return................................................... 9.58% 3.07% 12.40% 1.62%
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $ 158,645 $147,746 $186,163 $175,888
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.15%(2) 0.15% 0.40% 0.45%(2)
Before advisory/administration fee waivers................ 0.51%(2) 0.52% 0.52% 0.64%
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 2.98%(2) 2.72% 2.46% 2.85%(2)
Before advisory/administration fee waivers................ 2.62%(2) 2.35% 2.34% 2.66%(2)
Portfolio turnover rate........................................ 3% 17% 8% 23%
<CAPTION>
INDEX EQUITY PORTFOLIO
-----------------------------------
SERVICE CLASS
-----------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR 7/29/93(1)
3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93
----------- ------- -------
<S> <C<C> <C> <C>
Net asset value at beginning of period......................... $ 10.93 $11.02 $10.76
Income from investment operations
Net investment income....................................... 0.16 0.29 0.05
Net gain (loss) on investments
(both realized and unrealized)............................ 0.85 0.02 0.29
----------- ------- -------
Total from investment operations........................ 1.01 0.31 0.34
----------- ------- -------
Less distributions
Distributions from net investment income.................... (0.16) (0.29) (0.08)
Distributions from net realized capital gains............... (0.12) (0.11) --
----------- ------- -------
Total distributions..................................... (0.28) (0.40) (0.08)
----------- ------- -------
Net asset value at end of period............................... $ 11.66 $10.93 $11.02
================ =========== ===========
Total return................................................... 9.46% 2.78% 3.16%
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $49,834 $27,376 $12,441
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.40%(2) 0.40% 0.41%(2)
Before advisory/administration fee waivers................ 0.76%(2) 0.77% 0.53%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 2.73%(2) 2.49% 3.04%(2)
Before advisory/administration fee waivers................ 2.37%(2) 2.12% 2.92%(2)
Portfolio turnover rate........................................ 3% 17% 8%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
49
<PAGE> 50
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
-----------------------------------------------------
SERIES A INVESTOR CLASS
-----------------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR YEAR 6/02/92(1)
3/31/95 ENDED ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92
----------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.............................. $ 10.93 $11.02 $10.06 $10.07
----------- ------- ------- -------
Income from investment operations
Net investment income............................................ 0.14 0.25 0.27 0.10
Net gain (loss) on investments (both realized and unrealized).... 0.85 0.04 0.96 (0.01)
----------- ------- ------- -------
Total from investment operations............................. 0.99 0.29 1.23 0.09
----------- ------- ------- -------
Less distributions
Distributions from net investment income......................... (0.16) (0.27) (0.27) (0.10)
Distributions from net realized capital gains.................... (0.12) (0.11) -- --
----------- ------- ------- -------
Total distributions.......................................... (0.28) (0.38) (0.27) (0.10)
----------- ------- ------- -------
Net asset value at end of period.................................... $ 11.64 $10.93 $11.02 $10.06
========= ====== ======= ======
Total return........................................................ 9.23%(3) 2.66%(3) 12.33%(3) 0.91%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)....................... $ 3,736 $2,632 $1,263 $ 56
Ratios of expenses to average net assets
After advisory/administration fee waivers...................... 0.55%(2) 0.55% 0.49% 0.45%(2)
Before advisory/administration fee waivers..................... 0.91%(2) 0.92% 0.61% 0.64%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................... 2.56%(2) 2.35% 2.48% 2.85%(2)
Before advisory/administration fee waivers..................... 2.20%(2) 1.98% 2.36% 2.66%(2)
Portfolio turnover rate............................................. 3% 17% 8% 23%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
50
<PAGE> 51
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
-------------------------------------------------------------------
SERVICE
INSTITUTIONAL CLASS CLASS
------------------------------------------------- -----------
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS
ENDED YEAR YEAR 4/13/92(1) ENDED
3/31/95 ENDED ENDED THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 9/30/92 (UNAUDITED)
----------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period....................... $ 13.62 $ 13.08 $ 10.14 $10.00 $ 13.59
----------- -------- -------- ------- -----------
Income from investment operations
Net investment income..................................... 0.04 0.04 0.04 0.02 0.02
Net gain (loss) on investments
(both realized and unrealized).......................... 0.11 0.77 3.02 0.13 0.13
----------- -------- -------- ------- -----------
Total from investment operations...................... 0.15 0.81 3.06 0.15 0.15
----------- -------- -------- ------- -----------
Less distributions
Distributions from net investment income.................. (0.04) (0.02) (0.04) (0.01) (0.01)
Distributions from net realized capital gains............. (0.61) (0.25) (0.08) -- (0.61)
----------- -------- -------- ------- -----------
Total distributions................................... (0.65) (0.27) (0.12) (0.01) (0.62)
----------- -------- -------- ------- -----------
Net asset value at end of period............................. $ 13.12 $ 13.62 $ 13.08 $10.14 $ 13.12
========== ======= ======= ====== =========
Total return................................................. 1.39% 6.28% 30.36% 1.50% 1.36%
Ratios/Supplemental data
Net assets at end of period (in thousands)................ $ 159,091 $168,360 $128,805 $75,045 $48,302
Ratios of expenses to average net assets
After advisory/administration fee waivers............... 0.73%(2) 0.73% 0.83% 0.85%(2) 0.98%(2)
Before advisory/administration fee waivers.............. 0.82%(2) 0.85% 0.87% 0.89%(2) 1.08%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............... 0.52%(2) 0.28% 0.31% 0.51%(2) 0.27%(2)
Before advisory/administration fee waivers.............. 0.43%(2) 0.16% 0.27% 0.47%(2) 0.18%(2)
Portfolio turnover rate...................................... 21% 18% 41% 17% 21%
<CAPTION>
SMALL CAP VALUE
EQUITY PORTFOLIO
-------------------
SERVICE CLASS
-------------------
FOR THE
PERIOD
YEAR 7/29/93(1)
ENDED THROUGH
9/30/94 9/30/93
------- --------
<S> <C> <C>
Net asset value at beginning of period....................... $13.08 $ 12.28
------- --------
Income from investment operations
Net investment income..................................... -- --
Net gain (loss) on investments
(both realized and unrealized).......................... 0.77 0.80
------- --------
Total from investment operations...................... 0.77 0.80
------- --------
Less distributions
Distributions from net investment income.................. (0.01) --
Distributions from net realized capital gains............. (0.25) --
------- --------
Total distributions................................... (0.26) --
------- --------
Net asset value at end of period............................. $13.59 $ 13.08
====== =======
Total return................................................. 5.96% 6.51%
Ratios/Supplemental data
Net assets at end of period (in thousands)................ $45,372 $21,689
Ratios of expenses to average net assets
After advisory/administration fee waivers............... 0.98% 0.99%(2)
Before advisory/administration fee waivers.............. 1.10% 1.03%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............... 0.03% 0.12%(2)
Before advisory/administration fee waivers.............. (0.09)% 0.08%(2)
Portfolio turnover rate...................................... 18% 41%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
51
<PAGE> 52
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
-------------------------------------
SERIES A
INVESTOR CLASS
-------------------------------------
FOR THE
SIX MONTHS
ENDED YEAR YEAR
3/31/95 ENDED ENDED
(UNAUDITED) 9/30/94 9/30/93
----------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period....................................... $ 13.58 $ 13.07 $10.14
------- ------- ------
Income from investment operations
Net investment income..................................................... 0.01 (0.01) 0.03
Net gain (loss) on investments (both realized and unrealized)............. 0.13 0.77 3.02
------- ------- ------
Total from investment operations...................................... 0.14 0.76 3.05
------- ------- ------
Less distributions
Distributions from net investment income.................................. -- -- (0.04)
Distributions from net realized capital gains............................. (0.61) (0.25) (0.08)
------- ------- ------
Total distributions................................................... (0.61) (0.25) (0.12)
------- ------- ------
Net asset value at end of period............................................. $ 13.11 $ 13.58 $13.07
======= ======= ======
Total return................................................................. 1.28%(3) 5.93%(3) 30.36%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................................ $18,765 $16,884 $9,084
Ratios of expenses to average net assets
After advisory/administration fee waivers............................... 1.13%(2) 1.13% 0.94%
Before advisory/administration fee waivers.............................. 1.22%(2) 1.25% 0.98%
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................... 0.13%(2) (0.11)% 0.19%
Before advisory/administration fee waivers.............................. 0.03%(2) (0.23)% 0.15%
Portfolio turnover rate...................................................... 21% 18% 41%
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
-----------------------------------
SERIES A SERIES B
INVESTOR CLASS INVESTOR CLASS
---------------- --------------
FOR THE
FOR THE PERIOD
PERIOD 10/03/941
6/02/921 THROUGH
THROUGH 3/31/95
9/30/92 (UNAUDITED)
---------------- --------------
<S> <C> <C>
Net asset value at beginning of period....................................... $10.06 $13.51
------ ------
Income from investment operations
Net investment income..................................................... 0.02 (0.02)
Net gain (loss) on investments (both realized and unrealized)............. 0.07 0.20
------ ------
Total from investment operations...................................... 0.09 0.18
------ ------
Less distributions
Distributions from net investment income.................................. (0.01) --
Distributions from net realized capital gains............................. -- (0.61)
------ ------
Total distributions................................................... (0.01) (0.61)
------ ------
Net asset value at end of period............................................. $10.14 $13.08
====== ======
Total return................................................................. 0.89%(3) 1.57%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)................................ $ 62 $ 874
Ratios of expenses to average net assets
After advisory/administration fee waivers............................... 0.85%(2) 1.73%(2)
Before advisory/administration fee waivers.............................. 0.89%(2) 1.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................... 0.51%(2) (0.42)%(2)
Before advisory/administration fee waivers.............................. 0.47%(2) (0.52)%(2)
Portfolio turnover rate...................................................... 17% 21%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
52
<PAGE> 53
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
----------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
------------------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED YEAR YEAR 4/27/92(1) ENDED YEAR 7/29/93(1)
3/31/95 ENDED ENDED THROUGH 3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92 (UNAUDITED) 9/30/94 9/30/93
---------- -------- -------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period.......................... $ 13.44 $ 12.48 $ 9.87 $10.00 $ 13.41 $ 12.47 $ 11.76
---------- -------- -------- ------- ----------- -------- --------
Income from investment operations
Net investment income......... (0.03) 0.15 0.11 0.11 (0.03) 0.14 0.02
Net realized gain (loss) on
investments................. (0.62) 1.17 2.61 (0.17) (0.62) 1.14 0.69
---------- -------- -------- ------- ----------- -------- --------
Total from investment
operations............... (0.65) 1.32 2.72 (0.06) (0.65) 1.28 0.71
---------- -------- -------- ------- ----------- -------- --------
Less distributions
Distributions from net
investment income........... -- (0.11) (0.11) (0.07) -- (0.09) --
Distributions from net
realized capital gains...... (0.36) (0.25) -- -- (0.36) (0.25) --
---------- -------- -------- ------- ----------- -------- --------
Total distributions....... (0.36) (0.36) (0.11) (0.07) (0.36) (0.34) --
---------- -------- -------- ------- ----------- -------- --------
Net asset value at end of
period.......................... $ 12.43 $ 13.44 $ 12.48 $ 9.87 $ 12.40 $ 13.41 $ 12.47
========= ====== ====== ===== ========= ====== ======
Total return..................... (4.82)% 10.71% 27.72% (0.61)% (4.84)% 10.36% 6.03%
Ratios/Supplemental data
Net assets at end of period
(in thousands).............. $296,727 $284,905 $131,052 $60,357 $84,041 $75,174 $11,985
Ratios of expenses to average
net assets
After
advisory/administration
fee waivers............... 0.95%(2) 0.95% 1.10% 1.20%(2) 1.20%(2) 1.20% 1.18%(2)
Before
advisory/administration
fee waivers............... 1.14%(2) 1.14% 1.16% 1.21%(2) 1.39%(2) 1.39% 1.24%(2)
Ratios of net investment
income to average net assets
After
advisory/administration
fee waivers............... 0.64%(2) 1.27% 1.17% 2.59%(2) 0.40%(2) 1.09% 1.01%(2)
Before
advisory/administration
fee waivers............... 0.46% 1.08% 1.11% 2.58%(2) 0.21%(2) 0.90% 0.95%(2)
Portfolio turnover rate.......... 34% 37% 31% 15% 34% 37% 31%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
53
<PAGE> 54
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
------------------------------------------------
SERIES A SERIES B
INVESTOR CLASS INVESTOR CLASS
------------------------------------------------ --------------
FOR THE
FOR THE FOR THE PERIOD
SIX MONTHS PERIOD 10/03/94(1)
ENDED YEAR YEAR 6/02/92(1) THROUGH
3/31/95 ENDED ENDED THROUGH 3/31/95
(UNAUDITED) 9/30/94 9/30/93 6/30/92 (UNAUDITED)
----------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 13.40 $ 12.47 $ 9.87 $10.68 $13.35
------- -------- ------- ------ ------
Income from investment operations
Net investment income.................................. 0.01 0.12 0.12 0.09 (0.01)
Net realized gain (loss) on investments................ (0.68) 1.15 2.59 (0.83) (0.64)
------- -------- ------- ------ ------
Total from investment operations................... (0.67) 1.27 2.71 (0.74) (0.65)
------- -------- ------- ------ ------
Less distributions
Distributions from net investment income............... -- (0.09) (0.11) (0.07) --
Distributions from net realized capital gains.......... (0.36) (0.25) -- -- (0.36)
------- -------- ------- ------ ------
Total distributions................................ (0.36) (0.34) (0.11) (0.07) (0.36)
------- -------- ------- ------ ------
Net asset value at end of period.......................... $ 12.37 $ 13.40 $ 12.47 $ 9.87 $12.34
======= ======== ======= ====== ======
Total return.............................................. (4.99)%(3) 10.24%(3) 27.72%(3) (6.94)%(3) (4.86)%(4)
Ratios/Supplemental data
Net Assets at end of period (in thousands)............. $15,695 $ 14,433 $ 3,669 $ 58 $ 803
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 1.35%(2) 1.35% 1.25% 1.20%(2) 1.95%(2)
Before advisory/administration fee waivers........... 1.54%(2) 1.54% 1.31% 1.21%(2) 2.13%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 0.23%(2) 0.96% 1.27% 2.59%(2) (0.14)%(2)
Before advisory/administration fee waivers........... 0.05%(2) 0.77% 1.21% 2.58%(2) (0.32)%(2)
Portfolio turnover rate................................... 34% 37% 31% 16% 34%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
54
<PAGE> 55
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MARKETS PORTFOLIO
-------------------------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
------------------------ ------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED 6/17/94(1) ENDED 6/17/94(1)
3/31/95 THROUGH 3/31/95 THROUGH
(UNAUDITED) 9/30/94 (UNAUDITED) 9/30/94
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.............................. $ 10.56 $10.00 $ 10.55 $10.00
----------- ------- ----------- --------
Income from investment operations
Net investment income............................................ 0.01 0.03 0.03 0.02
Net gain (loss) on investments (both realized and unrealized).... (2.47) 0.53 (2.49) 0.53
----------- ------- ----------- --------
Total from investment operations............................. (2.46) 0.56 (2.46) 0.55
----------- ------- ----------- --------
Less distributions
Distributions from net investment income......................... -- -- -- --
Distributions from net realized capital gains.................... (0.19) -- (0.19) --
----------- ------- ----------- --------
Total distributions.......................................... (0.19) -- (0.19) --
----------- ------- ----------- --------
Net asset value at end of period.................................... $ 7.91 $10.56 $ 7.90 $10.55
=========== ======= =========== =======
Total return........................................................ (23.58)% 5.60% (23.60)% 5.50%
Ratios/Supplemental data
Net assets at end of period (in thousands)....................... $ 9,117 $2,511 $ 6,341 $3,505
Ratios of expenses to average net assets
After advisory/administration fee waivers...................... 1.75%(2) 1.75%(2) 2.00%(2) 2.00%(2)
Before advisory/administration fee waivers..................... 2.41%(2) 2.73%(2) 2.66%(2) 2.98%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................... 1.65%(2) 1.19%(2) 1.28%(2) 1.10%(2)
Before advisory/administration fee waivers..................... 0.99%(2) 0.21%(2) 0.62%(2) 0.12%(2)
Portfolio turnover rate............................................. 31% 4% 31% 4%
<CAPTION>
SERIES A
INVESTOR CLASS
------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED 6/17/94(1)
3/31/95 THROUGH
(UNAUDITED) 9/30/94
----------- --------
<S> <C> <C>
Net asset value at beginning of period.............................. $ 10.54 $ 10.00
----------- --------
Income from investment operations
Net investment income............................................ 0.03 0.02
Net gain (loss) on investments (both realized and unrealized).... (2.50) 0.52
----------- --------
Total from investment operations............................. (2.47) 0.54
----------- --------
Less distributions
Distributions from net investment income......................... -- --
Distributions from net realized capital gains.................... (0.19) --
----------- --------
Total distributions.......................................... (0.19) --
----------- --------
Net asset value at end of period.................................... $ 7.88 $ 10.54
=========== =======
Total return........................................................ (23.72)%(3) 5.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)....................... $ 2,475 $ 2,857
Ratios of expenses to average net assets
After advisory/administration fee waivers...................... 2.15%(2) 2.15%(2)
Before advisory/administration fee waivers..................... 2.81%(2) 3.13%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers...................... 0.83%(2) 0.74%(2)
Before advisory/administration fee waivers..................... 0.17%(2) (0.24)%(2)
Portfolio turnover rate............................................. 31% 4%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
55
<PAGE> 56
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
----------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
------------------------------------------------- ------------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED YEAR YEAR 5/1/92(1) ENDED YEAR 7/29/93(1)
3/31/95 ENDED ENDED THROUGH 3/31/95 ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92 (UNAUDITED) 9/30/94 9/30/93
----------- -------- -------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period.......................... $ 11.98 $ 12.42 $ 11.53 $11.01 $ 11.98 $12.42 $ 12.05
----------- -------- -------- ------- ----------- ------- --------
Income from investment operations
Net investment income......... 0.29 0.38 0.30 0.17 0.28 0.34 0.06
Net realized gain (loss) on
investments................. 0.44 (0.39) 1.15 0.51 0.44 (0.38) 0.38
----------- -------- -------- ------- ----------- ------- --------
Total from investment
operations............... 0.73 (0.01) 1.45 0.68 0.72 (0.04) 0.44
----------- -------- -------- ------- ----------- ------- --------
Less distributions
Distributions from net
investment income........... (0.23) (0.37) (0.30) (0.16) (0.22) (0.34) (0.07)
Distributions from net
realized capital gains...... (0.14) (0.06) (0.26) -- (0.14) (0.06) --
----------- -------- -------- ------- ----------- ------- --------
Total distributions....... (0.37) (0.43) (0.56) (0.16) (0.36) (0.40) (0.07)
----------- -------- -------- ------- ----------- ------- --------
Net asset value at end of
period.......................... $ 12.34 $ 11.98 $ 12.42 $11.53 $ 12.34 $11.98 $ 12.42
========= ======= ======= ====== ========= ====== ========
Total return..................... 6.22% (0.11)% 12.86% 6.23% 6.12% (0.36)% 3.66%
Ratios/Supplemental data
Net assets at end of period
(in thousands).............. $22,548 $17,610 $12,928 $2,501 $75,284 $66,024 $15,842
Ratios of expenses to average
net assets
After
advisory/administration
fee waivers............... 0.65%(2) 0.65% 0.80% 0.95%(2) 0.90%(2) 0.90% 0.93%(2)
Before
advisory/administration
fee waivers............... 0.88%(2) 0.91% 0.98% 1.51%(2) 1.13%(2) 1.16% 1.11%(2)
Ratios of net investment
income to average net assets
After
advisory/administration
fee waivers............... 3.95%(2) 3.16% 2.89% 3.28%(2) 3.70%(2) 2.96% 2.75%(2)
Before
advisory/administration
fee waivers............... 3.72%(2) 2.89% 2.71% 2.72%(2) 3.47%(2) 2.70% 2.57%(2)
Portfolio turnover rate.......... 61% 54% 32% 36% 61%(2) 54% 32%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
56
<PAGE> 57
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-----------------------------------------------------------------------------
SERIES A
INVESTOR CLASS
-----------------------------------------------------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED YEAR YEAR YEAR YEAR 5/14/90(1)
3/31/95 ENDED ENDED ENDED ENDED THROUGH
(UNAUDITED) 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
----------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $ 11.98 $ 12.42 $ 11.53 $10.82 $ 9.13 $10.00
------- -------- ------- ------ ------ ------
Income from investment operations
Net investment income.......................... 0.21 0.32 0.30 0.34 0.38 0.12
Net realized gain (loss) on investments........ 0.50 (0.38) 1.14 1.22 1.77 (0.88)
------- -------- ------- ------ ------ ------
Total from investment operations........... 0.71 (0.06) 1.44 1.56 2.15 (0.76)
------- -------- ------- ------ ------ ------
Less distributions
Distributions from net investment income....... (0.21) (0.32) (0.29) (0.39) (0.34) (0.11)
Distributions from net realized capital gains.. (0.14) (0.06) (0.26) (0.46) (0.12) --
------- -------- ------- ------ ------ ------
Total distributions........................ (0.35) (0.38) (0.55) (0.85) (0.46) (0.11)
------- -------- ------- ------ ------ ------
Net asset value at end of period.................. $ 12.34 $ 11.98 $ 12.42 $11.53 $10.82 $ 9.13
======= ======== ======= ====== ====== ======
Total return...................................... 6.03%(3) (0.50)%(3) 12.80%(3) 15.17%(3) 24.04%(3) (7.64)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..... $62,629 $ 62,307 $39,529 $8,481 $4,265 $3,960
Ratios of expenses to average net assets
After advisory/administration fee waivers.... 1.05%(2) 1.05% 0.91% 0.95% 1.15% 1.15%(2)
Before advisory/administration fee waivers... 1.28%(2) 1.31% 1.09% 1.51% 1.86% 1.90%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers.... 3.55%(2) 2.77% 2.79% 3.28% 3.70% 3.07%(2)
Before advisory/administration fee waivers... 3.32%(2) 2.51% 2.61% 2.72% 2.99% 2.32%(2)
Portfolio turnover rate........................... 61% 54% 32% 36% 45% 37%
<CAPTION>
BALANCED PORTFOLIO
------------------
SERIES B
INVESTOR CLASS
--------------
FOR THE
PERIOD
10/03/94(1)
THROUGH
3/31/95
(UNAUDITED)
--------------
<S> <C>
Net asset value at beginning of period.................. $11.95
------
Income from investment operations
Net investment income................................ 0.15
Net realized gain (loss) on investments.............. 0.56
------
Total from investment operations................. 0.71
------
Less distributions
Distributions from net investment income............. (0.19)
Distributions from net realized capital gains........ (0.14)
------
Total distributions.............................. (0.33)
------
Net asset value at end of period........................ $12.33
======
Total return............................................ 6.03%(4)
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $1,788
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 1.65%(2)
Before advisory/administration fee waivers......... 1.88%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......... 3.00%(2)
Before advisory/administration fee waivers......... 2.77%(2)
Portfolio turnover rate................................. 61%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
(4) Contingent deferred sales load not reflected in total return.
See accompanying notes to financial statements.
57
<PAGE> 58
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
The PNC Fund (the "Fund") was organized on December 22, 1988, as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-five separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed Income Portfolio and
Government Income Portfolio. As of March 31, 1995, the International Fixed
Income Portfolio had not commenced operations. This report relates solely to
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio and Balanced Portfolio (the "Portfolios").
Each Portfolio has four classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Series A Investor shares and one class being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for the Value Equity Portfolio, Growth Equity Portfolio, Small Cap
Growth Equity Portfolio, Core Equity Portfolio, International Emerging Markets
Portfolio and the Index Equity Portfolio through March 31, 1995. Series A
Investor, Series B Investor, Institutional and Service shares in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Series A Investor shares bear the expense of the Series A
Distribution and Service Plan at an annual rate not to exceed .55% of the
average daily net asset value of each Portfolio's outstanding Series A Investor
shares. Series B Investor shares bear the expense of the Series B Distribution
Plan at an annual rate not to exceed .75% of the average daily net asset value
of each Portfolio's outstanding Series B Investor shares. Series B Investor
shares also bear the expense of the Series B Service Plan at an annual rate not
to exceed .25% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Under the Fund's Service Plan, Service
shares bear the expense of fees at an annual rate not to exceed .15% of the
average daily net asset value of each Portfolio's outstanding Service shares.
Service shares also bear the expense of a service fee at an annual rate not to
exceed .15% of the average daily net asset value of each Portfolio's outstanding
Service shares for other shareholder support activities provided by service
organizations. Institutional shares do not bear the expense of the Series A
Distribution and Service Plan, the Service Plan, the Series B Distribution Plan
or the Series B Service Plan. The Service, Series A Investor and Series B
Investor classes are currently bearing such respective expenses at aggregate
annual rates of .30% of the average daily net asset value of Service shares,
.40% of the average daily net asset value of Series A Investor shares and 1.00%
of the average daily net asset value of Series B Investor shares.
58
<PAGE> 59
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds are valued
on the basis of quotations provided by a pricing service which uses information
with respect to transactions on bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Short-term obligations with maturities of 60
days or less are valued at amortized cost which approximates market value.
Discounts and premiums on debt securities are amortized for book and tax
purposes using the effective yield-to-maturity method over the term of the
instrument.
Dividends to Shareholders -- Dividends from net investment income are
declared and paid quarterly for the Portfolios. Net realized capital gains, if
any, will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Foreign Currency Transactions -- With respect to the International Equity
Portfolio and International Emerging Markets Portfolio, transactions denominated
in foreign currencies are recorded in the Portfolios' records at the current
prevailing exchange rates. Asset and liability accounts that are denominated in
a foreign currency are adjusted daily to reflect current exchange rates.
Transaction gains or losses resulting from changes in exchange rates during the
reporting period or upon settlement of the foreign currency transaction are
reported in operations for the current period. It is not practical to isolate
that portion of both realized and unrealized gains and losses on investments in
the statement of operations that result from fluctuations in foreign currency
exchange rates. The Portfolios report certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date. Certain expenses, principally
fees relating to the Service Plan, the Series A Distribution and Service Plan,
the Series B Distribution Plan and the Series B Service Plan, are class specific
expenses. Expenses not directly attributable to a specific Portfolio or class
are allocated among all of the Portfolios or classes of the Fund based on their
relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the
59
<PAGE> 60
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
collateral being deposited under the Federal Reserve book-entry system or held
in a separate account by the Fund's custodian or an authorized securities
depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
Implementation of AICPA Statement of Position 93-2: -- As of October 1,
1993, the Fund implemented AICPA Statement of Position 93-2 -- Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. Adoption of this
standard results in the reclassification to paid-in capital of permanent
differences between tax and financial reporting of net investment income and net
realized gain (loss). The change has had no material effect on paid-in capital
or other components of the net assets of any of the Portfolios at October 1,
1993. Distributions to shareholders and net asset values were not affected by
this change.
Futures Transactions -- Certain portfolios may enter into futures contracts
subject to certain limitations. Upon entering into a futures contract, the
Portfolio is required to deposit cash or pledge U.S. Government securities in an
amount equal to five percent of the purchase price indicated in the futures
contract (initial margin). Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying security or securities, are made or
received by the Portfolio each day (daily variation margin) and are recorded as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contracts. Risks of entering into futures contracts
include the possibility that there will not be a perfect price correlation
between the futures contract and the underlying securities. Second, it is
possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
At March 31, 1995, the Index Equity Portfolio had outstanding 92 futures
contracts on the S&P 500 Stock Index, expiring June 16, 1995. The value of such
contracts on March 31, 1995 was $23,202,400, thereby resulting in an unrealized
gain of $761,300.
Futures transactions entered into for the six months ended March 31, 1995,
are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPENING
OF CONTRACTS VALUE
------------- ------------
<S> <C> <C>
Long Futures Contracts Opened......................................... 249 $ 58,682,925
Long Futures Contracts Closed......................................... (164) (37,883,500)
------ ------------
Outstanding Long Futures at
Beginning of period................................................. 7 1,641,675
------ ------------
End of period....................................................... 92 $ 22,441,100
====== ============
</TABLE>
60
<PAGE> 61
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
Forward Foreign Currency Contracts -- International Equity Portfolio may
enter into forward foreign currency contracts to hedge against adverse changes
in the relationship of the U.S. dollar to foreign currencies. At March 31, 1995,
the Portfolio had entered into the following positions and the related
unrealized gain (loss) is reflected in the accompanying financial statements:
<TABLE>
<CAPTION>
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CONTRACT MARCH 31, EXCHANGE
DATE BOUGHT AMOUNT 1995 GAIN/(LOSS)
- ---------- -------------------------------------------- ------------- ------------- -----------
<C> <S> <C> <C> <C>
7/11/95 128,137,860 French Franc................ $ 24,515,201 $ 26,559,391 $ 2,044,190
7/11/95 27,528,900 German Deutsche Mark........ 18,173,162 20,140,838 1,967,676
7/11/95 27,600,073 Netherlands Guilder......... 16,162,785 17,997,152 1,834,367
7/11/95 21,961,619 British Pound Sterling...... 35,112,201 35,513,849 401,648
7/11/95 1,088,358,000 Japanese Yen................ 11,318,153 12,697,256 1,379,103
------------- ------------- -----------
$ 105,281,502 $ 112,908,486 $ 7,626,984
============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CONTRACT MARCH 31, EXCHANGE
DATE SOLD AMOUNT 1995 GAIN/(LOSS)
- ---------- ------------------------------------------- ------------- ------------- ------------
<C> <S> <C> <C> <C>
7/11/95 128,137,860 French Franc............... $ 24,005,719 $ 26,559,391 $ (2,553,672)
7/11/95 27,528,900 German Deutsche Mark....... 17,744,993 20,140,838 (2,395,845)
7/11/95 27,600,073 Netherlands Guilder........ 15,882,037 17,997,152 (2,115,115)
7/11/95 21,961,619 British Pound Sterling..... 33,770,416 35,513,849 (1,743,433)
7/11/95 1,088,358,000 Japanese Yen............... 11,400,000 12,697,256 (1,297,256)
------------- ------------- ------------
$ 102,803,165 $ 112,908,486 $(10,105,321)
============= ============= ============
</TABLE>
Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currency relative to the U.S.
dollar.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group,
Inc. ("PAMG"), which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment adviser for each of the Fund's
Portfolios. PNC Equity Advisors Company ("PEAC"), a wholly-owned subsidiary of
PAMG, serves as the sub-adviser for the Growth Equity, Small Cap Growth Equity,
Core Equity and Index Equity Portfolios. PNC Bank serves as the sub-adviser for
the Balanced Portfolio. Provident Capital Management, Inc. ("PCM") serves as the
sub-adviser for the Value Equity, Small Cap Value Equity, International Equity
and International Emerging Markets Portfolios. PNC Bank, PAMG, PIMC, PEAC and
PCM are indirect wholly-owned subsidiaries of PNC Bank Corp.
61
<PAGE> 62
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
For its advisory services, PIMC is entitled to receive fees at the
following annual rates, computed daily and payable monthly based on each
Portfolio's average daily net assets:
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Small
Cap Value Equity and Balanced Portfolios -- .55% of its first $1 billion, .50%
of the next $1 billion, .475% of the next $1 billion and .45% of net assets in
excess of $3 billion.
Index Equity Portfolio -- .20% of its average daily net assets.
International Equity Portfolio -- .75% of its first $1 billion, .70% of the
next $1 billion, .675% of the next $1 billion and .65% of net assets in excess
of $3 billion.
International Emerging Markets Portfolio -- 1.25% of its first $1 billion,
1.20% of the next $1 billion, 1.155% of the next $1 billion, and 1.10% of net
assets in excess of $3 billion.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any Portfolio. For the six months ended March 31, 1995,
advisory fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY FEE WAIVER ADVISORY FEE
------------ -------- ------------
<S> <C> <C> <C>
Value Equity Portfolio............................ $1,759,164 $383,817 $1,375,347
Growth Equity Portfolio........................... 469,375 128,012 341,363
Small Cap Growth Equity Portfolio................. 289,259 55,707 233,552
Core Equity Portfolio............................. 341,607 93,165 248,442
Index Equity Portfolio............................ 180,359 161,218 19,141
Small Cap Value Equity Portfolio.................. 603,856 54,896 548,960
International Equity Portfolio.................... 1,393,899 278,780 1,115,119
International Emerging Markets Portfolio.......... 74,804 34,203 40,601
Balanced Portfolio................................ 409,649 111,723 297,926
</TABLE>
PIMC pays PNC Bank, PEAC and PCM fees for their sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
The combined administration fee is computed daily and payable monthly, based on
a percentage of the average daily net assets of each Portfolio, at the following
annual rates: .20% of the first $500 million, .18% of the next $500 million,
.16% of the next $1 billion and .15% of net assets in excess of $2 billion.
62
<PAGE> 63
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
PFPC and PDI may, at their discretion, voluntarily waive all or any portion
of their administration fees for any Portfolio. For the six months ended March
31, 1995, administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------- --------------
<S> <C> <C> <C>
Value Equity Portfolio................................ $625,594 $ 82,014 $543,580
Growth Equity Portfolio............................... 170,682 38,229 132,453
Small Cap Growth Equity Portfolio..................... 105,185 20,257 84,928
Core Equity Portfolio................................. 124,221 30,815 93,406
Index Equity Portfolio................................ 180,359 162,756 17,603
Small Cap Value Equity Portfolio...................... 219,584 49,330 170,254
International Equity Portfolio........................ 371,706 68,015 303,691
International Emerging Markets Portfolio.............. 11,968 5,472 6,496
Balanced Portfolio.................................... 148,963 59,607 89,356
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the six months ended March
31, 1995.
(C) PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 1995, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Value Equity Portfolio.............................................. $ 38,284,107 $126,890,126
Growth Equity Portfolio............................................. 109,514,208 50,873,364
Small Cap Growth Equity Portfolio................................... 61,463,200 38,197,881
Core Equity Portfolio............................................... 70,153,777 26,841,589
Index Equity Portfolio.............................................. 4,338,772 15,517,640
Small Cap Value Equity Portfolio.................................... 37,279,904 42,062,962
International Equity Portfolio...................................... 156,791,163 123,323,123
International Emerging Markets Portfolio............................ 15,615,065 3,319,997
Balanced Portfolio.................................................. 70,160,919 44,772,299
</TABLE>
63
<PAGE> 64
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(UNAUDITED)
For the six months ended March 31, 1995, purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Index Equity Portfolio............................................. $ 1,284,996 $ --
Small Cap Value Equity Portfolio................................... 16,953,070 --
Balanced Portfolio................................................. 20,177,547 24,447,789
</TABLE>
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
-------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 1,850,795 $ 21,340,217 12,482,545 $145,402,977
Service Class........................ 2,504,436 28,981,826 11,420,404 133,583,231
Series A Investor Class.............. 271,948 3,135,929 549,692 6,421,094
Shares issued in acquisition:
Institutional Class.................. -- -- 6,598,466 76,359,690
Service Class........................ -- -- -- --
Series A Investor Class.............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class.................. 1,586,297 17,983,038 1,465,316 17,028,775
Service Class........................ 278,467 3,160,729 170,840 1,983,734
Series A Investor Class.............. 34,507 391,318 23,783 276,302
Shares redeemed:
Institutional Class.................. (12,182,150) (139,304,004) (7,860,051) (91,683,551)
Service Class........................ (1,448,146) (16,725,778) (4,534,339) (53,327,116)
Series A Investor Class.............. (166,401) (1,906,900) (93,980) (1,095,554)
----------- ------------- ---------- ------------
Net increase (decrease)................... (7,270,247) $ (82,943,625) 20,222,676 $234,949,582
=========== ============= ========== ============
</TABLE>
64
<PAGE> 65
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
-----------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31,1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class..................... 6,769,786 $ 68,672,134 5,402,429 $ 55,921,412
Service Class........................... 1,595,758 16,309,644 4,235,370 44,688,111
Series A Investor Class................. 239,539 2,442,329 385,847 4,122,589
Shares issued in reinvestment of dividends:
Institutional Class..................... 83,442 831,916 50,847 555,756
Service Class........................... 19,104 190,471 10,725 117,219
Series A Investor Class................. 2,815 28,031 2,650 28,942
Shares redeemed:
Institutional Class..................... (1,230,847) (12,552,045) (4,497,375) (47,960,268)
Service Class........................... (627,164) (6,432,576) (1,377,677) (14,500,982)
Series A Investor Class................. (83,513) (852,664) (95,762) (991,600)
---------- ------------ ---------- ------------
Net increase................................. 6,768,920 $ 68,637,240 4,117,054 $ 41,981,179
========== ============= ========== =============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
----------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
------------------------ ------------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class..................... 2,318,027 $25,230,251 6,318,147 $61,898,992
Service Class........................... 898,852 9,804,036 2,508,294 24,932,282
Series A Investor Class................. 135,682 1,475,472 199,989 2,012,738
Shares issued in reinvestment of dividends:
Institutional Class..................... 10,636 112,950 289 2,896
Service Class........................... 70 741 72 716
Series A Investor Class................. -- -- 3 29
Shares redeemed:
Institutional Class..................... (490,202) (5,286,424) (941,326) (9,351,176)
Service Class........................... (398,330) (4,201,053) (362,210) (3,636,495)
Series A Investor Class................. (16,547) (178,883) (43,898) (443,425)
--------- ----------- --------- -----------
Net increase................................. 2,458,188 $26,957,090 7,679,360 $75,416,557
========= ============ ========= ============
</TABLE>
65
<PAGE> 66
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
-----------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................ 6,458,298 $ 63,893,031 3,234,844 $ 32,284,922
Service Class.............................. 1,734,051 17,140,429 4,222,406 41,703,020
Series A Investor Class.................... 104,895 1,028,374 62,504 619,978
Shares issued in acquisition:
Institutional Class........................ -- -- -- --
Service Class.............................. -- -- 2,120,797 21,441,256
Series A Investor Class.................... -- -- -- --
Shares issued in reinvestment of dividends:
Institutional Class........................ 158,210 1,553,279 54,106 536,408
Service Class.............................. 91,159 887,842 39,095 385,556
Series A Investor Class.................... 2,201 21,588 517 5,097
Shares redeemed:
Institutional Class........................ (920,543) (9,085,292) (5,383,666) (53,714,044)
Service Class.............................. (1,353,237) (13,547,881) (1,483,259) (14,757,102)
Series A Investor Class.................... (8,730) (86,277) (2,426) (24,013)
---------- ------------ ---------- ------------
Net increase................................. 6,266,304 $ 61,805,093 2,864,918 $ 28,481,078
========== ============= ========== =============
</TABLE>
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
-----------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................ 2,048,597 $ 22,480,492 2,748,481 $ 30,530,750
Service Class.............................. 2,193,235 25,009,877 2,738,322 29,856,693
Series A Investor Class.................... 107,512 1,204,570 155,908 1,717,243
Shares issued in reinvestment of dividends:
Institutional Class........................ 356,713 3,909,332 514,324 5,647,787
Service Class.............................. 67,296 738,205 57,047 624,860
Series A Investor Class.................... 6,908 75,798 6,194 67,935
Shares redeemed:
Institutional Class........................ (2,313,347) (25,387,286) (6,637,885) (72,216,872)
Service Class.............................. (490,084) (5,380,239) (1,419,801) (15,374,054)
Series A Investor Class.................... (34,350) (381,552) (35,869) (384,797)
---------- ------------ ---------- ------------
Net increase (decrease)...................... 1,942,480 $ 22,269,197 (1,873,279) $(19,530,455)
========== ============= ========== =============
</TABLE>
66
<PAGE> 67
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
----------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
------------------------- ------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......................... 1,433,173 $ 18,514,153 6,053,107 $80,712,762
Service Class............................... 825,583 10,716,392 2,640,878 35,259,165
Series A Investor Class..................... 310,405 4,030,081 652,661 8,700,548
Series B Investor Class..................... 66,884 872,991 -- --
Shares issued in reinvestment of dividends:
Institutional Class......................... 561,434 6,967,400 136,855 1,781,855
Service Class............................... 138,871 1,723,392 34,742 452,345
Series A Investor Class..................... 62,375 773,445 14,918 194,087
Series B Investor Class..................... 1,891 23,430 -- --
Shares redeemed:
Institutional Class......................... (2,235,305) (28,862,769) (3,674,313) (48,788,351)
Service Class............................... (620,209) (7,987,465) (996,563) (13,349,689)
Series A Investor Class..................... (184,720) (2,375,182) (118,889) (1,579,039)
Series B Investor Class..................... (1,963) (25,578) -- --
---------- ------------ ---------- -----------
Net increase.................................. 358,419 $ 4,370,290 4,743,396 $63,383,683
========== ============= ========== ============
</TABLE>
67
<PAGE> 68
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class..................... 3,695,935 $ 45,888,736 10,403,157 $137,086,511
Service Class........................... 1,852,610 23,136,354 5,340,051 70,470,270
Series A Investor Class................. 333,134 4,205,525 869,084 11,416,406
Series B Investor Class................. 65,078 829,024 -- --
Shares issued in acquisition:
Institutional Class..................... -- -- 2,566,789 33,881,621
Service Class........................... -- -- -- --
Series A Investor Class................. -- -- -- --
Series B Investor Class................. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class..................... 521,554 6,451,626 206,166 2,655,420
Service Class........................... 123,648 1,527,047 27,454 353,613
Series A Investor Class................. 34,649 427,221 12,576 161,981
Series B Investor Class................. 1,195 14,710 -- --
Shares redeemed:
Institutional Class..................... (1,555,560) (19,566,359) (2,476,409) (32,400,362)
Service Class........................... (801,285) (10,018,188) (724,128) (9,567,654)
Series A Investor Class................. (176,575) (2,174,201) (98,546) (1,302,076)
Series B Investor Class................. (1,153) (14,097) -- --
---------- ------------ ---------- ------------
Net increase.............................. 4,093,230 $ 50,707,398 16,126,194 $212,755,730
========== ============= ========== =============
</TABLE>
68
<PAGE> 69
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MARKETS PORTFOLIO
----------------------------------------------
FOR THE FOR THE PERIOD
SIX MONTHS ENDED JUNE 17, 1994(1)
MARCH 31, 1995 THROUGH
(UNAUDITED) SEPTEMBER 30, 1994
----------------------- --------------------
SHARES VALUE SHARES VALUE
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................... 992,238 $ 8,278,461 238,035 $2,402,550
Service Class................................. 561,457 4,986,323 334,803 3,411,089
Series A Investor Class....................... 70,389 675,246 294,215 2,964,354
Shares issued in reinvestment of dividends:
Institutional Class........................... 1,355 12,400 -- --
Service Class................................. 5,218 47,638 -- --
Series A Investor Class....................... 6,033 55,023 -- --
Shares redeemed:
Institutional Class........................... (78,926) (736,906) (173) (1,850)
Service Class................................. (95,651) (772,230) (2,612) (27,034)
Series A Investor Class....................... (33,310) (303,501) (23,182) (232,921)
--------- ----------- ------- ----------
Net increase....................................... 1,428,803 $12,242,454 841,086 $8,516,188
========= =========== ======= ==========
</TABLE>
- -------------
(1) Commencement of operations.
69
<PAGE> 70
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
---------------------------------------------------
FOR THE SIX MONTHS
ENDED
MARCH 31, 1995 FOR THE YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
----------------------- -------------------------
SHARES VALUE SHARES VALUE
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class...................... 642,170 $ 7,681,786 1,367,828 $ 17,190,809
Service Class............................ 1,145,399 13,771,664 6,873,562 84,853,542
Series A Investor Class.................. 415,406 4,962,575 2,650,204 33,055,064
Series B Investor Class.................. 147,935 1,758,696 -- --
Shares issued in acquisition:
Institutional Class...................... -- -- -- --
Service Class............................ -- -- 1,362,909 17,268,053
Series A Investor Class.................. -- -- -- --
Series B Investor Class.................. -- -- -- --
Shares issued in reinvestment of dividends:
Institutional Class...................... 47,319 560,914 24,801 302,800
Service Class............................ 163,424 1,935,460 121,007 1,475,817
Series A Investor Class.................. 148,074 1,751,475 142,423 1,746,240
Series B Investor Class.................. 2,858 33,889 -- --
Shares redeemed:
Institutional Class...................... (332,339) (3,956,755) (963,835) (12,093,104)
Service Class............................ (717,859) (8,538,892) (4,122,713) (50,677,486)
Series A Investor Class.................. (689,000) (8,237,545) (774,539) (9,531,304)
Series B Investor Class.................. (5,740) (68,431) -- --
--------- ----------- ---------- ------------
Net increase.................................. 967,647 $11,654,836 6,681,647 $ 83,590,431
========= ============ ========== =============
</TABLE>
70
<PAGE> 71
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
(E) AT MARCH 31, 1995, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
SMALL CAP
VALUE EQUITY GROWTH EQUITY GROWTH EQUITY CORE EQUITY INDEX EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Capital paid-in........................... $552,428,784 $202,793,195 $114,111,304 $158,418,085 $184,364,122
Undistributed net investment income....... -- 672,905 133,515 11,023 --
Distribution in excess of net
investment income....................... (363,829) -- -- -- (101,636)
Accumulated net realized gain (loss) on
investment transactions, futures
contracts and foreign exchange
contracts............................... 15,632,086 707,089 (8,079,381) (785,979) 1,507,753
Net unrealized appreciation (depreciation)
on investment transactions, futures
contracts and foreign exchange
contracts............................... 68,190,853 19,362,461 25,469,214 10,598,722 26,445,415
------------ ------------ ------------ ------------ ------------
$635,887,894 $223,535,650 $131,634,652 $168,241,851 $212,215,654
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL INTERNATIONAL
VALUE EQUITY EQUITY EMERGING MARKETS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Capital paid-in....................................... $200,228,965 $ 389,784,534 $ 20,758,642 $158,731,959
Undistributed net investment income................... 256,621 3,171,685 105,538 --
Distribution in excess of net investment income....... -- -- -- (744)
Accumulated net realized gain (loss) on investment
transactions, futures contracts and foreign
exchange contracts.................................. 3,736,064 1,328,330 (10,915) (5,339,794)
Net unrealized appreciation (depreciation) on
investment transactions, futures contracts and
foreign
exchange contracts.................................. 22,810,842 2,981,152 (2,919,895) 8,857,352
------------ ------------- ---------------- ------------
$227,032,492 $ 397,265,701 $ 17,933,370 $162,248,773
============ ============= ================ ============
</TABLE>
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1994, a capital loss carryover was available to offset
possible future realized capital gains of $6,672,353 in the Small Cap Growth
Equity Portfolio which expires in the year 2002.
At September 30, 1994, the deferred post-October capital loss was $541,673
for the Growth Equity Portfolio.
(G) ACQUISITION OF COLLECTIVE FUNDS
On December 28, 1993, The PNC Fund acquired all the assets of the Equity
Portfolio of the PNC Financial Common Trust for Retirement Assets from the
participants of these Trusts. The acquisition was accomplished by a tax-free
exchange of assets with a value of $21,441,256 for 2,120,797 Service shares of
the Core Equity Portfolio at $10.11 per share. The Equity Portfolio's net assets
on that date had $2,089,340 in unrealized appreciation.
71
<PAGE> 72
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 1995
On December 28, 1993, The PNC Fund acquired all the assets of the Asset
Allocation Portfolio of the PNC Financial Common Trust for Retirement Assets
from the participants of these Trusts. The acquisition was accomplished by a
tax-free exchange of assets with a value of $17,268,053 for 1,362,909 Service
shares of the Balanced Portfolio at $12.67 per share. The Asset Allocation
Portfolio's net assets on that date had $1,491,666 in unrealized appreciation.
On May 26, 1994, The PNC Fund acquired all the assets of the PNC Pension
Plan Assets Equity Portfolio from the participants of such fund. The acquisition
was accomplished by a tax-free exchange of assets with a value of $53,018,086
for 4,570,525 Institutional shares of the Value Equity Portfolio at $11.60 per
share and a value of $33,881,621 for 2,566,789 Institutional shares of the
International Equity Portfolio at $13.20 per share.
On June 21, 1994 The PNC Fund acquired all the assets of the PNC Incentive
Savings Plan Assets Equity Portfolio from the participants of such fund. The
acquisition was accomplished by a tax-free exchange of assets with a value of
$23,341,604 for 2,027,941 Institutional shares of the Value Equity Portfolio at
$11.51 per share.
72
<PAGE> 73
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 1
EXHIBIT (17)(u)
Dear Shareholder:
We are pleased to present the Seventh Annual Report of the Compass Funds. The
year was both challenging and exciting as we continued to enhance the Compass
Fund Family for you, our shareholders. The Balanced Fund, which commenced
operations during the year, has grown rapidly and recently achieved the
necessary asset level to be reported in major newspapers throughout the
country.
This has been a difficult period for both the stock and bond markets due to a
number of events such as rising interest rates in the United States, the
earthquake tragedy in Kobe, Japan, the peso devaluation in Mexico and finally
the bankruptcy of the Barings Bank in England. We are proud to report that 11
of 15 Compass Funds which have been in operation for the full year have
outperformed the median mutual fund in their respective categories for the year
ended February 28, 1995 as reported by Lipper Analytical Services. In addition,
four Compass Funds performed in the top quartile.
Our new transfer agent (State Street Bank and Trust Company) was introduced
during the year, enabling the funds to implement the latest technology for
shareholder services and client statements.
ECONOMIC COMMENT
Domestically, economic growth continued to accelerate during the past 12 months
as the Gross Domestic Product advanced by a robust 4%. This growth was
accomplished during a period when inflation continued to show no signs of
accelerating, as the Consumer Price Index increased by a modest 2.7%. The
Federal Reserve's interest rate hikes beginning last February no doubt helped
to contain inflationary pressures, while allowing the economy to expand above
trendline growth.
Recent economic statistics indicate a slowing trend. In December, retail sales
showed a surprising decline of .1%; housing starts, a key component to economic
activity, reported a decline of 9.8% during the month of January. The
unemployment rate rose to a higher than expected 5.7% of the workforce, and
inventory buildup is becoming increasingly evident in the auto and retail
industries. We do expect GDP growth to average 3% or less during 1995, with
most of the gains coming during the first half of the year as higher interest
rates finally take hold and slow economic activity.
Another major factor that potentially could cause the U.S. economy to moderate
is Mexico. Ten percent of U.S. exports flow to Mexico. The recent liquidity
crisis causing the Mexican Government to devalue the peso will make it
virtually impossible to have a normal trading relationship with this important
partner. With 700,000 U.S. jobs tied to the Mexican economy, the Clinton
administration had no alternative but to proceed with emergency stop gap
funding to alleviate the immediate liquidity problem.
The recent weakness of the U.S. dollar versus the Japanese yen and German mark
should, to some extent, improve our ability to export goods and services to our
European and Asian trading partners. This dollar weakness has caused some
concern that inflation may accelerate later in the year.
The recovery experienced in the United States had a positive influence on
international economic activity. In Europe, economic growth averaged about
2.5%, while consumer inflation rose between 1.7% in France, to a high of 4.2%
in Spain. The Japanese economy continued to languish with growth of less than
1%, coupled with very low inflationary pressures. Interest rates worldwide
trended higher than the low levels experienced in the prior year.
EQUITY MARKET REVIEW
The stock market advanced during the past 12 months overcoming escalating
interest rates. For the year ending February 28, 1995, the Standard & Poor's
500 Stock Index rose 7.36%. An important milestone was reached as the Dow Jones
Industrial Average closed at 4,011.05 on the Fund's fiscal year end.
1
<PAGE> 2
There were two noteworthy economic sectors in which the stocks showed
significant outperformance. Consumer staple stocks, such as foods, beverages
and tobacco, advanced by more than 20%, and technology issues, particularly
semi-conductor and computer software companies, gained more than 18%. Both
areas showed improved fundamentals and accelerating earnings, rewarding
shareholders accordingly. Areas that underperformed the market included
transportation, with a decline of approximately 9%, and consumer cyclicals,
which consolidated on average by 5%.
There was little difference between equity investment styles and return during
the past 12 months, with both growth and value managers showing similar
results. Small company stocks, as measured by the Nasdaq Composite Index,
underperformed such broad market averages as the Standard & Poor's 500 Stock
Index during this period.
The International Equity markets, as measured by the Morgan Stanley Europe,
Australian and Far East Index (EAFE), lagged with a decline of 4.2%, in dollar
terms, during the past 12 months. The primary determinant to negative
performance was Japan, which makes up approximately 45% of the EAFE Index. The
Japanese market, as measured by the NIKKEI Index, declined by 10.25%. The
Compass International Equity Fund continued to be underweighted in the Japanese
market. Along with improving economies in Europe and strengthening currencies
against the U.S. dollar, the European equity markets were firmer. The German
market advanced in U.S. dollar terms by 17%, the Netherlands appreciated by
more than 14% and the Belgium market was up nearly 8%.
BOND MARKET REVIEW
The bond market withstood six Federal Reserve Board tightenings, strong
economic growth throughout the year ended February 28, 1995, and chaos caused
by derivative investments during a period of rising interest rates. There was
little to choose from the standpoint of investment return this year, as the
Lehman Brothers Government/Corporate Bond Index provided a total return of only
1.34% and the Lehman Brothers 10-Year General Obligation Index was up a modest
1.71%. Globally, the interest rate environment was aligned with the United
States as the Salomon Brothers World Government Bond Index returned .98%.
During January and February, the bond markets, both domestically and
internationally, have rallied as there is some evidence of a slowing economy in
the United States. With expectations of continued modest inflation and slower
economic growth, bond market performance should improve over last year's
results.
We value you as a shareholder and a client, appreciating your continued
interest in the Compass Funds. We encourage you to review the Portfolio
Managers' comments regarding each of the bond and stock funds during the past
year. The Funds remain committed to a sound investment approach, which
emphasizes quality in conjunction with prudent policies. We welcome your
questions and comments, which may be directed to your Financial Service
Representative or Investor Services at 1-800-451-8371.
Sincerely yours,
<TABLE>
<S> <C>
Alfred J. DiMatties Joseph K. Leinbach
Director Director
Trust Investments Mutual Fund Administration
Midlantic Bank, N.A. Midlantic Bank, N.A.
</TABLE>
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
MANAGER'S DISCUSSION OF FUND PERFORMANCE........................... 4
STATEMENTS OF NET ASSETS/SCHEDULE OF INVESTMENTS................... 15
STATEMENTS OF ASSETS AND LIABILITIES............................... 55
STATEMENTS OF OPERATIONS........................................... 58
STATEMENTS OF CHANGES IN NET ASSETS................................ 60
FINANCIAL HIGHLIGHTS............................................... 65
NOTES TO FINANCIAL STATEMENTS...................................... 68
REPORT OF INDEPENDENT AUDITOR'S OPINION............................ 75
NOTICE TO SHAREHOLDERS............................................. 76
</TABLE>
<PAGE> 4
EQUITY INCOME FUND
The Equity Income Fund seeks current income and capital appreciation by
investing primarily in common stocks. On average, stocks selected for the fund
have higher than average dividend yields and lower than average
price-to-earnings and price-to-book ratios. The yield of the fund's stocks is
currently 3.3% versus 2.8% for the average stock in the S&P 500 Index. The
stocks in the fund currently sell for approximately 10 times our 1995 earning
projections versus a multiple of about 14 times earnings for the S&P 500 Index.
The fund returned 3.87% for the 12 months ended February 28, 1995 versus 7.36%
for the S&P 500 Index. The primary factors that influenced the fund's
performance were expenses, which the Index does not incur, and the
underperformance of higher-yielding and cyclically-sensitive industry sectors
that the fund emphasizes in meeting its investment objectives. Despite
underperformance versus the broad market as represented by the S&P 500 Index,
the fund outperformed the average of other equity income funds as represented
by the Lipper Equity Income Fund Average, which returned 2.01%.
During the fiscal year, performance was held back by underweighted positions
versus the Index in the strong-performing healthcare and technology sectors,
which are lower-yielding sectors. Performance was aided by a considerable
overweighting in the finance sector and strong stock selection in that group.
For 1995, we expect that corporate profits will grow at a level that is below
1994's pace but still quite good. The growth in corporate profits continues to
generate substantially increased levels of capital investment and stock
repurchases. Investment-driven productivity gains should also continue. The
strength of foreign economies will more than make up for slower economic growth
at home. Given this outlook, the fund continues to focus on sectors with the
greatest sensitivity to a global expansion, in particular, cyclical commodities
such as aluminum and paper. The fund also has significant commitments in energy
and finance, which we believe offer compelling valuations and good growth
prospects.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR INCEPTION
<S> <C> <C> <C>
WITH SALES CHARGE -0.06% 11.27% 10.20%
WITHOUT SALES CHARGE 3.87% 12.13% 10.94%
S&P 500 INDEX 7.35% 11.35% 10.94%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[S&P 500 Index Graph]
(1) For the period ended February 28, 1995. The S&P 500 Index is an unmanaged
index which excludes transaction and holding charges. Past performance of
the portfolio does not predict future results.
4
<PAGE> 5
GROWTH FUND
The Growth Fund seeks capital appreciation by investing primarily in common
stocks. Income is a secondary consideration. Emphasis is placed on companies
that have demonstrated consistent historical earnings growth. The fund returned
2.75% for the 12 months ended February 28, 1995 versus 7.36% for the S&P 500
Index. The primary factors that influenced the fund's performance were
expenses, which the Index does not incur, and emphasis on specific growth
sectors which underperformed the broad market for the year. The fund's
performance pattern was similar to that of other growth funds and, despite
underperformance versus the broad market, the fund outperformed the average of
other growth funds as represented by the Lipper Growth Fund Average, which
returned .92%.
In the first half of the period, the stock market was dominated by
economically-sensitive issues which responded favorably to accelerating
economic growth. Later in the year, as interest rates continued to rise, the
fear that inflation would choke off the recovery dominated investors' thoughts.
As a result, investors fled from cyclical stocks, which was a boon for consumer
stable issues such as food, beverage, tobacco and household products. The
Growth Fund was significantly underweighted versus the Index in this
strong-performing sector. Performance was also negatively impacted by an
overweighting in a lagging sector, information and entertainment. Brighter
spots included an underweighting in the very weak consumer discretionary sector
and considerable overweighting in the technology sector combined with strong
performance in that group.
We do not anticipate any major change in strategy in the coming year and remain
committed to the stocks of companies that will benefit from what we believe
will be global economic expansion. We will continue to favor the stocks of
companies whose long-term earnings are expected to grow faster than the average
company represented in the S&P 500 Index.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR INCEPTION
<S> <C> <C> <C>
WITH SALES CHARGE -1.10% 7.48% 7.38%
WITHOUT SALES CHARGE 2.75% 8.30% 8.09%
S&P 500 INDEX 7.35% 11.35% 10.94%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[S&P 500 Index Graph]
(1) For the period ended February 28, 1995. The S&P 500 Index is an unmanaged
index which excludes transaction and holding charges. Past performance of
the portfolio does not predict future results.
5
<PAGE> 6
SMALL CAP VALUE FUND
The Small Cap Value Fund seeks capital appreciation by investing primarily in
common stocks of small-sized market capitalization companies.
For the year ending February 28, 1995, the Small Cap Value Fund had a total
return of -4.70%. This compares to the NASDAQ/OTC Index return of .16% over the
same period.
During 1994, the Small Cap Value Fund's strategy remained consistent with its
purchases, concentrated in issues having price-to-sales, price-to-earnings and
price-to-book value ratios that are substantially discounted versus comparable
ratios of the S&P 500 and the Russell 2000 indexes. The Small Cap Value Fund,
with steep discounts from the median valuation stock, performed slightly behind
most small cap indices. In general, equity returns in 1994 were disappointing
for most investors. Big cap growth stocks slightly outperformed the overall
market, but we believe this result represents a counter cyclical move in what
is still a value cycle.
We feel the decline in 1994 was a temporary situation which will be rectified
in 1995. While we could be wrong, we anticipate a 1995 which is nicely above
average in terms of equity returns, big cap or small cap, growth or value. Our
optimism is predicated on a growing economy, lower than anticipated inflation,
a declining yield curve spread and the oversold nature of the equity market. We
also expect it to be value led.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR INCEPTION
<S> <C> <C>
WITH SALES CHARGE -8.27% 7.09%
WITHOUT SALES CHARGE -4.70% 8.22%
NASDAQ/OTC INDEX 0.16% 14.97%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[NASDAQ/OTC Index Graph]
(1) For the period ended February 28, 1995. The NASDAQ/OTC Index is an
unmanaged index which excludes transaction and holding charges. Past
performance of the portfolio does not predict future results.
6
<PAGE> 7
BALANCED FUND
During the first eight months of operation, the Balanced Fund achieved a total
return of 8.94% compared to the median return of balanced funds as measured by
Lipper Analytical Services, which advanced by 9.54%. At February 28, 1995, the
Balanced Fund's assets were allocated 49.4% equities and securities convertible
into equity investments, 39.2% high grade government and corporate bonds, and a
cash reserve of 11.4%. The asset allocation remained relatively constant during
most of this time period. However, the equity position was reduced about 3% in
the latter part of February following a sharp rise in the stock market during
the months of January and February.
Equities in the portfolio performed well in absolute terms, by providing a
total return of 9.7%. The fund's performance benefited by a concentration in
technology issues, as this sector outperformed the general market
significantly. The portfolio was also enhanced due to stock selection in the
consumer staples area, the best performing stock group during the past eight
months. The fund's performance was negatively impacted by consumer cyclical
stocks, in particular, retailers. On an individual stock selection basis, the
four best performing stocks during the time period were Merck, with a gain of
41%, Pepsico, advancing 22%, Engelhard, up 20% and McDonald's, which registered
a gain of 16%. Our primary focus will continue to be on companies which have
clear earnings visibility, strong balance sheets and visionary management that
can improve the company's competitive position.
The strategy for the fixed-income portion of the portfolio focused mainly on
liquidity and quality. Emphasis was put on high coupon bond issues to maximize
income. In an effort to remain defensive in a volatile interest rate
environment, average maturity and duration were shortened slightly to 7.44 and
4.66 years, respectively. The average quality of the portfolio remained
extremely high with the equivalent of an AAA rating.
Looking ahead, the bond portfolio will continue to concentrate on liquidity as
well as quality. Although we will continue to focus on government and
government agency securities, the fund will search for opportunities to
increase its corporate bond exposure to enhance current yield. Special emphasis
will be placed on companies whose bonds are trending toward an improved quality
rating.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
INCEPTION
<S> <C>
WITH SALES CHARGE 2.83%
WITHOUT SALES CHARGE 8.94%
LIPPER BALANCED FUND AVERAGE 9.54%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lipper Balanced Fund Average Graph]
(1) For the period ended February 28, 1995. The Lipper Balanced Fund Average
is an unmanaged index which excludes transaction and holding charges. Past
performance of the portfolio does not predict future results.
7
<PAGE> 8
SHORT/INTERMEDIATE FUND
The Short/Intermediate Fund invests principally in obligations issued by the
U.S. Government or its agencies and high-grade corporate obligations. The
fund's weighted average maturity may range between two and five years to reduce
volatility. The fund's objective is to seek current income and preservation of
capital.
For the fiscal year ending February 28, 1995, the Short/Intermediate Fund
realized a return of 2.27%. This compares to a total return of 3.26% for the
Lehman Brothers 1-3 Year Government Bond Index. The fund's net assets as of its
fiscal year end were $202 million.
As a result of the Federal Reserve Board's monetary policy shift towards
tightening, interest rates rose throughout the yield curve. Recognizing the
rise in interest rates would hurt bond prices, the fund's average weighted
maturity was shortened to its allowable minimum of two years. In addition, bond
swaps were initiated to capture some of the rising current coupon income now
available in the marketplace. Our emphasis on high quality securities helped
provide the fund with additional relative performance gains. Of the issues held
by the fund, over 70% are rated in the Aa category or better by Moody's
Investor Services.
Monetary policy will remain one of the primary forces that will significantly
influence interest rates in the coming months. We anticipate remaining fully
invested, while maintaining an average portfolio maturity range of two to four
years.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR INCEPTION
<S> <C> <C> <C>
WITH SALES CHARGE -1.59% 6.35% 6.43%
WITHOUT SALES CHARGE 2.27% 7.17% 7.14%
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT BOND INDEX 3.24% 7.10% 7.39%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 1-3 Year Government Bond Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 1-3 Year
Government Bond Index is an unmanaged index which excludes transaction and
holding charges. Past performance of the portfolio does not predict future
results.
8
<PAGE> 9
FIXED INCOME FUND
The Fixed Income Fund invests principally in obligations issued by the U.S.
Government or its agencies and high-grade corporate obligations. Based on
expectations of future interest rates, the fund varies its weighted average
maturity in an effort to maximize return.
The Fixed Income Fund realized a total return of .65% for the fiscal year
ending February 28, 1995. This compares to a total return of 1.34% for the
Lehman Brothers Government/Corporate Bond Index for the same period. The fund's
net assets as of its fiscal year end were $244 million.
During the course of the year the Federal Reserve Board was active in raising
interest rates. As bond prices eroded, the fund deployed defensive type
strategies. The portfolio's weighted average maturity was shortened by over
three quarters of a year to 8.71 years, and the duration was adjusted downward
from 5.33 years to 4.92 years. Bond swaps were initiated to capture some of the
rising current coupon income now available in the marketplace. In addition, a
cash equivalent balance of more than 5% was maintained throughout most of the
year.
This fund continues to benefit from its commitment to high-quality corporate
bond securities, asset-backed investments and government obligations. Over 75%
of the individual issues that represent the fund are rated Aa or better by
Moody's Investor Services.
We anticipate the interest rate environment will remain captive to monetary
policy and inflation expectations. We will continue to seek out selective value
opportunities along the yield curve in both the government and corporate bond
markets.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR INCEPTION
<S> <C> <C> <C>
WITH SALES CHARGE -3.16% 7.77% 7.34%
WITHOUT SALES CHARGE 0.65% 8.59% 8.05%
LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX 1.35% 8.87% 8.90%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers Government/Corporate Bond Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers
Government/Corporate Bond Index is an unmanaged index which excludes
transaction and holding charges. Past performance of the portfolio does
not predict future results.
9
<PAGE> 10
MUNICIPAL BOND FUND
The Municipal Bond Fund seeks current income that is exempt from federal
taxation with the preservation of capital.
For the fiscal year ended February 28, 1995, the Municipal Bond Fund realized a
total return of 1.17%. This compares to a total return of 1.71% for the Lehman
Brothers 10-Year General Obligation Index for the same time period.
Our strategy as we entered 1994, anticipating the Federal Reserve's tightening
of monetary policy, was to shorten our average weighted maturity to 7 years
from 12 years. This reduced the price sensitivity of the fund to rising
interest rates. Although new issuance supply was expected to contract 38%, we
wanted to establish a very defensive strategy until we saw signs that the
economy was slowing.
Over 85% of the fund's assets were invested in AA and AAA rated bonds,
anticipating that if interest rates increased, higher quality issues would be
insulated from price declines more than lower quality paper. A combination of
Federal Reserve tightening, a plunging dollar and derivative losses worldwide
adversely affected bond prices during the year. During the third quarter, we
thought the Federal Reserve had just about completed its tightening; therefore,
we started to extend the average weighted maturity of the fund.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR FIVE YEAR INCEPTION
<S> <C> <C> <C>
WITH SALES CHARGE -2.62% 5.98% 5.93%
WITHOUT SALES CHARGE 1.17% 6.80% 6.71%
LEHMAN BROTHERS 10-YEAR
GENERAL OBLIGATION INDEX 1.71% 7.95% 7.84%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 10-year General Obligation Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 10-Year
General Obligation Index is an unmanaged index which excludes transaction
and holding charges. Past performance of the portfolio does not predict
future results.
10
<PAGE> 11
NEW JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund is a single state municipal debt fund that
seeks current income that is exempt from federal and state income taxation with
the preservation of capital. For the year ended February 28, 1995, the fund
provided a total return of 1.49%. This return slightly lagged the Lehman
Brothers 10-Year General Obligation Index which advanced 1.71%. This was a very
challenging and disappointing year for fixed income markets, especially the
municipal bond market. Entering 1994, market fundamentals appeared to favor the
municipal bond market. New-issuance volume was expected to contract 38% from
the record volume of $334 billion issued in 1993, slow or modest economic
growth was anticipated in the United States and abroad and inflation seemed
contained. However, action by the Federal Reserve to dramatically raise
interest rates overcame these favorable market fundamentals.
February, 1994 was a very disappointing month for the fixed income markets. The
Federal Reserve initiated its first round of tightening in more than five years
to preempt rising inflation that typically accompanies stronger economic
growth. It was the first of seven tightening moves the Federal Reserve had
engineered to help contain inflation and navigate the economy to a soft
landing. Other major factors during the period affecting the municipal bond
market included the net outflow of funds from tax-exempt mutual funds, the
derivative debacle in Orange County, California and the faltering dollar.
Our strategy during the year was to maintain our defensive posture by
purchasing pre-refunded bonds, cushion bonds and higher-coupon bonds. We
increased our weighting of AA and AAA rated issues to over 80% in anticipation
of massive redemptions of pre-refunded bonds and a lack of issuance of
high-quality New Jersey bonds. We shortened the average weighted maturity to
under 10 years and duration to 7 years to decrease the price sensitivity of the
fund during the period of the Federal Reserve's aggressive tightening. As we
approached the third quarter, we felt the Federal Reserve had just about
concluded its tightening; therefore, we started to extend the fund's average
weighted maturity to over 10 years once again.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR INCEPTION
<S> <C> <C>
WITH SALES CHARGE -2.31% 6.47%
WITHOUT SALES CHARGE 1.49% 7.59%
LEHMAN BROTHERS 10-YEAR
GENERAL OBLIGATION INDEX 1.71% 7.77%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 10-year General Obligation Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 10-Year
General Obligation Index is an unmanaged index which excludes transaction
and holding charges. Past performance of the portfolio does not predict
future results.
11
<PAGE> 12
PENNSYLVANIA MUNICIPAL BOND FUND
The Pennsylvania Municipal Bond Fund is a single state municipal bond fund that
seeks current income that is exempt from Federal and Pennsylvania income
taxation with preservation of capital.
For the year ended February 28, 1995, the Pennsylvania Municipal Bond Fund
provided a total return of 1.81%. This return exceeded the Lehman Brothers
10-year General Obligation Index which advanced 1.71%.
There were several factors affecting the tax-exempt bond market, including
tightening moves by the Federal Reserve to increase the federal funds rate to
6% from 3%, derivative problems worldwide and a very unstable dollar. All of
these factors applied downward pressure on bond prices.
Our strategy as we entered 1994 was to adhere to a defensive position until we
felt the Federal Reserve's tightening would be coming to a close. We maintained
an average weighted maturity of under 10 years and a duration under 7 years.
Over 80% of the fund was composed of AA and AAA rated securities in
anticipation of massive bond redemptions, pre-refunded bonds maturing and
demand for bonds due to a contraction of supply within Pennsylvania and the
United States in general. Towards the latter part of the third quarter, we
started to extend our average weighted maturity to over 10 years in the belief
the Federal Reserve would not materially increase rates again in the near term.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR INCEPTION
<S> <C> <C>
WITH SALES CHARGE -1.96% -0.85%
WITHOUT SALES CHARGE 1.81% 1.73%
LEHMAN BROTHERS 10-YEAR
GENERAL OBLIGATION INDEX 1.71% 7.07%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Lehman Brothers 10-year General Obligation Index Graph]
(1) For the period ended February 28, 1995. The Lehman Brothers 10-Year
General Obligation Index is an unmanaged index which excludes transaction
and holding charges. Past performance of the portfolio does not predict
future results.
12
<PAGE> 13
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks capital appreciation by investing in equity
securities of foreign companies, most of which are denominated in foreign
currencies.
The International Equity Fund had a total return of -6.99% for the year ended
February 28, 1995. This compares to a total return of -4.44% for the EAFE Index
for the same period.
The past fiscal year has proved to be a difficult one as most major stock
markets fell in local currency terms. However, the U.S. dollar was quite weak
falling by 14% against the deutsche mark and 7% against the yen. Since the
fund's value is reported in U.S. dollars, this helped to mitigate some of the
decline of local currency equity values. Stock markets in Europe proved the
most resilient. Our strategy had generally been to underweight the U.K. while
being broadly in line with the index in continental Europe. However, within
this we underweighted Germany and overweighted France. Our stock selection
strategy was mainly focused on economically sensitive shares as the economic
recovery continued to gather strength.
Virtually all Pacific markets were very weak, most notably Hong Kong and
Malaysia. Our strategy was to significantly underweight both these markets. In
particular, we were cautious about property prices and both political and
economic problems in China. By contrast, we overweighted Singapore and Taiwan.
In Japan, we maintained a weighting below the index level at around one-third
of the fund. Japan's economic recovery was beginning to gather pace but
received a significant setback following the Kobe earthquake. The recovery will
come but has probably been delayed some six months.
Emerging markets suffered a very turbulent year, particularly in Latin America.
The fund's investments in Latin America were somewhat reduced; however, we
continue to favor emerging markets in the long run.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR INCEPTION
<S> <C> <C>
WITH SALES CHARGE -10.49% 7.10%
WITHOUT SALES CHARGE -6.99% 8.23%
EAFE INDEX -4.44% 8.04%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[EAFE Index Graph]
(1) For the period ended February 28, 1995. The EAFE Index is an unmanaged
index which excludes transaction and holding charges. Past performance of
the portfolio does not predict future results.
13
<PAGE> 14
INTERNATIONAL FIXED INCOME FUND
The International Fixed Income Fund invests principally in top quality, fixed
income securities denominated in foreign currencies. The investment adviser has
the discretion to hedge foreign currency exposure back to the dollar to protect
the fund against adverse currency moves.
For the year ended February 28, 1995, the International Fixed Income Fund
provided a total return of 1.50%. This return exceeded the Salomon Brothers
Non-U.S. Hedged World Government Bond Index, which had a return of .98% over
the same period.
During the first half of the year, over 80% of the fund was invested in
European bonds. The fund's performance suffered from an overweight exposure to
the high-yielding bond markets of Italy, Spain and Sweden, where prices fell
due to concerns over budgetary policies and a general removal of liquidity from
these markets. As the year progressed, European bond exposure was consolidated
towards "core" Europe, and holdings of French and German bonds were increased
to 45% of the total portfolio. Most European currency exposure was hedged back
to the dollar, although an opportunistic exposure to the undervalued Italian
lira was taken during the first half of the year. Deutsche mark and sterling
currency exposure was maintained throughout the year in order to benefit from
the decline of the dollar.
Throughout 1994, the fund held a 20% exposure to Japanese bonds, which enhanced
the fund's performance as economic growth remained weak. The return from
Japanese bonds was aided by a 6% exposure to the yen, which appreciated by 12%
against the dollar in 1994. The fund's duration was reduced to under five years
as the outlook for bond markets became more cautious.
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
SINCE
ONE YEAR INCEPTION
<S> <C> <C>
WITH SALES CHARGE -2.32% 6.28%
WITHOUT SALES CHARGE 1.50% 7.40%
SALOMON BROTHERS NON-U.S. HEDGED
WORLD GOVERNMENT BOND INDEX .98% 7.09%
</TABLE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
[Salomon Brothers Non-U.S. Hedged World
Government Bond Index Graph]
(1) For the period ended February 28, 1995. The Salomon Brothers Non-U.S.
Hedged World Government Bond Index is an unmanaged index which excludes
transaction and holding charges. Past performance of the portfolio does
not predict future results.
14
<PAGE> 15
STATEMENT OF NET ASSETS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
February 28, 1995
CASH RESERVE FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
COMMERCIAL PAPER (33.2%)
ABN/AMRO Canada, Schedule B
6.220%, 03/27/95.............. $ 5,000 $ 4,978
American Telephone & Telegraph
Capital
6.370%, 04/03/95.............. 10,000 9,943
Bowater PLC
6.150%, 05/12/95.............. 5,000 4,939
Broadway Capital
6.420%, 04/07/95.............. 12,000 11,922
Deutsche Bank Financial
5.860%, 05/01/95.............. 5,000 4,952
Ford Motor Credit
6.235%, 04/28/95.............. 9,500 9,406
General Electric Capital
6.480%, 04/13/95.............. 5,000 4,962
International Lease Finance
6.520%, 06/09/95.............. 10,000 9,824
International Nederlanden U.S.
Insurance Holdings
6.020%, 03/03/95.............. 5,000 4,998
6.057%, 04/24/95.............. 5,050 5,005
MCA Funding
6.605%, 07/25/95.............. 7,300 7,111
6.308%, 08/21/95.............. 5,500 5,338
New South Wales Treasury
6.010%, 03/09/95.............. 5,000 4,993
Queensland Alumina
6.030%, 03/13/95.............. 5,000 4,990
6.226%, 04/17/95.............. 10,000 9,920
South Australian Government
Financing Authority
6.215%, 03/23/95.............. 7,600 7,572
6.930%, 07/03/95.............. 11,000 10,746
Southland
6.400%, 03/14/95.............. 5,000 4,989
6.200%, 05/10/95.............. 5,000 4,941
Tasmanian Public Finance
6.360%, 03/30/95.............. 8,200 8,159
Toyota Motor Credit
6.230%, 04/03/95.............. 5,000 4,972
--------
Total Commercial Paper
(Cost $144,658,704)........... 144,660
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
CORPORATE BONDS (23.7%)
American Express Centurion Bank
6.125%, 03/23/95 (A)................. $10,000 $10,000
6.063%, 03/26/95 (A)................. 10,000 9,998
Associates
4.190%, 05/05/95..................... 2,000 1,997
Beta Finance
6.190%, 03/01/95 (A)................. 11,000 10,999
FCC National Bank, Delaware
6.110%, 03/07/95 (A)................. 10,000 10,000
General Electric Capital
6.400%, 03/01/95 (A)................. 10,000 9,998
Goldman Sachs Group
6.190%, 03/01/95 (A)................. 10,000 10,000
6.655%, 03/01/95 (A)................. 10,000 10,000
Nationsbank, North Carolina
5.650%, 07/21/95..................... 10,000 9,984
PNC Bank
6.010%, 03/07/95 (A)................. 10,000 9,999
Southtrust Bank, Alabama
6.125%, 05/03/95..................... 10,000 10,000
--------
Total Corporate Bonds
(Cost $102,975,481).................. 102,975
--------
ASSET BACKED SECURITIES (4.6%)
Steers
6.060%, 03/07/95 (A)................. 15,000 15,000
6.250%, 05/18/95 (A)................. 5,000 5,000
--------
Total Asset Backed Securities
(Cost $19,999,870)................... 20,000
--------
GUARANTEED INVESTMENT CONTRACT (2.3%)
Peoples Security Life
6.170%, 03/01/95 (A)................. 10,000 10,000
--------
Total Guaranteed Investment
Contract
(Cost $10,000,000)................... 10,000
--------
U.S. TREASURY OBLIGATION (1.2%)
U.S. Treasury Note
3.875%, 03/31/95..................... 5,000 4,997
--------
Total U.S. Treasury Obligation
(Cost $4,997,455).................... 4,997
--------
</TABLE>
Continued
15
<PAGE> 16
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
CASH RESERVE
FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (6.4%)
Federal National Mortgage
Association
5.360%, 03/20/95.............. $ 5,000 $4,986
6.730%, 07/11/95.............. 5,000 4,881
Small Business Administration
7.000%, 03/01/95 (A).......... 7,958 8,148
Student Loan Marketing
Association
5.315%, 06/30/95.............. 5,000 5,000
5.480%, 06/30/95 (A).......... 5,000 5,000
--------
Total U.S. Government Agency
Obligations
(Cost $28,015,029)............ 28,015
--------
TIME DEPOSIT (1.9%)
Dai Ichi Kangyo Bank, Toronto
6.156%, 03/24/95.............. 5,000 5,000
Morgan Toronto
6.063%, 03/29/95.............. 3,300 3,300
--------
Total Time Deposit
(Cost $8,300,000)............. 8,300
--------
CERTIFICATES OF DEPOSIT (9.2%)
Canadian Imperial Bank
6.250%, 03/21/95.............. 5,000 5,000
6.080%, 04/19/95.............. 10,000 10,000
Dai Ichi Kangyo Bank, New York
6.100%, 03/03/95.............. 10,000 10,000
National Westminster PLC,
New York
6.080%, 04/14/95.............. 5,000 5,000
Westdeutsche Landesbank
6.120%, 06/01/95.............. 10,000 10,000
--------
Total Certificates of Deposit
(Cost $40,000,129)............ 40,000
--------
BANKERS ACCEPTANCES (0.9%)
First National Bank, Chicago
5.560%, 03/14/95.............. 4,000 3,992
--------
Total Bankers Acceptances
(Cost $3,992,142)............. 3,992
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ ---------
<S> <C> <C>
REPURCHASE AGREEMENTS (14.8%)
First Boston, 6.1875%, dated 02/28/95,
matures 03/01/95, repurchase price
$32,505,586 (collateralized by U.S.
Coupon Strips, par value
$87,163,970, maturities ranging
from 05/15/97 to 11/15/12, market
value $33,164,798)..................................$32,500 $32,500
Merrill Lynch, 6.17%, dated 02/28/95,
matures 03/01/95, repurchase price
$31,904,467 (collateralized by
Federal Home Loan Bank Bond, par
value $10,000, 7.67%, 10/06/99,
market value $10,308, Collateralized
Mortgage Obligation Trust, par
value $12,270,000, 9.10%, 01/01/20,
market value $20,567,505, Federal
Home Loan Mortgage Corporation-
Government National Mortgage
Association Collateralized Mortgage
Obligations, par value $15,000,000,
coupons ranging from 7.00% to
7.50%, maturities ranging from
03/25/24 to 04/25/24, market value
$11,963,109)........................................ 31,899 31,899
---------
Total Repurchase Agreements
(Cost $64,399,000).................................. 64,399
---------
Total Investments (98.2%)
(Cost $427,337,810)................................. 427,338
---------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets and Liabilities, Net....................... 7,985
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 435,472,526 shares of beneficial
interest............................................ 435,473
Accumulated net realized loss on
investments......................................... (150)
---------
Total Net Assets: (100.0%)........................... $435,323
=========
Net Asset Value, Offering Price and
Redemption Price Per Share.......................... $1.00
=========
</TABLE>
- -----------------
(A) Variable Rate Security-the rate reflected on the Statement of Net Assets is
the rate in effect on February 28, 1995.
PLC-Public Limited Company
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
U.S. TREASURY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
U. S. TREASURY OBLIGATIONS (48.8%)
U.S. Treasury Bills
5.464%, 03/02/95.................. $20,000 $ 19,997
5.337%, 03/23/95.................. 20,000 19,936
5.809%, 04/13/95.................. 25,000 24,829
5.540%, 04/20/95.................. 15,000 14,888
5.963%, 05/11/95.................. 20,000 19,771
6.114%, 08/24/95.................. 30,000 29,130
U.S. Treasury Notes
3.875%, 03/31/95.................. 25,000 24,971
4.625%, 08/15/95.................. 25,000 24,793
--------
Total U. S. Treasury Obligations
(Cost $178,315,140)............... 178,315
--------
REPURCHASE AGREEMENTS (51.1%)
First Boston, 6.1875%, dated
02/28/95, matures 03/01/95,
repurchase price $87,515,039
(collateralized by U.S. Treasury
Coupon Strips, par value
$158,234,454, maturities ranging
from 05/15/96 to 05/15/11,
market value $89,454,428)......... 87,500 87,500
Goldman Sachs Group, 6.03%, dated
02/28/95, matures 03/01/95,
repurchase price $15,002,513
(collateralized by U.S. Treasury
Note, par value $15,213,000,
5.875%, maturing 05/31/96,
market value $15,300,850)......... 15,000 15,000
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
Merrill Lynch, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $84,472,194
(collateralized by U.S.
Treasury Note, par value
$85,130,000, 7.25%, maturing
02/15/98, market value
$86,150,166).................... $84,458 $ 84,458
--------
Total Repurchase Agreements
(Cost $186,958,000)............. 186,958
--------
Total Investments (99.9%)
(Cost $365,273,140)............. 365,273
--------
OTHER ASSETS AND LIABILITIES
(0.1%)
Other Assets and Liabilities,
Net............................. 243
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 365,510,980 shares of
beneficial interest............. 365,511
Accumulated net realized gain on
investments..................... 5
--------
Total Net Assets: (100.0%).......... $365,516
========
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $1.00
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (102.5%)
California (2.2%)
State, Series A, RAN
5.000%, 06/28/95.................... $1,000 $ 1,003
-------
Delaware (0.7%)
State, Housing Authority, RB, (FSA)
4.000%, 06/01/95.................... 330 330
-------
Florida (4.7%)
Bay County, Medical Center Project,
RB
3.850%, 03/06/95 (B) (C)............ 800 800
Dade County, Health Facilities
Authority, Miami Childrens
Hospital Project, VRDN, RB
4.050%, 03/01/95 (A) (B) (C)........ 300 300
State, Housing Finance Agency,
Multifamily Housing, VRDN, RB
4.200%, 03/07/95 (A) (B) (C)........ 1,000 1,000
-------
2,100
-------
Georgia (0.4%)
Turner County, Industrial
Development Authority, Coats
And Clark Project, VRDN, RB
4.100%, 03/01/95 (A) (B) (C)........ 200 200
-------
Hawaii (4.2%)
State, Department of Budget And
Finance, Kuakini Medical Center
Project, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)........ 1,900 1,900
-------
Idaho (3.3%)
State, Housing Finance Authority, RB
5.000%, 07/01/95 (C)................ 1,500 1,500
-------
Kansas (0.4%)
Butler County, Solid Waste
Disposal, Texaco Refining and
Marketing Project, VRDN, RB,
AMT
4.300%, 03/01/95 (A) (B)............ 200 200
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Louisiana (8.4%)
State, Recovery District Sales Tax,
VRDN, RB, (FGIC)
3.750%, 03/01/95 (A) (B)........... $ 700 $ 700
State, Recovery District Sales Tax,
VRDN, RB, (MBIA)
3.750%, 03/07/95 (A) (B)........... 1,500 1,500
West Baton Rouge Parish,
Industrial Development Authority,
Dow Chemical Project, Series B,
VRDN, RB
4.000%, 03/01/95 (A) (B)........... 1,600 1,600
-------
3,800
-------
Maryland (2.9%)
Howard County, Owen Brown
Project, VRDN, RB
3.700%, 03/01/95 (A) (B) (C)....... 300 300
State, Health And Higher Education
Authority, Hopkins Hospital
Project, TECP
3.750%, 03/03/95................... 1,000 1,000
-------
1,300
-------
Massachusetts (2.2%)
Bay Transportation Authority,
General Transportation Systems,
Series A, RB
3.750%, 03/01/95 (C)............... 1,000 1,000
-------
Michigan (14.6%)
Grand Rapids, Economic
Development Authority, Amway
Grand Project, Series 2, VRDN,
RB
4.150%, 03/07/95 (A) (B) (C)....... 1,500 1,500
Grand Rapids, Economic
Development Authority, Amway
Hotel Project, Series A, VRDN,
RB
4.300%, 03/07/95 (A) (B) (C)....... 2,000 1,999
Grand Rapids, Water Supply,
VRDN, RB
3.900%, 03/07/95 (A) (B) (C)....... 1,100 1,100
</TABLE>
Continued
18
<PAGE> 19
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -----
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Michigan, continued:
Midland County, Economic
Development Authority, Dow
Chemical Project, Series A,
VRDN, RB
4.200%, 03/01/95 (A) (B)........ $1,000 $ 1,000
State, Industrial Development
Authority, Allen Group
Incorporated Project, VRDN, RB
3.850%, 03/07/95 (A) (B) (C).... 1,000 1,000
-------
6,599
-------
Minnesota (2.2%)
Minneapolis-St. Paul, Housing
Finance Authority, Series B, RB
4.600%, 08/01/95................ 985 985
-------
Mississippi (1.1%)
Hinds County, GO, (MBIA)
3.700%, 03/01/95................ 475 475
-------
Missouri (7.3%)
Callaway County, Industrial
Development Authority, Callaway
Community Hospital, VRDN, RB
3.800%, 03/01/95 (A) (B)........ 800 800
Kansas City, Industrial
Development Authority, Coach
House II Project, VRDN, RB
4.000%, 03/01/95 (A) (B)........ 2,000 2,000
State, Environmental Improvement
Authority, RB
3.750%, 06/01/95 (C)............ 500 500
-------
3,300
-------
New Jersey (10.6%)
Berkeley Heights, BAN
4.750%, 11/09/95................ 2,765 2,770
Elizabeth, GO, (AMBAC)
4.300%, 08/15/95................ 535 535
Woodbridge Township, Sewer
Utility, BAN
4.480%, 10/06/95................ 1,500 1,500
-------
4,805
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
North Carolina (0.2%)
State, Health Care Facilities, Carol
Woods Project, VRDN, RB
4.000%, 03/01/95 (A) (B) (C)........ $ 100 $ 100
-------
Ohio (4.4%)
Montgomery County, BAN
4.000%, 04/27/95.................... 1,000 1,001
State, Highway Authority, Series Q,
GO
5.700%, 05/15/95.................... 1,000 1,004
-------
2,005
-------
Pennsylvania (12.0%)
Berks County, Sixth And Penn
Street Project, VRDN, RB
4.000%, 03/07/95 (A) (B) (C)........ 200 200
Delaware County, Industrial
Development Authority, United
Parcel Services Project, VRDN,
RB
3.750%, 03/01/95 (A) (B)............ 1,000 1,000
Lehigh County, Industrial
Development Authority, Pollution
Control, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)........ 900 900
Montour County, Health System
Authority, Geisinger Project,
Series 1992B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)........ 300 300
Philadelphia, Hospital And Higher
Education Facility Authority,
Community College Project,
Series A, RB, (MBIA)
3.750%, 05/01/95.................... 535 535
Sayre, Health Care Facility
Authority, Pennsylvania Capital
Financing Project, Series K,
VRDN, RB, (AMBAC)
4.050%, 03/07/95 (A) (B)............ 800 800
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)........ 1,100 1,100
</TABLE>
Continued
19
<PAGE> 20
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
FEBRUARY 28, 1995
MUNICIPAL MONEY
FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State, Higher Education Authority,
Series B, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)........ $ 400 $ 400
State, Higher Educational Facilities
Authority, Temple University
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)........ 200 200
-------
5,435
-------
Puerto Rico (2.2%)
Governmental Development Bank,
TECP
3.900%, 04/07/95.................... 1,000 1,000
-------
Texas (2.2%)
Fort Worth, Water And Sewer
Authority, RB
8.500%, 03/01/95.................... 600 600
Harris County, Industrial
Development Authority, Pollution
Control, Series A, VRDN, RB
3.900%, 03/01/95 (A) (B)............ 400 400
-------
1,000
-------
Utah (2.6%)
State, Housing Finance Agency,
Series D, RB, AMT
4.800%, 08/01/95.................... 1,160 1,160
-------
Virginia (4.4%)
Richmond, RAN
5.500%, 06/30/95 (C)................ 1,000 1,003
State, Commonwealth
Transportation Board, Series 95A,
RB
5.800%, 05/15/95.................... 1,000 1,003
-------
2,006
-------
West Virginia (4.0%)
Marion County, Community Solid
Waste Disposal Facility, VRDN,
RB, AMT
4.300%, 03/07/95 (A) (B) (C)........ 1,800 1,800
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Wisconsin (3.3%)
State, Housing And Economic
Development, Series B, RB, AMT,
(FSA)
4.600%, 04/01/95.................... $1,500 $ 1,500
-------
Wyoming (2.0%)
Lincoln County, Pollution Control,
Exxon Project, Series A, VRDN,
RB
3.900%, 03/01/95 (A) (B)............ 400 400
Lincoln County, Pollution Control,
Exxon Project, Series D, VRDN,
RB
3.900%, 03/01/95 (A) (B)............ 100 100
Platte County, Pollution Control,
VRDN, RB
4.000%, 03/01/95 (A) (B) (C)........ 400 400
-------
900
-------
Total Municipal Bonds
(Cost $46,403,157).................. 46,403
-------
Total Investments (102.5%)
(Cost $46,403,157).................. 46,403
-------
OTHER ASSETS AND LIABILITIES (-2.5%)
Other Assets and Liabilities, Net....... (1,151)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 45,291,867 outstanding
shares of beneficial interest....... 45,288
Accumulated net realized loss on
investments......................... (36)
-------
Total Net Assets: (100.0%)............ $45,252
=======
Net Asset Value, Offering Price and
Redemption Price Per Share.......... $ 1.00
=======
</TABLE>
- ---------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
Continued
20
<PAGE> 21
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
BAN-Bond Anticipation Note
GO-General Obligation
RAN-Revenue Anticipation Note
RB-Revenue Bond
TECP-Tax Exempt Commercial Paper
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
FSA-Financial Security Assurance
MBIA-Municipal Bond Insurance Association
NEW JERSEY MUNICIPAL
MONEY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (99.4%)
New Jersey (85.7%)
Cherry Hill Township, GO
7.000%, 08/01/95 (C)............ $1,000 $ 1,008
Essex County, Series A, BAN
5.500%, 12/12/95................ 875 878
Hackensack, BAN
5.500%, 12/20/95................ 850 855
Jersey City, BAN
5.250%, 11/17/95................ 2,000 2,007
Middlesex County, GO,
Prerefunded @ 102
7.050%, 03/15/95 (B) (C)........ 500 511
Morristown, GO
5.000%, 08/01/95 (C)............ 695 696
Port Authority, Versatile Struc-
ture Obligation, Series 1,
VRDN,
RB, AMT
3.900%, 03/01/95 (A) (B) (C).... 3,100 3,100
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
Princeton Borough, BAN
3.340%, 04/14/95 (C)........... $1,000 $ 1,000
Salem County, Pollution Control
Project, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)... 500 500
State Economic Development
Authority, TECP
3.500%, 03/07/95 (C)........... 1,000 1,000
4.000%, 04/13/95 (C)........... 1,000 1,000
State Economic Development
Authority, 400 International
Drive Partners Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)... 700 700
State Economic Development
Authority, Crowle Shipping
Project, VRDN, RB
3.550%, 03/01/95 (A) (B) (C)... 2,000 2,000
State Economic Development
Authority, Data Tac Industries
Incorporated Project, Series
W, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 1,115 1,115
State Economic Development
Authority, Dates-Tru Project,
VRDN, RB
3.450%, 03/01/95 (A) (B) (C)... 900 900
State Economic Development
Authority, Economic Growth
Bonds, Series C-1, VRDN,
RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 590 590
State Economic Development
Authority, Eldorado Terminal
Project, Series 1984 B,
VRDN, GO
3.900%, 03/01/95 (A) (B)....... 2,800 2,800
State Economic Development
Authority, Eldorado Terminal
Project, Series 1984 B,
VRDN, RB
3.900%, 03/01/95 (A) (B)....... 1,100 1,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
MONEY FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State Economic Development
Authority, First Management
Fellowship Project, Series B,
VRDN, RB
4.000%, 03/07/95 (A) (B) (C).. $1,000 $ 1,000
State Economic Development
Authority, Jersey Avenue
Project, VRDN, RB
3.900%, 03/07/95 (A) (B) (C).. 800 800
State Economic Development
Authority, Makita U.S.A.
Incorporated Project,
VRDN, RB
4.050%, 03/07/95 (A) (B) (C).. 600 600
State Economic Development
Authority, Russell Berrie
Project, VRDN, RB
4.250%, 03/07/95 (A) (B) (C).. 200 200
State Economic Development
Authority, Series A, VRDN, GO
4.200%, 03/07/95 (A) (B) (C).. 300 300
State Economic Development
Authority, Series J, VRDN,
RB, AMT
4.200%, 03/07/95 (A) (B) (C).. 650 650
State Educational Facility
Authority, College And
University Equipment Project,
Series A, VRDN, RB, (FGIC)
3.850%, 03/07/95 (A) (B)...... 550 550
State Health Care Facilities
Financing Authority, Hospital
And Nursing Home
Improvement Project,
VRDN, RB
3.850%, 03/07/95 (A) (B) (C).. 200 200
State Health Care Facilities
Financing Authority, Hospital
Capital Asset Financing
Project, Series A,
VRDN, RB
3.850%, 03/07/95 (A) (B) (C).. 600 600
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
State Health Care Facilities
Financing Authority, Hospital
Capital Asset Financing, Series
D, VRDN, RB
3.850%, 03/07/95 (A) (B) (C)....... $ 200 $ 200
State Healthcare Facilities Financ-
ing Authority, Jersey Shore
Medical Center Project, RB,
(AMBAC)
5.000%, 07/01/95 (C)............... 710 712
State Turnpike Authority, Series
D, VRDN, RB, (FGIC)
3.750%, 03/07/95 (A) (B)........... 2,000 2,000
State, TECP
3.400%, 03/02/95 (C)............... 2,000 2,000
State, Governmental,
Series 501 C 3, GO
5.800%, 08/01/95................... 1,000 1,007
State, Series A, TRAN
5.000%, 06/15/95................... 2,000 2,006
Union County, Industrial Pollution
Control Financing Authority,
Exxon Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)....... 1,300 1,300
Woodbridge Township, Sewer
Utilities, BAN
4.480%, 10/06/95................... 1,500 1,500
-------
37,385
-------
Pennsylvania (2.3%)
State, Transportation Trust Fund,
Series A, RB
4.500%, 12/15/95................... 1,000 998
-------
Puerto Rico (11.4%)
Commonwealth Public Finance
Agency, Series A, RB
4.750%, 07/01/95................... 2,000 2,005
Commonwealth Public Finance
Authority, RB
6.350%, 07/01/95 (C)............... 960 966
</TABLE>
Continued
22
<PAGE> 23
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Puerto Rico, continued:
Governmental Development Bank,
TECP
3.900%, 04/07/95................... $2,000 $ 2,000
-------
4,971
-------
Total Municipal Bonds
(Cost $43,354,348)................. 43,354
-------
Total Investments (99.4%)
(Cost $43,354,348)................. 43,354
-------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets and Liabilities, Net...... 256
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 43,617,629 outstanding
shares of beneficial interest...... 43,617
Accumulated net realized loss on
investments........................ (7)
-------
Total Net Assets: (100.0%)........... $43,610
=======
Net Asset Value, Offering Price
and Redemption Price Per
Share.............................. $1.00
=======
</TABLE>
- ---------------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
BAN-Bond Anticipation Note
GO-General Obligation
RB-Revenue Bond
TECP-Tax-Exempt Commercial Paper
TRAN-Tax and Revenue Anticipation Note
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
PENNSYLVANIA MUNICIPAL
MONEY FUND
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
MUNICIPAL BONDS (104.8%)
Pennsylvania (104.8%)
Allegheny County, Mortgage
Backed Security Program,
Series F, RB
3.700%, 06/01/95 (C)............ $ 1,075 $ 1,075
Allegheny County, Port
Authority, GAN
4.100%, 07/03/95 (C)............ 1,000 1,000
Beaver County, Industrial
Development Authority,
Duquesne Light Project,
Series B, VRDN, RB
4.050%, 03/07/95 (A) (B) (C).... 600 600
Beaver County, Industrial
Development Authority,
Duquesne Light Project,
Series A, VRDN, RB
4.050%, 03/07/95 (A) (B) (C).... 500 500
Berks County, Industrial
Development Authority, VRDN,
RB
3.850%, 03/01/95 (A) (B) (C).... 700 700
Chartiers Valley, Industrial and
Commercial Development
Authority, William Penn Place
Project, VRDN, RB
4.000%, 03/01/95 (A) (B) (C).... 200 200
Conneaut, School District
Authority, GO, (AMBAC)
9.750%, 05/01/95................ 1,000 1,009
Delaware County, Industrial
Development Authority, BP Oil
Project, VRDN, RB
3.600%, 03/07/95 (A) (B)........ 200 200
Delaware County, Industrial
Development Authority,
Pollution Control, TECP, (FGIC)
3.700%, 03/01/95................ 1,800 1,800
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series A, VRDN,
RB
4.100%, 03/07/95 (A) (B) (C).... 1,000 1,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
PENNSYLVANIA MUNICIPAL
MONEY FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, continued:
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series C, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)..... $900 $900
Delaware County, Industrial
Development Authority, United
Parcel Services Project, VRDN,
RB
3.750%, 03/01/95 (A) (B) (C)..... 900 900
Emmaus, VRDN, GO
4.050%, 03/07/95 (A) (B) (C)..... 1,100 1,100
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C,
VRDN, RB
3.750%, 03/01/95 (A) (B) (C)..... 600 600
Lehigh County, Industrial
Development Authority,
Pollution Control, VRDN, RB
3.750%, 03/01/95 (A) (B) (C)..... 900 900
Montgomery County, Industrial
Development Authority, TECP
4.250%, 05/04/95 (C)............. 2,000 2,000
Montgomery County, Industrial
Development Authority, Quaker
Chemical Project, VRDN, RB
3.850%, 03/01/95 (A) (B) (C)..... 500 500
Montour County, Health System
Authority, Geisinger Project,
Series B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 800 800
Northeastern, Hospital Authority,
TECP, (MBIA)
4.100%, 04/13/95................. 600 600
Philadelphia, Hospital And Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 100 100
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Philadelphia, Hospitals And
Higher Education Facility
Authority, Community College
Project, Series B, RB, (MBIA)
3.750%, 05/01/95............... $ 390 $ 390
Philadelphia, School District,
Series B, GO, (AMBAC)
3.750%, 07/01/95............... 1,000 999
Philadelphia, School District,
TRAN
4.750%, 06/30/95............... 1,000 1,001
Philadelphia, TRAN
4.750%, 06/15/95 (C)........... 1,000 1,003
Quakertown, Hospital Authority,
HPS Group Pooled Financing
Project, VRDN, RB
3.800%, 03/07/95 (A) (B) (C)... 300 300
Reading, School District
Authority, GO, (MBIA)
6.600%, 03/01/95............... 1,140 1,140
Sayre, Health Care Facilities
Authority, Capital Financing
Project, Series H, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B)....... 290 290
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series A, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B) (C)... 1,200 1,200
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series D, VRDN, RB,
(AMBAC)
4.050%, 03/07/95 (A) (B)....... 800 800
Schuylkill County, Industrial
Development Authority,
Northeastern Power Project,
Series B, VRDN, RB
4.000%, 03/01/95 (A) (B) (C)... 1,500 1,500
</TABLE>
Continued
24
<PAGE> 25
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)... $1,100 $ 1,100
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 100 100
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 510 510
State, Energy Development
Authority, Piney Creek Project,
Series A, VRDN, RB, AMT
4.100%, 03/07/95 (A) (B) (C)... 100 100
State, GO
5.700%, 08/01/95............... 625 626
5.500%, 11/15/95............... 1,000 1,007
State, Higher Education
Authority, Drexel University
Project, RB, (MBIA)
6.500%, 05/01/95............... 250 251
State, Higher Education
Authority, Lasalle University
Project, RB, (MBIA)
6.400%, 05/01/95............... 585 588
State, Higher Education
Authority, Series B, VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 3,100 3,098
State, Higher Education
Authority, University of
Pennsylvania Project, Series 1,
VRDN, RB
4.100%, 03/07/95 (A) (B) (C)... 1,000 1,000
State, Highway Authority,
Series T, GO
5.700%, 08/01/95............... 375 376
State, Housing Finance Agency,
Series 35A, RB
3.800%, 04/01/95............... 500 500
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
State, Series 1, GO
3.000%, 05/01/95.................... $ 825 $ 824
State, Series 1, TRAN
4.750%, 06/30/95.................... 2,000 2,005
-------
37,192
-------
Total Municipal Bonds
(Cost $37,192,314).................. 37,192
-------
Total Investments (104.8%)
(Cost $37,192,314).................. 37,192
-------
OTHER ASSETS AND LIABILITIES (-4.8%)
Other Assets and Liabilities, Net....... (1,714)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 35,480,795 outstanding
shares of beneficial interest....... 35,481
Accumulated net realized loss on
investments......................... (3)
-------
Total Net Assets: (100.0%)............ $35,478
=======
Net Asset Value, Offering Price
and Redemption Price Per
Share............................... $ 1.00
=======
</TABLE>
- ---------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand Features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
GAN-Grant Anticipation Note
GO-General Obligation
RB-Revenue Bond
TECP-Tax-Exempt Commercial Paper
TRAN-Tax and Revenue Anticipation Note
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets.
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 26
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
EQUITY INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS (93.2%)
Air Conditioning (0.7%)
York International.............. 53,200 $ 2,048
--------
Air Transportation (0.2%)
AMR*............................ 8,000 489
--------
Aircraft (2.2%)
BE Aerospace*................... 239,800 1,319
Boeing.......................... 48,700 2,246
Sequa, Class A.................. 94,900 2,669
--------
6,234
--------
Aluminum (5.8%)
Alcan Aluminum................ 100,000 2,425
Aluminum of America........... 369,400 14,407
--------
16,832
--------
Amusement & Recreation (0.0%)
Speedway Motorsports*......... 8,100 146
--------
Automotive (3.0%)
Borg Warner Automotive*....... 75,000 488
General Motors................ 191,800 8,175
--------
8,663
--------
Banks (9.7%)
Astoria Financial*............ 88,000 2,750
Bankamerica................... 276,793 13,321
California Federal Bank*...... 143,462 1,560
Coast Savings Financial*...... 63,600 938
Keycorp....................... 122,200 3,544
Long Island Bancorp*.......... 100,000 1,625
Mellon Bank................... 23,850 909
Union Bank/San Francisco...... 101,600 3,404
--------
28,051
--------
Building & Construction (2.5%)
Centex Construction*.......... 251,000 3,106
Ryland Group.................. 113,500 1,632
Southdown*.................... 144,300 2,381
--------
7,119
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
Chemicals (0.7%)
Rhone Poulenc SA, ADR........... 30,400 $ 726
Technip ADS 144A*............... 55,700 1,406
--------
2,132
--------
Communications Equipment (0.3%)
Alcatel Alsthom................. 61,500 999
--------
Computers & Services (0.7%)
BMC Software.................... 30,400 1,953
--------
Drilling Oil & Gas Wells (1.6%)
Noble Drilling*................. 236,400 1,300
Sonat Offshore Drilling......... 165,100 3,447
--------
4,747
--------
Electric Utilities (3.9%)
Central Maine Power............. 139,400 1,952
Central Vermont Public Service.. 50,000 694
CMS Energy...................... 65,300 1,567
New York State Electric & Gas... 49,100 1,056
Niagara Mohawk Power............ 168,200 2,502
Unicom.......................... 141,900 3,618
--------
11,389
--------
Electronic and Other Electrical
Equipment (1.2%)
Raychem......................... 83,700 3,379
--------
Energy & Power (0.6%)
Entergy......................... 72,100 1,613
--------
Environmental Services (1.1%)
WMX Technologies................ 118,100 3,115
--------
Financial Services (3.3%)
American Express................ 59,800 2,018
Brascan Limited, Class A........ 101,700 1,335
Green Point Financial........... 100,000 2,338
Lehman Brothers Holding......... 213,560 3,870
--------
9,561
--------
Food, Beverage & Tobacco (4.9%)
Chiquita Brands International... 13,000 174
Interstate Bakeries............. 253,600 3,867
</TABLE>
Continued
26
<PAGE> 27
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Food, Beverage & Tobacco, continued:
Seagram............................. 49,000 $ 1,507
Universal-Virginia.................. 428,600 8,518
--------
14,066
--------
Forestry (0.3%)
Rayonier............................ 25,900 777
--------
Gas/Natural Gas (1.8%)
Columbia Gas System................. 14,600 380
Enserch............................. 55,100 771
National Fuel Gas................... 25,000 681
Seagull Energy*..................... 197,800 3,338
--------
5,170
--------
Insurance (12.3%)
Ace Limited......................... 234,200 5,796
Aetna Life & Casualty............... 107,400 5,773
Alexander & Alexander Services...... 92,100 2,003
American Premier Underwriter........ 40,000 985
Brierley Investments, ADR........... 625,000 900
Chubb............................... 89,100 7,007
Cigna............................... 75,000 5,681
Loews............................... 10,000 971
Old Republic International.......... 110,000 2,723
Reinsurance Group of America........ 19,200 535
Unitrin............................. 64,000 3,136
--------
35,510
--------
Lumber & Wood Products (0.5%)
Georgia-Pacific..................... 19,000 1,423
--------
Machinery (3.7%)
Black & Decker...................... 266,400 7,126
Cooper Industries................... 59,100 2,320
Keystone International.............. 63,000 1,173
--------
10,619
--------
Marine Transportation (1.4%)
Alexander & Baldwin................. 92,800 2,018
London And Overseas Freighter,
ADR................................. 82,400 948
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
OMI*.................................. 168,200 $ 883
Overseas Shipholding Group............ 6,900 160
--------
4,009
--------
Medical Products & Services (0.1%)
Haemonetics*.......................... 20,000 318
--------
Metals & Mining (0.2%)
Potash of Saskatchewan................ 17,300 618
--------
Miscellaneous Business Services (0.7%)
Policy Management Systems*............ 44,200 1,995
--------
Paper & Paper Products (7.7%)
Boise Cascade......................... 50,200 1,613
International Paper................... 150,800 11,517
Kimberly-Clark........................ 15,000 780
Temple-Inland......................... 102,500 5,010
Willamette Industries................. 63,200 3,397
--------
22,317
--------
Petroleum (10.6%)
Amerada Hess.......................... 60,000 2,940
Atlantic Richfield.................... 14,100 1,546
Burlington Resources.................. 87,100 3,353
Imperial Oil.......................... 45,500 1,547
Nordsk Hydro A.S., ADR................ 66,000 2,492
Occidental Petroleum.................. 5,000 99
Oryx Energy........................... 268,000 2,948
Petroleum Heat And Power,
Class A............................. 406,200 2,742
Phillips Petroleum.................... 116,600 3,892
Unocal................................ 153,000 4,341
USX-Marathon Group.................... 284,500 4,623
--------
30,523
--------
Photographic Equipment & Supplies (2.1%)
Eastman Kodak......................... 121,000 6,171
--------
Railroads (0.4%)
Canadian Pacific...................... 91,300 1,278
--------
Real Estate (4.1%)
American Real Estate Partners*........ 125,100 985
Equity Inns........................... 20,000 213
Essex Property Trust.................. 161,000 2,595
</TABLE>
Continued
27
<PAGE> 28
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
February 28, 1995
EQUITY INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- ----------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Real Estate, continued:
Gables Residential Trust....... 56,100 $ 1,066
Koger Equity*.................. 163,500 1,206
Newhall Land & Farming......... 74,200 1,085
Storage Equities............... 163,800 2,416
Sun Communities................ 104,200 2,358
----------
11,924
----------
Retail (0.7%)
Hills Department Stores*....... 36,100 736
Kmart.......................... 100,700 1,283
----------
2,019
----------
Telephones & Telecommunication
(4.2%)
BCE............................ 249,900 7,716
Comsat......................... 122,500 2,174
LDDS Communications*........... 95,614 2,241
----------
12,131
----------
Total Common Stocks
(Cost $257,077,989)............ 269,338
----------
CONVERTIBLE PREFERRED STOCKS (3.8%)
Boise Cascade, 7.48% Series G.. 99,800 2,732
Glendale Federal Savings Bank,
8.75% Series E................. 211,450 5,841
Reynolds Metals, 7.00% Series.. 30,600 1,461
Santa Fe Energy Resources,
Series A....................... 100,000 900
----------
Total Convertible Preferred
Stocks (Cost $9,715,335)....... 10,934
----------
WARRANTS (0.1%)
Glendale Federal Savings Bank
Warrants*...................... 130,480 326
----------
Total Warrants
(Cost $369,912)................ 326
----------
CONVERTIBLE BONDS (1.6%)
AMR 6.125%, 11/01/24........... $4,775 4,309
Riverwood International
6.750%, 09/15/03............... 360 391
----------
Total Convertible Bonds
(Cost $4,849,913).............. 4,700
----------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ ---------
<S> <C> <C>
REPURCHASE AGREEMENT (1.0%)
JP Morgan, 6.05%, dated 02/28/95,
matures 03/01/95, repurchase
price $2,766,465 (collateralized by
United States Treasury Bonds,
par value $2,805,000, 5.125%,
11/15/95, market value
$2,779,580)........................ $2,766 $ 2,766
--------
Total Repurchase Agreement
(Cost $2,766,000).................. 2,766
--------
Total Investments (99.7%)
(Cost $274,779,149)................ 288,064
--------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets and Liabilities, Net...... 825
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,355,658 outstanding
shares of beneficial interest...... 277,951
Accumulated net realized loss on
investments........................ (2,408)
Net unrealized appreciation on
investments........................ 13,284
Undistributed net investment
income............................. 62
--------
Total Net Assets: (100.0%)........... $288,889
========
Net Asset Value and Redemption
Price Per Share.................... $11.86
========
Maximum Public Offering Price Per
Share ($11.86/96.25%).............. $12.32
========
</TABLE>
- ---------
*Non-income producing security
ADR-American Depository Receipt
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 29
SCHEDULE OF INVESTMENTS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GROWTH FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCKS (91.7%)
Air Conditioning (1.1%)
York International.................. 38,700 $1,490
--------
Autoparts (1.7%)
Autozone*........................... 90,100 2,388
--------
Broadcasting, Newspapers &
Advertising (1.7%)
Comcast Corporation Special,
Class A........................... 150,000 2,363
--------
Building & Construction (1.1%)
Foster Wheeler...................... 44,900 1,470
--------
Chemical & Allied Products (6.1%)
Albemarle........................... 130,000 1,853
Engelhard........................... 111,000 2,928
Loctite............................. 17,100 787
Zeneca Group PLC, ADR............... 72,000 2,978
--------
8,546
--------
Commercial Banks (3.9%)
JP Morgan........................... 34,000 2,193
Republic New York................... 66,000 3,292
--------
5,485
--------
Communications Equipment (1.5%)
Motorola............................ 37,000 2,128
--------
Computer and Office Equipment (6.8%)
Cisco Systems*...................... 69,000 2,329
Computer Sciences*.................. 50,000 2,456
Hewlett Packard..................... 24,000 2,760
Microsoft*.......................... 30,000 1,890
TGV Software........................ 1,300 21
--------
9,456
--------
Electronic Components (3.5%)
AMP................................. 36,000 2,700
General Instrument*................. 68,000 2,159
--------
4,859
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
Food & Beverage (4.1%)
General Mills..................... 22,600 $ 1,370
Pepsico........................... 73,000 2,856
Sara Lee.......................... 58,000 1,523
--------
5,749
--------
Insurance (6.9%)
Ace Limited....................... 126,000 3,119
American International Group...... 26,500 2,749
American Re Insurance*............ 67,200 2,293
Value Health*..................... 38,300 1,427
--------
9,588
--------
Miscellaneous Business Services (6.5%)
Automatic Data Processing......... 42,000 2,583
Dun & Bradstreet.................. 32,000 1,652
Fiserv*........................... 107,000 2,808
Policy Management Systems*........ 44,000 1,986
--------
9,029
--------
Miscellaneous Manufacturing (1.1%)
International Game Technology..... 107,000 1,498
--------
Mortgage Bankers (2.2%)
Federal National Mortgage
Association....................... 40,000 3,085
--------
Nursing Care Facilities (1.0%)
Beverly Enterprises*.............. 109,000 1,417
--------
Oil Service (1.4%)
Schlumberger...................... 34,500 1,962
--------
Paper & Paper Products (3.3%)
International Paper............... 21,900 1,673
Kimberly-Clark.................... 50,000 2,600
--------
4,273
--------
Petroleum (6.4%)
Amoco............................. 54,000 3,199
Burlington Resources.............. 35,000 1,348
Kerr McGee........................ 32,000 1,612
Unocal............................ 99,000 2,809
--------
8,968
--------
</TABLE>
Continued
29
<PAGE> 30
SCHEDULE OF INVESTMENTS/STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- --------
<S> <C> <C>
COMMON STOCK, CONCLUDED:
Pharmeceuticals (10.6%)
Abbott Laboratories............. 77,000 $ 2,734
Biogen*......................... 25,000 1,031
Boston Scientific*.............. 134,600 2,910
Genetics Institute*............. 42,000 1,512
Hafslund Nycomed-Cl B ADR....... 80,300 1,596
Perrigo*........................ 100,000 1,388
Pfizer.......................... 43,000 3,555
--------
14,726
--------
Printing & Publishing (4.4%)
Knight-Ridder................... 26,800 1,471
Scholastic*..................... 51,700 2,611
Washington Post, Class B........ 8,000 2,026
--------
6,108
--------
Pumps and Pumping Equipment (1.5%)
Duriron......................... 120,000 2,250
--------
Retail (1.4%)
Wal-Mart Stores................. 85,000 2,019
--------
Rubber & Plastic (3.3%)
Illinois Tool Works............. 70,000 3,141
Rubbermaid...................... 46,000 1,455
--------
4,596
--------
Steel & Steel Works (0.8%)
LTV*............................ 74,000 1,138
--------
Telephones & Telecommunication
(7.3%)
AT&T............................ 36,500 1,889
Ericsson (L.M.) Telephone, ADR.. 50,000 2,843
MCI Communications.............. 90,000 1,811
Telefonos de Mexico, Class L,
ADR........................... 49,600 1,370
Vodafone Group, ADR............. 75,000 2,288
--------
10,201
--------
Trucking (2.1%)
M.S. Carriers*.................. 120,200 2,945
--------
Total Common Stocks
(Cost $117,054,965)........... 127,737
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
PREFERRED STOCKS (0.9%)
Petroleum Refining (0.9%)
Nokia Pfd, ADR.................. 16,500 $ 1,242
--------
Total Preferred Stocks
(Cost $666,188)............... 1,242
--------
REPURCHASE AGREEMENT (1.6%)
JP Morgan, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $2,302,387
(collateralized by United States
Treasury Bonds par value
$2,335,000, 5.125%, 11/15/95,
market value $2,313,839)........ $2,302 2,302
--------
Total Repurchase Agreement
(Cost $2,302,000)............... 2,302
--------
Total Investments (94.2%)
(Cost $120,023,153)............. 131,281
--------
</TABLE>
- ---------------
*Non-income producing security
ADR-American Depository Receipt
PLC-Public Limited Company
SMALL CAP VALUE FUND
<TABLE>
<S> <C> <C>
COMMON STOCKS (99.0%)
Aerospace & Defense (4.4%)
AAR.......................... 31,500 $ 434
Thiokol...................... 15,400 398
Watkins Johnson.............. 9,300 339
--------
1,171
--------
Air Transportation (1.3%)
Alaska Airgroup*............. 22,600 347
--------
Aircraft (1.5%)
UNC*......................... 71,800 404
--------
Amusement & Recreation (2.9%)
Huffy........................ 23,400 360
Outboard Marine.............. 18,800 395
--------
755
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE> 31
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Apparel/Textiles (4.5%)
Delta Woodside Industries....... 30,600 $ 333
Guilford Mills.................. 19,000 423
Interface....................... 30,700 433
-------
1,189
-------
Automotive (1.3%)
Arvin Industries................ 15,200 346
-------
Building & Construction (1.2%)
CRSS............................ 11,900 115
Morrison Knudsen................ 26,000 201
-------
316
-------
Building & Construction Supplies
(0.7%)
Southdown*...................... 11,000 182
-------
Computers & Services (4.2%)
Cray Research*.................. 20,700 349
Egghead*........................ 25,000 263
Intergraph*..................... 40,700 498
-------
1,110
-------
Environmental Services (0.8%)
Mid-American Waste.............. 38,300 215
-------
Financial Services (2.8%)
Capstead Mortgage............... 11,400 278
Morgan Keegan................... 29,850 448
-------
726
-------
Food, Beverage & Tobacco (3.4%)
Adolph Coors, Class B........... 15,300 249
Chiquita Brands International... 23,100 309
Rykoff-Sexton................... 21,625 332
-------
890
-------
Footwear (1.4%)
Brown Group..................... 8,800 284
L.A. Gear*...................... 18,700 72
-------
356
-------
Information Services (1.2%)
Primark*........................ 21,900 318
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
Insurance (6.4%)
Guaranty National................. 19,500 $ 336
John Alden Financial.............. 10,800 311
Ohio Casualty..................... 11,100 374
Provident Life & Accident
Insurance, Class B................ 14,800 348
Reliastar Financial............... 9,200 314
-------
1,683
-------
Leasing & Renting (1.5%)
Comdisco.......................... 4,600 117
PHH............................... 7,600 285
-------
402
-------
Machinery (4.0%)
Nacco Industries, Class A......... 7,200 370
SPX............................... 18,600 284
Toro.............................. 14,000 404
-------
1,058
-------
Measuring Devices (0.8%)
Tektronix......................... 6,200 212
-------
Medical Products & Services (3.5%)
Continental Medical Systems*...... 30,900 193
Spacelabs Medical*................ 17,000 412
Universal Health Services,
Class B*.......................... 12,600 315
-------
920
-------
Metals & Mining (2.2%)
Magma Copper*..................... 21,000 330
Terra Industries.................. 23,600 260
-------
590
-------
Metals Fabrication (1.4%)
Amcast Industrial................. 19,000 359
-------
Miscellaneous Business Services
(1.7%)
National Service Industries....... 9,600 258
Pinkerton's*...................... 10,700 190
-------
448
-------
Miscellaneous Consumer Services
(1.1%)
CPI............................... 19,000 285
-------
</TABLE>
Continued
31
<PAGE> 32
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
SMALL CAP VALUE FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Natural Gas (3.9%)
Energen...................... 19,000 $ 418
Enserch...................... 21,800 305
UGI.......................... 14,500 294
-------
1,017
-------
Paper & Paper Products (3.6%)
Nashua....................... 14,500 286
Pope And Talbot.............. 21,000 347
Stone Container.............. 13,000 304
-------
937
-------
Petroleum (3.4%)
Diamond Shamrock R&M......... 12,200 305
Pool Energy Services*........ 39,700 303
Quaker State................. 20,700 300
-------
908
-------
Printing & Publishing (2.9%)
Bowne........................ 21,300 364
Gibson Greetings............. 23,100 217
Western Publishing Group*.... 20,500 195
-------
776
-------
Real Estate (1.6%)
Pulte........................ 18,300 421
-------
Retail (11.8%)
Caldor*...................... 13,900 318
Fred's....................... 30,000 300
General Host................. 26,250 167
Genesco*..................... 53,100 126
Good Guys*................... 30,100 357
Hechinger, Class A........... 39,000 452
Ross Stores.................. 25,600 299
Ruddick...................... 19,200 391
Sizzler International........ 57,300 365
United States Shoe........... 18,100 344
-------
3,119
-------
Rubber & Plastic (0.4%)
Furon........................ 5,100 101
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
Semi-Conductors/Instruments (4.1%)
Applied Magnetics*................. 31,500 $ 95
M/A Communications*................ 35,600 245
Pioneer Standard Electronics....... 24,200 423
Quantum*........................... 22,300 329
-------
1,092
-------
Steel & Steel Works (2.3%)
Geneva Steel, Class A*............. 17,700 230
Quanex............................. 16,500 388
-------
618
-------
Trucking (1.2%)
Carolina Freight................... 27,300 324
-------
Utilities (3.6%)
IES Industries..................... 10,100 276
United Illuminating................ 11,000 366
Washington Water Power............. 20,600 309
-------
951
-------
Wholesale (6.0%)
Bergen Brunswig, Class A........... 25,095 684
Handleman.......................... 34,500 367
Marshall Industries*............... 12,400 322
Universal-Virginia................. 10,200 203
-------
1,576
-------
Total Common Stocks
(Cost $25,965,711)................. 26,122
-------
Total Investments (99.0%)
(Cost $25,965,711)................. 26,122
-------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities, Net...... 271
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 2,397,825 outstanding shares
of beneficial interest............. 25,719
Accumulated net realized gain on
investments........................ 479
Net unrealized appreciation on
investments........................ 156
</TABLE>
Continued
32
<PAGE> 33
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C>
NET ASSETS, CONCLUDED:
Undistributed net investment
income........................ $39
-------
Total Net Assets: (100.0%).... $26,393
-------
Net Asset Value and Redemption
Price Per Share............... $11.01
-------
Maximum Public Offering Price
Per Share ($11.01/96.25%)..... $11.44
-------
</TABLE>
- ------------------
*Non-income producing security
BALANCED FUND
<TABLE>
<S> <C> <C>
COMMON STOCKS (48.5%)
Aerospace & Defense (1.0%)
Raytheon...................... 3,500 $247
-------
Aircraft (0.8%)
United Technologies........... 3,000 199
-------
Automotive (1.6%)
Dana.......................... 7,500 185
Ford Motor.................... 8,000 209
-------
394
-------
Banks (3.8%)
Comerica...................... 6,500 183
JP Morgan..................... 3,000 192
Keycorp....................... 6,400 186
Mellon Bank................... 5,000 191
PNC Financial................. 6,000 153
-------
905
-------
Chemicals (3.1%)
Crompton & Knowles............ 10,000 169
E.I. Dupont de Nemours........ 4,000 224
Engelhard..................... 7,000 185
Witco......................... 5,800 166
-------
744
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
Communications Equipment (0.8%)
Harris............................. 4,000 $180
-------
Computers & Services (1.4%)
Novell*............................ 8,200 167
Pitney Bowes....................... 5,000 177
-------
344
-------
Drugs (3.1%)
Bristol Myers Squibb............... 4,000 248
Merck.............................. 4,300 182
Schering Plough.................... 1,700 133
Warner Lambert..................... 2,500 191
-------
754
-------
Electrical Equipment (1.0%)
Grainger (W.W.).................... 4,000 245
-------
Electronic Equipment (2.2%)
General Electric................... 6,000 329
Texas Instruments.................. 2,500 197
-------
526
-------
Environmental Services (1.2%)
Wheelabrator Technologies.......... 10,000 138
WMX Technologies................... 5,800 152
-------
290
-------
Financial Services (0.8%)
Federal National Mortgage
Association........................ 2,500 193
-------
Food, Beverage & Tobacco (3.0%)
Anheuser Busch..................... 2,800 158
Archer Daniels Midland............. 9,000 171
Pepsico............................ 5,000 196
Philip Morris Companies............ 3,000 182
-------
707
-------
Holding Company, Diversified (0.7%)
Hanson PLC, ADR.................... 8,500 159
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 34
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
BALANCED FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Household Furniture & Fixtures (0.7%)
Masco................................ 6,200 $156
-------
Insurance (1.5%)
Lincoln National..................... 4,700 190
Loews................................ 1,700 165
-------
355
-------
Machinery (1.4%)
BW/IP, Inc........................... 7,000 112
Ingersoll Rand....................... 7,000 223
-------
335
-------
Miscellaneous Manufacturing (1.8%)
Duracell International............... 4,000 167
Minnesota Mining and
Manufacturing........................ 5,000 273
-------
440
-------
Oil Services (0.8%)
Schlumberger......................... 3,500 199
-------
Paper & Paper Products (1.8%)
Kimberly-Clark....................... 5,000 260
Weyerhaeuser......................... 4,000 163
-------
423
-------
Petroleum (3.4%)
Atlantic Richfield................... 2,000 219
Burlington Resources................. 5,500 212
Chevron.............................. 3,800 181
Texaco............................... 3,000 191
-------
803
-------
Professional Services (0.8%)
Dun & Bradstreet..................... 3,800 196
-------
Railroads (1.6%)
Norfolk Southern..................... 3,000 198
Union Pacific........................ 3,500 183
-------
381
-------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
Restaurants (0.6%)
McDonald's........................... 4,200 $ 140
-------
Retail (3.1%)
J. C. Penney......................... 4,000 172
May Department Stores................ 6,000 219
Toys "R" Us*......................... 6,500 181
Wal-Mart Stores...................... 7,200 171
-------
743
-------
Semi-Conductors/Instruments (1.0%)
Avnet................................ 6,000 233
-------
Telephones & Telecommunication (3.5%)
Airtouch Communications*............. 5,500 150
American Telephone & Telegraph....... 5,500 284
Bell Atlantic........................ 4,000 215
GTE.................................. 5,800 194
-------
843
-------
Utilities (2.0%)
Dominion Resources of Virginia....... 4,500 171
General Public Utilities............. 4,000 121
Pacific Gas and Electric............. 7,000 179
-------
471
-------
Total Common Stocks
(Cost $11,120,096)................... 11,605
-------
CORPORATE BONDS (6.6%)
Associates, N.A.
7.250%, 05/15/98.................... $200 199
Ford Motor Credit
7.500%, 06/15/04.................... 250 243
General Electric Capital
8.000%, 01/15/98.................... 200 204
Pepsico
6.250%, 09/01/99.................... 200 191
Southern California Edison
5.875%, 02/01/98.................... 200 191
Wal-Mart Stores
8.000%, 09/15/06.................... 300 303
WMX Technologies
8.250%, 11/15/99.................... 250 257
-------
Total Corporate Bonds
(Cost $1,569,957).................... 1,588
-------
</TABLE>
Continued
34
<PAGE> 35
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
CONVERTIBLE BONDS (0.9%)
Time Warner
8.750%, 01/10/15................ $200 $ 201
-------
Total Convertible Bonds
(Cost $200,156).................. 201
-------
ASSET BACKED SECURITIES (1.0%)
American Express Master Trust
7.150%, 08/15/99................ 250 246
-------
Total Asset Backed Securities
(Cost $244,922).................. 246
-------
U.S. TREASURY OBLIGATIONS (30.2%)
U.S. Treasury Bonds
7.250%, 05/15/16................ 500 483
7.500%, 11/15/16................ 500 495
8.125%, 08/15/19................ 500 529
U.S. Treasury Notes
5.500%, 04/30/96................ 500 494
6.000%, 06/30/96................ 200 198
6.125%, 07/31/96................ 150 149
7.250%, 08/31/96................ 500 504
7.500%, 01/31/97................ 300 304
6.750%, 02/28/97................ 250 250
6.750%, 05/31/97................ 250 249
7.375%, 11/15/97................ 500 505
7.250%, 02/15/98................ 400 403
7.500%, 10/31/99................ 500 508
6.375%, 01/15/00................ 250 243
7.500%, 11/15/01................ 650 664
7.500%, 05/15/02................ 500 510
6.375%, 08/15/02................ 250 238
7.250%, 05/15/04................ 250 250
7.875%, 11/15/04................ 250 261
-------
Total U. S. Treasury Obligations
(Cost $7,157,533)................ 7,237
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS (1.3%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................. 300 299
-------
Total U.S. Government Agency
Obligations (Cost $296,344)...... 299
-------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)/SHARES (000)
------------ -------
<S> <C> <C>
SHORT TERM INVESTMENTS (10.8%)
Chemical Bank Repurchase
Agreement, 6.05%, dated
02/28/95, matures 03/01/95,
repurchase price $1,645,276
(collateralized by U.S.
Treasury Note, par value
$1,660,000, 7.25%, maturing
02/15/98, market value
$1,679,893)................... $1,645 $1,645
Temp Cash Fund................ 942 942
-------
Total Short Term Investments
(Cost $2,587,000)............. 2,587
-------
Total Investments (99.3%)
(Cost $23,176,008)............ 23,763
-------
OTHER ASSETS AND LIABILITIES (0.7%)
Other Assets and Liabilities,
Net........................... 170
-------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,323,146
outstanding shares of
beneficial interest........... 23,216
Accumulated net realized gain
on investments................ 130
Net unrealized appreciation on
investments................... 587
-------
Total Net Assets: (100.0%)...... $23,933
=======
Net Asset Value and
Redemption Price Per Share.... $10.30
=======
Maximum Public Offering Price
Per Share ($10.30/96.25%)..... $10.70
=======
</TABLE>
- ---------
*Non-income producing security.
ADR-American Depository Receipt
PLC-Public Limited Company
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 36
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
SHORT/INTERMEDIATE FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
CORPORATE BONDS (36.2%)
Automobile, Finance (5.9%)
Ford Capital BV
9.50%, 07/01/01.................... $2,000 $ 2,160
Ford Motor Credit
8.00%, 01/15/99.................... 1,000 1,011
8.40%, 03/26/99.................... 5,000 5,118
General Motors Acceptance
8.60%, 07/17/95.................... 2,500 2,519
9.40%, 06/07/95.................... 1,000 1,008
--------
11,816
--------
Banks (2.0%)
Republic National Bank
New York
6.40%, 04/15/95.................... 4,000 4,000
--------
Beverages (6.5%)
Coca Cola
7.875%, 09/15/98................... 6,000 6,135
Pepsico
5.625%, 07/01/95................... 2,000 1,998
6.125%, 01/15/98................... 2,000 1,950
7.00%, 11/15/96.................... 3,000 3,004
--------
13,087
--------
Chemical & Allied Products (1.8%)
E.I. Dupont de Nemours
8.45%, 10/15/96.................... 3,500 3,574
--------
Electric Utility (3.4%)
Duke Power
7.50%, 04/01/99.................... 4,000 4,015
Southern California Edison
5.90%, 01/15/97.................... 3,000 2,936
--------
6,951
--------
Personal Credit Institutions (4.7%)
Associates Corporation of North
America
5.300%, 09/04/95................... 1,000 994
6.375%, 04/15/95................... 2,000 2,000
7.625%, 04/15/98................... 2,400 2,424
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
Beta Finance
6.19%, 04/20/95 (A).............. $2,000 $ 1,999
Household Finance
7.80%, 11/01/96.................. 2,000 2,015
--------
9,432
--------
Petroleum Refining (4.5%)
Texaco Capital
7.875%, 05/01/95................. 3,000 3,008
8.530%, 08/15/97................. 1,350 1,385
9.000%, 11/15/96................. 1,500 1,551
9.000%, 12/15/99................. 3,000 3,187
--------
9,131
--------
Retail (3.9%)
Bass America
6.75%, 08/01/99.................. 5,000 4,856
Wal-Mart Stores
8.00%, 05/01/96.................. 3,000 3,034
--------
7,890
--------
Security Brokers & Dealers (3.5%)
Goldman Sachs 4.77%, 10/16/95.... 3,000 2,966
Merrill Lynch 6.75%, 03/15/95.... 4,000 4,000
--------
6,966
--------
Total Corporate Bonds
(Cost $73,770,137)............... 72,847
--------
Collateralized Mortgage
Obligations (1.9%)
Federal Home Loan Mortgage
6.750%, 09/15/16................. 4,000 3,871
--------
Total Collateralized Mortgage
Obligations
(Cost $4,033,750)................ 3,871
--------
Asset Backed Securities (15.7%)
American Express Master Trust
7.150%, 08/15/99................. 4,750 4,682
Caterpillar Finance
6.100%, 03/17/95................. 5,000 5,000
Chase Manhattan Master Trust
8.750%, 08/15/99................. 2,000 2,040
</TABLE>
Continued
36
<PAGE> 37
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<Caption
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
ASSET BACKED SECURITIES, CONCLUDED:
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................. $1,172 $ 1,153
Merrill Lynch Asset Backed
5.500%, 05/15/98................. 1,837 1,818
5.125%, 07/15/98................. 1,654 1,630
Premier Auto Trust
4.900%, 10/15/98................. 804 784
4.650%, 11/02/99................. 5,527 5,328
Standard Credit Card Master Trust
8.875%, 09/07/99................. 5,000 5,225
7.875%, 01/07/00................. 4,000 4,064
--------
Total Asset Backed Securities
(Cost $31,970,403)............... 31,724
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (2.0%)
Federal Home Loan Mortgage
7.860%, 01/21/97................. 2,000 2,030
Tennessee Valley Authority
8.375%, 10/01/99................. 2,000 2,080
--------
Total U.S. Government Agency
Obligations (Cost $4,004,410).... 4,110
--------
U. S. TREASURY OBLIGATIONS (41.9%)
U.S. Treasury Notes
5.125%, 11/15/95................. 2,000 1,983
8.500%, 11/15/95................. 2,000 2,027
7.500%, 01/31/96................. 8,000 8,073
4.625%, 02/15/96................. 5,000 4,915
5.125%, 03/31/96................. 3,000 2,956
4.250%, 05/15/96................. 3,000 2,919
7.375%, 05/15/96................. 2,000 2,018
7.250%, 08/31/96................. 1,000 1,008
6.500%, 11/30/96................. 1,000 996
7.250%, 11/30/96................. 2,000 2,016
6.250%, 01/31/97................. 3,000 2,972
6.750%, 02/28/97................. 2,000 1,999
6.875%, 04/30/97................. 10,000 10,008
6.500%, 05/15/97................. 5,000 4,963
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------ ---------
<S> <C> <C>
6.750%, 05/31/97................... $8,000 $ 7,981
5.625%, 08/31/97................... 8,000 7,774
5.750%, 10/31/97................... 3,000 2,916
6.000%, 11/30/97................... 5,000 4,887
7.875%, 01/15/98................... 4,000 4,096
7.250%, 02/15/98................... 4,000 4,034
5.125%, 02/28/98................... 1,000 951
8.000%, 08/15/99................... 3,000 3,108
---------
Total U. S. Treasury Obligations
(Cost $86,193,884)................. 84,600
---------
SHORT TERM INVESTMENTS (1.1%)
Temp Cash Fund..................... 2,141 2,141
---------
Total Short Term Investments
(Cost $2,141,028).................. 2,141
---------
Total Investments (98.8%)
(Cost $202,113,612)................ 199,293
---------
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets and Liabilities, Net...... 2,481
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 19,936,683 outstanding
shares of beneficial interest...... 207,856
Accumulated net realized loss on
investments........................ (3,296)
Net unrealized depreciation on
investments........................ (2,821)
Undistributed net investment
income............................. 35
---------
Total Net Assets: (100.0%)........... $201,774
---------
Net Asset Value and Redemption
Price Per Share.................... $10.12
---------
Maximum Public Offering Price
Per Share ($10.12/96.25%).......... $10.51
---------
</TABLE>
- -----------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 38
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
FIXED INCOME FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
CORPORATE BONDS (41.9%)
Auto Finance (3.1%)
Ford Capital BV
9.50%, 07/01/01................ $ 1,000 $ 1,080
Ford Motor Credit
6.75%, 08/15/08................ 5,000 4,475
8.00%, 01/15/99................ 2,000 2,023
--------
7,578
--------
Banks (3.0%)
Banque Nationale de Paris
9.875%, 05/25/98............... 1,000 1,074
National Westminster Bank,
New York
9.45%, 05/01/01................ 4,000 4,334
Toronto Dominion Bank,
New York
7.875%, 08/15/04............... 2,000 1,968
--------
7,376
--------
Commercial Printing (3.9%)
R.R. Donnelley & Sons
7.00%, 01/01/03................ 2,000 1,933
8.875%, 04/15/21............... 7,000 7,656
--------
9,589
--------
Electric Utility (1.2%)
Southern California Edison
5.90%, 01/15/97................ 2,000 1,957
Teco Energy
9.25%, 06/19/97................ 1,000 1,044
--------
3,001
--------
Financial Services (1.4%)
Beta Finance
6.19%, 04/20/95 (A)............ 3,500 3,499
--------
Food, Beverage & Tobacco (6.5%)
Anheuser Busch
9.00%, 12/01/09................ 4,000 4,374
Archer Daniels Midland
7.125%, 03/01/13............... 3,000 2,764
Coca Cola
7.875%, 09/15/98............... 1,955 1,999
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
Grand Metropolitan Investment
7.125%, 09/15/04................... $ 5,000 $ 4,791
Pepsico
6.125%, 01/15/98................... 2,000 1,950
--------
15,878
--------
Paper & Allied Products (3.2%)
Kimberly-Clark, Callable
02/01/13 @ 100
7.875%, 02/01/23................... 3,750 3,684
Weyerhaeuser
8.84%, 04/12/99.................... 4,000 4,200
--------
7,884
--------
Personal Credit Institutions (1.7%)
Associates Corporation of North
America
8.625%, 06/15/97................... 3,000 3,083
Associates Corporation of North
America, Callable
04/15/96 @100
7.625%, 04/15/98................... 1,000 1,010
--------
4,093
--------
Petroleum Refining (2.6%)
Texaco Capital
8.50%, 02/15/03.................... 5,000 5,225
9.00%, 11/15/96.................... 1,000 1,034
--------
6,259
--------
Railroads (1.8%)
Norfolk Southern
9.00%, 03/01/21.................... 4,000 4,365
--------
Retail-Department Stores (1.3%)
J.C. Penney, Callable
07/12/00 @ 100
9.45%, 07/15/02.................... 3,000 3,218
--------
Retail-Eating Places (2.8%)
Bass America
6.625%, 03/01/03................... 1,000 930
6.75%, 08/01/99.................... 4,000 3,885
McDonald's
7.375%, 07/15/02................... 2,000 1,998
--------
6,813
--------
</TABLE>
Continued
38
<PAGE> 39
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
CORPORATE BONDS, CONCLUDED:
Retail-Grocery Stores (2.1%)
Albertsons
4.82%, 03/25/96.................. $ 5,000 $ 4,894
--------
Retail-Variety Stores (0.8%)
Wal-Mart Stores
8.00%, 05/01/96.................. 2,000 2,023
--------
Security Brokers & Dealers (2.7%)
Merrill Lynch
7.00%, 04/27/08.................. 3,000 2,692
8.30%, 11/01/02.................. 2,000 2,030
Merrill Lynch,
Callable 04/15/98 @ 100
7.05%, 05/15/03.................. 2,000 1,868
--------
6,590
--------
Soap (0.8%)
Procter and Gamble
7.375%, 03/01/23................. 2,000 1,858
--------
Trucking (3.0%)
United Parcel Service
8.375%, 04/01/20................. 7,000 7,324
--------
Total Corporate Bonds
(Cost $104,818,508).............. 102,242
--------
COLLATERALIZED MORTGAGE
OBLIGATIONS (3.4%)
Federal Home Loan Mortgage
Corporation
8.000%, 03/15/05................. 1,773 1,786
6.750%, 09/15/16................. 6,000 5,807
Federal National Mortgage
Association
9.500%, 09/25/18................. 789 802
--------
Total Collateralized Mortgage
Obligations
(Cost $8,505,143)................ 8,395
--------
Asset Backed Securities (4.7%)
American Express Master Trust
7.150%, 08/15/99................. 2,000 1,971
Chase Manhattan Master Credit
Card Trust
8.750%, 08/15/99................. 3,000 3,060
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- --------
<S> <C> <C>
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98............. $ 703 $ 692
Merrill Lynch
5.500%, 05/15/98............. 1,102 1,091
5.125%, 07/15/98............. 1,654 1,630
Premier Auto Trust
4.900%, 10/15/98............. 3,218 3,135
--------
Total Asset Backed Securities
(Cost $11,775,461)........... 11,579
--------
GOVERNMENT POOLED MORTGAGES (1.3%)
Government National Mortgage
Association
9.000%, 09/15/16............. 539 559
9.000%, 10/15/19............. 334 346
9.000%, 11/15/19............. 544 564
9.000%, 12/15/19............. 273 283
8.500%, 03/15/20............. 208 211
8.500%, 04/15/20............. 1,255 1,276
--------
Total Government Pooled
Mortgages (Cost $3,025,554).. 3,239
--------
U.S. TREASURY OBLIGATIONS (37.9%)
U.S. Treasury Bond, Callable
02/15/02 @ 100
7.625%, 02/15/07............. 2,000 2,021
U.S. Treasury Bonds
7.250%, 05/15/16............. 10,000 9,656
8.750%, 05/15/17............. 2,000 2,243
8.125%, 08/15/19............. 6,000 6,343
7.875%, 02/15/21............. 1,000 1,030
6.250%, 08/15/23............. 5,000 4,256
U.S. Treasury Notes
5.125%, 11/15/95............. 3,000 2,974
4.250%, 12/31/95............. 5,000 4,911
4.625%, 02/15/96............. 7,500 7,372
5.125%, 03/31/96............. 2,000 1,971
7.375%, 05/15/96............. 1,000 1,009
4.375%, 11/15/96............. 3,000 2,887
6.500%, 11/30/96............. 2,000 1,992
6.500%, 05/15/97............. 2,000 1,985
6.750%, 05/31/97............. 3,000 2,993
</TABLE>
Continued
39
<PAGE> 40
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
FIXED INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------- --------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS, CONCLUDED:
U.S. Treasury Notes, continued:
6.500%, 08/15/97............... $ 1,000 $ 992
5.625%, 08/31/97............... 2,000 1,944
5.750%, 10/31/97............... 2,000 1,944
6.000%, 11/30/97............... 3,000 2,932
7.250%, 02/15/98............... 4,000 4,034
5.125%, 02/28/98............... 2,000 1,903
5.125%, 03/31/98............... 7,000 6,648
8.250%, 07/15/98............... 2,000 2,074
7.125%, 10/15/98............... 2,000 2,013
5.125%, 11/30/98............... 2,000 1,876
6.375%, 01/15/99............... 2,000 1,956
7.000%, 04/15/99............... 2,000 2,000
8.500%, 11/15/00............... 6,000 6,388
7.750%, 02/15/01............... 2,000 2,062
--------
Total U.S. Treasury Obligations
(Cost $95,074,699)............. 92,409
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (1.2%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99............... 3,000 2,989
--------
Total U.S. Government Agency
Obligations
(Cost $2,989,800).............. 2,989
--------
YANKEE BONDS (3.4%)
Hydro Quebec
9.400%, 02/01/21............... 3,000 3,236
Province of Ontario
8.000%, 10/17/01............... 5,000 5,088
--------
Total Yankee Bonds
(Cost $8,156,580).............. 8,324
--------
SHORT TERM INVESTMENTS (5.0%)
Temp Cash Fund................. 12,134 12,134
--------
Total Short Term Investments
(Cost $12,134,069)............. 12,134
--------
Total Investments (98.8%)
(Cost $246,479,814)............ 241,311
--------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ ---------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.2%)
Other Assets and Liabilities, Net.. $ 2,827
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,271,783
outstanding shares of
beneficial interest................ 252,500
Accumulated net realized loss on
investments........................ (3,224)
Net unrealized depreciation on
investments........................ (5,168)
Undistributed net investment
income............................. 30
---------
Total Net Assets: (100.0%)......... $244,138
=========
Net Asset Value and Redemption
Price Per Share.................... $10.06
=========
Maximum Public Offering Price
Per Share ($10.06/96.25%).......... $10.45
=========
</TABLE>
- -------------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
MUNICIPAL BOND FUND
<TABLE>
<S> <C> <C>
MUNICIPAL BONDS (96.5%)
Arizona (3.5%)
Salt River Project, Series A, RB
5.300%, 01/01/03................... $ 500 $ 503
Scottsdale, Municipal Property
Corporation, RB, (FGIC),
Callable 11/01/02 @ 100
6.250%, 11/01/10................... 500 506
---------
1,009
---------
California (6.0%)
Azusa, Unified School District,
GO, (AMBAC)
5.100%, 05/01/07................... 830 784
</TABLE>
The accompanying notes are an integral part of the finanial statements.
40
<PAGE> 41
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
California, continued
State Public Power Authority,
San Juan Power Project,
Series A, RB, (MBIA), Callable
01/01/05 @ 100
5.375%, 01/01/10.............. $1,000 $ 945
-------
1,729
-------
Florida (1.9%)
Palm Beach County, Solid Waste
Authority, RB, Callable
07/01/97 @ 103
8.625%, 07/01/04.............. 500 553
-------
Hawaii (7.6%)
Honolulu, Series C, GO,
Prerefunded @ 101
7.150%, 06/01/00 (B).......... 1,000 1,102
State, Series BR, GO,
Prerefunded @ 100
7.000%, 06/01/00 (B).......... 1,000 1,086
-------
2,188
-------
Illinois (12.3%)
Chicago, School Finance
Authority, Series B, GO,
(MBIA), Callable
06/01/96 @ 102
7.600%, 06/01/02.............. 250 263
Kane County, Elgin Community
College Project, Series A, RB,
(FGIC)
5.300%, 12/01/09.............. 1,000 979
State Education Facilities
Authority, Shedd Aquarium
Society, Series A, RB,
Mandatory Put @ 102
8.625%, 09/26/97 (B) (C)...... 560 607
State Education Facilities
Authority, Wesleyan University
Project, RB
5.600%, 09/01/11 (C).......... 1,260 1,172
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Winnebago and Boone Counties,
Rockford School District,
Series C, GO, (FGIC)
5.900%, 02/01/05.................. $ 500 $ 512
-------
3,533
-------
Kentucky (1.8%)
Jefferson County, Capital Project,
Series A, RB
5.650%, 08/15/03.................. 500 506
-------
Louisiana (1.7%)
State Recovery District Sales Tax
Revenue, VRDN, RB, (MBIA)
3.750%, 03/01/95 (A) (B).......... 500 500
-------
Michigan (3.2%)
State Municipal Bond Authority,
Revolving Fund, RB
5.400%, 10/01/14.................. 1,015 920
-------
Minnesota (3.3%)
State, GO
5.000%, 08/01/05.................. 1,000 956
-------
Nebraska (1.8%)
State Public Power Supply
Systems, RB, Callable
01/01/03 @ 102
6.000%, 01/01/08.................. 500 503
-------
New Hampshire (2.0%)
State Turnpike Authority,
Series A, RB, (FGIC), Callable
11/01/03 @ 100
7.000%, 11/01/06.................. 500 563
-------
Ohio (4.5%)
Columbus, Refuse Coal Fired
Plant, GO
6.625%, 09/15/01.................. 265 285
State Water Development
Authority, RB, (AMBAC),
Callable 12/01/02 @ 102
6.000%, 12/01/08.................. 1,000 1,015
-------
1,300
-------
</TABLE>
Continued
41
<PAGE> 42
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
MUNICIPAL BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania (16.7%)
Geisinger Health System,
Series B, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... $ 500 $ 500
Philadelphia, Hospital and Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 600 600
Schuylkill County, Industrial
Development Authority,
Westwood Energy Project,
VRDN, RB
4.050%, 03/01/95 (A) (B) (C)..... 700 699
Schuylkill County, Redevelopment
Authority, Commonwealth
Lease, Series A, RB, (FGIC),
Callable 06/01/03 @ 100
6.950%, 06/01/04................. 500 546
Solanco School District, GO,
(FGIC), Callable
02/15/04 @ 100
6.300%, 02/15/14................. 1,000 1,006
State Higher Education
Authority, Student Loan
Assistance Agency, Series A,
RB, (FGIC)
6.800%, 12/01/00................. 630 672
State Public School Building
Authority, Series D, RB,
(FGIC), Callable
07/01/02 @ 102
6.250%, 01/01/07................. 500 519
Westmoreland County, GO,
(AMBAC)
6.050%, 06/01/97................. 250 255
-------
4,797
-------
Puerto Rico (2.1%)
Telecom Authority, RB, (MBIA)
5.250%, 01/01/05................. 500 493
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
University of Puerto Rico,
Series L, RB, Callable
06/01/96 @ 102
7.750%, 06/01/07 (C)............. $ 100 $ 105
-------
598
-------
South Carolina (1.8%)
Piedmont, Municipal Power
Agency, RB, (MBIA)
6.250%, 01/01/09................. 500 525
-------
South Dakota (1.8%)
State Building Lease Authority,
Series A, RB, (CGIC)
6.375%, 09/01/05................. 500 529
-------
Tennessee (3.7%)
State, Series B, GO, Callable
06/01/01 @ 101.5
6.850%, 06/01/10................. 1,000 1,073
-------
Texas (3.8%)
Harris County, GO, Callable
08/01/01 @ 102
7.000%, 08/01/09................. 500 539
University of Texas, Series A,
RB, Callable 08/15/01 @ 102
7.000%, 08/15/07................. 500 546
-------
1,085
-------
Utah (1.7%)
Salt Lake City, Motor Fuel Excise
Tax, Series A, RB
5.400%, 02/01/03................. 500 487
-------
Vermont (7.4%)
Burlington, Waterworks Systems,
Series A, RB, (FGIC), Callable
07/01/97 @ 102
6.875%, 07/01/12................. 1,000 1,046
State, Series A, GO,
Prerefunded @ 102
6.750%, 02/01/00 (B)............. 1,000 1,087
-------
2,133
-------
</TABLE>
Continued
42
<PAGE> 43
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)/ VALUE
SHARES (000)
------ --------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Virginia (3.5%)
Loudoun County, Industrial
Development Authority,
Marriott Project, VRDN, RB
4.050%, 03/01/95 (A) (B) (C)....... $ 500 $ 500
State Housing Development
Authority, Series A, RB, AMT
6.700%, 07/01/05 (C)............... 500 518
--------
1,018
--------
Washington (1.8%)
Port of Seattle, Series A, RB,
Callable 11/01/02 @ 102
6.250%, 11/01/10................... 500 510
--------
Washington, D.C. (1.7%)
District of Columbia, Series C,
GO, (AMBAC),
Prerefunded @ 102
7.600%, 06/01/98 (B)............... 450 492
--------
Wisconsin (0.9%)
Milwaukee, Sewer District, GO
6.125%, 10/01/03................... 250 259
--------
Total Municipal Bonds
(Cost $28,048,080)................. 27,766
--------
SHORT TERM INVESTMENTS (3.6%)
SEI Institutional Tax-Free
Portfolio
3.93%, 03/07/95.................... 1,026 1,026
--------
Total Short Term Investment
(Cost $1,026,246).................. 1,026
--------
Total Investments (100.1%)
(Cost $29,074,326)................. 28,792
--------
OTHER ASSETS AND LIABILITIES (-0.1%)
Other Assets and Liabilities, Net.... (42)
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited authorization-no
par value) based on 2,796,278 outstanding
shares of beneficial interest............... $30,114
Accumulated net realized loss on
investments................................. (1,091)
Net unrealized depreciation on investments.... (282)
Distributions in excess of net investment
income...................................... 9
--------
Total Net Assets: (100.0%).................... $28,750
========
Net Asset Value and Redemption Price Per
Share....................................... $ 10.28
========
Maximum Public Offering Price Per
Share ($10.28/96.25%)....................... $ 10.68
========
</TABLE>
- -----------------------------------------------------
(A) Variable Rate Security-the rate reflected on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
CGIC-Capital Guaranty Insurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
43
<PAGE> 44
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (99.4%)
Kansas (0.4%)
Butler County, Solid Waste
Disposal, VRDN, RB, AMT
4.300%, 03/01/95 (A) (B) (C)..... $ 400 $ 400
-------
New Jersey (98.0%)
Absecon, Board of Education,
COP, (MBIA)
5.625%, 12/15/02................. 770 788
Bayshore, Bayshore Regional
Sewer Authority, Series A, RB,
(MBIA)
5.250%, 05/01/06................. 1,000 963
Bergen County, Utility Authority,
Series A, RB, (FGIC), Callable
06/15/02 @ 100
5.500%, 06/15/13................. 1,000 961
Bordentown, Sewage Authority,
Series D, RB, (MBIA)
5.100%, 12/01/05................. 635 609
Borough of Roselle, Fiscal Year
Adjustment Bonds, Series 1993,
GO, (MBIA)
4.850%, 10/15/05................. 1,000 920
Brick Township, Municipal
Utilities Authority, RB
6.750%, 12/01/16................. 1,000 1,089
Brigantine, GO, (MBIA), Callable
08/01/02 @ 101
6.250%, 08/01/03................. 730 778
Burlington County, Bridge
Commission, RB
5.150%, 10/01/05 (C)............. 1,000 975
Camden County, Improvement
Authority Lease, RB
5.700%, 12/01/05 (C)............. 500 499
Camden County, Improvement
Authority Lease, RB, Callable
12/01/02 @ 101
6.000%, 12/01/12 (C)............. 500 501
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Camden County, Improvement
Authority, Health Services
Center Project, Series B, RB,
(AMBAC)
4.900%, 12/01/05................ $1,000 $ 935
Camden, Board of Education, GO,
(FSA)
5.000%, 10/01/05................ 450 428
Cape May County, Bridge
Commission, RB
6.500%, 06/01/00................ 350 364
Cape May County, Municipal
Utilities Authority, Series B,
RB, (FGIC)
4.900%, 01/01/09................ 1,000 909
Carteret, GO, (FGIC)
5.050%, 10/01/05................ 925 890
5.250%, 10/01/07................ 980 940
5.450%, 10/01/09................ 500 481
Cherry Hill Township, GO
6.000%, 06/01/06................ 500 514
Delaware River Joint Toll Bridge
Commission, RB, (FGIC)
6.250%, 07/01/12................ 400 412
Dover Township, GO, (AMBAC),
Callable 10/15/02 @ 102
6.000%, 10/15/03................ 1,000 1,050
Edison Township, GO
6.500%, 06/01/04................ 500 539
Edison Township, GO, (AMBAC)
4.800%, 01/01/05................ 750 696
5.000%, 01/01/07................ 1,000 918
Edison Township, School
Authority, GO
6.500%, 06/01/03................ 1,000 1,073
Essex County, Correctional
Facility Improvement,
RB, (AMBAC), Callable
12/01/06 @ 100
6.900%, 12/01/14................ 500 533
</TABLE>
Continued
44
<PAGE> 45
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Essex County, Improvement
Authority, Lease Capital
Equipment Program,
Series C, RB
7.000%, 09/01/98 (C)........... $ 310 $ 326
Essex County, Improvement
Authority, RB, (AMBAC)
5.300%, 12/01/06............... 1,000 968
Essex County, Series A, GO,
(MBIA)
4.600%, 10/01/03............... 1,500 1,412
Evesham Township, Municipal
Utilities Authority, Series B,
RB, (MBIA),
Callable 07/01/97 @ 100
6.800%, 07/01/01............... 1,010 1,054
6.850%, 07/01/02............... 1,080 1,126
Flemington-Raritan, GO
6.250%, 02/01/12 (C)........... 500 518
Gloucester County, Housing
Authority, RB
6.200%, 09/15/11 (C)........... 500 498
Hillside Township, GO, (MBIA)
6.600%, 02/15/07............... 1,000 1,061
Irvington Township, School
District Refunding Bonds,
Series 1993, GO, (FSA)
5.000%, 10/01/11............... 1,000 906
Knowlton Township, Board of
Education, GO
6.600%, 08/15/10............... 170 183
6.600%, 08/15/11............... 169 182
Lacey Township, Municipal
Utilities Authority, RB, (MBIA)
6.000%, 12/01/12............... 1,000 1,000
Landis, Sewer Authority,
RB, (FGIC)
5.400%, 10/01/06............... 500 486
Manchester Township, Board of
Education, COP, (MBIA)
5.300%, 12/15/07............... 500 476
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Medford Township, Board of
Education, GO, (FGIC),
Callable 02/01/05 @ 100
5.950%, 02/01/11............... $ 500 $ 501
Mercer County, Hamilton Board
of Education Lease Project,
RB, (MBIA)
5.250%, 12/15/14............... 1,000 913
Mercer County, Improvement
Authority, Hamilton Township
Board of Education Project,
RB, (MBIA)
5.900%, 06/01/03............... 500 516
Mercer County, Improvement
Revenue Government Lease
Program, RB,
Prerefunded @ 101
7.250%, 12/01/98 (B)........... 985 1,067
Middletown Township, Sewer
Authority, Series A, RB, (FGIC)
5.000%, 01/01/06............... 1,000 933
5.050%, 01/01/07............... 1,095 1,017
5.100%, 01/01/08............... 1,750 1,609
Monmouth County, Utility
Authority, GO,
Callable 08/01/00 @ 102
7.000%, 08/01/06............... 1,000 1,081
Moorestown, School District,
GO, (AMBAC)
6.600%, 06/01/05............... 450 488
Morris Township, GO,
6.550%, 07/01/01............... 500 533
Morristown, GO, (FSA)
6.400%, 08/01/14............... 500 520
North Arlington, GO, (AMBAC)
4.800%, 02/01/12............... 600 527
4.800%, 02/01/13............... 441 386
North Bergen Township,
GO, (FSA)
5.900%, 08/15/01............... 500 519
North Bergen Township,
Municipal Utilities Authority,
RB, (FGIC)
5.200%, 12/15/07............... 1,000 956
</TABLE>
Continued
45
<PAGE> 46
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Northwest Bergen County,
Utilities Authority, RB, (MBIA)
5.900%, 07/15/06................ $ 755 $ 782
Nutley, GO
7.000%, 08/01/98................ 400 407
Ocean County, General
Improvement, GO
6.300%, 04/15/97................ 1,000 1,028
5.125%, 07/01/06................ 800 759
5.150%, 07/01/09................ 1,000 926
5.150%, 07/01/10................ 1,250 1,147
Ocean County, Series A, GO
6.250%, 10/01/01................ 1,280 1,347
Ocean County, Series A, GO,
Callable 10/01/01 @102
6.250%, 10/01/05................ 1,050 1,108
Ocean County, Utility Authority,
Series A, RB,
Callable 01/01/07 @ 100
6.300%, 01/01/12 (C)............ 1,005 1,039
Parsippany Troy Hills
Township, GO
4.700%, 12/01/04................ 1,000 928
Passaic Valley, Water
Commission, Series A,
RB, (FGIC)
5.950%, 12/15/02................ 500 529
Piscataway Township, School
District, COP, (FSA)
5.150%, 06/15/06................ 500 483
Point Pleasant, GO, (MBIA)
5.700%, 12/01/03................ 500 511
Port Authority, RB
5.200%, 09/01/13 (C)............ 1,000 914
Port Authority, RB,
Callable 04/01/96 @ 102
7.250%, 04/01/14 (C)............ 1,500 1,544
Scotch Plains Township, Senior
Citizen Housing, RB
5.625%, 09/01/13 (C)............ 500 470
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
South Plainfield, Board of
Education, COP, (MBIA),
Callable 06/15/02 @ 100
6.500%, 12/15/07............... $ 780 $ 824
South Plainfield, GO, (AMBAC)
4.750%, 09/01/08............... 1,030 937
State Building Authority, RB
7.150%, 06/15/99............... 200 217
State Building Authority, RB,
Prerefunded @ 102
7.200%, 06/15/99 (B)........... 1,200 1,316
State Economic Development
Authority, Trenton Office
Complex Project, RB
6.625%, 06/15/01............... 1,050 1,130
State Health Care Facility, St.
Clares-Riverside Medical
Center, RB, (MBIA)
5.750%, 07/01/14............... 500 489
State Highway Authority, Garden
State Parkway Project, RB
4.900%, 01/01/05 (C)........... 1,000 961
6.200%, 01/01/10............... 750 773
6.250%, 01/01/14............... 500 507
State Highway Authority, Garden
State Parkway Project, RB,
Callable 01/01/02 @ 102
6.000%, 01/01/05............... 1,350 1,401
State Housing Finance Agency,
Series A, RB
6.700%, 05/01/05 (C)........... 500 527
State Housing Finance Agency,
Series A, RB,
Callable 05/01/02 @ 102
6.700%, 11/01/05 (C)........... 1,000 1,054
6.950%, 11/01/13 (C)........... 750 783
State Sports & Exposition
Authority, State Contract
Bonds, Series A, RB
5.300%, 09/01/09............... 955 899
</TABLE>
Continued
46
<PAGE> 47
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State Transportation Authority,
Series A, RB
5.400%, 06/15/97............... $ 500 $ 508
6.000%, 06/15/00............... 1,030 1,069
State Turnpike Authority,
Series A, RB
6.400%, 01/01/02............... 250 265
State Turnpike Authority,
Series A, RB,
Callable 01/01/96 @ 100
6.900%, 01/01/14............... 970 983
State Turnpike Authority,
Series C, RB
6.500%, 01/01/16............... 500 528
State Turnpike Authority,
Series C, RB, (AMBAC)
6.250%, 01/01/10............... 1,350 1,380
State Wastewater Authority,
Series B, RB
7.000%, 05/15/04............... 950 1,022
State Wastewater Authority,
Treatment Trust,
RB, (AMBAC)
4.600%, 03/01/06............... 1,500 1,343
4.800%, 03/01/13............... 1,590 1,355
State Water Supply District
Authority, Wanaque North
Project, Series A, RB, (MBIA)
6.500%, 11/15/06............... 510 547
State, GO
7.000%, 04/01/97............... 1,350 1,404
6.250%, 09/15/01............... 1,000 1,063
State, GO, Callable
04/01/01 @ 100.50
7.000%, 04/01/03............... 500 544
State, GO,
Prerefunded @ 101.50
7.400%, 04/15/97 (B)........... 820 872
State, Port Authority Marine
Terminal, Series G, RB
5.500%, 01/01/15 (C)........... 2,280 2,152
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
State, Series C, GO, Callable
01/15/99 @ 101.5
6.500%, 01/15/08................. $1,000 $ 1,046
State, Series C, GO, Callable
01/15/99 @ 101.50
6.500%, 01/15/05................. 500 525
Stony Brook, Regional Sewer
Authority, Series B, RB
5.200%, 12/01/06 (C)............. 500 482
Tinton Falls, Board of Education,
GO, (MBIA), Callable
10/15/04 @ 100
5.875%, 10/15/09................. 1,010 1,009
Union County, Pollution Control
Financing Authority, Exxon
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)..... 500 500
Wanaque Valley, Regional Sewer
Authority, Series B, RB,
(AMBAC)
5.650%, 09/01/08................. 585 581
Warren County, GO, (AMBAC)
4.650%, 09/15/06................. 500 464
Warren County, Pollution Control
Finance Authority, Resource
Recovery, RB, (MBIA), Callable
12/01/02 @ 102
6.350%, 12/01/04................. 500 542
Warren County, Pollution Control
Finance Authority, Series B,
RB, (MBIA)
5.700%, 12/01/03................. 500 518
Warren Hills, Regional School
District, COP, (FSA)
4.800%, 12/15/03................. 685 653
4.900%, 12/15/04................. 710 675
Warren Township, Sewer
Authority, RB
6.450%, 12/01/05................. 275 295
Weehawken, GO, (FSA)
6.150%, 07/01/04................. 350 371
</TABLE>
Continued
47
<PAGE> 48
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------
February 28, 1995
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
New Jersey, continued:
West Long Branch, Board of
Education, COP, (MBIA)
5.000%, 12/15/09................... $1,380 $ 1,259
West Windsor Plainsboro,
Regional Board of Education,
Series 1993, COP, (MBIA)
5.800%, 03/15/06................... 1,000 1,024
Winslow Township, GO, (FGIC),
Callable 10/01/02 @ 102
6.400%, 10/01/05................... 870 914
Woodbridge Township, GO
5.800%, 08/15/03................... 500 514
6.050%, 08/15/05................... 500 521
Woodbridge Township, Series C,
GO
5.000%, 09/15/11................... 1,000 884
Woodbridge Township, Sewer
Utility, Series B, GO
5.000%, 09/15/10................... 965 858
-------
94,937
-------
Puerto Rico (1.0%)
University of Puerto Rico,
Series L, RB, Callable
06/01/96 @ 102
7.750%, 06/01/07 (C)............... 915 964
-------
Total Municipal Bonds
(Cost $97,958,123)................. 96,301
-------
Total Investments (99.4%)
(Cost $97,958,123)................. 96,301
-------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets and Liabilities, Net.. 556
-------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited authorization-no
par value) based on 8,857,006 outstanding
shares of beneficial interest............... $98,940
Accumulated net realized loss on
investments................................. (433)
Net unrealized depreciation on investments.... (1,657)
Undistributed net investment income........... 7
--------
Total Net Assets: (100.0%).................... $96,857
========
Net Asset Value and Redemption Price Per
Share....................................... $10.94
========
Maximum Public Offering Price Per Share
($10.94/96.25%)............................. $11.37
========
</TABLE>
- ----------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT-Alternative Minimum Tax
COP-Certificate of Participation
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
FSA-Financial Security Assurance
MBIA-Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
48
<PAGE> 49
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
MUNICIPAL BONDS (104.3%)
Pennsylvania (104.3%)
Allegheny County, Children's
Hospital, Series A, RB, (MBIA),
Callable 07/01/98 @ 102
7.000%, 07/01/06................... $ 500 $ 531
Allegheny County, Series C-40,
GO, (AMBAC), Callable
05/01/02 @ 102
5.900%, 05/01/07................... 500 504
Allegheny County, Series C-42, GO
5.000%, 10/01/10................... 500 446
Beaver County, Industrial
Development Authority, J&L
Specialty Products Corporation,
RB, Callable 09/01/97 @ 100
6.600%, 09/01/10 (C)............... 500 508
Berks County, Second Series, GO,
(FGIC)
5.000%, 05/15/10................... 500 456
Bristol Township, School District,
Series A, GO, (MBIA)
5.000%, 02/15/07................... 500 465
Central Bucks, School District,
Series A, GO, (MBIA)
5.300%, 05/15/11................... 500 469
Deer Lakes, School District, GO,
(MBIA), Callable
01/15/04 @ 100
6.450%, 01/15/19 (B)............... 500 508
Lackawanna County, GO,
(AMBAC)
5.100%, 12/01/08................... 250 231
Lancaster, Parking Authority,
RB, Callable 01/01/96 @ 100
9.375%, 01/01/05................... 450 466
Manheim, Central School District,
GO, (FGIC)
6.100%, 05/15/14................... 1,000 1,000
North Penn, School District,
Series AA, GO
5.100%, 09/01/09................... 500 461
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ -------
<S> <C> <C>
Philadelphia, Authority for
Industrial Development,
National Board of Medical
Examiners Project, RB,
Callable 05/01/02 @ 102
6.750%, 05/01/12................. $ 500 $ 516
Philadelphia, Hospitals and
Higher Education Facilities
Authority, Willis Eye Hospital
Project, RB
5.500%, 07/01/05................. 500 474
Pittsburgh, Series D, GO,
(AMBAC)
6.125%, 09/01/17................. 500 503
Pittsburgh, Urban
Redevelopment Authority,
Series A, RB
5.500%, 10/01/10................. 500 464
Pocono Mountain, School District,
Series AA, GO, (AMBAC),
Callable 04/01/02 @ 100
5.750%, 10/01/09 (B)............. 500 491
Seneca Valley, School District,
Series A, GO, (FGIC), Callable
07/01/02 @ 100
5.750%, 07/01/10................. 500 488
Southeastern Pennsylvania
Transportation Authority, RB
5.750%, 12/01/04................. 500 502
State Financing Authority, RB,
Callable 11/01/03 @ 102
6.600%, 11/01/09................. 500 507
State Higher Education
Authority, Drexel University
Project, RB, (MBIA), Callable
05/01/00 @ 100
7.250%, 05/01/10................. 500 529
State Higher Education
Authority, Susquehanna
University Project, RB,
(AMBAC), Callable
03/01/98 @ 101
6.900%, 03/01/02................. 750 787
</TABLE>
Continued
49
<PAGE> 50
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------
February 28, 1995
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------- -------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State Higher Education
Authority, Temple University
Project, VRDN, RB
3.600%, 03/01/95 (A) (B) (C)... $ 200 $ 200
State Higher Education
Authority, Thomas Jefferson
University Hospital Project,
RB, Callable 11/01/95 @ 102
9.100%, 07/01/01............... 200 209
State Higher Education
Authority, Thomas Jefferson
University Project, RB,
Prerefunded @ 102
7.550%, 11/01/00 (B)........... 500 566
State Higher Education
Authority, Trustees University
Project, Series A, RB, Callable
1/1/97 @ 100
6.625%, 01/01/17............... 250 252
State Housing Finance Agency,
Rental Housing Projects, Series
C, RB, Callable 07/01/04 @ 100
6.400%, 07/01/12 (C)........... 500 504
State Housing Finance Agency,
Single Family Mortgage
Revenue, Series 36, RB
5.250%, 04/01/07............... 500 466
State Intergovernmental
Cooperation Authority, City of
Philadelphia Funding Program,
RB, (MBIA)
5.600%, 06/15/15............... 500 472
State Turnpike Commission, Oil
Franchise Tax Project,
Series A, RB, (AMBAC)
5.875%, 12/01/08............... 500 494
State Turnpike Commission,
Series P, RB, (AMBAC)
6.000%, 12/01/09............... 500 505
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
------ --------
<S> <C> <C>
Wattsburg Area, School District,
GO, (AMBAC), Callable
04/01/02 @ 100
6.350%, 04/01/15 (B)............... $ 500 $ 507
Wayne Highlands, School
District, GO, (FGIC), Callable
10/01/99 @ 100
6.000%, 04/01/12................... 500 497
West Chester, School District, GO
6.200%, 09/01/14................... 1,000 1,003
West View, Municipal Authority,
GO
9.000%, 05/15/99 (C)............... 400 460
--------
Total Municipal Bonds
(Cost $17,943,764)................. 17,441
--------
Total Investments (104.3%)
(Cost $17,943,764)................. 17,441
--------
OTHER ASSETS AND LIABILITIES (-4.3%)
Other Assets and Liabilities, Net.. (717)
--------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 1,743,326 outstanding
shares of beneficial interest...... 17,726
Accumulated net realized loss on
investments........................ (499)
Net unrealized depreciation on
investments........................ (503)
--------
Total Net Assets: (100.0%)......... $16,724
========
Net Asset Value and Redemption
Price Per Share.................... $9.59
========
Maximum Public Offering Price
Per Share ($9.59/96.25%)........... $9.96
========
</TABLE>
- ---------------
(A) Variable Rate Security-the rate reported on the Statement of Net Assets is
the rate in effect on February 28, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
Continued
50
<PAGE> 51
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GO-General Obligation
RB-Revenue Bond
VRDN-Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets.
AMBAC-American Municipal Bond Assurance Company
FGIC-Financial Guaranty Insurance Company
MBIA-Municipal Bond Insurance Association
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- -------
<S> <C> <C>
FOREIGN STOCKS (91.1%)
Argentina (0.8%)
YPF Sociedad Anonima ADR....... 14,000 $ 266
-------
Australia (3.0%)
Broken Hill Proprietary........ 33,565 462
Mim Holdings................... 130,000 200
News Corporation............... 83,294 371
-------
1,033
-------
Brazil (0.4%)
Acesita SA ADR*................ 7,000 139
-------
Chile (0.7%)
Five Arrow Chile Fund PC....... 100,000 250
Five Arrow Chile Fund Warrants,
Expire 05/31/99 *............ 20,000 9
-------
259
-------
Denmark (1.0%)
Tele Denmark A/S "B"........... 6,500 332
-------
Finland (0.7%)
Nokia AB....................... 1,700 256
-------
France (6.7%)
Alcatel Alsthom................ 2,442 197
AXA SA......................... 7,200 311
Carrefour...................... 880 359
Eaux Generale.................. 2,500 231
Groupe Danone.................. 2,250 324
L'Oreal........................ 1,500 334
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- -------
<S> <C> <C>
Lafarge-Coppee................... 3,378 $ 218
Societe Nationale Elf Aquitaine.. 5,068 364
-------
2,338
-------
Germany (4.3%)
Bayer AG......................... 1,300 321
Commerzbank AG................... 1,800 417
Karstadt AG...................... 1,000 404
Lufthansa AG *................... 2,500 347
-------
1,489
-------
Hong Kong (2.2%)
Hong Kong Telecommunications..... 170,000 306
Swire Pacific "A"................ 67,000 470
-------
776
-------
India (1.2%)
Hindalco Units................... 15,000 397
-------
Indonesia (1.0%)
Gadjah Tungal.................... 308,000 379
-------
Italy (1.5%)
Assicurazioni Generali SPA....... 11,450 259
Credito Italiano................. 222,368 239
Credito Italiano Warrants, Expire
12/31/97 *....................... 34,624 9
-------
507
-------
Japan (32.0%)
CSK................................ 21,000 574
Daiwa House Industries............. 39,000 570
East Japan Railway................. 267 1,178
Fuji Bank.......................... 42,000 904
KAO................................ 33,000 359
Mitsubishi Rayon................... 300,000 1,019
Nippon Paper Company............... 96,000 606
Nippon Telegraph & Telephone....... 160 1,143
Nippon Television Network.......... 2,660 546
NSK................................ 8,000 49
Pioneer Electronics................ 54,000 1,152
Sumitomo Trust & Banking........... 53,000 615
Toshiba Corporation................ 177,000 1,120
Toyo Ink Manufacturing............. 29,000 166
Yamaha Corporation................. 108,000 1,199
-------
11,200
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE> 52
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------
February 28, 1995
INTERNATIONAL EQUITY
FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------ -------
<S> <C> <C>
FOREIGN STOCKS, CONTINUED:
Malaysia (1.8%)
Malayan Banking.................. 34,500 $ 229
Perusahaan Otomobil.............. 63,000 222
Telekom Malaysia................. 27,000 189
-------
640
-------
Mexico (0.5%)
Grupo Carso SA ADR*.............. 25,000 162
Grupo Tribasa SA ADR*............ 3,000 18
-------
180
-------
Netherlands (3.9%)
ABN-Amro Holdings................ 8,532 311
Akzo NV.......................... 2,700 316
Elsevier NV...................... 39,000 382
International Nederlanden Group.. 7,147 350
-------
1,359
-------
Norway (0.7%)
Kvaerner AS Series B............. 5,467 237
-------
Singapore (2.5%)
City Developments................ 35,500 174
Jurong Shipyard.................. 38,000 317
United Overseas Bank............. 40,775 397
-------
888
-------
Spain (1.4%)
Banco de Santander............... 6,150 221
Banco de Santander New*.......... 1,466 52
Repsol Petroleum SA.............. 8,200 233
-------
506
-------
Sweden (1.8%)
Skandia Forrestry................ 15,000 265
Stora Kopparberg "B"............. 5,650 365
-------
630
-------
Switzerland (4.4%)
BBC Brown Boveri AG.............. 400 349
CS Holdings...................... 493 205
Nestle SA........................ 385 372
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
------- -------
<S> <C> <C>
Roche Holdings AG.................... 70 $ 388
Zurich Versicherung.................. 220 211
-------
1,525
-------
Taiwan (0.8%)
President Enterprise GDR*............ 2,171 40
Tuntex Distinct GDR*................. 20,004 240
-------
280
-------
Thailand (1.8%)
Siam Commercial Bank................. 34,000 295
TPI Polene......................... 44,250 344
-------
639
-------
United Kingdom (16.0%)
B.A.T. Industries.................... 72,545 478
British Petroleum.................... 81,000 508
BTR.................................. 103,830 515
BTR Warrants, Expire 11/26/98........ 1,146 1
Delta Group.......................... 33,500 240
Farnell Electronic................... 45,000 387
FKI.................................. 140,000 300
Granada Group........................ 64,000 516
Legal & General Group................ 60,000 420
Lloyds Bank.......................... 35,000 317
Reuters Holdings..................... 72,000 505
Tesco................................ 130,000 515
Unilever............................. 28,000 518
WPP Group............................ 215,000 369
-------
5,589
-------
Total Foreign Stocks
(Cost $30,983,755)................. 31,844
-------
CONVERTIBLE PREFERRED STOCKS (0.6%)
Australia (0.6%)
News Corporation..................... 47,647 189
-------
Netherlands (0.0%)
ABN-Amro Holdings.................... 349 12
-------
Total Convertible Preferred Stocks
(Cost $210,875).................... 201
-------
</TABLE>
Continued
52
<PAGE> 53
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
<S> <C> <C>
FOREIGN BONDS (1.2%)
South Korea (0.8%)
Daewoo Corporation,
6.568%, 12/31/04............. 525 $ 281
-------
Taiwan (0.4%)
Tecom Electronics & Machinery
2.750%, 04/15/04............. 170 142
-------
Total Foreign Bonds
(Cost $670,376).............. 423
-------
Total Investments
(92.9% of Net Assets)
(Cost $31,865,006)........... $32,468
-------
</TABLE>
- ---------
* Non-income producing security
ADR-American Depository Receipt
GDR-Global Depository Receipt
PC-Participating Certificate
(1) In local currency
INTERNATIONAL FIXED
INCOME FUND
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
--------- -------
<S> <C> <C>
FOREIGN BONDS (91.3%)
Austria (2.2%)
Austria Republic
6.250%, 10/16/03..... 85,000 $ 987
-------
Canada (4.9%)
Canadian Government
9.750%, 12/01/01..... 2,900 2,240
-------
France (14.0%)
Credit Foncier
6.750%, 03/30/99..... 3,000 2,044
Government of France
7.000%, 11/12/99..... 12,000 2,339
8.500%, 04/25/03..... 10,000 2,017
-------
6,400
-------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
--------- -------
<S> <C> <C>
Germany (30.9%)
African Development Bank
7.250%, 10/21/99.............. 2,000 $ 1,389
Deutschland Republic
6.250%, 01/04/24.............. 1,600 907
European Economic Community
6.500%, 03/10/00.............. 2,700 1,820
German Unity Fund
8.000%, 01/21/02.............. 3,000 2,129
KFW International Finance
7.250%, 12/03/97.............. 3,000 2,098
LKB Baden Wurt
6.000%, 05/10/99.............. 3,000 1,989
Norddeutsche Landesbank
6.000%, 01/05/04.............. 3,000 1,841
Westdeutsche Landesbank
6.250%, 09/15/03.............. 3,000 1,902
-------
14,075
-------
Italy (8.4%)
Republic of Italy
8.500%, 01/01/99.............. 3,750,000 1,993
Societe Nationale Chemin
11.500%, 10/18/99............. 3,100,000 1,840
-------
3,833
-------
Japan (17.9%)
Asian Development Bank
5.000%, 02/05/03.............. 190,000 2,029
Interamerican Development Bank
6.000%, 10/30/01.............. 180,000 2,036
Japanese Development Bank
6.500%, 09/20/01.............. 190,000 2,209
World Bank
4.500%, 03/20/03.............. 180,000 1,877
-------
8,151
-------
New Zealand (4.2%)
New Zealand Treasury,
8.224%, 03/08/95.............. 3,060 1,935
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE> 54
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
February 28, 1995
INTERNATIONAL FIXED
INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
<S> <C> <C>
FOREIGN BONDS, CONCLUDED:
United Kingdom (8.8%)
Abbey National Treasury
8.000%, 04/02/03......... 600 $877
National Power
10.625%, 03/26/01........ 600 1,003
United Kingdom Treasury
9.500%, 10/25/04......... 1,300 2,157
-------
4,037
-------
Total Foreign Bonds
(Cost $40,191,475)....... 41,658
-------
</TABLE>
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000)(1) (000)
-------- -------
<S> <C> <C>
FOREIGN CURRENCY OPTIONS (0.0%)
United States (0.0%)
Deutsche Mark Put
06/08/95....................... 2,280 $4
-------
Total Foreign Currency Options
(Cost $61,674)................. 4
-------
Total Investments (91.3% of Net
Assets) (Cost $40,253,149)..... $41,662
=======
</TABLE>
- ---------
(1) In local currency
The accompanying notes are an integral part of the financial statements.
54
<PAGE> 55
STATEMENT OF ASSETS AND LIABILITIES THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
GROWTH FUND
<TABLE>
<CAPTION>
VALUE
(000)
--------
<S> <C>
ASSETS:
Investment Securities (Cost $120,023,153).................................. $131,281
Receivable-Accrued Income.................................................. 171
Receivable-Portfolio Securities Sold....................................... 8,486
Receivable-Capital Shares Sold............................................. 18
Other Assets............................................................... 29
--------
Total Assets............................................................. 139,985
--------
LIABILITIES:
Payable-Portfolio Securities Purchased..................................... (460)
Payable-Accrued Expenses................................................... (147)
Other liabilities.......................................................... (39)
--------
Total Liabilities........................................................ (646)
--------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 12,374,749
outstanding shares of beneficial interest................................ 130,313
Accumulated net realized loss on investments............................... (2,299)
Net unrealized appreciation on investments................................. 11,258
Undistributed net investment income........................................ 67
--------
Total Net Assets................................................... $139,339
========
Net Asset Value and Redemption Price Per Share................................. $11.26
========
Maximum Public Offering Price Per Share ($11.26/96.25%)........................ $11.70
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE> 56
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------
February 28, 1995
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
--------
<S> <C>
ASSETS:
Investment Securities (Cost $31,865,006)........................................ $32,468
Cash............................................................................ 3,207
Other Assets.................................................................... 107
-------
Total Assets................................................................ 35,782
-------
LIABILITIES:
Payable-Portfolio Securities Purchased.......................................... (677)
Other Liabilities............................................................... (168)
-------
Total Liabilities........................................................... (845)
-------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 2,930,999
outstanding shares of beneficial interest..................................... 34,494
Accumulated net realized loss on foreign currency transactions.................. (68)
Net unrealized depreciation on forward foreign currency contracts, foreign
currency and translation of other assets and liabilities in foreign currency.. (82)
Net unrealized appreciation on investments...................................... 593*
-------
Total Net Assets............................................................ $34,937
=======
Net Asset Value and Redemption Price Per Share...................................... $11.92
=======
Maximum Public Offering Price Per Share ($11.92/96.25%)............................. $12.38
=======
</TABLE>
- ---------
* Net of $10,000 accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
56
<PAGE> 57
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
-------
<S> <C>
ASSETS:
Investment Securities (Cost $40,253,149).......................................... $41,662
Cash.............................................................................. 3,476
Receivable-Accrued Income......................................................... 1,257
Other Assets...................................................................... 6
-------
Total Assets.................................................................. 46,401
-------
LIABILITIES:
Other Liabilities................................................................. (744)
-------
Total Liabilities............................................................. (744)
-------
NET ASSETS:
Portfolio shares (unlimited authorization-no par value) based on 4,341,116
outstanding shares of beneficial interest....................................... 45,195
Accumulated net realized loss on investments...................................... (827)
Net unrealized depreciation on forward foreign currency contracts, foreign
currency and translation of other assets and liabilities in foreign currency.... (617)
Net unrealized appreciation on investments........................................ 1,409
Undistributed net investment income............................................... 497
-------
Total Net Assets.............................................................. $45,657
=======
Net Asset Value and Redemption Price Per Share........................................ $ 10.52
=======
Maximum Public Offering Price Per Share ($10.52/96.25%)............................... $ 10.93
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE> 58
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------
February 28, 1995
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
CASH U.S. MUNICIPAL MUNICIPAL MUNICIPAL EQUITY
RESERVE TREASURY MONEY MONEY MONEY INCOME
FUND FUND FUND FUND FUND FUND
-------- -------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest income................................... $20,385 $16,299 $1,438 $1,224 $1,244 $ 325
Dividend income................................... - - - - - 9,344
Less: foreign taxes withheld...................... - - - - - -
------- -------- --------- ---------- ------------ ---------
Total investment income....................... 20,385 16,299 1,438 1,224 1,244 9,669
------- -------- --------- ---------- ------------ ---------
Expenses:
Administration fees............................... 769 648 81 71 82 509
Waiver of administration fees..................... - - - (26) (46) -
Investment advisory fees.......................... 1,495 1,259 180 158 147 1,981
Waiver of investment advisory fees................ - - - - (38) -
Custodian/Transfer agent fees..................... 90 69 19 28 26 88
Pricing fees...................................... 3 3 3 1 2 20
Professional fees................................. 69 53 8 7 5 42
Registration fees................................. 20 7 3 1 1 7
Trustee fees...................................... 13 12 1 1 1 8
Printing expenses................................. 51 40 5 4 2 24
Amortization of deferred organizational
costs........................................... - - - 4 5 -
Insurance and other fees.......................... 21 36 1 - 1 10
------- -------- --------- ---------- ------------ ---------
Total expenses................................ 2,531 2,127 301 249 188 2,689
------- -------- --------- ---------- ------------ ---------
Net investment income................................. 17,854 14,172 1,137 975 1,056 6,980
------- -------- --------- ---------- ------------ ---------
Net realized gain (loss) on securities sold........... (1,037) 3 (15) (7) (2) (2,336)
------- -------- --------- ---------- ------------ ---------
Net realized loss on forward foreign currency
contracts and foreign currency transactions......... - - - - - -
------- -------- --------- ---------- ------------ ---------
Change in unrealized appreciation on forward
foreign currency contracts, foreign currency
and translation of other assets and liabilities in
foreign currency.................................... - - - - - -
------- -------- --------- ---------- ------------ ---------
Change in unrealized appreciation (depreciation)
on investment securities............................ - - - - - 5,135
------- -------- --------- ---------- ------------ ---------
Net gain (loss) on investments........................ (1,037) 3 (15) (7) (2) 2,799
------- -------- --------- ---------- ------------ ---------
Increase (decrease) in net assets resulting from
operations.......................................... $16,817 $14,175 $1,122 $ 968 $1,054 $9,779
------- -------- --------- ---------- ------------ ---------
</TABLE>
- ---------
(1) Commenced operations on July 1, 1994.
* Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
58
<PAGE> 59
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERNATIONAL
SMALL CAP SHORT/ FIXED MUNICIPAL MUNICIPAL MUNICIPAL INTERNATIONAL FIXED
GROWTH VALUE BALANCED INTERMEDIATE INCOME BOND BOND BOND EQUITY INCOME
FUND FUND FUND(1) FUND FUND FUND FUND FUND FUND FUND
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 188 $ 40 $ 329 $ 14,002 $ 17,273 $ 1,810 $ 5,583 $1,002 $ 90 $ 3,270
1,836 482 169 - - - - - 502 -
- - - - - - - - (63) (15)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
2,024 522 498 14,002 17,273 1,810 5,583 1,002 529 3,255
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
242 44 19 408 453 59 183 34 62 81
- - (13) - - (26) (78) (22) - -
939 217 72 1,360 1,511 198 610 114 311 362
- - (34) - - (31) (2) (47) - -
56 41 19 62 66 34 46 29 85 86
8 1 - 13 16 3 6 2 14 6
21 3 2 36 40 5 16 3 7 7
3 1 4 7 6 1 2 1 8 3
2 1 - 8 7 1 3 1 1 1
12 2 2 23 25 3 10 2 4 3
- 4 1 - - - 4 6 5 5
5 - - 7 8 1 2 1 8 6
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,288 314 72 1,924 2,132 248 802 124 505 560
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
736 208 426 12,078 15,141 1,562 4,781 878 24 2,695
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,391 970 144 (3,296) (3,223) (1,090) (431) (481) 2,720 (827)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
- - - - - - - - (357) (2,318)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
- - - - - - - - 124* 32
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
1,259 (2,226) 587 (4,916) (11,359) (353) (3,631) (238) (5,307) 1,113
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
2,650 (1,256) 731 (8,212) (14,582) (1,443) (4,062) (719) (2,820) (2,000)
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
$3,386 $(1,048) $1,157 $ 3,866 $ 559 $ 119 $ 719 $ 159 $(2,796) $ 695
- ------ --------- -------- ------------ ---------- --------- ---------- ------------ ------------- -------------
</TABLE>
59
<PAGE> 60
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
For the years ended February 28,
<TABLE>
<CAPTION>
CASH RESERVE FUND U.S. TREASURY FUND
----------------------------- -----------------------
1995 1994 1995 1994
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income........................ $ 17,854 $ 12,186 $ 14,172 $ 9,185
Net realized gain (loss) on securities sold.. (1,037) 2 2 3
---------- ------------ ---------- -----------
Increase in net assets resulting from
investment operations.................. 16,817 12,188 14,174 9,188
---------- ------------ ---------- -----------
DISTRIBUTIONS:
Net investment income........................ (17,854) (12,186) (14,172) (9,185)
---------- ------------ ---------- -----------
Total distributions...................... (17,854) (12,186) (14,172) (9,185)
---------- ------------ ---------- -----------
SHARE TRANSACTIONS:
Shares issued................................ 749,041 997,057 904,680 1,266,098
Shares reinvested in lieu of cash
distributions.............................. 440 184 203 90
Shares redeemed.............................. (742,657) (1,025,246) (916,643) (1,235,303)
---------- ------------ ---------- -----------
Increase (decrease) in net assets from
capital share transactions............. 6,824 (28,005) (11,762) 30,885
---------- ------------ ---------- -----------
Contribution of capital from affiliate... 887 - - -
---------- ------------ ---------- -----------
Total increase (decrease) in net assets.. 6,674 (28,003) (11,760) 30,888
---------- ------------ ---------- -----------
NET ASSETS:
Beginning of period...................... 428,649 456,652 377,276 346,388
---------- ------------ ---------- -----------
End of period............................ $ 435,323 $ 428,649 $ 365,516 $ 377,276
========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE> 61
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
MUNICIPAL MONEY MUNICIPAL MONEY MUNICIPAL MONEY
FUND FUND FUND
- ----------------------- --------------------- ---------------------
1995 1994 1995 1994 1995 1994
- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 1,137 $ 1,223 $ 975 $ 703 $ 1,056 $ 348
(15) (21) (7) - (2) -
- ----------- ----------- ---------- ---------- ---------- ----------
1,122 1,202 968 703 1,054 348
- ----------- ----------- ---------- ---------- ---------- ----------
(1,137) (1,223) (975) (703) (1,056) (348)
- ----------- ----------- ---------- ---------- ---------- ----------
(1,137) (1,223) (975) (703) (1,056) (348)
- ----------- ----------- ---------- ---------- ---------- ----------
117,594 382,594 70,309 53,796 94,308 52,320
10 11 64 31 17 5
(119,744) (425,385) (66,164) (53,255) (85,499) (30,767)
- ----------- ----------- ---------- ---------- ---------- ----------
(2,140) (42,780) 4,209 572 8,826 21,558
- ----------- ----------- ---------- ---------- ---------- ----------
- - - - - -
- ----------- ----------- ---------- ---------- ---------- ----------
(2,155) (42,801) 4,202 572 8,824 21,558
- ----------- ----------- ---------- ---------- ---------- ----------
47,407 90,208 39,408 38,836 26,654 5,096
- ----------- ----------- ---------- ---------- ---------- ----------
$ 45,252 $ 47,407 $ 43,610 $ 39,408 $ 35,478 $ 26,654
=========== =========== ========== ========== ========== ==========
</TABLE>
61
<PAGE> 62
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
For the years ended February 28,
<TABLE>
<CAPTION>
EQUITY INCOME GROWTH SMALL CAP VALUE BALANCED
FUND FUND FUND(1) FUND(2)
------------------- ------------------- -------------------- --------
1995 1994 1995 1994 1995 1994 1995
--------- --------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income............................. $ 6,980 $ 7,515 $ 736 $ 855 $ 208 $ 148 $ 426
Net realized gain (loss) on securities sold....... (2,336) 41,208 1,391 3,193 970 2,567 144
Change in unrealized appreciation (depreciation)
on investment securities........................ 5,135 (10,640) 1,259 2,905 (2,226) 123 587
--------- --------- --------- --------- ---------- --------- --------
Increase (decrease) in net assets from
operations.................................... 9,779 38,083 3,386 6,953 (1,048) 2,838 1,157
--------- --------- --------- --------- ---------- --------- --------
DISTRIBUTIONS:
Net investment income............................. (6,918) (7,523) (789) (734) (210) (153) (426)
Net realized gains................................ (23,258) (16,519) (3,216) (4,165) (1,457) (2,095) (14)
In excess of net realized gains................... - - - (480) - - -
--------- --------- --------- --------- ---------- --------- --------
Total distributions............................. (30,176) (24,042) (4,005) (5,379) (1,667) (2,248) (440)
--------- --------- --------- --------- ---------- --------- --------
SHARE TRANSACTIONS:
Proceeds from shares issued....................... 64,959 93,961 35,581 38,391 27,932 16,075 23,513
Dividends reinvested in lieu of cash
distributions................................... 24,070 18,186 3,390 4,735 1,390 1,882 103
Value of shares redeemed.......................... (61,887) (41,083) (49,615) (47,974) (22,494) (15,567) (400)
--------- --------- --------- --------- ---------- --------- --------
Increase (decrease) in net assets from share
transactions.................................. 27,142 71,064 (10,644) (4,848) 6,828 2,390 23,216
--------- --------- --------- --------- ---------- --------- --------
Total increase (decrease) in net assets......... 6,745 85,105 (11,263) (3,274) 4,113 2,980 23,933
--------- --------- --------- --------- ---------- --------- --------
NET ASSETS:
Beginning of period............................... 282,144 197,039 150,602 153,876 22,280 19,300 -
--------- --------- --------- --------- ---------- --------- --------
End of period..................................... $288,889 $282,144 $139,339 $150,602 $ 26,393 $ 22,280 $23,933
========= ========= ========= ========= ========== ========= ========
SHARE ISSUED AND REDEEMED:
Shares issued............................... 5,236 7,483 3,258 3,454 2,413 1,301 2,353
Shares issued in dividend
reinvestment.............................. 2,089 1,472 324 433 129 158 10
Shares redeemed............................. (5,163) (3,260) (4,518) (4,331) (1,950) (1,257) (40)
--------- --------- --------- --------- ---------- --------- --------
Net shares issued (redeemed)................ 2,162 5,695 (936) (444) 592 202 2,323
========= ========= ========= ========= ========== ========= ========
</TABLE>
(1) Formerly the Aggressive Equity Fund
(2) Commenced operations on July 1, 1994
(3) Commenced operations on August 31, 1993
The accompanying notes are an integral part of the financial statements.
62
<PAGE> 63
The Compass Capital Group
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA
SHORT/INTERMEDIATE FIXED INCOME MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL BOND
FUND FUND FUND FUND FUND(3)
- ------------------- ------------------- ------------------ ------------------- -----------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12,078 $ 12,640 $ 15,141 $ 13,917 $ 1,562 $ 1,424 $ 4,781 $ 3,784 $ 878 $ 338
(3,296) 1,541 (3,223) 4,806 (1,090) 823 (431) 108 (481) (17)
(4,916) (5,373) (11,359) (6,300) (353) (1,000) (3,631) (513) (238) (265)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
3,866 8,808 559 12,423 119 1,247 719 3,379 159 56
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(12,044) (12,640) (15,108) (13,917) (1,558) (1,421) (4,773) (3,784) (879) (342)
(470) (1,200) (968) (4,715) (376) (723) (73) (187) - -
- - - - - - - - - -
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(12,514) (13,840) (16,076) (18,632) (1,934) (2,144) (4,846) (3,971) (879) (342)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
34,390 132,070 31,547 93,524 8,262 18,362 21,923 73,255 4,515 21,895
6,046 8,757 4,989 8,275 475 710 1,934 1,729 101 30
(98,249) (53,591) (49,290) (31,296) (13,728) (5,301) (34,227) (10,207) (7,038) (1,773)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(57,813) 87,236 (12,754) 70,503 (4,991) 13,771 (10,370) 64,777 (2,422) 20,152
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(66,461) 82,204 (28,271) 64,294 (6,806) 12,874 (14,497) 64,185 (3,142) 19,866
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
268,235 186,031 272,409 208,115 35,556 22,682 111,354 47,169 19,866 -
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
$201,774 $268,235 $244,138 $272,409 $ 28,750 $35,556 $ 96,857 $111,354 $16,724 $19,866
========= ========= ========= ========= ========= ======== ========= ========= ======== ========
3,361 12,377 3,114 8,506 808 1,658 2,019 6,417 473 2,186
597 823 499 757 48 64 180 152 11 3
(9,629) (5,034) (4,890) (2,843) (1,355) (478) (3,191) (895) (753) (176)
- --------- --------- --------- --------- --------- -------- --------- --------- -------- --------
(5,671) 8,166 (1,277) 6,420 (499) 1,244 (992) 5,674 (269) 2,013
========= ========= ========= ========= ========= ======== ========= ========= ======== ========
</TABLE>
63
<PAGE> 64
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EQUIT FIXED INCOME
FUND FUND
------------------ ---------------------
1995 1994 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income.......................................................... $ 24 $ 23 $2,695 $2,608
Net realized gain (loss) on securities sold.................................... 2,720 1,516 (827) 1,909
Net realized gain (loss) on forward foreign currency contracts and foreign
currency transactions........................................................ (357) (148) (2,318) 1,001
Change in unrealized appreciation (depreciation) on forward foreign currency
contracts, foreign currency, and translation of other assets and liabilities
in foreign currency.......................................................... 124* (208) 32 (1,315)
Change in unrealized appreciation (depreciation) on investment securities...... (5,307) 5,136 1,113 (130)
--------- -------- -------- --------
Increase (decrease) in net assets from operations.......................... (2,796) 6,319 695 4,073
--------- -------- -------- --------
DISTRIBUTIONS:
Net investment income.......................................................... - (30) (570) (3,474)
Net realized gains............................................................. (2,565) (778) (1,055) (850)
--------- -------- -------- --------
Total distributions........................................................ (2,565) (808) (1,625) (4,324)
--------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from shares issued.................................................... 11,521 16,452 7,438 11,860
Dividends reinvested in lieu of cash distributions............................. 2,543 765 1,240 2,385
Value of shares redeemed....................................................... (6,989) (2,968) (8,979) (5,363)
--------- -------- -------- --------
Increase (decrease) in net assets from share transactions.................. 7,075 14,249 (301) 8,882
--------- -------- -------- --------
Total increase (decrease) in net assets.................................... 1,714 19,760 (1,231) 8,631
--------- -------- -------- --------
NET ASSETS:
Beginning of period............................................................ 33,223 13,463 46,888 38,257
--------- -------- -------- --------
End of period.................................................................. $34,937 $33,223 $45,657 $46,888
========= ======== ======== ========
SHARE ISSUED AND REDEEMED:
Shares issued.............................................................. 837 1,270 717 1,068
Shares issued in dividend reinvestment..................................... 203 59 122 215
Shares redeemed............................................................ (518) (224) (861) (474)
--------- -------- -------- --------
Net shares issued (redeemed)............................................... 522 1,105 (22) 809
========= ======== ======== ========
</TABLE>
- ---------
* Net of $10,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
64
<PAGE> 65
FINANCIAL HIGHLIGHTS THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET DISTRIBUTIONS NET NET EXPENSES INCOME AVERAGE AVERAGE
ASSET FROM ASSET ASSETS TO TO NET NET
VALUE NET NET VALUE END OF AVERAGE AVERAGE ASSETS ASSETS
BEGINNING INVESTMENT INVESTMENT END TOTAL PERIOD NET NET (EXCLUDING (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS ASSETS WAIVERS) WAIVERS)
--------- ---------- ------------- --------- ------ -------- -------- ------- ---------- ----------
- ---------------------------------
CASH RESERVE FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.04 $(0.04) $1.00 4.28% $435,323 0.59% 4.18% 0.59% 4.18%
1994 1.00 0.03 (0.03) 1.00 2.80 428,649 0.59 2.76 0.59 2.76
1993 1.00 0.03 (0.03) 1.00 3.30 456,652 0.59 3.24 0.59 3.24
1992 1.00 0.05 (0.05) 1.00 5.42 435,591 0.59 5.25 0.59 5.25
1991 1.00 0.08 (0.08) 1.00 7.84 408,815 0.58 7.57 0.59 7.56
1990 1.00 0.09 (0.09) 1.00 8.93 365,174 0.58 8.58 0.60 8.56
1989(1) 1.00 0.08 (0.08) 1.00 7.16* 381,082 0.47 7.49 0.56 7.40
<CAPTION>
- ---------------------------------
U.S. TREASURY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.04 $(0.04) $1.00 4.06% $365,516 0.59% 3.94% 0.59% 3.94%
1994 1.00 0.03 (0.03) 1.00 2.63 377,276 0.59 2.60 0.59 2.60
1993 1.00 0.03 (0.03) 1.00 3.00 346,388 0.62 3.10 0.62 3.10
1992 1.00 0.05 (0.05) 1.00 5.21 958,671 0.56 4.95 0.56 4.95
1991 1.00 0.07 (0.07) 1.00 7.50 434,436 0.56 7.25 0.57 7.24
1990 1.00 0.08 (0.08) 1.00 8.56 215,195 0.59 8.24 0.61 8.22
1989(2) 1.00 0.07 (0.07) 1.00 6.75* 129,971 0.50* 7.14* 0.56* 7.08*
<CAPTION>
- ---------------------------------
MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.55% $45,252 0.67% 2.53% 0.67% 2.53%
1994 1.00 0.02 (0.02) 1.00 1.98 47,407 0.62 1.94 0.62 1.94
1993 1.00 0.03 (0.03) 1.00 2.48 90,208 0.67 2.45 0.67 2.45
1992 1.00 0.04 (0.04) 1.00 3.95 56,932 0.67 4.05 0.69 4.03
1991 1.00 0.06 (0.06) 1.00 5.67 176,209 0.61 5.54 0.63 5.52
1990 1.00 0.06 (0.06) 1.00 6.17 127,419 0.65 6.00 0.68 5.97
1989(1) 1.00 0.05 (0.05) 1.00 4.35* 123,300 0.57 5.03 0.66 4.94
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.02 $(0.02) $1.00 2.46% $43,610 0.63% 2.46% 0.70% 2.39%
1994 1.00 0.02 (0.02) 1.00 1.79 39,408 0.65 1.77 0.72 1.70
1993 1.00 0.02 (0.02) 1.00 2.19 38,836 0.73 2.17 0.76 2.14
1992(3) 1.00 0.02 (0.02) 1.00 3.53* 35,005 0.47* 3.44* 0.62* 3.29*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL MONEY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 $(0.03) $1.00 2.71% $35,478 0.48% 2.68% 0.69% 2.47%
1994 1.00 0.02 (0.02) 1.00 2.25 26,654 0.22 2.35 0.80 1.77
1993 1.00 0.03 (0.03) 1.00 2.49 5,096 0.67 2.53 0.87 2.33
1992(4) 1.00 0.02 (0.02) 1.00 3.72* 22,145 0.58* 3.42* 0.62* 3.38*
</TABLE>
Footnotes on page 67 following table
The accompanying notes are an integral part of the financial statements.
65
<PAGE> 66
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
For the period ended February 28, 1995
For a Share Outstanding Throughout each Period.
<TABLE>
<CAPTION>
REALIZED DISTRIBUTIONS
NET AND ----------------------------- NET
ASSET UNREALIZED IN EXCESS ASSET
VALUE NET GAINS OR NET OF NET VALUE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN
--------- ---------- ----------- ---------- -------- --------- ------ ---------
- ------------------------
EQUITY INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.71 $0.30 $ 0.14 $(0.30) $(0.99) - $11.86 3.87%
1994 11.94 0.38 1.63 (0.39) (0.85) - 12.71 16.78
1993 11.77 0.39 0.48 (0.39) (0.31) - 11.94 7.71
1992 11.12 0.45 1.24 (0.46) (0.58) - 11.77 16.07
1991 9.93 0.45 1.17 (0.43) - - 11.12 16.87
1990(5) 10.00 0.32 (0.07) (0.32) - - 9.93 7.79*
<CAPTION>
- ------------------------
GROWTH FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.31 $0.06 $ 0.22 $(0.06) $(0.27) $ - $11.26 2.75%
1994 11.19 0.05 0.46 (0.05) (0.30) (0.04) 11.31 4.74
1993 11.36 0.13 0.26 (0.13) (0.43) - 11.19 3.49
1992 11.72 0.21 1.35 (0.21) (1.71) - 11.36 14.93
1991 10.28 0.22 1.44 (0.22) - - 11.72 16.40
1990(5) 10.00 0.23 0.27 (0.22) - - 10.28 6.70*
<CAPTION>
- ------------------------
SMALL CAP VALUE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.33 $0.10 $(0.70) $(0.10) $(0.62) - $11.01 (4.70)%
1994 12.03 0.09 1.57 (0.09) (1.27) - 12.33 14.50
1993 12.01 0.05 0.10 (0.04) (0.09) - 12.03 1.42
1992(3) 10.00 0.04 2.01 (0.04) - - 12.01 32.73*
<CAPTION>
- ------------------------
BALANCED FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995(6) $10.00 $0.27 $ 0.30 $(0.27) - - $10.30 8.94%*
<CAPTION>
- ------------------------
SHORT/INTERMEDIATE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.47 $0.55 $(0.33) $(0.55) $(0.02) - $10.12 2.27%
1994 10.67 0.59 (0.14) (0.59) (0.06) - 10.47 3.71
1993 10.47 0.67 0.32 (0.67) (0.12) - 10.67 9.77
1992 10.17 0.70 0.34 (0.70) (0.04) - 10.47 10.58
1991 9.96 0.75 0.20 (0.74) - - 10.17 9.89
1990(5) 10.00 0.56 (0.05) (0.55) - - 9.96 6.96*
<CAPTION>
- ------------------------
FIXED INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.66 $0.61 $(0.56) $(0.61) $(0.04) - $10.06 0.65%
1994 10.88 0.62 (0.01) (0.62) (0.21) - 10.66 5.38
1993 10.52 0.71 0.66 (0.72) (0.29) - 10.88 13.69
1992 10.11 0.76 0.47 (0.76) (0.06) - 10.52 12.62
1991 9.84 0.79 0.26 (0.78) - - 10.11 11.18
1990(5) 10.00 0.53 (0.19) (0.50) - - 9.84 4.54*
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET EXPENSES INCOME AVERAGE AVERAGE
ASSETS TO TO NET NET
END OF AVERAGE AVERAGE ASSETS ASSETS PORTFOLIO
PERIOD NET NET (EXCLUDING (EXCLUDING TURNOVER
(000) ASSETS ASSETS WAIVERS) WAIVERS) RATE
-------- -------- ------------ ---------- ---------- ---------
- ------------------------
EQUITY INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $288,889 0.95% 2.47% 0.95% 2.47% 57.96%
1994 282,144 0.93 3.06 0.93 3.06 156.21
1993 197,039 1.00 3.33 1.00 3.33 70.84
1992 142,052 0.96 4.04 0.96 4.04 111.52
1991 82,167 0.94 4.65 0.98 4.61 98.75
1990(5) 32,115 0.93* 4.29* 1.06* 4.16* 54.08
<CAPTION>
- ------------------------
GROWTH FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $139,339 0.96% 0.55% 0.96% 0.55% 46.28%
1994 150,602 0.94 0.56 0.94 0.56 153.03
1993 153,876 0.98 1.14 0.98 1.14 114.83
1992 115,473 1.00 1.80 1.00 1.80 144.16
1991 113,335 0.92 2.08 0.96 2.04 91.32
1990(5) 81,998 0.90* 2.72* 1.00* 2.62* 41.69
<CAPTION>
- ------------------------
SMALL CAP VALUE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $26,393 1.30% 0.86% 1.30% 0.86% 15.84%
1994 22,280 1.31 0.72 1.31 0.72 49.34
1993 19,300 1.38 0.45 1.38 0.45 43.00
1992(3) 16,237 1.22* 0.65* 1.27* 0.60* 9.08
<CAPTION>
- ------------------------
BALANCED FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995(6) $23,933 0.70%* 4.10%* 1.15%* 3.65%* 30.63%
<CAPTION>
- ------------------------
SHORT/INTERMEDIATE FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $201,774 0.85% 5.33% 0.85% 5.33% 53.66%
1994 268,235 0.84 5.02 0.84 5.02 58.80
1993 186,031 0.88 6.28 0.88 6.28 25.95
1992 128,225 0.85 6.90 0.85 6.90 57.81
1991 77,996 0.84 7.44 0.88 7.40 42.86
1990(5) 25,695 0.88* 7.41* 0.98* 7.31* 2.46
<CAPTION>
- ------------------------
FIXED INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $244,138 0.85% 6.02% 0.85% 6.02% 34.69%
1994 272,409 0.83 5.53 0.83 5.53 49.41
1993 208,115 0.87 6.62 0.87 6.62 36.88
1992 150,594 0.89 7.66 0.89 7.66 120.70
1991 110,935 0.82 7.97 0.86 7.93 63.33
1990(5) 71,228 0.82* 7.10* 0.98* 6.94* 12.97
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE> 67
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS
REALIZED ----------------------------
NET AND IN NET
ASSET UNREALIZED EXCESS ASSET
VALUE NET GAINS OR NET OF NET VALUE
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL REALIZED END OF TOTAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS GAINS PERIOD RETURN
--------- ---------- ----------- ---------- -------- -------- ------ -----------
- ---------------------------------
MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.79 $0.49 $(0.39) $(0.49) $(0.12) - $10.28 1.17%
1994 11.06 0.51 (0.03) (0.51) (0.24) - 10.79 4.35
1993 10.43 0.51 0.64 (0.52) - - 11.06 11.42
1992 10.25 0.60 0.19 (0.60) (0.01) - 10.43 8.40
1991 9.99 0.64 0.23 (0.61) - - 10.25 8.96
1990(7) 10.00 0.14 (0.02) (0.13) - - 9.99 4.81*
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C><C> <C>
1995 $11.31 $0.51 $(0.36) $(0.51) $(0.01) - $10.94 1.49%
1994 11.30 0.54 0.04 (0.54) (0.03) - 11.31 5.18
1993 10.46 0.52 0.85 (0.53) - - 11.30 13.48
1992(3) 10.00 0.34 0.45 (0.33) - - 10.46 12.33*
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.87 $0.44 $(0.28) $(0.44) - - $9.59 1.81%
1994(8) 10.00 0.21 (0.13) (0.21) - - 9.87 1.53*
<CAPTION>
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $13.79 $0.01 $(0.93) $ - $(0.95) $ - $11.92 (6.99)%
1994 10.32 0.03 3.88 (0.03) (0.41) - 13.79 38.19
1993 10.62 0.09 (0.34) (0.05) - - 10.32 (2.35)
1992(3) 10.00 0.02 0.63 - - (0.03) 10.62 9.88*
<CAPTION>
- ---------------------------------
INTERNATIONAL FIXED INCOME FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.75 $0.62 $(0.48) $(0.13) $(0.24) $ - $10.52 1.50%
1994 10.76 0.65 0.46 (0.90) (0.22) - 10.75 10.24
1993 10.21 0.52 0.47 (0.30) (0.14) - 10.76 9.55
1992(3) 10.00 0.31 0.26 - (0.06) (0.30) 10.21 8.92*
<CAPTION>
RATIO RATIO OF
OF NET
RATIO EXPENSES INCOME
RATIO OF OF NET TO TO
NET EXPENSES INCOME AVERAGE AVERAGE
ASSETS TO TO NET NET
END OF AVERAGE AVERAGE ASSETS ASSETS PORTFOLIO
PERIOD NET NET (EXCLUDING (EXCLUDING TURNOVER
(000) ASSETS ASSETS WAIVERS) WAIVERS) RATE
-------- -------- ------ ----------- ---------- -----------
- ---------------------------------
MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 28,750 0.75% 4.75% 0.93% 4.57% 60.86%
1994 35,556 0.69 4.66 0.96 4.39 80.70
1993 22,682 1.01 4.80 1.30 4.49 144.89
1992 11,299 0.75 5.81 1.31 5.25 114.78
1991 7,516 0.32 6.33 1.40 5.25 30.21
1990(7) 2,620 0.39* 5.85* 1.56* 4.68* 0.00
<CAPTION>
- ---------------------------------
NEW JERSEY MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 96,857 0.79% 4.71% 0.87% 4.63% 28.43%
1994 111,354 0.38 4.75 0.86 4.27 12.05
1993 47,169 0.48 5.04 1.04 4.48 16.09
1992(3) 10,673 0.52* 5.35* 1.29* 4.58* 0.00
<CAPTION>
- ---------------------------------
PENNSYLVANIA MUNICIPAL BOND FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 16,724 0.65% 4.63% 1.01% 4.27% 48.91%
1994(8) 19,866 0.22* 4.27* 0.85* 3.64* 30.68
<CAPTION>
- ---------------------------------
INTERNATIONAL EQUITY FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 34,937 1.46% 0.07% 1.46% 0.07% 47.68%
1994 33,223 1.59 0.11 1.59 0.11 51.30
1993 13,463 1.63 0.91 1.63 0.91 80.72
1992(3) 12,427 1.56* 0.25* 1.61* 0.20* 22.26
<CAPTION>
- ---------------------------------
INTERNATIONAL FIXED INCOME FUND
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 45,657 1.24% 5.96% 1.24% 5.96% 130.64%
1994 46,888 1.38 6.00 1.38 6.00 128.14
1993 38,257 1.30 6.31 1.30 6.31 115.25
1992(3) 27,744 1.33* 6.79* 1.37* 6.75* 110.13
- ----------------
</TABLE>
* Annualized.
(1) Commenced operations on March 1, 1988.
(2) Commenced operations on March 24, 1988.
(3) Commenced operations on July 1, 1991.
(4) Commenced operations on August 15, 1991.
(5) Commenced operations on May 31, 1989.
(6) Commenced operations on July 1, 1994.
(7) Commenced operations on December 1, 1989.
(8) Commenced operations on August 31, 1993.
The accompanying notes are an integral part of the financial statements.
67
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
February 28, 1995
1. ORGANIZATION:
The Compass Capital Group (the "Group") was organized on October 1, 1987,
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company established as a
Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group presently offers
shares of the Cash Reserve Fund, U.S. Treasury Fund, Municipal Money Fund,
New Jersey Municipal Money Fund, Pennsylvania Municipal Money Fund, Equity
Income Fund, Growth Fund, Balanced Fund, Small Cap Value Fund (formerly
Aggressive Equity), Short/Intermediate Fund, Fixed Income Fund, Municipal
Bond Fund, New Jersey Municipal Bond Fund, Pennsylvania Municipal Bond Fund,
International Equity Fund and International Fixed Income Fund (referred to
as a "Fund" or collectively as the "Funds"). Sales of shares of the Group
may be made to customers of Midlantic Bank N.A. ("Midlantic"), and to the
general public. Effective August 27, 1994, Midlantic National Bank, the
investment adviser to the Group, merged with Continental Bank and changed
its name to Midlantic Bank, N.A.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
Securities Valuation - Investments in equity securities which are traded on
a national securities exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily available for
such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no
sale was reported on that date are stated at the last quoted bid price.
Option contracts are valued at the last quoted bid price quoted on the
primary exchange or board of trade which such option contracts are stated.
Debt obligations exceeding sixty days to maturity for which market
quotations are readily available are valued at the most recently quoted bid
price. Foreign securities in the International Equity Fund and International
Fixed Income Fund (the "International Funds") are valued based upon
quotations from the primary market in which they are traded. Debt
obligations with sixty days or less remaining until maturity may be valued
at their amortized cost. Restricted and illiquid securities for which
quotations are not readily available are valued at fair value using methods
determined in good faith as approved by the Board of Trustees.
Security Transactions and Related Income - Security transactions are
accounted on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis.
Continued
68
<PAGE> 69
THE COMPASS CAPITAL GROUP
- -------------------------------------------------------------------------------
Dividend income is recorded on the ex-dividend date. Gains or losses realized
on sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds. Market discounts and premiums
are not amortized for financial reporting and Federal income tax purposes in
the taxable variable net asset value funds. Market premiums and original issue
discounts are amortized for financial reporting and Federal income tax purposes
in the Municipal Bond Fund, New Jersey Municipal Bond Fund, and Pennsylvania
Municipal Bond Fund.
Repurchase Agreements - The Group may enter into repurchase agreements with
member banks of the Federal Deposit Insurance Corporation ("FDIC") with
capital, surplus and undivided profits in excess of $100,000,000 (as of the
date of their most recently published financial statements) and from registered
broker/dealers whom Midlantic deems creditworthy under guidelines approved by
the Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase price
generally equals the price paid by the Group plus interest negotiated on the
basis of current short-term rates.
Securities pledged as collateral for repurchase agreements are held by the
custodian bank until the respective agreements mature. Provisions of the
repurchase agreements ensure that the market value of the collateral, including
accrued interest thereon, is sufficient in the event of default of the
counterparty.
The Group may also invest in tri-party repurchase agreements. Securities held
as collateral for tri-party repurchase agreements are maintained in a
segregated account by the broker's custodian bank until maturity of the
repurchase agreement.
If the counterparty defaults and the value of the collateral declines or if the
counterparty enters an insolvency proceeding, realization of the collateral by
the Funds may be delayed or limited.
Distributions to Shareholders - Distributions from net investment income are
declared daily and paid monthly for the money market funds. Distributions from
net investment income are declared and paid monthly for the variable net asset
value funds, excluding the Small Cap Value Fund which is paid quarterly and the
International Funds which are paid twice annually. Any net realized capital
gains are declared and distributed to shareholders at least annually.
Differences between undistributed net investment income or accumulated net
capital gains for financial reporting and tax purposes, if permanent, are
required to be reclassified to/from paid in capital.
Federal Income Taxes - It is the intention of the Group to continue to qualify
as a regulated investment company for Federal income tax purposes and
distribute all of its taxable income and net capital gains. Accordingly, no
provision for Federal income taxes is required.
Continued
69
<PAGE> 70
Notes to Financial Statements
- -------------------------------------------------------------------
February 28, 1995
Foreign Currency Translation - The books and records of the International Funds
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The International Funds do not isolate that portion of gains and losses on
investment securities which is due to changes in the foreign exchange rates
from that which is due to changes in market prices of such securities.
The International Funds report certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts - The International Funds enter into forward
foreign currency contracts as a hedge against either specific transactions or
portfolio positions. These contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized
until the contract settlement date. Such contracts, which protect the value of
a Fund's investment securities against a decline in the value of currency, do
not eliminate fluctuations in the underlying prices of the securities. They
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of a
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such foreign currency increase.
The aggregate principal amounts of the contracts are not recorded as the Funds
intend to settle the contracts prior to delivery.
Other - Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Group are prorated to
the Funds on the basis of relative net assets.
Continued
70
<PAGE> 71
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term and U.S. Government
securities) for the period ended February 28, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
--------- --------
<S> <C> <C>
Equity Income Fund................ $164,247 $161,787
Growth Fund....................... 60,422 81,242
Small Cap Value Fund.............. 9,473 3,712
Balanced Fund..................... 16,372 3,398
Short/Intermediate Fund........... 37,876 55,497
Fixed Income Fund................. 34,404 49,965
Municipal Bond Fund............... 19,676 30,965
New Jersey Municipal Bond Fund.... 28,269 34,325
Pennsylvania Municipal Bond Fund.. 8,902 8,841
International Equity Fund......... 18,310 15,395
International Fixed Income Fund... 54,465 53,855
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
--------- -------
<S> <C> <C>
Balanced Fund............ $8,572 $1,101
Short/Intermediate Fund.. 70,018 95,269
Fixed Income Fund........ 43,792 38,074
</TABLE>
4. RELATED PARTY TRANSACTIONS:
SEI Financial Management Corporation (the "Administrator") serves the Group
as Administrator. Under the terms of the administration agreement between the
Group and the Administrator, the Administrator earns an annual fee of .18% of
the daily net assets of the Funds. SEI Financial Services Company (the
"Distributor") serves the Group as Distributor pursuant to a distribution
agreement between the Group and the Distributor. The Distributor receives no
fee for its services.
Investment advisory services are provided to the Group by Midlantic. Under
the terms of the investment advisory agreement, Midlantic is entitled to
receive fees based on a percentage of the average net assets of the Funds.
The advisory fee is equal to .35% of the average daily net assets of the Cash
Reserve Fund and U.S. Treasury Fund; .40% of the Municipal Money Fund, New
Jersey Municipal Money Fund and Pennsylvania Municipal Money Fund; .60% of
the
Continued
71
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
February 28, 1995
Short/Intermediate Fund, Fixed Income Fund, Municipal Bond Fund, New Jersey
Municipal Bond Fund and Pennsylvania Municipal Bond Fund; .70% of the Growth
Fund, Equity Income Fund and Balanced Fund; .80% of the International Fixed
Income Fund; and .90% of the Small Cap Value Fund and International Equity
Fund.
The Administrator and the Adviser have voluntarily agreed to waive a portion
of their fee on certain portfolios so that total expenses of such
portfolios will not exceed certain annual expense limitations.
Fisher Investments, Inc., Morgan Grenfell Investment Services Limited and
Seligman Henderson Co. have entered into subadvisory agreements with
Midlantic as subadvisors for the Small Cap Value Fund, International
Fixed Income Fund and International Equity Fund, respectively. Wellington
Management Company has also entered into a subadvisory agreement with
Midlantic for the Equity Income Fund and Growth Fund.
During the period ended February 28, 1995, Midlantic Corporation, an
affiliate of the Adviser, purchased a security from the Cash Reserve Fund
for $5,000,000 which represented the amortized cost and carrying value
of the security. The securities aggregate market value was $4,112,500 at the
time of purchase. In connection with this transaction the Fund recorded a
realized loss of $887,500 on the sale of the security in the statement of
operations along with offsetting capital contribution from the affiliate.
The transaction did not change the net asset value of the Fund.
5. INVESTMENT TRANSACTIONS:
At February 28, 1995 the total cost of securities and the net realized
gains or losses on securities sold for Federal income tax purposes was not
materially different from amounts reported for financial reporting purposes.
The aggregate unrealized appreciation and depreciation information at
February 28, 1995 for each variable net asset value fund is as follows:
<TABLE>
<CAPTION>
EQUITY SMALL SHORT/ FIXED
INCOME GROWTH CAP VALUE BALANCED INTERMEDIATE INCOME
(000) (000) (000) (000) (000) (000)
--------- -------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation................. $24,040 $15,696 $3,041 $ 795 $ 842 $ 2,315
Aggregate gross unrealized
depreciation................. (10,756) (4,438) (2,885) (208) (3,663) (7,483)
--------- -------- --------- -------- ------------ ---------
Net unrealized
appreciation/(depreciation).. $13,284 $11,258 $ 156 $ 587 $(2,821) $(5,168)
========= ======== ========= ======== ============ =========
</TABLE>
Continued
72
<PAGE> 73
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL NEW JERSEY PENNSYLVANIA INTERNATIONAL INTERNATIONAL
BOND MUNICIPAL BOND MUNICIPAL BOND EQUITY FIXED INCOME
(000) (000) (000) (000) (000)
--------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation................. $ 189 $ 1,009 $ 25 $ 2,783 $1,777
Aggregate gross unrealized
depreciation................. (471) (2,666) (528) (2,190) (368)
--------- -------------- -------------- ------------- -------------
Net unrealized
appreciation/(depreciation).. $(282) $(1,657) $(503) $ 593 $1,409
========= ============== ============== ============= =============
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS:
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal
year. The following deferred losses will be treated as arising on the first
day of the fiscal year ending February 29, 1996. Additionally, the following
capital losses realized by the funds as of February 28, 1995 are available to
offset future net capital gains through the following fiscal years:
<TABLE>
<CAPTION>
DEFERRED CAPITAL
LOSSES LOSSES EXPIRATION
FUND (000) (000) DATE
- ----- -------- ------- ----------
<S> <C> <C> <C>
Cash Reserve.................. - $ 150 2003
Municipal Money............... - 19 2003
Municipal Money............... - 16 2002
Municipal Money............... - 305 2001
New Jersey Municipal Money.... - 7 2003
Pennsylvania Municipal Money.. - 2 2003
Equity Income................. - 225 2003
Growth........................ 2,299 - -
International Fixed Income.... - 459 2003
Short/Intermediate............ 1,045 2,251 2003
Fixed Income.................. 1,010 2,214 2003
Municipal Bond................ 369 722 2003
New Jersey Municipal Bond..... 55 378 2003
Pennsylvania Municipal Bond... 410 89 2003
</TABLE>
Continued
73
<PAGE> 74
Notes to Financial Statements
- -------------------------------------------------------------------------------
February 28, 1995
7. FORWARD FOREIGN CURRENCY CONTRACTS
A summary of forward foreign currency contracts that were outstanding at
February 28, 1995 is as follows:
<TABLE>
<CAPTION>
NET
CONTRACTS TO UNREALIZED
SETTLEMENT DELIVER/ APPRECIATION/
DATES RECEIVE IN EXCHANGE FOR (DEPRECIATION)
----------------- ---------------- --------------- --------------
INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C>
Foreign Currency Sale 04/20/95 JY 378,070,000 $ 3,850,000 $ (87,770)
--------------- --------------
<CAPTION>
INTERNATIONAL FIXED INCOME FUND
<S> <C> <C> <C> <C>
Foreign Currency Sales 03/08/95 NZ 1,600,000 $ 1,021,440 $ 8,857
03/14/95-04/21/95 DM 12,480,000 8,165,044 (409,269)
03/14/95-05/16/95 JY 740,000,000 7,542,623 (171,377)
03/14/95 SP 260,000,000 1,963,598 (72,331)
03/15/95 FF 10,500,000 1,938,342 (107,923)
04/21/95-05/16/95 UK 1,465,000 2,280,766 (27,628)
04/21/95-05/16/95 IT2,920,000,000 1,782,389 41,989
04/25/95 CA 1,100,000 770,470 (17,116)
--------------- --------------
$25,464,672 $(754,798)
=============== ==============
Foreign Currency Purchases 03/08/95 NZ 700,000 $ 440,538 $ 2,467
03/14/95 DM 330,000 219,124 7,395
03/14/95 SP 260,000,000 1,981,481 54,448
04/25/95 CA 1,100,000 774,806 12,780
--------------- --------------
$ 3,415,949 $ 77,090
=============== ==============
$(677,708)
==============
</TABLE>
CURRENCY LEGEND
- --------------------
CA Canadian Dollar
DM German Marks
FF French Francs
IT Italian Lira
JY Japanese Yen
NZ New Zealand Dollar
SP Spanish Pesetas
UK British Pounds Sterling
74
<PAGE> 75
To the Shareholders and Trustees of
The Compass Capital Group:
We have audited the accompanying statements of net assets of the Cash Reserve
Fund, the U.S. Treasury Fund, the Municipal Money Fund, the New Jersey
Municipal Money Fund, the Pennsylvania Municipal Money Fund, the Equity Income
Fund, the Growth Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund, the Fixed Income Fund, the Municipal Bond Fund, the
New Jersey Municipal Bond Fund, and the Pennsylvania Municipal Bond Fund, and
the schedules of investments and statements of assets and liabilities of the
Growth Fund, the International Equity Fund, and the International Fixed Income
Fund of the Compass Capital Group (the "Group"), as of February 28, 1995 and
the related statements of operations for the year then ended, and the statement
of changes in net assets and the financial highlights for each of the
respective periods presented. These financial statements and the financial
highlights are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995, by correspondence with the Fund's custodian and brokers, or
other auditing procedures where correspondence from brokers was not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds comprising the Compass Capital Group as of February 28,
1995, the results of their operations for the year then ended, the changes in
their net assets for each of the two years then ended and the financial
highlights for each of the respective periods presented in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ---------------------------
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 14, 1995
<PAGE> 1
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LETTER TO SHAREHOLDERS..................................................
STATEMENTS OF NET ASSETS/SCHEDULE OF INVESTMENTS........................
STATEMENTS OF ASSETS AND LIABILITIES....................................
STATEMENTS OF OPERATIONS................................................
STATEMENTS OF CHANGES IN NET ASSETS.....................................
FINANCIAL HIGHLIGHTS....................................................
NOTES TO FINANCIAL STATEMENTS...........................................
</TABLE>
<PAGE> 2
STATEMENT OF NET ASSETS THE COMPASS CAPITAL GROUP
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
CASH RESERVE FUND
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
COMMERCIAL PAPER (23.1%)
ABN/AMRO New York
5.740%, 10/10/95................ $ 5,000 $ 4,969
Asset Securitization Cooperative
5.765%, 10/19/95................ 4,500 4,466
Bayerische Landesbank Girozentrale
5.740%, 09/18/95................ 5,000 4,987
Commerzbank A.G.
5.735%, 09/11/95................ 5,000 4,992
E.I. Dupont de Nemours
5.720%, 11/07/95................ 10,000 9,896
International Nederlanden U.S.
Funding Corporation
5.700%, 10/16/95................ 5,000 4,965
Jet Funding
5.898%, 10/31/95................ 10,197 10,097
MCA Funding
6.340%, 09/12/95................ 8,000 7,985
Mitsubishi International
5.830%, 10/24/95................ 5,000 4,958
New South Wales Treasury
5.600%, 01/09/96................ 10,000 9,803
New Zealand
5.781%, 11/20/95................ 4,000 3,949
Rexam PLC
5.750%, 09/13/95................ 5,000 4,991
5.793%, 09/19/95................ 5,000 4,986
Sherwood Medical
5.800%, 09/27/95................ 5,000 4,979
South Australian Government
Financing Authority
5.700%, 10/13/95................ 5,000 4,967
Southland
5.760%, 09/12/95................ 5,000 4,991
5.808%, 10/25/95................ 5,000 4,957
State Bank of New South Wales,
Delaware
6.270%, 09/07/95................ 10,000 9,990
---------
Total Commercial Paper
(Cost $110,928,205)............. 110,928
---------
CORPORATE BONDS (21.4%)
Abbey National North America
Corporation
7.400%, 12/15/95................ 10,000 10,024
American Express Centurion Bank
5.875%, 09/12/95 (A)............ 10,000 10,000
5.938%, 09/26/95 (A)............ 10,000 9,999
Associates
8.375%, 06/01/96................ 4,100 4,172
Bear Stearns
6.313%, 09/15/95................ $ 3,500 $ 3,500
FCC National Bank, Delaware
5.700%, 09/06/95 (A)............ 10,000 10,000
Ford Motor Credit
8.625%, 04/15/96................ 6,100 6,187
General Electric Capital
5.950%, 09/01/95 (A)............ 5,000 5,000
5.960%, 09/01/95 (A)............ 5,000 5,000
6.150%, 09/01/95 (A)............ 10,000 9,999
Merrill Lynch
5.620%, 09/06/95 (A)............ 5,000 5,000
Nationsbank, North Carolina
5.375%, 12/01/95................ 10,350 10,330
Toyota Motor Credit
5.980%, 09/01/95 (A)............ 10,000 9,996
5.680%, 09/06/95 (A)............ 3,700 3,698
---------
Total Corporate Bonds
(Cost $102,905,314)............. 102,905
---------
ASSET BACKED SECURITIES (7.7%)
Ford Credit Auto Lease Trust
6.000%, 05/15/96................ 4,000 3,999
John Deere Owner Trust
5.812%, 09/15/95 (A)............ 8,113 8,113
Steers
6.190%, 09/01/95 (A)............ 10,000 10,000
5.987%, 09/18/95 (A)............ 10,000 10,000
5.941%, 11/18/95 (A)............ 5,000 5,000
---------
Total Asset Backed Securities
(Cost $37,112,288).............. 37,112
---------
GUARANTEED INVESTMENT CONTRACT
(2.1%)
Peoples Security Life
6.070%, 09/01/95 (A)............ 10,000 10,000
---------
Total Guaranteed Investment
Contract (Cost $10,000,000)..... 10,000
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(12.0%)
Federal Home Loan Bank
6.100%, 06/05/96................ 10,000 9,996
5.725%, 07/25/96................ 10,000 10,000
Federal Home Loan Mortgage
Corporation
6.000%, 09/01/95 (A)............ 5,000 5,005
Federal National Mortgage
Association
6.063%, 11/13/95................ 5,000 4,940
5.590%, 07/01/96................ 10,000 9,987
</TABLE>
Continued
<PAGE> 3
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
CASH RESERVE
FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
Small Business Administration
7.250%, 09/01/95 (A)............ $ 7,394 $ 7,554
Student Loan Marketing Association
5.670%, 09/06/95 (A)............ 5,000 4,983
6.080%, 07/01/96 (A)............ 5,000 5,000
---------
Total U.S. Government Agency
Obligations
(Cost $57,464,745).............. 57,465
---------
CERTIFICATES OF DEPOSIT (6.3%)
Bank of Tokyo
5.870%, 10/16/95................ 10,000 10,000
Canadian Imperial Bank
5.760%, 09/20/95................ 5,000 5,000
Mitsubishi Bank, New York
5.900%, 09/08/95................ 5,000 5,000
Sanwa Bank, New York
5.850%, 09/01/95................ 5,000 5,000
5.830%, 10/24/95................ 5,000 5,000
---------
Total Certificates of Deposit
(Cost $30,000,371).............. 30,000
---------
EURO CERTIFICATES OF DEPOSIT (2.1%)
Abbey National PLC, London
6.730%, 04/02/96................ 5,000 5,008
Abbey National Treasury Services
6.400%, 05/30/96................ 5,000 5,000
---------
Total Euro Certificates of Deposit
(Cost $10,007,857).............. 10,008
---------
BANKERS ACCEPTANCES (5.3%)
Bank of Tokyo, Los Angeles
5.900%, 11/06/95................ 5,000 4,947
Dai Ichi Kangyo Bank, New York
5.890%, 10/30/95................ 5,000 4,953
Mitsubishi International Bank, New
York
5.740%, 09/08/95................ 5,000 4,994
5.725%, 11/17/95................ 5,000 4,940
Sanwa Bank, New York
5.710%, 10/02/95................ 5,700 5,673
---------
Total Bankers Acceptances
(Cost $25,506,625).............. 25,507
---------
BANK NOTE (1.7%)
First National Bank of Chicago
6.130%, 08/26/96................ 8,000 8,000
---------
Total Bank Note
(Cost $8,000,000)............... 8,000
---------
REPURCHASE AGREEMENTS (15.7%)
First Boston, 5.875%, dated
08/31/95, matures 09/01/95,
repurchase price $45,007,344
(collateralized by U.S. Treasury
Strips, par value $67,559,769,
maturities ranging from 11/15/95
to 05/15/14, market value
$46,279,516).................... $ 45,000 $ 45,000
Merrill Lynch, 5.875%, dated
08/31/95, matures 09/01/95,
repurchase price $30,557,986
(collateralized by U.S. Treasury
Bond, par value $375,000,
7.875%, 02/15/21, market value
$422,926, Federal Home Loan
Mortgage Corporation,
Collateralized Mortgage
Obligations, par value
$29,248,520, coupons ranging
from 0.00% to 8.50%, maturities
ranging from 03/15/97 to
07/15/23, market value
$25,926,413, Federal National
Mortgage Association,
Collateralized Mortgage
Obligation, par value
$4,700,000, 7.50%, 03/25/07,
market value $4,817,649)........ 30,553 30,553
---------
Total Repurchase Agreements
(Cost $75,553,000).............. 75,553
---------
Total Investments (97.4%)
(Cost $467,478,405)............. 467,478
---------
OTHER ASSETS AND LIABILITIES (2.6%)
Other Assets and Liabilities,
Net............................. 12,548
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 480,111,786 outstanding
shares of beneficial interest... 480,112
Accumulated net realized loss on
investments..................... (86)
---------
Total Net Assets: (100.0%)........ $ 480,026
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $ 1.00
=========
</TABLE>
- ------------------
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is
the rate in effect on August 31, 1995.
PLC--Public Limited Company
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
U.S. TREASURY FUND
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (50.4%)
U.S. Treasury Bills
5.061%, 09/14/95................ $ 30,000 $ 29,945
5.366%, 09/21/95................ 55,000 54,833
5.373%, 09/28/95................ 25,000 24,900
5.410%, 10/12/95................ 25,000 24,847
5.390%, 01/18/96................ 10,000 9,789
5.755%, 05/02/96................ 15,000 14,438
U.S. Treasury Notes
3.875%, 10/31/95................ 25,000 24,918
4.250%, 11/30/95................ 15,000 14,942
4.000%, 01/31/96................ 15,000 14,896
4.625%, 02/15/96................ 25,000 24,879
5.875%, 05/31/96................ 10,000 10,007
U.S. Treasury Strips
5.685%, 11/15/95................ 25,000 24,718
6.140%, 02/15/96................ 10,000 9,731
---------
Total U.S. Treasury Obligations
(Cost $282,843,379)............. 282,843
---------
REPURCHASE AGREEMENTS (49.5%)
First Boston, 5.80% dated
08/31/95, matures 09/01/95,
repurchase price $55,000,000
(collateralized by U.S. Treasury
Bond, par value $53,271,000,
7.25%, maturing 08/15/22, market
value $56,219,133).............. 55,000 55,000
First Boston, 5.875%, dated
08/31/95, matures 09/01/95,
repurchase price $80,000,000
(collateralized by U.S. Treasury
Coupon Strips, par value
$117,537,005, maturities ranging
from 11/15/95 to 08/15/04,
market
value $82,216,664).............. 55,000 80,000
Goldman Sachs Group, 5.75%, dated
08/31/95, matures 09/01/95,
repurchase price $15,000,000
(collateralized by U.S Treasury
Notes, par value $15,033,000,
maturities ranging from 06/30/96
to 01/15/00, rates ranging from
5.625% to 6.375%, market value
$15,300,855).................... $ 15,000 $ 15,000
Merrill Lynch, 5.75%, dated
08/31/95, matures 09/01/95,
repurchase price $127,456,000
(collateralized by U.S. Treasury
Notes, par value $126,597,000,
maturities ranging from 2/15/98
to 08/15/98, rates ranging from
5.125% to 9.00%, market value
$130,008,310)................... 127,456 127,456
---------
Total Repurchase Agreements
(Cost $277,456,000)............. 277,456
---------
Total Investments (99.9%)
(Cost $560,299,379)............. 560,299
---------
OTHER ASSETS AND LIABILITIES (0.1%)
Other Assets and Liabilities,
Net............................. 416
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value) based
on 560,709,434 outstanding shares
of beneficial interest............ 560,709
Accumulated net realized gain on
investments....................... 6
---------
Total Net Assets: (100.0%)......... $ 560,715
=========
Net Asset Value, Offering Price and
Redemption Price Per Share........ $ 1.00
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS (99.1%)
Alabama (2.9%)
Phoenix City, Industrial
Development Board, Mead Coated
Board Project, Series A, VRDN,
RB
3.600%, 09/01/95 (A) (C)........ $ 1,000 $ 1,000
---------
Colorado (1.3%)
Jefferson County, School District,
Series C, Prerefunded @ 100, GO
8.200%, 12/15/95................ 440 445
---------
Georgia (4.3%)
Forsythe County, Industrial
Development Authority, American
BOA Incorporated Project, VRDN,
RB
3.900%, 09/07/95 (A) (C)........ 1,000 1,000
Savannah, Economic Development
Authority, Home Depot
Project-B, VRDN, RB
3.900%, 09/07/95 (A) (C)........ 500 500
---------
1,500
---------
Idaho (5.7%)
State, Housing Finance Authority,
RB
4.250%, 01/01/96 (C)............ 1,990 1,990
---------
Illinois (3.6%)
Chicago, VRDN, GO
3.650%, 09/07/95 (A) (C)........ 945 945
Southwestern, Industrial
Development Authority, Solid
Waste Disposal, Shell Oil
Company, Wood River Project,
VRDN, RB
3.650%, 09/01/95 (A)............ 300 300
---------
1,245
---------
Louisiana (1.4%)
New Orleans, Aviation Board,
Series A, VRDN, RB, (MBIA)
3.500%, 09/07/95 (A)............ 500 500
---------
Minnesota (4.5%)
Minneapolis-St. Paul, Housing
Finance Authority, Series A, RB
4.500%, 11/01/95 (B) (C)........ 625 625
Minneapolis-St. Paul, Housing
Finance Authority, Series B, RB
4.250%, 02/01/96................ $ 955 $ 955
---------
1,580
---------
Montana (2.5%)
State, Series B-2, RB, AMT
4.625%, 10/01/95 (B) (C)........ 900 900
---------
New Hampshire (2.9%)
Hillsborough County, GO, TAN
3.780%, 12/28/95................ 1,000 1,000
---------
New Jersey (3.4%)
Mercer County, TAN
4.000%, 04/15/96................ 1,000 1,003
State, Economic Development
Authority, Hoffman-La Roche
Project, VRDN, RB
3.350%, 09/01/95 (A) (C)........ 200 200
---------
1,203
---------
New Mexico (1.4%)
Eddy County, Pollution Control IMC
Fertilizer Incorporated Project,
VRDN, RB
3.600%, 09/07/95 (A) (C)........ 500 500
---------
New York (4.3%)
Nassau County, BAN
5.250%, 11/15/95................ 1,000 1,002
New York City, EDL Construction
Project, Series A, RB, (MBIA)
4.000%, 10/01/95................ 500 500
---------
1,502
---------
Oregon (5.7%)
Klamath Falls, Salt Caves
Hydroelectric Project, Series A,
RB
4.400%, 05/01/96 (B)............ 1,000 1,000
Port of Saint Helens, Pollution
Control, General Electric
Project, Series A, VRDN, RB
3.650%, 09/01/95 (A) (C)........ 600 600
State, GO
4.250%, 03/01/96................ 390 390
---------
1,990
---------
</TABLE>
Continued
<PAGE> 6
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania (33.3%)
Allegheny County, Hospital
Development Authority, Allegheny
General Hospital, Series B,
VRDN, RB
3.450%, 09/01/95 (A)............ $ 2,000 $ 2,000
Berks County, Industrial
Development Authority, Sixth and
Penn Street Project, VRDN, RB
3.500%, 09/01/95 (A) (C)........ 200 200
Chester County, Industrial
Development Authority, The Woods
Project, VRDN, RB
3.700%, 09/07/95 (A) (C)........ 1,200 1,200
Delaware County, Industrial
Development Authority, Scott
Paper Company Project, Series A,
VRDN, RB
3.650%, 09/07/95 (A) (C)........ 500 500
Delaware County, Industrial
Development Authority, United
Parcel Services Project, Series
85, VRDN, RB
3.400%, 09/01/95 (A)............ 1,100 1,100
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C, VRDN,
RB
3.400%, 09/01/95 (A) (C)........ 600 600
Montour County, Geisinger Health
System Authority, Series 1992 B,
VRDN, RB
3.250%, 09/01/95 (A) (C)........ 1,900 1,900
Philadelphia, Series A, TRAN
4.500%, 06/27/96................ 1,000 1,004
Pottsgrove, School District,
Series A, GO (AMBAC)
3.750%, 10/15/95................ 685 685
Sayre, Health Care Facility
Authority, Capital Financing
Project, Series K, VRDN, RB,
(AMBAC)
3.500%, 09/07/95 (A)............ 800 800
Schuylkill County, Industrial
Development Authority, Westwood
Energy Project, VRDN, RB
3.600%, 09/01/95 (A) (C)........ 1,000 1,000
Venango, Industrial Development
Authority, Scrubgrass Project,
TECP
3.500%, 10/06/95................ $ 700 $ 700
---------
11,689
---------
Puerto Rico (2.8%)
Puerto Rico Government Development
Bank, TECP
3.400%, 09/08/95................ 1,000 1,000
---------
Rhode Island (1.7%)
State, Health & Education
Facilities, RB
5.000%, 09/01/95................ 600 600
---------
South Carolina (3.4%)
Charleston County, School
District, Series A, GO
4.400%, 02/01/96 (C)............ 695 697
State, Economic Development
Authority, Wellman Project, VRDN
3.700%, 09/01/95 (A) (C)........ 500 500
---------
1,197
---------
Texas (4.3%)
Houston, Water & Sewer Authority,
TECP
4.100%, 11/30/95................ 1,500 1,500
---------
Virginia (6.0%)
Hopewell, Industrial Development
Authority, Hadson Power, Series
13A, VRDN, RB, AMT
3.700%, 09/01/95 (A) (C)........ 1,100 1,100
State, Housing & Development
Authority, Series C, RB
3.700%, 10/12/95................ 1,000 1,000
---------
2,100
---------
Wyoming (3.7%)
Green River, VRDN, RB, AMT
3.700%, 09/01/95 (A) (C)........ 1,300 1,300
---------
Total Municipal Bonds
(Cost $34,741,426).............. 34,741
---------
Total Investments (99.1%)
(Cost $34,741,426).............. 34,741
---------
OTHER ASSETS AND LIABILITIES (0.9%)
Other Assets and Liabilities,
Net............................... 322
---------
</TABLE>
Continued
<PAGE> 7
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
MUNICIPAL MONEY
MARKET FUND (CONTINUED)
<TABLE>
<CAPTION>
VALUE
(000)
---------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 35,087,620 outstanding
shares of beneficial interest... 35,388
Accumulated net realized loss on
investments..................... (325)
---------
Total Net Assets: (100.0%)........ $ 35,063
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $ 1.00
=========
</TABLE>
- ------------------
(A) Variable Rate Security--The rate reported on
the Statement of Net Assets is the rate in effect
on August 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
BAN--Bond Anticipation Note
GO--General Obligation
RB--Revenue Bond
TAN--Tax Anticipation Note
TRAN--Tax and Revenue Anticipation Note
TECP--Tax Exempt Commercial Paper
VRDN--Variable Rate Demand Note
The following organizations have provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
MBIA--Municipal Bond Insurance Association
NEW JERSEY MUNICIPAL
MONEY FUND
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS (103.0%)
New Jersey (91.3%)
Berkeley Heights, BAN
4.750%, 11/09/95................ $ 2,765 $ 2,767
Bernards Township, Sewer
Authority, RB,
Prerefunded @ 100
5.350%, 12/15/95 (B) (C)........ 2,000 2,008
East Windsor, BAN
4.550%, 04/18/96................ 2,000 2,007
Fort Lee, TAN
4.000%, 02/02/96................ 2,000 2,004
Galloway Township, BAN
4.100%, 03/14/96................ 1,000 1,002
Hackensack, BAN, GO
5.500%, 12/20/95................ 850 852
Jersey City, BAN, GO
5.250%, 11/17/95................ 2,000 2,002
Mercer County, Improvement
Authority, BAN
4.100%, 03/15/96................ 1,000 1,002
Montgomery Township, School
District Authority, TAN
5.000%, 03/01/96................ 1,500 1,505
North Brunswick Township, BAN
3.890%, 05/22/96................ 775 776
Port Authority, Versatile
Structure Obligation, Series 1,
VRDN,
RB, AMT
3.450%, 09/01/95 (A) (B) (C).... 3,300 3,300
Port Authority, Versatile
Structure Obligation, Series 2,
VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,400 1,400
Port Authority, Versatile
Structure Obligation, Series 3,
VRDN, RB
3.300%, 09/01/95 (A) (B) (C).... 1,500 1,500
Salem County, Pollution Control,
VRDN, RB
3.700%, 09/01/95 (A) (B)........ 500 500
Sayreville, TAN
4.000%, 04/16/96................ 1,500 1,503
State, Economic Development
Authority, TECP
3.900%, 09/01/95 (C)............ 1,000 1,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 8
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
State, Economic Development
Authority, 400 International
Drive Partners Project, VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... $ 700 $ 700
State, Economic Development
Authority, Filtra Corporation
Project, VRDN, RB
3.650%, 09/07/95 (A) (B) (C).... 1,000 1,000
State, Economic Development
Authority, First Management
Fellowship Project, Series B,
VRDN, RB
3.550%, 09/06/95 (A) (B) (C).... 1,000 1,000
State, Economic Development
Authority, Franciscan Oaks
Project, Series B, VRDN, RB
3.400%, 09/06/95 (A) (B) (C).... 400 400
State, Economic Development
Authority, Hillcrest Health
Services Systems Project, VRDN,
RB
3.350%, 09/06/95 (A) (B) (C).... 600 600
State, Economic Development
Authority, Hoffman-La Roche
Project, VRDN, RB, AMT
3.350%, 09/01/95 (A) (B) (C).... 700 700
State, Economic Development
Authority, Natural Gas
Facilities, Series A, VRDN, RB,
(AMBAC)
3.050%, 09/01/95 (A) (B)........ 900 900
State, Economic Development
Authority, Pollution Control,
Exxon Project, VRDN, RB
3.350%, 09/01/95 (A) (B)........ 1,700 1,700
State, Economic Development
Authority, Russell Berrie
Project, VRDN, RB
3.350%, 09/06/95 (A) (B) (C).... 200 200
State, Economic Development
Authority, Series C-1, VRDN, RB
3.650%, 09/07/95 (A) (B) (C).... 530 530
State, Economic Development
Authority, Series J, VRDN, RB,
AMT 3.600%, 09/06/95 (A) (B)
(C)............................. 650 650
State, Health Care Facilities
Hospital, Capital Asset
Financing, Series A, VRDN, RB
3.350%, 09/07/95 (A) (B)........ $ 600 $ 600
State, Health Care Facilities
Hospital, Capital Asset
Financing, Series D, VRDN, RB
3.350%, 09/07/95 (A) (B)........ 200 200
State, Health Care Facilities
Hospital, Hospital And Nursing
Home Improvement, VRDN, RB
3.350%, 09/07/95 (A) (B)........ 200 200
State, Highway Authority, Garden
State Parkway Project, RB,
Prerefunded @ 102
7.125%, 01/01/96 (B) (C)........ 1,740 1,793
State, Transportation Trust Fund,
Series A, RB
4.500%, 12/15/95................ 1,000 999
State, Turnpike Authority, Series
D, VRDN, RB
3.050%, 09/06/95 (A) (B)........ 4,000 3,999
Union County, Industrial Pollution
Control, Exxon Project, VRDN, RB
3.250%, 09/01/95 (A) (B)........ 1,000 1,000
Woodbridge Township, BAN, GO
4.480%, 10/06/95................ 3,000 3,000
---------
45,299
---------
Oregon (1.4%)
Port of Saint Helens, Pollution
Control, General Electric
Project, Series A, VRDN, RB, AMT
3.650%, 09/01/95 (A) (B) (C).... 700 700
---------
Puerto Rico (10.3%)
Government Development Bank, TECP
3.400%, 09/08/95................ 2,000 2,000
Government Development Bank, VRDN,
RB
3.200%, 09/06/95 (A) (B) (C).... 3,100 3,100
---------
5,100
---------
</TABLE>
Continued
<PAGE> 9
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
VALUE
(000)
---------
<S> <C>
MUNICIPAL BONDS, CONCLUDED:
Puerto Rico, continued:
Total Municipal Bonds (Cost
$51,098,548)...................... $ 51,099
---------
Total Investments (103.0%) (Cost
$51,098,548)...................... 51,099
---------
OTHER ASSETS AND LIABILITIES
(-3.0%)
Other Assets and Liabilities,
Net............................... (1,471)
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value) based
on 49,635,696 outstanding shares
of beneficial interest............ 49,636
Accumulated net realized loss on
investments....................... (8)
---------
Total Net Assets: (100.0%)......... $ 49,628
=========
Net Asset Value, Offering Price and
Redemption Price Per Share........ $ 1.00
=========
</TABLE>
- ------------------
(A) Variable Rate Security--The rate reported on
the Statement of Net Assets is the rate in effect
on August 31, 1995. The date shown is the next
reset date.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
BAN--Bond Anticipation Note
GO--General Obligation
RB--Revenue Bond
TAN--Tax Anticipation Note
TECP--Tax Exempt Commercial Paper
VRDN--Variable Rate Demand Note
The following organizations have provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
PENNSYLVANIA MUNICIPAL
MONEY FUND
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS (98.9%)
Pennsylvania (98.0%)
Allegheny County, Mortgage Backed
Security Program, Series F, RB
4.375%, 06/01/96 (B) (C)........ $ 975 $ 975
Allegheny County, Mortgage Backed
Security Program, Series G, RB
4.600%, 06/01/96 (B) (C)........ 250 250
Beaver County, Industrial
Development Authority, Duquesne
Light Project, Series A, VRDN,
RB
3.550%, 09/06/95 (A) (B) (C).... 500 500
Beaver County, Industrial
Development Authority, Duquesne
Light Project, Series B, VRDN,
RB
3.550%, 09/06/95 (A) (B) (C).... 1,000 1,000
Berks County, Industrial
Development Authority, VRDN, RB
3.800%, 09/01/95 (A) (B) (C).... 700 700
Carbon County, TECP
3.850%, 12/18/95................ 1,000 1,000
Chartiers Valley, Industrial And
Commercial Development
Authority, William Penn Place
Project, VRDN, RB
4.300%, 09/01/95 (A) (B) (C).... 200 200
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series A, VRDN,
RB
3.650%, 09/06/95 (A) (B) (C).... 500 500
Delaware County, Industrial
Development Authority, Scott
Paper Project, Series C, VRDN,
RB
3.650%, 09/06/95 (A) (B) (C).... 900 900
Delaware County, Industrial
Development Authority, United
Parcel Services Project, Series
85, VRDN, RB
3.400%, 09/01/95 (A) (B)........ 500 500
Emmaus, Subseries B-10, VRDN, RB
3.700%, 09/06/95 (A) (B) (C).... 1,800 1,800
</TABLE>
Continued
<PAGE> 10
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
Franklin County, Industrial
Development Authority,
Guarriello LP Project, Series A,
VRDN, RB
3.900%, 09/06/95 (A) (B) (C).... $ 945 $ 945
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems Project, Series C, VRDN,
RB
3.400%, 09/01/95 (A) (B) (C).... 400 400
Langhorne, Hospital Revenue
Authority, Franciscan Health
Systems, Series B, VRDN, RB
3.400%, 09/01/95 (A) (B) (C).... 250 250
Lehigh County, Industrial
Development Authority, Pollution
Control, VRDN, RB
3.700%, 09/01/95 (A) (B) (C).... 900 900
Luzerne County, Industrial
Development Authority, VRDN, RB,
AMT
3.850%, 09/06/95 (A) (B) (C).... 1,495 1,495
Montgomery County, Industrial
Development Authority, Quaker
Chemical Project, VRDN, RB
3.900%, 09/01/95 (A) (B) (C).... 500 500
Montgomery County, Industrial
Development Authority, TECP
3.550%, 11/02/95 (C)............ 1,000 1,000
3.750%, 11/16/95 (C)............ 500 500
Montour County, Health System
Authority, Geisinger Project,
Series B, VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,000 1,000
Moon, Industrial Development
Authority, Flex-One Thorn Run
Project, VRDN, RB
3.850%, 09/01/95 (A) (B) (C).... 2,100 2,101
Northeastern, Hospital Authority,
TECP, (MBIA)
3.950%, 09/01/95................ 600 600
3.700%, 09/11/95................ 500 500
3.800%, 12/13/95................ 500 500
Philadelphia, Hospital And Higher
Education Facilities Authority,
Children's Hospital Project,
VRDN, RB
3.250%, 09/01/95 (A) (B) (C).... 1,000 1,000
Philadelphia, Hospital and Higher
Education Facilities Authority,
Frankford Hospital Project, RB
4.000%, 01/01/96 (C)............ $ 650 $ 650
Philadelphia, Industrial
Development Authority, Harbor
View Towers Project, VRDN, RB
3.750%, 09/07/95 (A) (B) (C).... 1,550 1,550
Philadelphia, Series A, TRAN, GO
4.500%, 06/27/96................ 1,000 1,004
Pittsburgh, Equipment Leasing
Authority, RB, (AMBAC)
6.400%, 10/01/95................ 500 501
Sayre, Health Care Facilities
Authority, Capital Financing
Project, Series H, VRDN, RB,
(AMBAC)
3.500%, 09/06/95 (A) (B)........ 290 290
Schuylkill County, Industrial
Development Authority, Westwood
Energy Project, VRDN, RB
3.600%, 09/01/95 (A) (B) (C).... 1,300 1,300
Schuylkill County, Industrial
Develpment Authority, Pine Grove
Landfill Project, VRDN, RB
3.750%, 09/01/95 (A) (B) (C).... 1,000 1,000
State, Economic Development
Authority, Series A1, VRDN, RB
3.900%, 09/06/95 (A) (B) (C).... 1,825 1,825
State, Energy Development
Authority, B & W Edensburg
Project, VRDN, RB, AMT
3.550%, 09/06/95 (A) (B) (C).... 510 510
3.550%, 09/06/95 (A) (B) (C).... 100 100
State, Energy Development
Authority, Piney Creek Project,
Series A, VRDN, RB, AMT
3.700%, 09/06/95 (A) (B) (C).... 100 100
State, GO
5.500%, 11/15/95................ 1,000 1,002
State, Higher Education Authority,
Series A, VRDN, RB, AMT
3.750%, 09/06/95 (A) (B) (C).... $ 500 $ 500
State, Higher Education Authority,
Series B, VRDN, RB, AMT
3.750%, 09/06/95 (A) (B) (C).... 300 300
</TABLE>
Continued
<PAGE> 11
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PENNSYLVANIA MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, continued:
State, Higher Education Authority,
Temple University Project, VRDN,
RB
3.250%, 09/01/95 (A) (B)........ 300 $ 300
State, Housing Finance Agency,
Series O, RB, AMT
4.875%, 04/01/96................ 2,000 2,000
State, Industrial Development
Authority, RB, (AMBAC)
5.000%, 01/01/96................ 1,250 1,252
State, RB
5.250%, 04/05/96 (C)............ 1,500 1,507
Temple University, University
Funding Obligation, RB
5.000%, 05/22/96 (C)............ 1,500 1,507
Upper Allegheny, Sanitation
Authority, Series B, RB
4.500%, 01/15/96 (B)............ 1,500 1,503
Venango, Industrial Development
Authority, Scrubgrass Project,
TECP
3.500%, 10/06/95................ 1,000 1,000
Western Wayne, School District
Authority, Series AA, GO,
Prerefunded @ 100
6.650%, 10/15/95 (B)............ 1,000 1,003
---------
40,720
---------
Oregon (0.9%)
Port of Saint Helens, Pollution
Control, General Electric
Project, Series A, VRDN, RB, AMT
3.650%, 09/01/95 (A) (B) (C).... 400 400
---------
Total Municipal Bonds
(Cost $41,119,872).............. 41,120
---------
Total Investments (98.9%)
(Cost $41,119,872).............. 41,120
---------
OTHER ASSETS AND LIABILITIES (1.1%)
Other Assets and Liabilities,
Net............................... 445
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 41,565,150 outstanding
shares of beneficial interest... 41,565
---------
Total Net Assets: (100.0%)........ $ 41,565
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share........................... $ 1.00
=========
</TABLE>
- ------------------
(A) Variable Rate Security--The rate reported on the Statement of Net Assets is
the rate in effect on August 31, 1995. The date shown is the next reset
date.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
GO--General Obligation
RB--Revenue Bond
TECP--Tax Exempt Commercial Paper
TRAN--Tax and Revenue Anticipation Note
VRDN--Variable Rate Demand Note
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
MBIA--Municipal Bond Insurance Association
EQUITY INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS (91.7%)
Air Conditioning (0.8%)
York International................. 63,200 $ 2,812
---------
Air Transportation (0.6%)
AMR*............................... 28,000 1,974
---------
Aircraft (4.1%)
BE Aerospace*...................... 239,800 1,799
Boeing............................. 52,500 3,347
Flightsafety International......... 51,000 2,263
Sequa, Class A*.................... 94,900 2,527
United Technologies................ 50,000 4,168
---------
14,104
---------
Aluminum (6.2%)
Aluminum of America................ 369,400 21,102
---------
Banks (1.8%)
California Federal Bank*........... 143,462 2,242
Coast Savings Financial*........... 63,600 1,773
Long Island Bancorp................ 83,800 2,126
---------
6,141
---------
Building & Construction (2.3%)
Centex Construction*............... 251,000 3,262
Ryland Group....................... 113,500 1,788
Southdown*......................... 144,300 2,742
---------
7,792
---------
Building & Construction Supplies
(0.6%)
CBI Industries..................... 82,000 2,009
---------
</TABLE>
Continued
<PAGE> 12
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Chemicals (2.1%)
IMC Global......................... 70,000 $ 4,428
Rhone Poulenc S.A., ADR............ 31,089 645
Technip ADS*....................... 65,700 2,105
---------
7,178
---------
Communications Equipment (0.4%)
Alcatel Alsthom, ADR............... 61,500 1,230
---------
Computers & Services (0.8%)
BMC Software*...................... 60,800 2,592
---------
Drilling Oil & Gas Wells (0.8%)
Noble Drilling*.................... 336,400 2,691
---------
Electric Utilities (5.3%)
Central Vermont Public Service..... 193,100 2,655
CMS Energy......................... 65,300 1,608
Entergy............................ 72,100 1,730
New York State Electric & Gas...... 49,100 1,185
Niagara Mohawk Power............... 462,200 5,546
SCE................................ 40,000 665
Unicom............................. 171,900 4,835
---------
18,224
---------
Electronic & Other Electrical
Equipment (0.4%)
Raychem............................ 33,700 1,479
---------
Financial Services (2.0%)
Brascan Limited, Class A........... 101,700 1,665
Lehman Brothers Holding............ 213,560 5,072
---------
6,737
---------
Food, Beverage & Tobacco (5.9%)
Chiquita Brands International...... 123,000 1,937
DiMon.............................. 201,500 3,526
Interstate Bakeries................ 253,600 4,945
Universal-Virginia................. 428,600 9,644
---------
20,052
---------
Gas/Natural Gas (2.4%)
Enserch............................ 55,100 902
Gulf Canada Resources*............. 232,600 1,090
National Fuel Gas.................. 25,000 703
Seagull Energy*.................... 247,500 4,981
Washington Energy.................. 25,000 416
---------
8,092
---------
Glass Products (1.0%)
Corning............................ 109,500 3,572
---------
Insurance (13.8%)
Ace Limited........................ 264,700 $ 8,140
American Financial Group........... 130,000 4,014
Brierley Investments, ADR*......... 62,500 926
Chubb.............................. 89,100 8,130
Cigna.............................. 184,800 17,880
Enhance Financial Services......... 26,400 535
Horace Mann Educators.............. 60,100 1,705
Loews.............................. 20,800 2,733
Old Republic International......... 110,000 3,039
Zurich Reinsurance Centre*......... 12,500 369
---------
47,471
---------
Lodging (0.1%)
Red Lion Hotels*................... 8,900 206
---------
Lumber & Wood Products (0.2%)
Georgia-Pacific.................... 9,000 810
---------
Machinery (1.2%)
Cooper Cameron*.................... 37,338 882
Cooper Industries.................. 42,505 1,615
Crane.............................. 25,000 900
Wyman-Gordan*...................... 49,700 640
---------
4,037
---------
Marine Transportation (2.0%)
Alexander & Baldwin................ 138,700 3,156
OMI*............................... 198,300 1,537
Overseas Shipholding Group......... 40,400 843
Teekay Shipping*................... 61,600 1,463
---------
6,999
---------
Metals & Mining (0.6%)
Potash of Saskatchewan............. 35,800 2,036
---------
Paper & Paper Products (6.5%)
Boise Cascade...................... 50,200 2,152
International Paper................ 150,800 12,346
Kimberly-Clark..................... 65,000 4,152
Willamette Industries.............. 53,200 3,658
---------
22,308
---------
Petroleum (12.4%)
Amerada Hess....................... 79,000 3,743
Ashland............................ 108,900 3,566
Atlantic Richfield................. 14,100 1,539
Burlington Resources............... 122,100 4,960
Imperial Oil....................... 45,500 1,632
Nordsk Hydro A.S., ADR............. 66,000 2,789
Oryx Energy*....................... 268,000 3,618
Petroleum Heat & Power,
Class A.......................... 443,700 3,661
</TABLE>
Continued
<PAGE> 13
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
EQUITY INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
SHARES/ MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
Phillips Petroleum................ 116,600 $ 3,833
Shell Transport & Trading......... 10,000 694
Sun............................... 81,832 2,179
Unocal............................ 153,000 4,456
USX-Marathon Group................ 284,500 5,867
---------
42,537
---------
Photographic Equipment & Supplies
(2.0%)
Eastman Kodak..................... 121,000 6,973
---------
Printing & Publishing (1.2%)
Jostens........................... 169,000 4,056
---------
Railroads (0.8%)
Canadian Pacific.................. 171,800 2,899
---------
Real Estate (4.2%)
American Real Estate Partners*.... 138,826 1,041
Equity Inns....................... 14,400 171
Essex Property Trust.............. 161,000 2,797
Koger Equity*..................... 230,500 $ 2,147
Newhall Land & Farming............ 204,200 2,757
RFS Hotel Investors............... 18,000 257
Starwood Lodging*................. 26,600 708
Storage Equities.................. 101,900 1,872
Sun Communities................... 104,200 2,618
---------
14,368
---------
Refuse Systems (1.0%)
WMX Technologies.................. 118,100 3,469
---------
Retail (1.5%)
Hills Department Stores*.......... 119,251 1,610
Kmart............................. 254,700 3,470
---------
5,080
---------
Rubber & Plastic (1.0%)
Goodrich B. F..................... 58,000 3,451
---------
Steel & Steel Works (0.4%)
Precision Castparts............... 45,500 1,541
---------
Telephones & Telecommunication
(5.3%)
BCE............................... 249,900 8,028
Comsat............................ 242,500 5,638
Portugal Telecom S.A., ADR*....... 60,100 1,089
Worldcom*......................... 95,614 3,221
---------
17,976
---------
Total Common Stocks
(Cost $267,087,713)............. 313,998
---------
CONVERTIBLE PREFERRED STOCKS (4.9%)
Boise Cascade, 7.48% Series G..... $ 99,800 3,555
Glendale Federal Savings Bank,
8.75% Series E.................. 211,450 8,854
Reynolds Metals Company, 7.00%
Series.......................... $ 65,600 $ 3,518
Santa Fe Energy Resources,
Series A........................ 100,000 963
---------
Total Convertible Preferred Stocks
(Cost $11,412,368).............. 16,890
---------
RIGHTS (0.0%)
California Federal Bank*.......... 14,346 95
Total Rights
(Cost $62,764).................. 95
---------
CONVERTIBLE BONDS (1.4%)
AMR
6.125%, 11/01/24................ 4,775 4,823
---------
Total Convertible Bonds
(Cost $4,485,563)............... 4,823
---------
REPURCHASE AGREEMENT (1.5%)
Paine Webber, 5.80%, dated
08/31/95, matures 09/01/95,
repurchase price $5,044,813
(collateralized by U.S. Treasury
Bond, par value $4,925,000,
11.50%, 11/15/95, market value
$5,149,703)..................... $ 5,044 $ 5,044
---------
Total Repurchase Agreement
(Cost $5,044,000)............... 5,044
---------
Total Investments (99.5%)
(Cost $288,092,408)............. 340,850
---------
OTHER ASSETS AND LIABILITIES (0.5%)
Other Assets and Liabilities,
Net............................... 1,834
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 24,375,121 outstanding
shares of beneficial interest... 278,118
Accumulated net realized gain on
investments..................... 11,809
Net unrealized appreciation
investments................... 52,758
Distributions in excess of net
investment income............... (1)
---------
Total Net Assets: (100.0%)........ $ 342,684
=========
Net Asset Value and Redemption
Price Per Share................. $ 14.06
=========
Maximum Public Offering Price Per
Share ($14.06/95.50%)........... $ 14.72
=========
</TABLE>
- ------------------
*Non-income producing security
ADR--American Depository Receipt
Continued
<PAGE> 14
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
GROWTH FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS (97.6%)
Air Conditioning (1.1%)
York International................. 38,700 $ 1,722
---------
Autoparts (1.5%)
Autozone*.......................... 90,100 2,421
---------
Banks (4.5%)
First Bank System.................. 90,400 4,124
State Street Boston................ 82,000 3,024
---------
7,148
---------
Broadcasting, Newspapers &
Advertising (3.9%)
Comcast, Special Class A........... 150,000 3,206
Viacom, Class B*................... 60,000 2,918
---------
6,124
---------
Building & Construction (1.0%)
Foster Wheeler..................... 44,900 1,656
---------
Chemical and Allied Products (6.0%)
Air Products and Chemicals......... 26,800 1,437
Engelhard.......................... 85,500 2,415
Nalco Chemical..................... 67,500 2,363
Zeneca Group PLC, ADR.............. 65,000 3,364
---------
9,579
---------
Communication Services (1.5%)
MFS Communications*................ 52,000 2,301
---------
Communications Equipment (3.2%)
Motorola........................... 37,000 2,766
Nokia, Class A, ADR................ 33,000 2,289
---------
5,055
---------
Computer Software (4.0%)
Compuware*......................... 62,000 1,403
Microsoft*......................... 27,000 2,497
Novell*............................ 138,000 2,484
---------
6,384
---------
Computer and Office Equipment (4.1%)
Computer Sciences*................. 50,000 3,013
Hewlett Packard.................... 44,000 3,520
---------
6,533
---------
Electronic Components (4.8%)
AMP.............................. 72,000 $ 2,925
General Instrument*................ 71,000 2,592
Hubbell, Class B................... 37,000 2,169
---------
7,686
---------
Financial Services (0.8%)
American Express................... 29,700 1,199
---------
Food & Beverage (4.5%)
Pepsico............................ 66,000 2,987
Sara Lee........................... 91,800 2,547
Sysco.............................. 55,300 1,590
---------
7,124
---------
Insurance (6.0%)
Ace Limited........................ 114,000 3,505
American International Group....... 39,750 3,205
American Re Insurance.............. 70,200 2,808
---------
9,518
---------
Mining (1.0%)
Minnesota Mining and
Manufacturing.................... 27,500 1,502
---------
Miscellaneous Business Services
(4.9%)
Automatic Data Processing.......... 42,000 2,730
Dun & Bradstreet................... 32,000 1,852
Policy Management Systems*......... 44,000 2,178
Sensormatic Electronics............ 51,000 1,071
---------
7,831
---------
Mortgage Bankers (2.4%)
Federal National Mortgage
Association...................... 40,000 3,815
---------
Nursing Care Facilities (1.2%)
Beverly Enterprises*............... 138,000 1,829
---------
Oil Services (1.4%)
Schlumberger....................... 34,500 2,225
---------
Paper & Paper Products (3.1%)
International Paper................ 21,900 1,793
Kimberly-Clark..................... 50,000 3,194
---------
4,987
---------
Petroleum (7.1%)
Amoco.............................. 54,000 3,443
Burlington Resources............... 54,000 2,194
</TABLE>
Continued
<PAGE> 15
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Petroleum, continued:
Noble Affiliates.................. 69,000 $ 1,906
Unocal............................ 125,000 3,640
---------
11,183
---------
Pharmaceuticals (10.4%)
Abbott Laboratories............... 70,000 2,713
Genetics Institute*............... 54,000 2,120
Hafslund Nycomed-Cl B, ADR........ 92,889 2,229
Mallinckrodt Group................ 50,700 1,908
Morton International.............. 90,500 2,941
Perrigo*.......................... 100,000 1,350
Pfizer............................ 64,000 3,159
Rhone Poulenc Rorer............... 2,200 97
---------
16,517
---------
Printing & Publishing (4.0%)
E.W. Scripps...................... 66,000 2,219
Knight-Ridder..................... 26,800 1,508
Scholastic*....................... 43,000 2,634
---------
6,361
---------
Retail (4.8%)
Home Depot........................ 33,300 1,328
May Department Stores............. 56,000 2,373
Wal-Mart Stores................... 159,000 3,915
---------
7,616
---------
Rubber & Plastic (2.4%)
Illinois Tool Works............... 63,000 3,859
---------
Telephones & Telecommunication (6.6%)
AT&T.............................. 72,500 4,095
L.M. Ericsson Telephone, ADR...... 148,000 3,164
Vodafone Group, ADR............... 75,000 3,141
---------
10,400
---------
Trucking (1.4%)
M.S. Carriers*.................... 120,200 2,254
---------
Total Common Stocks
(Cost $127,914,695)............. $ 154,829
---------
REPURCHASE AGREEMENT (2.1%)
Paine Webber, 5.80%, dated
08/31/95, matures 09/01/95,
repurchase price $3,267,526
(collateralized by United States
Treasury Note, par value
$3,345,000, 4.375%, 11/15/96,
market value $3,332,945)........ 3,267
---------
Total Repurchase Agreement
(Cost $3,267,000)............... 3,267
---------
Total Investments (99.7%)
(Cost $131,181,695)............. 158,096
---------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets and Liabilities,
Net.............................. 450
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 12,264,782 outstanding
shares of beneficial interest... 129,039
Accumulated net realized gain on
investments..................... 2,593
Net unrealized appreciation on
investments..................... 26,914
---------
Total Net Assets: (100.0%)........ $ 158,546
=========
Net Asset Value and Redemption
Price Per Share................. $ 12.93
=========
Maximum Public Offering Price Per
Share ($12.93/95.50%)........... $ 13.54
=========
</TABLE>
- ---------------
*Non-income producing security
ADR--American Depository Receipt
PLC--Public Limited Company
The accompanying notes are an integral part of the financial statements.
<PAGE> 16
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
SMALL COMPANY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS (91.4%)
Aircraft (0.1%)
Simula*............................ 1,300 $ 35
---------
Apparel/Textiles (3.0%)
Ashworth*.......................... 4,200 29
Nautica Enterprises*............... 10,400 329
Tommy Hilfiger*.................... 13,200 443
---------
801
---------
Autoparts (0.2%)
Edelbrock*......................... 2,700 42
---------
Bicycles (0.1%)
Cannondale*........................ 2,100 34
---------
Biotechnology (1.3%)
Northfield Laboratories*........... 2,000 34
Ostex International*............... 1,200 20
Watson Pharmaceuticals*............ 6,800 282
---------
336
---------
Casinos (1.5%)
Players International*............. 10,600 223
Station Casinos*................... 8,800 171
---------
394
---------
Computer Hardware (13.6%)
Alantec*........................... 7,100 284
Auspex Systems*.................... 2,500 39
Chips & Technologies*.............. 3,200 44
Cognex*............................ 6,200 309
Cybex Computer Products*........... 2,800 64
Digital Link*...................... 1,300 31
Hutchinson Technology*............. 5,000 391
Key Tronic*........................ 4,800 73
Komag*............................. 9,100 566
Quantum*........................... 19,900 478
Read-Rite*......................... 14,900 610
Stormedia*......................... 7,200 299
Western Digital*................... 19,200 396
---------
3,584
---------
Computer Software (12.7%)
Altera*............................ 7,100 445
Applix*............................ 1,200 34
Aspen Technology*.................. 2,200 59
Diamond Multimedia Systems*........ 2,000 54
Discreet Logic*.................... 3,500 142
Electronic Arts*................... 6,000 228
Integrated Silicon Systems*........ 8,700 248
Intersolv*......................... 2,200 43
Minnesota Educational
Computing*....................... 1,800 $ 52
National Instruments*.............. 2,600 56
Number Nine Visual Technology*..... 2,600 47
Oak Technology*.................... 10,900 478
Parametric Technology*............. 7,200 398
Phamis*............................ 1,600 43
Pinnacle Systems*.................. 1,300 35
Platinum Software*................. 13,400 157
Project Software & Development*.... 1,000 29
Softdesk*.......................... 2,300 56
Summit Medical Systems*............ 1,900 29
Synopsys*.......................... 7,500 435
System Software Associates......... 7,900 249
Wind River Systems*................ 1,900 35
---------
3,352
---------
Cosmetics (0.1%)
Thermolase*........................ 1,400 28
---------
Electrical Equipment (1.8%)
Brooks Automation*................. 2,400 43
Gasonics International*............ 3,300 115
Level One Communications*.......... 1,600 40
Microchip Technology*.............. 7,500 284
---------
482
---------
Electronics (8.5%)
Brooktree*......................... 4,000 80
Cincinnati Microwave*.............. 13,500 243
GTI*............................... 15,400 337
Harman International*.............. 5,565 248
Mackie Designs*.................... 3,300 50
Silicon Valley Group*.............. 3,500 151
Tencor Instrument*................. 9,400 407
Teradyne*.......................... 9,600 364
Ultratech Stepper*................. 9,100 359
---------
2,239
---------
Environmental Services (0.2%)
U.S. Filter*....................... 2,200 48
---------
Financial Services (0.2%)
Credit Acceptance*................. 1,400 30
Sirrom Capital..................... 1,700 28
---------
58
---------
Food Processing (0.1%)
Opta Food Ingredients*............. 1,700 27
---------
Health & Allied Services (2.8%)
Community Health Systems*.......... 4,600 177
</TABLE>
Continued
<PAGE> 17
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SMALL COMPANY FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Health & Allied Services, continued:
Healthsouth Rehabilitation*........ 8,400 $ 198
Horizon Mental Health
Management*...................... 1,400 21
Horizon/CMS Healthcare*............ 9,500 209
Integrated Health Services*........ 4,500 134
---------
739
---------
Health Maintenance Organizations (2.1%)
Healthsource*...................... 6,800 272
Inphynet Medical Management*....... 1,400 31
Mid Atlantic Medical Services*..... 8,600 160
Physicians Health Services*........ 2,500 70
United American Healthcare*........ 1,800 20
---------
553
---------
Insurance (0.2%)
Compdent*.......................... 1,600 44
---------
Lodging (1.8%)
Doubletree*........................ 2,600 50
Laquinta Inns...................... 14,300 429
---------
479
---------
Machinery (4.1%)
Computational Systems*............. 900 14
Duracraft*......................... 7,800 311
FSI International*................. 12,700 448
Novellus Systems*.................. 4,300 317
---------
1,090
---------
Medical Supplies (1.2%)
Avecor Cardiovascular*............. 2,700 36
Resmed*............................ 2,200 33
Tecnol Medical Products*........... 10,300 187
Thermedics*........................ 2,700 52
---------
308
---------
Miscellaneous Business Services
(0.9%)
ABR Information Services*.......... 2,800 63
Accustaff*......................... 1,500 42
Career Horizons*................... 1,600 40
Healthplan Services*............... 1,600 30
National Wireless Holdings*........ 2,600 34
Transaction Systems Architects*.... 1,300 32
---------
241
---------
Miscellaneous Manufacturing (0.2%)
Chicago Miniature Lamp*............ 2,600 44
---------
Oil & Gas Field Services (0.5%)
Weatherford International*......... 10,600 139
---------
Oil and Gas Exploration (1.5%)
Barrett Resources*................. 8,700 $ 188
Belden & Blake*.................... 2,100 34
Reading & Bates*................... 13,800 167
---------
389
---------
Printing & Publishing (0.4%)
Mecklermedia*...................... 2,600 110
---------
Radio and Broadcasting Stations
(0.9%)
American Radio Systems*............ 8,200 234
---------
Real Estate (0.4%)
Felcor Suite Hotels................ 2,000 54
NHP*............................... 1,200 16
Winston Hotels..................... 3,000 33
---------
103
---------
Restaurants (7.0%)
Apple South........................ 9,600 235
Applebees International............ 7,600 228
Daka International*................ 400 11
Dave & Buster's*................... 1,800 31
Lone Star Steakhouse & Saloon*..... 13,100 524
Longhorn Steak*.................... 1,500 27
O'Charleys*........................ 3,900 65
Outback Steakhouse*................ 8,400 271
Papa John's International*......... 2,100 84
Rock Bottom Restaurants*........... 2,300 59
Starbucks*......................... 7,700 308
---------
1,843
---------
Retail (8.9%)
Baby Superstore*................... 6,000 281
Borders Group*..................... 11,800 239
Corporate Express*................. 9,600 224
Dollar Tree Stores*................ 2,400 71
Friedman's, Class A*............... 11,900 277
Garden Ridge*...................... 1,700 53
Gymboree*.......................... 5,500 164
Hollywood Entertainment*........... 10,100 287
Just For Feet*..................... 3,600 105
Moovies*........................... 1,900 36
Movie Gallery*..................... 1,600 76
Orchard Supply Hardware*........... 1,100 17
Proffitts*......................... 10,900 287
Sports & Recreation*............... 8,500 101
U.S. Office Products*.............. 2,500 43
West Marine*....................... 3,300 87
---------
2,348
---------
</TABLE>
Continued
<PAGE> 18
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Health & Allied Services, continued:
Semiconductors & Related Devices
(12.4%)
ACT Manufacturing*............... 1,900 $ 37
Actel*........................... 1,800 30
Alliance Semiconductor*.......... 11,500 450
Atmel*........................... 11,800 373
Cirrus Logic*.................... 9,800 534
Dallas Semiconductor*............ 3,600 86
KLA Instruments*................. 5,400 462
Lattice Semiconductor*........... 13,300 437
Micro Linear*.................... 3,700 58
S3*.............................. 11,700 459
Tower Semiconductor*............. 2,000 62
Tylan General*................... 1,800 30
VLSI Technology*................. 7,300 241
---------
3,259
---------
Telecommunication Equipment (1.4%)
Applied Digital Access*.......... 2,000 24
Colonial Data Technologies*...... 9,400 170
Inter-Tel*....................... 1,400 23
Spectrian*....................... 2,700 125
Symmetricom*..................... 1,700 38
---------
380
---------
Telecommunications (1.2%)
Mobile Telecommunication
Technology*.................... 3,300 101
Mobilemedia*..................... 9,000 218
---------
319
---------
Trucking (0.1%)
Trism*........................... 3,700 31
---------
Total Common Stocks
(Cost $21,921,699)............. 24,113
---------
REPURCHASE AGREEMENT (8.2%)
Lehman Mortgage Repurchase
Agreement, 5.80%, dated 08/31/95,
matures 09/01/95, repurchase
price $2,152,952 (collateralized
by Federal Home Loan Bank
Discount Note, par value
$2,240,000, 0.00%, maturing
12/28/95, market value
$2,198,560)...................... $ 2,153 $ 2,153
---------
Total Repurchase Agreement
(Cost $2,152,925).............. 2,153
---------
Total Investments (99.6%)
(Cost $24,074,624)............. 26,266
---------
OTHER ASSETS AND LIABILITIES
(0.4%)
Other Assets and Liabilities,
Net.............................. 109
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,051,961 outstanding
shares of beneficial
interest....................... 21,984
Accumulated net realized gain on
investments.................... 2,223
Net unrealized appreciation on
investments.................... 2,191
Distributions in excess of net
investment income.............. (23)
---------
Total Net Assets: (100.0%)....... $ 26,375
=========
Net Asset Value and Redemption
Price Per Share................ $ 12.85
=========
Maximum Public Offering Price Per
Share ($12.85/95.50%).......... $ 13.46
=========
</TABLE>
- ------------------
*Non-income producing security
The accompanying notes are an integral part of the financial statements.
<PAGE> 19
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
BALANCED FUND
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS (52.2%)
Aerospace & Defense (1.1%)
Raytheon........................... 4,500 $ 364
---------
Aircraft (1.1%)
United Technologies................ 4,000 334
---------
Automotive (2.0%)
Dana............................... 10,000 299
Ford Motor......................... 11,000 337
---------
636
---------
Banks (3.3%)
Comerica........................... 6,500 231
JP Morgan.......................... 3,000 219
Keycorp............................ 7,400 229
Mellon Bank........................ 4,000 190
PNC Financial...................... 7,000 184
---------
1,053
---------
Chemicals (2.6%)
E.I. Dupont de Nemours............. 4,000 262
Loctite............................ 4,500 216
Witco.............................. 10,000 332
---------
810
---------
Communications Equipment (0.6%)
Harris............................. 3,500 202
---------
Computers & Services (2.1%)
Apple Computer..................... 4,000 172
Novell*............................ 13,200 238
Pitney Bowes....................... 6,500 264
---------
674
---------
Drugs (3.5%)
Bristol Myers Squibb............... 5,800 398
Merck.............................. 3,300 165
Schering Plough.................... 5,200 242
Warner Lambert..................... 3,500 316
---------
1,121
---------
Electrical Machinery Equipment
(1.1%)
Grainger (W.W.).................... 6,000 357
---------
Environmental Services (1.1%)
WMX Technologies................... 11,800 347
---------
Financial Services (1.1%)
Federal National Mortgage
Association...................... 3,500 334
---------
Food, Beverage & Tobacco (4.3%)
American Brands.................... 8,000 $ 335
Anheuser Busch..................... 2,800 160
Archer Daniels Midland............. 15,750 262
Pepsico............................ 4,000 181
Philip Morris Companies............ 3,000 224
Sysco.............................. 7,000 201
---------
1,363
---------
Glass Products (1.0%)
Corning............................ 10,000 326
---------
Holding Company, Diversified (0.8%)
Hanson PLC, ADR.................... 15,000 257
---------
Household Furniture & Fixtures
(0.9%)
Masco.............................. 10,000 280
---------
Insurance (2.8%)
Chubb.............................. 3,700 338
Lincoln National................... 4,700 202
Loews.............................. 1,700 223
US Healthcare...................... 4,500 144
---------
907
---------
Machinery (2.6%)
BW/IP, Inc......................... 7,000 125
General Electric................... 7,000 412
Ingersoll Rand..................... 8,000 303
---------
840
---------
Miscellaneous Manufacturing (1.5%)
Minnesota Mining And
Manufacturing.................... 8,500 464
---------
Oil Services (1.0%)
Schlumberger....................... 5,000 323
---------
Paper & Paper Products (1.6%)
Kimberly-Clark..................... 5,000 319
Weyerhaeuser....................... 4,000 184
---------
503
---------
Petroleum (3.1%)
Atlantic Richfield................. 2,500 273
Burlington Resources............... 7,000 285
Chevron............................ 4,800 232
Texaco............................. 3,000 194
---------
984
---------
</TABLE>
Continued
<PAGE> 20
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
COMMON STOCKS, CONCLUDED:
Photographic Equipment & Supplies
(1.1%)
Eastman Kodak..................... 6,200 $ 357
---------
Professional Services (0.8%)
Dun & Bradstreet.................. 4,500 260
---------
Railroads (1.6%)
Norfolk Southern.................. 4,000 283
Union Pacific..................... 3,500 229
---------
512
---------
Retail (2.2%)
J. C. Penney...................... 4,000 181
May Department Stores............. 8,000 339
Toys R US*........................ 7,500 195
---------
715
---------
Semiconductors/Intstruments (0.8%)
Avnet............................. 5,000 258
---------
Telephones & Telecommunication (4.1%)
Airtouch Communications*.......... 8,500 276
AT&T.............................. 9,000 509
Bell Atlantic..................... 5,000 299
GTE............................... 5,800 212
---------
1,296
---------
Utilities (2.4%)
Dominion Resources of Virginia.... 8,500 307
General Public Utilities.......... 7,000 200
Pacific Gas and Electric.......... 9,000 259
---------
766
---------
Total Common Stocks
(Cost $14,809,331).............. 16,643
---------
CORPORATE BONDS (7.2%)
ABN/AMRO, New York
8.250%, 08/01/09................ $ 500 535
Anheuser Busch
7.500%, 12/01/97................ 300 308
Associates Corporation of North
America
7.250%, 05/15/98................ 200 205
Ford Motor Credit
7.500%, 06/15/04................ 250 259
General Electric Capital
8.000%, 01/15/98................ 200 208
Pepsico
6.250%, 09/01/99................ $ 200 $ 198
Wal-Mart Stores
8.000%, 09/15/06................ 300 330
WMX Technologies
8.250%, 11/15/99................ 250 265
---------
Total Corporate Bonds
(Cost $2,208,984)............... 2,308
---------
CONVERTIBLE BONDS (0.8%)
Time Warner
8.750%, 01/10/15................ 250 260
---------
Total Convertible Bonds
(Cost $250,469)
ASSET BACKED SECURITIES (0.8%)
American Express Master Trust
7.150%, 08/15/99................ 250 256
---------
Total Asset Backed Securities
(Cost $244,922)................. 256
---------
U. S. TREASURY OBLIGATIONS (28.4%)
United States Treasury Bonds
7.250%, 05/15/16................ 500 528
7.500%, 11/15/16................ 500 542
8.125%, 08/15/19................ 500 579
7.500%, 11/15/24................ 250 274
United States Treasury Notes
6.125%, 07/31/96................ 150 151
7.250%, 08/31/96................ 500 507
7.500%, 01/31/97................ 300 307
6.750%, 02/28/97................ 250 253
6.750%, 05/31/97................ 250 254
7.375%, 11/15/97................ 500 515
7.250%, 02/15/98................ 400 412
6.375%, 01/15/99................ 500 505
7.500%, 10/31/99................ 500 526
6.375%, 01/15/00................ 250 253
7.125%, 02/29/00................ 650 676
7.500%, 11/15/01................ 650 696
7.500%, 05/15/02................ 500 536
6.375%, 08/15/02................ 500 505
7.250%, 05/15/04................ 500 530
7.250%, 08/15/04................ 250 265
7.875%, 11/15/04................ 250 276
Total U. S. Treasury Obligations
(Cost $8,650,121)............... 9,090
---------
</TABLE>
Continued
<PAGE> 21
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
BALANCED FUND (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS
(1.0%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................ $ 300 $ 310
---------
Total U.S. Government Agency
Obligations
(Cost $296,344)................. 310
---------
REPURCHASE AGREEMENT (7.1%)
Chemical Bank Repurchase
Agreement, 5.75%, dated
08/31/95, matures 09/01/95,
repurchase price $2,256,000
(collateralized by U.S. Treasury
Note, par value $2,190,000,
8.125%, maturing 02/15/98,
market value
$2,305,177)..................... 2,256 2,256
---------
Total Repurchase Agreement
(Cost $2,256,000)............... 2,256
---------
SHORT-TERM INVESTMENTS (1.2%)
Temp Cash Fund.................... 380 380
---------
Total Short-Term Investments
(Cost $380,000)................. 380
---------
Total Investments (98.7%)
(Cost $29,096,171).............. 31,503
---------
OTHER ASSETS AND LIABILITIES (1.3%)
Other Assets and Liabilities,
Net............................... 404
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 2,872,437 shares of
beneficial interest............. 29,063
Accumulated net realized gain on
investments..................... 437
Net unrealized appreciation on
investments..................... 2,407
---------
Total Net Assets: (100.0%)........ $ 31,907
=========
Net Asset Value and Redemption
Price Per Share................. $ 11.11
=========
Maximum Public Offering Price Per
Share ($11.11/95.50%)........... $ 11.63
=========
</TABLE>
- ------------------
*Non-income producing security.
ADR--American Depository Receipt
PLC--Public Limited Company
SHORT/INTERMEDIATE FUND
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
CORPORATE BONDS (36.7%)
Automobile Finance (4.4%)
Ford Capital BV
9.000%, 08/15/98................ $ 1,000 $ 1,066
Ford Motor Credit
8.000%, 01/15/99................ 1,000 1,043
8.400%, 03/26/99................ 5,000 5,287
8.000%, 06/15/02................ 1,000 1,063
---------
8,459
---------
Beverages (8.8%)
Anheuser Busch
7.500%, 12/01/97................ 2,500 2,566
8.750%, 12/01/99................ 1,895 2,054
Coca-Cola
7.875%, 09/15/98................ 7,100 7,417
Pepsico
7.000%, 11/15/96................ 3,000 3,034
6.125%, 01/15/98................ 2,000 1,998
---------
17,069
---------
Business Credit Institutions (1.1%)
General Electric Capital
8.125%, 02/01/99................ 2,000 2,108
---------
Chemicals (1.8%)
E.I. Dupont de Nemours
8.450%, 10/15/96................ 3,500 3,592
---------
Electric Utility (3.7%)
Duke Power
7.500%, 04/01/99................ 4,000 4,140
Wisconsin Electric Power
5.875%, 10/01/97................ 3,000 2,985
---------
7,125
---------
Financial Services (7.4%)
Associates Corporation of North
America
5.300%, 09/04/95................ 1,000 1,000
7.625%, 04/15/98................ 2,400 2,421
7.875%, 09/30/01................ 1,000 1,058
Goldman Sachs
4.770%, 10/16/95................ 3,000 2,997
Household Finance
7.800%, 11/01/96................ 2,000 2,033
8.875%, 07/05/99................ 2,000 2,040
7.625%, 01/15/03................ 2,750 2,877
---------
14,426
---------
</TABLE>
Continued
<PAGE> 22
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
CORPORATE BONDS, CONCLUDED:
Petroleum Refining (3.7%)
Texaco Capital
9.000%, 11/15/96................ $ 1,500 $ 1,551
8.530%, 08/15/97................ 1,350 1,406
8.260%, 09/15/98................ 1,000 1,053
9.000%, 12/15/99................ 3,000 3,276
---------
7,286
---------
Retail-Eating Places (4.2%)
Bass America
6.750%, 08/01/99................ 5,000 5,037
8.125%, 03/31/02................ 1,000 1,074
McDonald's
6.750%, 02/15/03................ 2,000 2,000
---------
8,111
---------
Retail-Variety Stores (1.6%)
Wal-Mart Stores
8.000%, 05/01/96................ 3,000 3,038
---------
Total Corporate Bonds
(Cost $70,861,179).............. 71,214
---------
COLLATERALIZED MORTGAGE OBLIGATIONS
(2.1%)
Federal Home Loan Mortgage
Corporation
6.750%, 09/15/16................ 4,000 4,028
---------
Total Collateralized Mortgage
Obligations (Cost $4,033,750)... 4,028
---------
ASSET BACKED SECURITIES (14.9%)
American Express Master Trust
7.150%, 08/15/99................ 4,750 4,860
Chase Manhattan Master Trust
8.750%, 08/15/99................ 2,000 2,039
General Motors Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................ 1,314 1,298
Merrill Lynch Asset Backed
5.500%, 05/15/98................ 1,096 1,092
5.125%, 07/15/98................ 1,030 1,025
Premier Auto Trust
4.900%, 10/15/98................ 736 728
4.650%, 11/02/99................ 4,344 4,272
Prime Credit Card Master Trust
6.750%, 10/31/05................ 2,000 2,014
Standard Credit Card Master Trust
8.875%, 09/07/99................ 5,000 5,331
7.875%, 01/07/00................ 6,000 6,261
---------
ASSET BACKED SECURITIES, CONCLUDED:
Total Asset Backed Securities
(Cost $28,578,921).............. $ 28,920
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(2.2%)
Federal Home Loan Mortgage
Corporation
7.860%, 01/21/97................ $ 2,000 2,052
Tennessee Valley Authority
8.375%, 10/01/99................ 2,000 2,140
---------
Total U.S. Government Agency
Obligations
(Cost $4,004,410)............... 4,192
---------
U.S. TREASURY OBLIGATIONS (40.4%)
United States Treasury Notes
8.500%, 11/15/95................ 2,000 2,012
7.500%, 01/31/96................ 8,000 8,061
7.375%, 05/15/96................ 2,000 2,022
7.250%, 08/31/96................ 1,000 1,015
7.250%, 11/30/96................ 2,000 2,035
6.750%, 02/28/97................ 2,000 2,028
6.625%, 03/31/97................ 2,000 2,025
6.875%, 04/30/97................ 10,000 10,167
6.500%, 05/15/97................ 5,000 5,054
6.750%, 05/31/97................ 8,000 8,120
5.625%, 08/31/97................ 5,000 4,980
5.750%, 10/31/97................ 3,000 2,993
6.000%, 11/30/97................ 9,000 9,025
7.875%, 01/15/98................ 4,000 4,174
7.250%, 02/15/98................ 5,000 5,151
6.375%, 07/15/99................ 2,000 2,025
8.000%, 08/15/99................ 3,000 3,204
7.125%, 09/30/99................ 2,000 2,075
7.125%, 02/29/00................ 2,000 2,080
---------
Total U.S. Treasury Obligations
(Cost $78,013,927).............. 78,246
---------
SHORT-TERM INVESTMENTS (2.6%)
Temp Cash Fund.................... 5,108 5,108
---------
Total Short-Term Investments
(Cost $5,108,488)............... 5,108
---------
Total Investments (98.9%)
(Cost $190,600,675)............. 191,708
---------
</TABLE>
Continued
<PAGE> 23
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
SHORT/INTERMEDIATE FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (1.1%)
Other Assets and Liabilities,
Net............................. $ 2,111
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 18,830,186 outstanding
shares of beneficial interest... 196,432
Accumulated net realized loss on
investments..................... (3,714)
Net unrealized appreciation on
investments..................... 1,107
Distributions in excess of net
investment income............... (6)
---------
Total Net Assets: (100.0%)........ $ 193,819
=========
Net Asset Value and Redemption
Price Per Share................. $ 10.29
=========
Maximum Public Offering Price Per
Share (10.29/96.00%)............ $ 10.72
=========
</TABLE>
FIXED INCOME FUND
<TABLE>
<S> <C> <C>
CORPORATE BONDS (44.5%)
Automobile Finance (3.4%)
Ford Capital BV
9.000%, 08/15/98................ $ 1,000 $ 1,066
Ford Motor Credit
8.000%, 01/15/99................ 2,000 2,085
8.000%, 06/15/02................ 1,000 1,063
7.750%, 03/15/05................ 3,000 3,154
6.750%, 08/15/08................ 1,000 971
---------
8,339
---------
Banks (5.2%)
ABN-AMRO Bank, New York, Callable
08/01/04 @ 100
8.250%, 08/01/09................ 5,000 5,356
Banque Nationale de Paris
9.875%, 05/25/98................ 1,000 1,084
National Westminster Bank, New
York
9.450%, 05/01/01................ 4,000 4,490
Toronto Dominion Bank, New York
7.875%, 08/15/04................ 2,000 2,083
---------
13,013
---------
Beverages (3.8%)
Anheuser Busch
9.000%, 12/01/09................ 4,500 5,377
Coca-Cola
7.875%, 09/15/98................ 1,955 2,043
Pepsico
6.125%, 01/15/98................ 2,000 1,998
---------
9,418
---------
Business Credit Institutions (0.4%)
General Electric Capital
8.125%, 02/01/99................ 1,000 1,054
---------
Commercial Printing (4.2%)
R.R. Donnelley & Sons
7.000%, 01/01/03................ 2,000 2,048
8.875%, 04/15/21................ 7,000 8,321
---------
10,369
---------
Electric Utility (0.4%)
Teco Energy
9.250%, 06/19/97................ 1,000 1,051
---------
Paper & Paper Products (3.3%)
Kimberly-Clark, Callable
02/01/13 @ 100
7.875%, 02/01/23................ 3,750 3,909
Weyerhaeuser
8.840%, 04/12/99................ $ 4,000 $ 4,295
---------
8,204
---------
Personal Credit Institutions (3.1%)
Associates Corporation of North
America
8.625%, 06/15/97................ 3,000 3,123
7.875%, 09/30/01................ 1,000 1,058
Associates Corporation of North
America, Callable 04/15/96 @ 100
7.625%, 04/15/98................ 1,000 1,009
Household Finance
7.625%, 01/15/03................ 2,500 2,616
---------
7,806
---------
Petroleum Refining (3.2%)
Texaco Capital
9.000%, 11/15/96................ 1,000 1,034
8.260%, 09/15/98................ 1,250 1,316
8.500%, 02/15/03................ 5,000 5,512
---------
7,862
---------
</TABLE>
<PAGE> 24
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
CORPORATE BONDS, CONCLUDED:
Railroads (1.9%)
Norfolk Southern
9.000%, 03/01/21................ $ 4,000 $ 4,795
---------
Retail-Department Stores (1.3%)
J.C. Penney, Callable 7/12/00 @
100
9.450%, 07/15/02................ 3,000 3,345
---------
Retail-Eating Places (6.6%)
Bass America
6.750%, 08/01/99................ 4,000 4,029
8.125%, 03/31/02................ 2,000 2,148
Grand Metropolitan Investment
7.125%, 09/15/04................ 5,000 5,122
McDonald's
7.375%, 07/15/02................ 2,000 2,118
6.750%, 02/15/03................ 3,000 3,000
---------
16,417
---------
Retail-Grocery Stores (2.0%)
Albertsons
4.820%, 03/25/96................ 5,000 4,963
---------
Retail-Variety Stores (0.8%)
Wal-Mart Stores
8.000%, 05/01/96................ 2,000 2,025
---------
Soap (0.8%)
Procter and Gamble
7.375%, 03/01/23................ 2,000 2,003
---------
Trucking (4.1%)
United Parcel Service
8.375%, 04/01/20................ 9,000 10,260
---------
Total Corporate Bonds
(Cost $107,054,724)............. 110,924
---------
COLLATERALIZED MORTGAGE OBLIGATIONS
(3.2%)
Federal Home Loan Mortgage
Corporation
8.000%, 03/15/05................ 1,345 1,353
6.750%, 09/15/16................ 6,000 6,042
Federal National Mortgage
Association
9.500%, 09/25/18................ 627 639
---------
Total Collateralized Mortgage
Obligations
(Cost $7,941,153)............... 8,034
---------
ASSET BACKED SECURITIES (4.9%)
American Express Master Trust
7.150%, 08/15/99................ $ 2,000 $ 2,046
Chase Manhattan Master Credit Card
Trust
8.750%, 08/15/99................ 3,000 3,060
General Motor Acceptance
Corporation Grantor Trust
4.150%, 03/15/98................ 434 429
Merrill Lynch Asset Backed
5.500%, 05/15/98................ 658 655
5.125%, 07/15/98................ 1,030 1,025
Premier Auto Trust
4.900%, 10/15/98................ 2,942 2,912
Standard Credit Card Master Trust
7.875%, 01/07/00................ 2,000 2,086
---------
Total Asset Backed Securities
(Cost $12,255,593).............. 12,213
---------
GOVERNMENT POOLED MORTGAGES (1.2%)
Government National Mortgage
Association
9.000%, 09/15/16................ 518 544
9.000%, 10/15/19................ 293 307
9.000%, 11/15/19................ 317 333
9.000%, 11/15/19................ 189 199
9.000%, 12/15/19................ 271 285
8.500%, 03/15/20................ 206 214
8.500%, 04/15/20................ 208 217
8.500%, 04/15/20................ 586 608
8.500%, 04/15/20................ 328 342
---------
Total Government Pooled Mortgages
(Cost $2,799,959)............... 3,049
---------
U. S. TREASURY OBLIGATIONS (37.7%)
United States Treasury Bonds
7.250%, 05/15/16................ 10,000 10,556
8.750%, 05/15/17................ 2,000 2,448
8.125%, 08/15/19................ 7,000 8,112
7.875%, 02/15/21................ 3,000 3,398
7.125%, 02/15/23................ 3,000 3,138
United States Treasury Notes
7.375%, 05/15/96................ 1,000 1,011
4.375%, 11/15/96................ 3,000 2,953
6.500%, 11/30/96................ 2,000 2,018
6.625%, 03/31/97................ 2,000 2,025
</TABLE>
Continued
<PAGE> 25
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
FIXED INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS, CONCLUDED:
6.500%, 05/15/97................ 2,000 2,022
6.750%, 05/31/97................ 3,000 3,045
6.500%, 08/15/97................ 1,000 1,012
5.625%, 08/31/97................ 2,000 1,992
5.750%, 10/31/97................ 2,000 1,995
6.000%, 11/30/97................ 6,000 6,017
7.250%, 02/15/98................ 4,000 4,121
5.125%, 02/28/98................ 2,000 1,965
5.125%, 03/31/98................ 5,000 4,907
8.250%, 07/15/98................ 2,000 2,120
7.125%, 10/15/98................ 2,000 2,066
5.125%, 11/30/98................ 2,000 1,949
7.000%, 04/15/99................ 2,000 2,063
6.375%, 07/15/99................ 2,000 2,025
7.125%, 09/30/99................ 2,000 2,075
7.125%, 02/29/00................ 4,000 4,160
6.250%, 05/31/00................ 2,000 2,012
8.500%, 11/15/00................ 6,000 6,638
7.500%, 11/15/01................ 1,000 1,067
6.375%, 08/15/02................ 2,000 2,018
7.250%, 08/15/04................ 2,850 3,025
---------
Total U. S. Treasury Obligations
(Cost $92,364,948).............. 93,953
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(1.2%)
Federal Home Loan Mortgage
Corporation
7.125%, 07/21/99................ $ 3,000 $ 3,103
---------
Total U.S. Government Agency
Obligations
(Cost $2,989,800)............... 3,103
---------
YANKEE BONDS (4.0%)
Hydro Quebec
9.400%, 02/01/21................ 4,000 4,695
Province of Ontario
8.000%, 10/17/01................ 5,000 5,338
---------
Total Yankee Bonds
(Cost $9,357,210)............... 10,033
---------
SHORT TERM INVESTMENTS (1.6%)
Temp Cash Fund 3,948 3,948
---------
Total Short Term Investments
(Cost $3,947,569)............... 3,948
---------
Total Investments (98.3%)
(Cost $238,710,956)............. 245,257
---------
OTHER ASSETS AND LIABILITIES (1.7%)
Other Assets and Liabilities,
Net............................. $ 4,123
---------
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 23,725,957 outstanding
shares of beneficial interest... 246,818
Accumulated net realized loss on
investments..................... (3,988)
Net unrealized appreciation on
investments..................... 6,546
Undistributed net investment
income.......................... 4
---------
Total Net Assets: (100.0%)........ $ 249,380
=========
Net Asset Value and Redemption
Price Per Share................. $ 10.51
=========
Maximum Public Offering Price Per
Share ($10.51/96.00%)........... $ 10.95
=========
</TABLE>
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS (99.0%)
Arizona (3.6%)
Salt River Project, Series A, RB
5.300%, 01/01/03................ $ 500 $ 518
Scottsdale, Municipal Property
Corporation, RB, (FGIC),
Callable 11/01/02 @ 100
6.250%, 11/01/10................ 500 516
---------
1,034
---------
California (6.2%)
Azusa, Unified School District,
GO, (AMBAC)
5.100%, 05/01/07................ 830 812
State, Public Power Authority, San
Juan Power Project, Series A,
RB, (MBIA),
Callable 01/01/05 @ 100
5.375%, 01/01/10................ 1,000 974
---------
1,786
---------
Florida (1.9%)
Palm Beach County, Solid Waste
Authority, RB, Callable
07/01/97 @ 103
8.625%, 07/01/04................ 500 548
---------
</TABLE>
Continued
<PAGE> 26
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
Georgia (1.8%)
Atlanta, Series A, GO
6.125%, 12/01/23................ $ 500 $ 505
---------
Hawaii (7.8%)
Honolulu, Series C, GO,
Prerefunded @ 101
7.150%, 06/01/00 (A)............ 1,000 1,129
State, Series BR, GO,
Prerefunded @ 100
7.000%, 06/01/00 (A)............ 1,000 1,115
---------
2,244
---------
Oregon (1.9%)
Washington County, School District
No. 15, Forest Grove, GO,
(FGIC), Callable 06/01/04 @ 101
6.000%, 06/01/05................ 500 538
---------
Pennsylvania (5.9%)
Methacton School District, GO,
(FGIC)
5.600%, 10/01/13................ 500 488
Seneca Valley School District,
Series A, GO, (FGIC), Callable
07/01/02 @ 100
5.750%, 07/01/10................ 500 502
State, Higher Education Facilities
Authority, Thomas Jefferson
University Hospital, RB,
Callable 11/01/95 @ 102
9.100%, 07/01/01................ 200 205
Wayne Highlands School District,
GO, (FGIC), Callable
10/01/99 @ 100
6.000%, 04/01/12................ 500 503
---------
1,698
---------
South Carolina (3.7%)
Piedmont, Municipal Power Agency,
RB, (FGIC)
6.250%, 01/01/18................ 500 511
Piedmont, Municipal Power Agency,
RB, (MBIA)
6.250%, 01/01/09................ 500 538
---------
1,049
---------
South Dakota (1.9%)
State, Building Lease Authority,
Series A, RB, (CGIC)
6.375%, 09/01/05................ 500 545
---------
Tennessee (7.6%)
Memphis-Shelby County, Airport
Authority Revenue, Series B, RB,
AMT, (MBIA)
6.500%, 02/15/08 (A)............ $ 1,000 $ 1,079
State, Series B, GO, Callable
06/01/01 @ 101.5
6.850%, 06/01/10................ 1,000 1,101
---------
2,180
---------
Texas (3.8%)
Harris County, GO, Callable
08/01/01 @ 102
7.000%, 08/01/09................ 500 547
University of Texas, Series A, RB,
Callable 08/15/01 @ 102
7.000%, 08/15/07................ 500 554
---------
1,101
---------
Utah (1.8%)
Salt Lake City, Motor Fuel Excise
Tax, Series A, RB
5.400%, 02/01/03................ 500 506
---------
Vermont (7.5%)
Burlington, Waterworks Systems,
Series A, RB, (FGIC), Callable
07/01/97 @ 102
6.875%, 07/01/12................ 1,000 1,049
State, Series A, GO,
Prerefunded @ 102
6.750%, 02/01/00 (A)............ 1,000 1,110
---------
2,159
---------
Virginia (1.8%)
State, Housing Development
Authority, Series A, RB, AMT
6.700%, 07/01/05 (B)............ 500 527
---------
Washington (5.1%)
Port of Seattle, Series A, RB,
Callable 11/01/02 @ 102
6.250%, 11/01/10................ 500 518
State, Public Power Supply,
Nuclear Project No. 1, Series B,
RB, (MBIA)
5.600%, 07/01/15................ 1,000 941
---------
1,459
---------
Washington, D.C. (1.7%)
District of Columbia, Series C,
GO, (AMBAC), Prerefunded @ 102
7.600%, 06/01/98 (A)............ 450 496
---------
</TABLE>
Continued
<PAGE> 27
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
MUNICIPAL BOND
FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Wisconsin (.9%)
Milwaukee, Sewer District, GO
6.125%, 10/01/03................ $ 250 $ 273
---------
Total Municipal Bonds
(Cost $28,151,230).............. 28,460
---------
Total Investments (99.0%)
(Cost $28,151,230).............. 28,460
---------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities,
Net............................. $ 277
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 2,720,728 outstanding
shares of beneficial interest... 29,343
Accumulated net realized loss on
investments..................... (915)
Net unrealized appreciation on
investments..................... 309
---------
Total Net Assets: (100.0%)........ $ 28,737
=========
Net Asset Value and Redemption
Price Per Share................. $ 10.56
=========
Maximum Public Offering Price Per
Share ($10.56/96.00%)........... $ 11.00
=========
</TABLE>
- ------------------
(A) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(B) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
GO--General Obligation
RB--Revenue Bond
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
CGIC--Capital Guaranty Insurance Company
FGIC--Financial Guaranty Insurance Company
MBIA--Municipal Bond Insurance Association
NEW JERSEY MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS (99.0%)
New Jersey (92.3%)
Absecon, Board of Education, COP,
(MBIA)
5.625%, 12/15/02................ $ 770 $ 795
Bergen County, General
Improvement, GO
4.700%, 07/15/97................ 1,000 1,015
Bergen County, Utility Authority,
Series A, RB, (FGIC), Callable
06/15/02 @ 100
5.500%, 06/15/13................ 1,000 978
Borough of Roselle, Fiscal Year
Adjustment, Series 1993, GO,
(MBIA)
4.850%, 10/15/05................ 1,000 975
Brick Township, Municipal
Utilities Authority, RB
6.750%, 12/01/16................ 1,000 1,120
Brigantine, GO, (MBIA), Callable
08/01/02 @ 101
6.250%, 08/01/03................ 730 794
Camden County, Improvement
Authority Lease, RB
5.700%, 12/01/05 (C)............ 500 513
Camden County, Improvement
Authority Lease, RB, Callable
12/01/02 @ 101
6.000%, 12/01/12 (C)............ 500 508
Camden County, Improvement
Authority, Health Services
Center Project, Series B, RB,
(AMBAC)
4.900%, 12/01/05................ 1,000 988
Cape May County, Municipal
Utilities Authority, Series B,
RB, (FGIC), Callable 01/01/03 @
102
4.900%, 01/01/09................ 1,000 934
Carteret, GO, (FGIC), Callable
10/01/00 @ 101
5.250%, 10/01/07................ 980 975
5.450%, 10/01/09................ 500 498
Cherry Hill Township, GO, Callable
06/01/02 @ 102
6.000%, 06/01/06................ 500 528
Dover Township, GO, (AMBAC),
Callable 10/15/02 @ 102
6.000%, 10/15/03................ 1,000 1,075
</TABLE>
Continued
<PAGE> 28
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Edison Township, GO
6.500%, 06/01/04................ $ 500 $ 551
Edison Township, GO, (AMBAC),
Callable 01/01/04 @ 102
5.000%, 01/01/07................ 1,000 985
Edison Township, School Authority,
GO
6.500%, 06/01/03................ 1,000 1,098
Essex County, Correctional
Facility Improvement, RB,
(AMBAC), Callable 12/01/06 @100
6.900%, 12/01/14................ 500 543
Essex County, Series A, GO,
(MBIA), Callable 10/01/01 @ 102
4.600%, 10/01/03................ 1,500 1,467
Evesham Township, Municipal
Utilities Authority, Series B,
RB, (MBIA), Callable 07/01/97 @
100
6.800%, 07/01/01................ 1,010 1,052
6.850%, 07/01/02................ 1,080 1,118
Flemington-Raritan, GO, Callable
02/01/05 @ 102
6.250%, 02/01/12 (C)............ 500 526
Irvington Township, School
District Refunding Bonds, Series
1993, GO, (FSA), Callable
10/01/02 @ 102
5.000%, 10/01/11................ 1,000 928
Knowlton Township, Board of
Education, GO
6.600%, 08/15/10................ 170 188
6.600%, 08/15/11................ 169 185
Lacey Township, Municipal
Utilities Authority, RB, (MBIA),
Callable 12/01/03 @ 102
6.000%, 12/01/12................ 1,000 1,020
Landis, Sewer Authority, RB,
(FGIC)
5.400%, 10/01/06................ 500 504
Manchester Township, Board of
Education, COP, (MBIA), Callable
12/15/03 @ 102
5.300%, 12/15/07................ 500 489
Medford Township, Board of
Education, GO, (FGIC), Callable
02/01/05 @ 100
5.950%, 02/01/11................ $ 500 $ 508
Mercer County, Hamilton Board of
Education Lease Project, RB,
(MBIA), Callable 12/15/03 @ 102
5.250%, 12/15/14................ 1,000 936
Mercer County, Improvement
Authority, Hamilton Township
Board of Education Project, RB,
(MBIA), Callable 06/01/01 @ 102
5.900%, 06/01/03................ 500 524
Mercer County, Improvement Revenue
Government Lease Program, RB,
Prerefunded @ 101
7.250%, 12/01/98 (B)............ 985 1,084
Middletown Township, Sewer
Authority, Series A, RB, (FGIC),
Callable 01/01/03 @ 101
5.050%, 01/01/07................ 1,095 1,081
Millburn Township, School
District, GO
5.350%, 07/15/10 (C)............ 1,150 1,156
Monroe Township, Board of
Education, GO, (FGIC)
5.200%, 08/01/15................ 500 471
Moorestown, School District, GO,
(AMBAC)
6.600%, 06/01/05................ 450 499
Morris County, GO, Callable
07/15/05 @ 100
5.000%, 07/15/13................ 1,000 926
Morris Township, GO
6.550%, 07/01/01................ 500 553
Morristown, GO, (FSA), Callable
08/01/05 @ 102
6.400%, 08/01/14................ 500 528
Newark, Board of Education, GO,
(MBIA), Callable 12/15/04 @ 102
5.875%, 12/15/13................ 1,000 1,004
North Arlington, GO, (AMBAC)
4.800%, 02/01/12................ 600 540
4.800%, 02/01/13................ 441 395
North Bergen Township, GO, (FSA)
5.900%, 08/15/01................ 500 529
Northwest Bergen County, Utilities
Authority, RB, (MBIA)
5.900%, 07/15/06................ 755 798
Continued
</TABLE>
<PAGE> 29
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
Nutley, GO
7.000%, 08/01/98................ $ 400 $ 408
Ocean County, General Improvement,
GO
6.300%, 04/15/97................ 1,000 1,036
5.150%, 07/01/09................ 1,000 964
5.150%, 07/01/10................ 1,250 1,191
Ocean County, Series A, GO
6.250%, 10/01/01................ 1,280 1,397
Ocean County, Series A, GO,
Callable 10/01/01 @ 102
6.250%, 10/01/05................ 500 537
Ocean County, Utility Authority,
Series A, RB, Callable
01/01/07 @ 100
6.300%, 01/01/12 (C)............ 1,005 1,051
Parsippany Troy Hills Township, GO
4.700%, 12/01/04................ 1,000 965
Passaic Valley, Water Commission,
Series A, RB, (FGIC)
5.950%, 12/15/02................ 500 536
Point Pleasant, GO, (MBIA)
5.700%, 12/01/03................ 500 524
Port Authority, Marine Terminal,
Series G, RB
5.500%, 01/01/15................ 2,280 2,120
Port Authority, RB
5.200%, 09/01/13 (C)............ 1,000 941
South Plainfield, GO, (AMBAC)
4.750%, 09/01/08................ 1,030 972
State, Building Authority, RB
7.150%, 06/15/99................ 200 220
State, Building Authority, RB,
Prerefunded @ 102
7.200%, 06/15/99 (B)............ 1,200 1,341
State, Economic Development
Authority, 89 Kiva L.P. Project,
RB
5.550%, 08/01/04 (C)............ 565 573
State, Economic Development
Authority, RB, AMT, Callable
07/01/05 @ 101
6.000%, 07/01/06 (C)............ 300 306
6.100%, 07/01/07 (C)............ 200 204
State, Economic Development
Authority, Trenton Office
Complex Project, RB, Callable
06/15/2000 @ 102
6.625%, 06/15/01................ $ 1,050 $ 1,158
State, Economic Development
Authority, W.Y. Urban Holding
Project, RB, AMT
5.950%, 06/01/05 (C)............ 865 865
State, GO
7.000%, 04/01/97................ 1,350 1,412
6.250%, 09/15/01................ 1,000 1,094
State, GO, Callable
04/01/01 @ 100.50
7.000%, 04/01/03................ 500 556
State, GO, Prerefunded @ 101.50
7.400%, 04/15/97 (B)............ 820 874
State, Health Care Facility,
Cathedral Health Care, Series A,
RB, (FHA), Callable
02/15/01 @ 102
7.250%, 02/15/21................ 1,000 1,071
State, Health Care Facility, Dover
General Hospital And Medical
Center, RB, (MBIA), Callable
07/01/04 @ 102
5.875%, 07/01/12................ 500 504
State, Health Care Facility,
Jersey Shore Medical Center, RB,
(AMBAC), Callable
07/01/04 @ 102
6.250%, 07/01/16................ 500 519
State, Health Care Facility, St.
Clares-Riverside Medical Center,
RB, (MBIA), Callable
07/01/04 @ 102
5.750%, 07/01/14................ 500 495
State, Highway Authority, Garden
State Parkway Project, RB
4.900%, 01/01/05 (C)............ 1,000 1,001
6.200%, 01/01/10................ 750 794
State, Highway Authority, Garden
State Parkway Project, RB,
Callable 01/01/02 @ 102
6.000%, 01/01/05................ 1,350 1,446
6.250%, 01/01/14................ 500 513
</TABLE>
Continued
<PAGE> 30
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED:
New Jersey, continued:
State, Refunding Bond, Series C,
RB, Callable 01/15/99 @ 101.25
6.500%, 01/15/04................ 1,000 1,078
State, Refunding Bond, Series C,
RB, Callable 01/15/99 @ 101.50
6.500%, 01/15/05................ 500 539
State, Series C, RB, Callable
01/15/99 @ 101.5
6.500%, 01/15/08................ 1,000 1,078
State, Series D, GO
6.000%, 02/15/11................ 2,000 2,092
State, Sports & Exposition
Authority, Contract Bonds,
Series A, RB, Callable 09/01/05
@ 100
5.300%, 09/01/09................ 955 922
State, Sports & Exposition
Authority, Convention Center
Project, Series A, RB, (MBIA),
Callable 07/01/04 @ 100
6.000%, 07/01/12................ 1,000 1,013
State, Transportation Authority,
Series A, RB
5.400%, 06/15/97................ 500 512
6.000%, 06/15/00................ 1,030 1,101
State, Turnpike Authority, RB
6.400%, 01/01/02................ 250 273
6.500%, 01/01/16................ 500 541
State, Turnpike Authority, RB,
(AMBAC), Callable
01/01/03 @ 100
6.250%, 01/01/10................ 1,350 1,396
State, Turnpike Authority, Series
A, RB, Callable 01/01/96 @ 100
6.900%, 01/01/14................ 970 975
State, Wastewater Authority,
Series B, RB, Callable 05/15/99
@ 101.25
7.000%, 05/15/04................ 950 1,030
State, Wastewater Authority,
Treatment Trust, RB, (AMBAC),
Callable 03/01/05 @ 100
4.600%, 03/01/06................ 1,500 1,406
4.800%, 03/01/13................ 1,590 1,391
State, Water Supply District
Authority, Wanaque North
Project, Series A, RB, (MBIA)
6.500%, 11/15/06................ $ 510 $ 553
Tinton Falls, Board of Education,
GO, (MBIA), Callable
10/15/04 @ 100
5.875%, 10/15/09................ 1,010 1,029
Union City, GO, (FSA)
6.375%, 11/01/07................ 485 529
Wanaque Valley, Regional Sewer
Authority, Series B, RB, (AMBAC)
5.650%, 09/01/08................ 585 596
Warren County, GO, (AMBAC),
Callable 09/15/05 @ 100
4.650%, 09/15/06................ 500 485
Warren County, Pollution Control
Finance Authority, Resource
Recovery, RB, (MBIA) Callable
12/01/02 @ 102
6.350%, 12/01/04................ 500 547
Warren County, Pollution Control
Finance Authority, Series B, RB,
(MBIA)
5.700%, 12/01/03................ 500 526
Warren Township, Sewer Authority,
RB, Callable 12/01/04 @ 100
6.450%, 12/01/05................ 275 302
Weehawken, GO, (FSA), Callable
07/01/03 @ 100
6.150%, 07/01/04................ 350 378
West Long Branch, Board of
Education, COP, (MBIA)
5.000%, 12/15/09................ 1,380 1,282
West Windsor Plainsboro, Regional
Board of Education, Series 1993,
COP, (MBIA), Callable
03/15/05 @ 100
5.800%, 03/15/06................ 1,000 1,045
Winslow Township, GO, (FGIC),
Callable 10/01/02 @ 102
6.400%, 10/01/05................ 870 934
Woodbridge Township, GO, Callable
08/15/02 @ 102
5.800%, 08/15/03................ 500 528
</TABLE>
Continued
<PAGE> 31
STATEMENT OF NET ASSETS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
NEW JERSEY MUNICIPAL
BOND FUND (CONTINUED)
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
New Jersey, continued:
Woodbridge Township, GO, Callable
08/15/04 @ 100
6.050%, 08/15/05................ $ 500 $ 534
Woodbridge Township, Series C, GO,
Callable 09/15/06 @ 100
5.000%, 09/15/11................ 1,000 916
Woodbridge Township, Sewer
Utility, Series B, GO
5.000%, 09/15/10................ 965 896
---------
90,245
---------
New York (1.6%)
Port Authority, Callable
04/01/96 @ 102
7.250%, 04/01/14 (C)............ 1,500 1,551
---------
Pennsylvania (1.5%)
Delaware River Joint Toll Bridge
Commission, RB, (FGIC), Callable
07/01/02 @100
6.250%, 07/01/12................ 1,400 1,460
---------
Puerto Rico (3.0%)
Puerto Rico, Electric Power
Authority, RB, (CGIC)
6.125%, 07/01/08................ 1,000 1,090
Puerto Rico, Telecommunication
Revenue, RB, (MBIA)
5.250%, 01/01/05................ 500 506
University of Puerto Rico, Series
L, RB, Prerefunded @ 102
7.750%, 06/01/96 (B) (C)........ 1,015 1,064
University of Puerto Rico, Series
M, RB, (MBIA), Callable
06/01/07 @ 100
5.500%, 06/01/15................ 250 243
---------
2,903
---------
Virginia (0.6%)
Richmond, Industrial Development
Authority, Cogentrix-A, VRDN,
AMT
3.750%, 09/01/95 (A) (C)........ 600 600
---------
Total Municipal Bonds
(Cost $96,058,358).............. 96,759
---------
Total Investments (99.0%)
(Cost $96,058,358).............. 96,759
---------
OTHER ASSETS AND LIABILITIES (1.0%)
Other Assets and Liabilities,
Net............................... $ 993
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 8,708,827 outstanding
shares of beneficial interest... 97,309
Accumulated net realized loss on
investments..................... (261)
Net unrealized appreciation on
investments..................... 700
Undistributed net investment
income.......................... 4
---------
Total Net Assets: (100.0%)........ $ 97,752
=========
Net Asset Value and Redemption
Price Per Share................. $ 11.22
=========
Maximum Public Offering Price Per
Share ($11.22/96.00%)........... $ 11.69
=========
</TABLE>
- ------------------
(A) Variable Rate Security--The rate reported on
the Statement of Net Assets is the rate in effect
on August 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT--Alternative Minimum Tax
COP--Certificate of Participation
GO--General Obligation
RB--Revenue Bond
VRDN--Variable Rate Demand Note
The following organizations have provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Authority
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
<PAGE> 32
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
PENNSYLVANIA MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS (96.3%)
Pennsylvania (96.3%)
Allegheny County, Childrens
Hospital, Series A, RB, (MBIA),
Callable 07/01/98 @ 102
7.000%, 07/01/06................ $ 500 $ 538
Allegheny County, Series C-42, GO
5.000%, 10/01/10................ 500 464
Berks County, Second Series, GO,
(FGIC)
5.000%, 05/15/10................ 500 470
Center City District, Business
Improvement, RB, (AMBAC)
5.500%, 12/01/15................ 500 476
Central Bucks, School District,
Series A, GO, (MBIA)
5.300%, 05/15/11................ 300 288
Commodore Perry, School District,
GO, (MBIA)
5.500%, 02/01/12 (A)............ 1,170 1,125
Deer Lakes, School District, GO,
(MBIA), Callable 01/15/04 @ 100
6.450%, 01/15/19................ 500 514
Lackawanna County, GO, (AMBAC)
5.100%, 12/01/08................ 250 244
Lancaster, Parking Authority, RB,
Callable 01/01/96 @ 100
9.375%, 01/01/05................ 450 457
North Penn, School District,
Series AA, GO, (STAID)
5.100%, 09/01/09................ 500 479
Pennsylvania Convention Center,
Series A, RB, Escrowed to
Maturity
6.700%, 09/01/16................ 750 840
Philadelphia, Industrial
Development Authority, National
Board of Medical Examiners
Project, RB, Callable 05/01/02 @
102
6.750%, 05/01/12................ 500 531
Philadelphia, Water and Wastewater
Treatment, RB, (MBIA)
6.750%, 08/01/03................ 500 563
5.600%, 08/01/18................ 500 476
Pittsburgh, Series D, GO, (AMBAC)
6.125%, 09/01/17................ 500 508
Pittsburgh, Urban Redevelopment
Authority, Series A, RB
5.500%, 10/01/10................ $ 500 $ 468
Pocono Mountain, School District,
Series AA, GO, (AMBAC), Callable
04/01/02 @ 100
5.750%, 10/01/09................ 500 503
Ringgold, School District, RB,
(FSA), Callable 02/01/08 @ 100
6.200%, 02/01/19................ 500 506
State, Financing Authority, RB,
Callable 11/01/03 @ 102
6.600%, 11/01/09................ 500 526
State, Higher Education Authority,
Drexel University Project, RB,
(MBIA), Callable 05/01/00 @ 100
7.250%, 05/01/10................ 500 551
State, Higher Education Authority,
Susquehanna University Project,
RB, (AMBAC), Callable 03/01/98 @
101
6.900%, 03/01/02................ 750 793
State, Higher Education Authority,
Thomas Jefferson University
Project, RB, Prerefunded @ 102
7.550%, 11/01/00 (A)............ 500 580
State, Housing Finance Agency,
Rental Housing Projects, Series
C, RB, Callable 07/01/04 @ 100
6.400%, 07/01/12................ 500 502
State, Industrial Development
Authority, Economic Development,
RB, (AMBAC)
5.800%, 07/01/09................ 700 716
State, Intergovernmental
Cooperation Authority, City of
Philadelphia Funding Program,
RB, (MBIA)
5.600%, 06/15/15................ 500 483
State, Public School Authority,
Midvalley School District
Project, Series D, RB, (FGIC),
Callable 07/01/02 @ 102
6.250%, 01/01/07................ 500 531
State, Turnpike Commission, Oil
Franchise Tax Project, Series A,
RB, (AMBAC)
5.875%, 12/01/08................ 500 509
</TABLE>
Continued
<PAGE> 33
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
FACE AMOUNT VALUE
(000) (000)
----------- ---------
<S> <C> <C>
MUNICIPAL BONDS, CONCLUDED:
Pennsylvania, continued:
State, Turnpike Commission, Series
P, RB, (AMBAC)
6.000%, 12/01/09................ $ 500 $ 518
West Chester, School District, GO,
(STAID)
6.200%, 09/01/14................ 1,000 1,016
West View, Municipal Authority, GO
Escrowed to Maturity
9.000%, 05/15/99................ 400 464
---------
16,639
---------
Total Municipal Bonds
(Cost $16,712,585).............. 16,639
---------
SHORT TERM INVESTMENTS (1.9%)
SEI Institutional Tax-Free
Portfolio....................... 319 319
---------
Total Short Term Investments (Cost
$319,000)....................... 319
---------
Total Investments (98.2%)
(Cost $17,031,585).............. 16,958
---------
OTHER ASSETS AND LIABILITIES (1.8%)
Other Assets and Liabilities,
Net............................... 311
---------
NET ASSETS:
Portfolio shares (unlimited
authorization-no par value)
based on 1,752,088 outstanding
shares of beneficial interest... 17,816
Accumulated net realized loss on
investments..................... (474)
Net unrealized depreciation on
investments..................... (73)
---------
Total Net Assets: (100.0%)........ $ 17,269
=========
Net Asset Value and Redemption
Price Per Share................. $ 9.86
=========
Maximum Public Offering Price Per
Share ($9.86/96.00%)............ $ 10.27
=========
</TABLE>
- ------------------
(A) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand
date.
GO--General Obligation
RB--Revenue Bond
The following organizations have provided
underlying credit support for certain securities
as defined in the Statement of Net Assets:
AMBAC--American Municipal Bond Assurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
STAID--State Aid Withholding
INTERNATIONAL EQUITY
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
FOREIGN COMMON STOCKS (93.5%)
Argentina (0.5%)
YPF Sociedad Anonima ADR........... 14,000 $ 247
---------
Australia (3.1%)
Broken Hill Proprietary............ 51,221 743
MIM Holdings....................... 204,000 291
News Corporation................... 72,294 415
---------
1,449
---------
Chile (0.7%)
Five Arrow Chile Fund PC........... 100,000 293
Five Arrow Chile Fund Warrants,
Expire 05/31/99*................. 20,000 12
---------
305
---------
Denmark (1.0%)
Tele Danmark A/S "B"............... 8,779 461
---------
France (8.1%)
AXA SA............................. 9,229 511
Carrefour.......................... 930 519
Eaux Generale...................... 5,122 542
Groupe Danone...................... 2,856 469
L'Oreal............................ 352 89
Lafarge-Coppee..................... 6,920 517
Societe Generale................... 5,305 555
Societe Nationale Elf Aquitaine.... 6,979 511
---------
3,713
---------
Germany (4.0%)
Bayer AG........................... 1,989 514
Commerzbank AG..................... 2,015 456
Karstadt AG........................ 851 379
Lufthansa AG....................... 3,341 492
---------
1,841
---------
</TABLE>
Continued
<PAGE> 34
SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
INTERNATIONAL EQUITY (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
FOREIGN COMMON STOCKS, CONTINUED:
Hong Kong (2.7%)
Hong Kong Telecommunications....... 328,800 595
Swire Pacific 'A'.................. 88,000 659
---------
1,254
---------
India (0.8%)
Hindalco Industries GDR*........... 10,000 350
---------
Indonesia (1.4%)
Gadjah Tungal...................... 887,000 $ 646
---------
Italy (1.1%)
Assicurazioni Generali SPA......... 20,782 500
---------
Japan (30.2%)
Aoyama Trading..................... 8,300 221
CSK................................ 27,000 807
Denny's Japan...................... 8,000 221
East Japan Railway................. 273 1,299
Fuji Bank.......................... 1,000 21
Joshin Denki....................... 16,000 205
KAO................................ 33,000 382
Mitsubishi Materials............... 146,000 726
Mitsui Marine & Fire Insurance..... 91,000 610
Mitsui O.S.K. Lines*............... 233,000 737
Nippon Telegraph & Telephone....... 160 1,447
Nippon Television Network.......... 1,660 391
Nomura Securities.................. 35,000 688
Pioneer Electronics................ 70,000 1,340
Sumitomo Metal Industries.......... 242,000 676
Sumitomo Sitix..................... 20,000 303
Sumitomo Trust & Banking........... 53,000 721
Tokyo Steel Manufacturing.......... 11,000 212
Toshiba Corporation................ 205,000 1,481
Toyo Ink Manufacturing............. 35,000 198
Yamaha Corporation................. 97,000 1,290
---------
13,976
---------
Malaysia (1.6%)
Malayan Banking.................... 43,500 357
Perusahaan Otomobil................ 96,000 368
---------
725
---------
Mexico (0.7%)
Grupo Carso SA ADR*................ 25,000 309
---------
Netherlands (3.4%)
Akzo Nobel......................... 3,989 471
Elsevier NV........................ 41,997 531
International Nederlanden Group.... 9,918 551
---------
1,553
---------
Norway (1.9%)
Kvaerner AS Series B............... 10,649 $ 395
Norsk Hydro........................ 11,415 484
---------
879
---------
Singapore (2.9%)
Jurong Shipyard.................... 104,000 725
United Overseas Bank............... 68,930 597
---------
1,322
---------
South Korea (1.0%)
Samsung Electronics GDR*........... 86 5
Samsung Electronics New GDR*....... 7,000 441
---------
446
---------
Spain (1.9%)
Banco de Santander................. 12,168 498
Uralita*........................... 33,946 376
---------
874
---------
Sweden (2.3%)
Ericsson........................... 27,333 585
Stora Kopparberg 'B'............... 37,639 470
---------
1,055
---------
</TABLE>
Continued
<PAGE> 35
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
----------- ---------
<S> <C> <C>
FOREIGN COMMON STOCKS, CONCLUDED:
Switzerland (4.8%)
BBC Brown Boveri AG................ 509 $ 537
Nestle SA.......................... 553 560
Roche Holding AG................... 79 529
Zurich Versicherung................ 2,300 588
---------
2,214
---------
Taiwan (0.3%)
Hocheng GDR........................ 18,750 145
---------
Thailand (1.8%)
Siam Cement........................ 6,000 409
Siam Commercial Bank............... 41,000 443
---------
852
---------
United Kingdom (17.3%)
B.A.T. Industries.................. 87,545 685
British Petroleum.................. 85,000 638
BTR................................ 141,830 750
BTR Warrants, Expire 11/26/98*..... 1,146 1
Caradon............................ 125,000 477
Delta Group........................ 49,000 364
Farnell Electronic................. 51,000 530
FKI................................ 190,000 528
Granada Group...................... 69,000 666
Reuters Holdings................... 82,000 712
Royal Bank of Scotland Group....... 80,000 576
Tesco.............................. 150,000 760
Unilever........................... 33,000 622
WPP Group.......................... 270,000 687
---------
7,996
---------
Total Foreign Common Stocks
(Cost $39,304,897)............... 43,112
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.0%)
Netherlands (0.0%)
ABN-Amro Holdings.................. $ 349 13
---------
Total Convertible Preferred Stocks
(Cost $11,554)................... 13
---------
FOREIGN BONDS (1.0%)
India (0.4%)
Gujarat Ambuja Cementos
3.500%, 06/30/99................. 150 207
---------
Taiwan (0.6%)
Tecom Electronics & Machinery
2.750%, 04/15/04................. 310 248
---------
Total Foreign Bonds
(Cost $492,700).................. 455
---------
Total Investments (94.5% of Net
Assets)
(Cost $39,809,151)............... $ 43,580
=========
</TABLE>
- ------------------
*Non-income producing security
ADR--American Depository Receipts
GDR--Global Depository Receipts
PC--Participating Certificates
(1) In local currency unless otherwise indicated
Continued
<PAGE> 36
SCHEDULE OF INVESTMENTS
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
INTERNATIONAL FIXED INCOME
<TABLE>
<CAPTION>
FACE
AMOUNT MARKET
(000)(1) VALUE (000)
--------- -----------
<S> <C> <C>
FOREIGN BONDS (87.3%)
Austria (3.3%)
Austria Republic
6.250%, 10/16/03................ 120,000 $ 1,484
-----------
Canada (3.9%)
Canadian Government
8.500%, 04/01/02................ 2,300 1,778
-----------
Denmark (7.5%)
Kingdom of Denmark
9.000%, 11/15/00................ 11,000 2,072
7.000%, 12/15/04................ 8,000 1,314
-----------
3,386
-----------
France (9.3%)
Credit Foncier
5.500%, 11/15/99................ 6,000 1,134
Government of France
7.000%, 11/12/99................ 12,000 2,420
8.500%, 04/25/03................ 3,000 642
-----------
4,196
-----------
Germany (29.8%)
African Development Bank
7.250%, 10/21/99................ 2,000 1,431
Deutsche Ausgleichsbank
6.500%, 09/25/00................ 2,000 1,384
Deutschland Republic
8.250%, 09/20/01................ 750 561
6.250%, 01/04/24................ 1,600 944
German Unity Fund
8.000%, 01/21/02................ 1,400 1,033
KFW International Finance
7.250%, 12/03/97................ 3,000 2,138
LKB Baden Wurt
6.000%, 05/10/99................ 3,000 2,080
Norddeutsche Landesbank
6.000%, 01/05/04................ 3,000 1,920
Westdeutsche Landesbank
6.250%, 09/15/03................ 3,000 1,980
-----------
13,471
-----------
Japan (13.8%)
Interamerican Development Bank
6.000%, 10/30/01................ 180,000 $ 2,152
Japanese Development Bank
6.500%, 09/20/01................ 170,000 2,083
World Bank
4.500%, 03/20/03................ 180,000 2,004
-----------
6,239
-----------
New Zealand (2.9%)
Government of New Zealand
6.500%, 02/15/00................ 1,050 642
8.000%, 04/15/04................ 1,050 686
-----------
1,328
-----------
Sweden (4.3%)
Kingdom of Sweden
13.000%, 06/15/01............... 12,500 1,929
-----------
United Kingdom (8.0%)
Abbey National Treasury
8.000%, 04/02/03................ 600 907
National Power
10.625%, 03/26/01............... 600 1,025
United Kingdom Treasury
9.500%, 04/18/05................ 1,000 1,690
-----------
3,622
-----------
UNITED STATES (4.5%)
Federal National Mortgage
Association
6.000%, 08/23/00................ 3,000 2,043
Total Foreign Bonds
(Cost $37,811,504).............. 39,476
-----------
TIME DEPOSIT (3.2%)
Italy (3.2%)
Bank of Scotland
9.813%, 09/06/95................ 2,360,717 1,453
-----------
Total Time Deposit
(Cost $1,451,320)............... 1,453
-----------
Total Investments (90.5% of Net
Assets)
(Cost $39,262,824).............. $ 40,929
===========
</TABLE>
- ------------------
(1) In local currency
Continued
<PAGE> 37
STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------
August 31, 1995 (Unaudited)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
---------
<S> <C>
ASSETS:
Investment Securities (Cost $39,809,151)........................................................ $ 43,580
Cash............................................................................................ 2,418
Receivable -- Portfolio Secuities Sold.......................................................... 827
Other Assets.................................................................................... 674
---------
Total Assets.................................................................................. 47,499
---------
LIABILITIES:
Payable -- Portfolio Securities Purchased....................................................... (1,291)
Other Liabilities............................................................................... (104)
---------
Total Liabilities............................................................................. (1,395)
---------
NET ASSETS:
Portfolio shares (unlimited authorization -- no par value) based on 3,429,072 outstanding shares
of beneficial interest......................................................................... 40,943
Accumulated net realized gain on investments.................................................... 1,230
Accumulated net realized loss on foreign currency transactions.................................. (508)
Net unrealized appreciation on forward foreign currency contracts, foreign currency and
translation of other assets and liabilities in foreign currency................................ 413
Net unrealized appreciation on investments...................................................... 3,749*
Undistributed net investment income............................................................. 277
---------
Total Net Assets.............................................................................. $ 46,104
=========
Net Asset Value and Redemption Price Per Share....................................................... $ 13.44
=========
Maximum Public Offering Price Per Share ($13.44/95.50%).............................................. $ 14.07
=========
</TABLE>
- ---------------------------
* Net of $22,000 accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
<PAGE> 38
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME FUND
<TABLE>
<CAPTION>
MARKET
VALUE
(000)
---------
<S> <C>
ASSETS:
Investment Securities (Cost $39,262,824).......................................................... $ 40,929
Cash.............................................................................................. 1,460
Receivable--Accrued Income........................................................................ 1,686
Receivable--Portfolio Securities Sold............................................................. 1,888
Unrealized Gain on Forward Contracts.............................................................. 1,373
Other Assets...................................................................................... 8
---------
Total Assets................................................................................. 47,344
---------
LIABILITIES:
Payable--Portfolio Securities Purchased........................................................... (2,043)
Other Liabilities................................................................................. (59)
---------
Total Liabilities............................................................................ (2,102)
---------
NET ASSETS:
Portfolio shares (unlimited authorization--no par value) based on 3,962,011 outstanding shares of
beneficial interest.............................................................................. 40,912
Accumulated net realized loss on investments...................................................... (132)
Accumulated net realized loss on foreign currency transactions.................................... (203)
Net unrealized appreciation on forward foreign currency contracts, foreign currency and
translation of other assets and liabilities in foreign currency.................................. 1,320
Net unrealized appreciation on investments........................................................ 1,666
Undistributed net investment income............................................................... 1,679
---------
Total Net Assets............................................................................. $ 45,242
=========
Net Asset Value and Redemption Price Per Share......................................................... $ 11.42
=========
Maximum Public Offering Price Per Share ($11.42/96.00%)................................................ $ 11.90
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 39
STATEMENT OF OPERATIONS (000)
-------------------------------------------------------------------------
For the Six-Month Period Ended August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
NEW JERSEY
CASH U.S. MUNICIPAL MUNICIPAL PENNSYLVANIA EQUITY
RESERVE TREASURY MONEY MONEY MUNICIPAL INCOME
FUND FUND FUND FUND MONEY FUND FUND
----------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest income.............................. $ 14,409 $ 11,845 $ 797 $ 893 $ 900 $ 522
Dividend income.............................. -- -- -- -- -- 4,246
Less: foreign taxes withheld................. -- -- -- -- -- --
----------- ----------- ----- ----- ----- ---------
Total investment income.................. 14,409 11,845 797 893 900 4,768
----------- ----------- ----- ----- ----- ---------
Expenses:
Administration fees.......................... 422 356 35 40 40 286
Waiver of administrative fees................ -- -- -- -- -- --
Investment advisory fees..................... 820 692 78 90 89 1,113
Waiver of investment advisory fees........... -- -- -- -- -- --
Custodian/Transfer agent fees................ 32 34 14 12 12 53
Pricing fees................................. 3 2 1 1 1 9
Professional fees............................ 33 27 4 3 3 22
Registration fees............................ 10 9 1 1 1 8
Trustee fees................................. 9 8 1 1 1 6
Printing expenses............................ 16 14 2 2 2 11
Amortization of deferred organizational
costs...................................... -- -- -- 7 2 --
Insurance and other fees..................... 8 21 1 (4) 1 7
----------- ----------- ----- ----- ----- ---------
Total expenses........................... 1,353 1,163 137 153 152 1,515
----------- ----------- ----- ----- ----- ---------
Net investment income............................ 13,056 10,682 660 740 748 3,253
----------- ----------- ----- ----- ----- ---------
Net realized gain (loss) on securities sold...... 62 -- 15 -- 2 14,167
----------- ----------- ----- ----- ----- ---------
Net realized loss on forward foreign currency
contracts and foreign currency transactions.... -- -- -- -- -- --
----------- ----------- ----- ----- ----- ---------
Change in unrealized appreciation on forward
foreign currency contracts, foreign currency
and translation of other assets and liabilities
in foreign currency............................ -- -- -- -- -- --
----------- ----------- ----- ----- ----- ---------
Change in unrealized appreciation on
investment securities.......................... -- -- -- -- -- 39,473
----------- ----------- ----- ----- ----- ---------
Net gain on investments.......................... 62 -- 15 -- 2 53,640
----------- ----------- ----- ----- ----- ---------
Increase in net assets resulting
from operations................................ $ 13,118 $ 10,682 $ 675 $ 740 $ 750 $ 56,893
=========== =========== ===== ===== ===== =========
</TABLE>
- -------------------------
* Net of $22,000 change in accrued foreign withholding taxes.
The accompanying notes are an integral part of the financial statements.
<PAGE> 40
THE COMPASS CAPITAL GROUP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW JERSEY
SMALL SHORT/ FIXED MUNICIPAL PENNSYLVANIA
COMPANY BALANCED INTERMEDIATE INCOME MUNICIPAL BOND MUNICIPAL BOND
GROWTH FUND FUND FUND FUND FUND BOND FUND FUND FUND
----------- ----------- ----------- --------------- --------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 155 $ 32 $ 498 $6,884 $ 8,764 $ 789 $2,633 $ 476
1,217 189 252 -- -- -- -- --
-- -- -- -- -- -- -- --
----------- ----------- ----------- ------ --------- ----------- ------ -----
1,372 221 750 6,884 8,764 789 2,633 476
----------- ----------- ----------- ------ --------- ----------- ------ -----
135 22 26 181 226 26 88 16
-- -- -- -- -- -- -- --
526 112 102 603 751 87 293 52
-- -- -- -- -- -- -- --
26 18 20 25 26 13 24 12
3 1 1 8 12 3 7 1
11 2 2 16 20 3 8 1
3 1 1 6 6 1 3 1
4 1 1 4 5 1 2 --
5 1 1 9 10 1 4 1
-- 2 -- -- -- -- 2 3
2 -- -- 2 -- (1) (2) --
----------- ----------- ----------- ------ --------- ----------- ------ -----
715 160 154 854 1,056 134 429 87
----------- ----------- ----------- ------ --------- ----------- ------ -----
657 61 596 6,030 7,708 655 2,204 389
----------- ----------- ----------- ------ --------- ----------- ------ -----
4,805 1,713 293 (483) (848) 176 155 24
----------- ----------- ----------- ------ --------- ----------- ------ -----
-- -- -- -- -- -- -- --
----------- ----------- ----------- ------ --------- ----------- ------ -----
-- -- -- -- -- -- -- --
----------- ----------- ----------- ------ --------- ----------- ------ -----
15,656 2,038 1,820 3,928 11,715 591 2,357 430
----------- ----------- ----------- ------ --------- ----------- ------ -----
20,461 3,751 2,113 3,445 10,867 767 2,512 454
----------- ----------- ----------- ------ --------- ----------- ------ -----
$ 21,118 $ 3,812 $ 2,709 $ 9,475 $ 18,575 $ 1,422 $ 4,716 $ 843
=========== =========== =========== ====== ========= =========== ====== =====
<CAPTION>
INTERNATIONAL INTERNATIONAL
EQUITY FIXED INCOME
FUND FUND
--------------- ---------------
<S> <C>
$ 54 $1,626
561 --
(51) --
------ ------
564 1,626
------ ------
41 47
-- --
178 182
-- --
54 49
(1) (5)
6 4
1 1
1 1
2 --
2 3
3 (6)
------ ------
287 276
------ ------
277 1,350
------ ------
1,230 695
------ ------
(440) (203)
------ ------
495 1,937
------ ------
3,156* 257
------ ------
4,441 2,686
------ ------
$4,718 $4,036
====== ======
</TABLE>
<PAGE> 41
STATEMENT OF CHANGES IN NET ASSETS (000)
-------------------------------------------------------------------------
For the Six Month Period Ended August 31, 1995 (Unaudited) and the Year
Ended February 28, 1995
<TABLE>
<CAPTION>
CASH RESERVE FUND U.S. TREASURY FUND
------------------------- ------------------------
03/01/95 03/01/94 03/01/95 03/01/94
TO 08/31/95 TO 02/28/95 TO 08/31/95 TO 02/28/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income.................................. $ 13,056 $ 17,854 $ 10,682 $ 14,172
Net realized gain (loss) on securities sold............ 62 (1,037) -- 2
----------- ----------- ----------- -----------
Increase in net assets resulting from investment
operations........................................ 13,118 16,817 10,682 14,174
----------- ----------- ----------- -----------
DISTRIBUTIONS:
Net investment income.................................. (13,054) (17,854) (10,682) (14,172)
----------- ----------- ----------- -----------
Total distributions.................................. (13,054) (17,854) (10,682) (14,172)
----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Proceeds from shares issued............................ 470,044 749,041 693,307 904,680
Reinvestment of cash distributions..................... 440 440 192 203
Cost of shares redeemed................................ (425,845) (742,657) (498,300) (916,643)
----------- ----------- ----------- -----------
Increase (decrease) in net assets from capital share
transactions...................................... 44,639 6,824 195,199 (11,762)
----------- ----------- ----------- -----------
Contribution of capital from affiliate............... -- 887 -- --
----------- ----------- ----------- -----------
Total increase (decrease) in net assets.............. 44,703 6,674 195,199 (11,760)
----------- ----------- ----------- -----------
NET ASSETS:
Beginning of period.................................... 435,323 428,649 365,516 377,276
----------- ----------- ----------- -----------
End of period.......................................... $ 480,026 $ 435,323 $ 560,715 $ 365,516
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 1
EXHIBIT (17)(v)
THE BFM INSTITUTIONAL TRUST INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
JUNE 30, 1995
<PAGE> 2
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 98.5%
MORTGAGE PASS-THROUGHS - 51.1%
Federal Home Loan Mortgage Corporation,
$ 916 6.11%, 05/01/24, 1 year CMT (ARM)......................................... $ 925,247
980 7.00%, 08/01/99 - 04/01/00................................................ 989,801
726 7.25%, 10/01/03 - 06/01/08................................................ 728,249
358 7.38%, 03/01/06, Multi-family............................................. 358,738
1,625 8.00%, 11/01/03 - 10/01/17................................................ 1,672,998
244 8.25%, 06/01/03 - 02/01/08................................................ 250,975
380 8.75%, 01/04/13........................................................... 400,052
147 8.80%, 07/03/95, 3 year CMT (ARM)......................................... 148,810
1,335 9.25%, 12/01/08........................................................... 1,420,386
Federal National Mortgage Association,
987 5.81%, 01/01/25, 6 month LIBOR (ARM)...................................... 989,465
996 6.10%, 02/01/25, 6 month CD (ARM)......................................... 1,017,501
1,086 6.25%, 01/01/21, 1 year CMT (ARM)......................................... 1,080,020
2,212 6.00%, 11/01/02........................................................... 2,174,673
1,065 6.58%, 07/03/95, 1 year CMT (ARM)......................................... 1,070,492
967 6.61%, 12/01/24, 1 year CMT (ARM)......................................... 987,375
900 7.61%, Trust 1995-W2, Class A1, 05/25/22.................................. 910,125
232 7.85%, 05/01/18, 3 year CMT (ARM)......................................... 234,614
Government National Mortgage Association,
735 6.50%, 05/20/25, 1 Year CMT (ARM)......................................... 743,498
3,211 6.75%, 06/20/22, 1 year CMT (ARM)......................................... 3,277,512
3,288 7.50%, 03/20/25, 1 year CMT (ARM)......................................... 3,369,212
-----------
22,749,743
-----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -23.0%
357 Collateralized Mortgage Securities Corporation,
Collateralized Mortgage Obligation, Series 1, Class 2, 05/01/13......... 362,487
Federal National Mortgage Association,
1,663 Trust 1989-18, Class 18-B, 01/25/04...................................... 1,716,595
1,061 Trust 1990-60, Class 60-J, 06/25/17...................................... 1,067,932
1,500 Trust 1993-175, Class 175-PK, 02/25/95................................... 1,481,481
450 KP Mortgage Assets Trust,
Collateralized Mortgage Obligation, Series 14, Class 14B, 09/01/14....... 455,686
682 Nomura Asset Securities Corporation,
Mortgage Pass-Through Certificates, Series 1994-3,....................... 681,055
Class A-1, 07/25/24
1,350 Resolution Trust Corporation,
Series 1992-9, Class-A2B, 07/25/29....................................... 1,359,887
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 3
THE BFM INSTITUTIONAL TRUST INC.
THE SHORT DURATION PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - (CONT.)
$ 436 Salomon Brothers Mortgage Securities VII Incorporated,
Series 1993-5, Class A2, 10/25/23........................................ $ 435,186
757 Security Mortgage Acceptance Corporation,
Series B, Class 3, 11/01/06.............................................. 770,425
Small Business Administration Guaranteed Loan,
937 03/25/16, (ARM)......................................................... 954,239
919 07/25/16, (ARM)......................................................... 935,470
-----------
10,220,443
-----------
ASSET-BACKED SECURITIES - 6.6%
1,500 Colonial Credit Card Trust,
Series 1992-A, Class A, 6.80%............................................. 1,507,500
600 First Chicago Master Trust,
Series 1991-D, Class A, 8.40%............................................. 611,250
800 National Credit Card Trust,
Series 1989-4, Class A, 9.45%............................................. 821,411
-----------
2,940,161
-----------
U.S. GOVERNMENT SECURITIES - 17.8%
U.S. Treasury Notes,
3,000 6.13%, 5/15/98............................................................ 3,019,681
3,500 (a) 6.25%, 5/31/00............................................................ 3,537,170
955 6.88%, 3/31/00............................................................ 988,425
365 7.75%, 12/31/99........................................................... 389,696
-----------
7,934,972
-----------
Total Investments -98.5%
(cost $43,661,417 )....................................................... 43,845,319
Other assets in excess of liabilities - 1.5% (b)........................... 640,913
-----------
NET ASSETS - 100%.......................................................... $44,486,232
===========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Partial principal amount pledged as collateral for reverse repurchase
agreements.
(b) Partial principal amount of receivable for investments sold pledged as
collateral for reverse repurchase agreements.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM: Adjustable Rate Mortgage.
CD: Certificate of Deposit.
CMT: Constant Maturity Treasury.
LIBOR: London International Bank Offering Rate.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
8
<PAGE> 4
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS - 96.7%
MORTGAGE PASS-THROUGHS - 39.5%
Federal Home Loan Mortgage Corporation,
$1,500 7.50%, 01/01/99..................................................... $ 1,504,680
616 7.55%, 09/01/23, 1 year CMT (ARM)................................... 628,556
2,139 8.00%, 11/01/15 - 06/01/25.......................................... 2,183,107
Federal Housing Administration,
99 East Point Chelsea, 10.23%, 05/01/33................................ 105,191
220 Greystone, Series 1994-1, 8.93%, 06/01/20........................... 231,459
Federal National Mortgage Association,
100 6.50% Series 1994-M1, Class B, Multi-family, 10/25/03.............. 98,969
333 7.50%, 02/01/09..................................................... 342,246
251 8.00%, 09/01/09 - 06/01/17.......................................... 260,488
1,210 9.00%, 06/01/24 - 02/01/25.......................................... 1,266,361
Government National Mortgage Association,
587 6.50%, 04/20/25, 1 year CMT (AMT)................................... 593,739
243 7.00%, 02/20/25, 1 year, CMT (ARM).................................. 247,625
2,646 7.50%, 01/15/23 - 05/15/25.......................................... 2,659,231
500 8.00%, 01/01/99..................................................... 511,875
646 8.50%, 01/15/10 - 04/15/17.......................................... 674,491
144 9.00%, 11/15/17..................................................... 151,963
486 9.00%, Project Pool 275130, 10/15/24................................ 504,025
621 9.50%, Project Pool 302733, 11/15/26................................ 651,184
44 10.50%, 01/15/16.................................................... 48,211
23 11.00%, 05/15/16 - 09/20/19......................................... 25,594
10 11.50%, 07/15/13.................................................... 10,988
12 12.00%, 01/15/13 - 03/15/15......................................... 13,146
2 12.50%, 04/15/13.................................................... 1,713
-----------
12,714,842
-----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - 3.0%
Federal National Mortgage Association, REMIC
Pass-Through Certificates,
19 Trust 1992-87, Class 87-C, 08/25/16................................. 18,907
4 Trust 1991-01, Class 1L, 01/25/21, (I).............................. 118,529
97 First Boston Company Mortgage Securities Trust, Collateralized
Mortgage Obligation, Series 2, Class A3, 08/20/17................... 99,242
</TABLE>
See Notes to Financial Statements
9
<PAGE> 5
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MULTIPLE CLASS MORTGAGE PASS-THROUGHS - (CONT.)
$ 104 Salomon Brothers Mortgage Secs VII Incorporated,
Series 1994-9, Class A6, 07/25/24................................... $ 98,762
171 Salomon Brothers Mortgage Trust,
Series 1987-3, Class A , 10/23/17 (P)............................... 122,617
481 Smith Barney Mortgage Capital Trust IV,
Collateral Mortgage Obligation, Series 1,
Class 1Z, 09/01/18.................................................. 511,812
--------
969,869
-------
COMMERCIAL MORTGAGE-BACKED SECURITY - 0.4%
119 First Boston Mortgage Securities Corporation,
6.75%, Series 1993-M1, Class 1A, 09/25/06........................... 116,959
--------
CORPORATE BONDS - 15.0%
FINANCE - 8.9%
A+ 100 American Gen. Fin. Corporation,
8.50%, 8/15/98...................................................... 105,753
Associates Corp. of North America,
A+ 100 6.25%, 3/15/99...................................................... 99,360
AA- 60 6.75%, 7/15/97...................................................... 60,513
A+ 350 Ford Motor Credit Company,
7.75%, 3/15/05...................................................... 370,279
A- 100 ITT Financial Corporation,
8.85%, 7/15/05...................................................... 116,670
A+ 300 Liberty Mutual Capital Corporation,
8.50%, 5/15/25...................................................... 304,673
A+ 300 Morgan Stanley Group Incorporated, Debenture,
7.50%, 2/01/24...................................................... 280,350
BBB 275 Nabisco Incorporated,
7.55%, 6/15/15...................................................... 272,860
BBB+ 150 Paine Webber Group, Incorporated,
8.88%, 3/15/05...................................................... 163,399
A 400 Prudential Insurance Company of America,
8.30%, 7/01/25...................................................... 397,241
AA 350 Republic of Italy,
6.88%, 9/27/23...................................................... 312,277
BBB 100 Shawmut Bank of Connecticut NA,
8.63%, 2/15/05...................................................... 110,415
</TABLE>
See Notes to Financial Statements
10
<PAGE> 6
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE - (CONT.)
Smith Barney Holdings, Incorporated,
A- $ 100 5.38%, 6/01/96...................................................... $ 99,112
A- 50 5.50%, 1/15/99...................................................... 48,276
A- 100 Southtrust Bank Atlanta Georgia N A, Tranche SB 00001,
7.74%, 5/15/25...................................................... 105,750
----------
2,846,928
----------
INDUSTRIALS - 3.2%
A 150 American Home Products Corporation,
7.90%, 2/15/05...................................................... 161,092
A 100 Caterpillar Financial Services,
8.72%, 7/21/97...................................................... 104,690
A3 50 CSX Corporation, Debenture,
8.63%, 5/15/22...................................................... 56,608
AA- 105 Du Pont E I De Nemours and Company,
7.50%, 3/01/33...................................................... 102,291
A 100 Ford Capital Bv.,
9.13%, 4/08/96...................................................... 102,038
General Motors Corporation,
BBB+ 150 5.70%, 12/22/97..................................................... 147,075
BBB+ 350 7.63%, 5/05/03.................................................... 362,890
----------
1,036,684
----------
UTILITY - 0.1%
BBB 50 Texas Utilities Electric Company, 1st Mortgage,
7.38%, 10/01/25..................................................... 47,503
----------
SOVEREIGN & PROVINCIAL - 2.8%
AA 100 African Development Bank,
9.50%, 12/15/95..................................................... 101,553
AA+ 100 British Columbia Hydro and Power,
15.50%, Series FF, 11/15/11......................................... 117,962
A+ 100 Hydro Quebec,
8.05%, 7/07/24...................................................... 108,440
BBB+ 200 Newfoundland and Labrador Province,
8.65%, 10/22/22..................................................... 220,863
A+ 350 Quebec Province Canada,
7.50%, 7/15/23...................................................... 340,185
----------
889,003
----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 7
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - 11.9%
$ 800 Community Program Loan Trust,
Series 1987-A, Class A4, 4.50%.................................... $ 675,000
439 EQCC Home Equity Loan Trust,
Series 1994-1, Class B, 5.75%..................................... 418,855
Green Tree Financial Corporation,
400 Series 1993-1, Class A-3, 6.90%................................... 400,500
200 Series 1994-5, Class A4, 7.95%.................................... 216,336
700 Series 1994-D, Class M2, 9.05%.................................... 754,031
500 MBNA Master Credit Card Trust II,
Series 1995 C, Class A, 6.45%..................................... 491,016
300 Merrill Lynch Mortgage Investors Incorporated,
Series 1993-A3, Class D, 7.75%.................................... 309,516
350 National Credit Card Trust,
Series 1989-4, Class A, 9.45%..................................... 359,367
200 Standard Credit Card Master Trust,
Series 1995-1, Class A, 8.25%..................................... 219,156
----------
3,843,777
----------
STRIPPED MORTGAGE-BACKED SECURITY - 1.2%
505 Federal National Mortgage Association,
Trust 1989-16, Class 16-B , 03/25/19 (P/O) 382,421
----------
U.S. GOVERNMENT SECURITIES - 25.7%
U.S. Treasury Bonds,
380 7.13%, 2/15/23.................................................... 400,364
530 7.50%, 11/15/24................................................... 587,306
305 7.63%, 2/15/25.................................................... 344,458
435 8.75%, 8/15/20.................................................... 540,148
U.S. Treasury Notes,
95 6.25%, 5/31/00.................................................... 96,009
330 6.63%, 3/31/97.................................................... 334,280
640 6.75%, 4/30/00.................................................... 659,399
425 7.25%, 11/30/96................................................... 433,037
225 7.25%, 2/15/98.................................................... 232,382
2,100 7.50%, 1/31/97.................................................... 2,152,164
100 7.50%, 11/15/01................................................... 107,344
1,432 7.50%, 2/15/05.................................................... 1,559,319
</TABLE>
See Notes to Financial Statements
12
<PAGE> 8
THE BFM INSTITUTIONAL TRUST INC.
THE CORE FIXED INCOME PORTFOLIO
<TABLE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES - (CONT.)
U.S. Treasury Notes,
$ 270 7.75%, 1/31/00................................................... $ 288,479
495 7.88%, 11/15/04.................................................. 551,306
-----------
8,285,995
-----------
Total long-term Investments
(cost $30,728,604)............................................... 31,133,981
-----------
SHORT-TERM INVESTMENT - 13.8%
REPURCHASE AGREEMENT
4,430 Lehman Brothers Inc., 6.15%, dated 6/29/95, due 7/03/95 in the
amount of $4,432,270 (cost $4,430,000; collateralized by
$4,125,000 U.S. Treasury Bond, 7.88%, 11/15/07, value of
$4,561,670)...................................................... 4,430,000
Total Investments -110.5%
(cost $35,158,604 ).............................................. 35,563,981
Liabilities in excess of other assets - (10.5%)..................... (3,373,177)
-----------
NET ASSETS - 100%................................................... $32,190,804
===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Using the higher of Standard & Poor's or Moody's rating.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
AMT: Alternative Minimum Tax.
ARM: Adjustable Rate Mortgage.
CMT: Constant Maturity Treasury.
I: Denotes a CMO with interest only characteristics.
P/O: Principal Only.
P: Denotes a CMO with principal only characteristics.
REMIC: Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See Notes to Financial Statements
13
<PAGE> 9
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
- -----------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
<S> <C> <C>
ASSETS
Investments, at value (cost $43,661,417 and
$35,158,604, respectively) (Note 1).................... $43,845,319 $35,563,981
Cash........................................................ 637,685 2,695
Receivable for investments sold............................. 13,361,558 --
Interest receivable......................................... 395,772 385,289
Deferred organization expenses and
other assets (Note 1).................................... 47,610 28,161
----------- -----------
58,287,944 35,980,126
----------- -----------
LIABILITIES
Reverse repurchase agreements (Note 4)...................... 11,213,775 --
Payable for investments purchased........................... 2,521,918 3,734,414
Custodian fee payable....................................... 12,481 5,431
Dividends payable........................................... 8,901 23,595
Other....................................................... 44,637 25,882
----------- -----------
13,801,712 3,789,322
----------- -----------
NET ASSETS.................................................. $44,486,232 $32,190,804
=========== ===========
Net assets were comprised of:
Common stock, at par (Note 5).......................... $ 452 $ 327
Paid-in capital in excess of par....................... 44,796,243 31,983,880
----------- -----------
44,796,695 31,984,207
Undistributed net investment income.................... 1,901 --
Accumulated net realized loss.......................... (496,266) (198,780)
Net unrealized appreciation
on investments..................................... 183,902 405,377
----------- -----------
Net assets, June 30, 1995.............................. $44,486,232 $32,190,804
=========== ===========
Net asset value per share................................... $ 9.83 $ 9.85
=========== ===========
Total shares outstanding at end of period................... 4,524,485 3,267,452
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 10
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1995
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
<S> <C> <C>
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of $47,371
and $26,160 and interest expense of $51,298
and $7,093, respectively)................................ $2,277,815 $1,165,125
---------- ----------
Expenses
Investment advisory......................................... 102,707 56,894
Administration.............................................. 69,234 73,257
Custodian................................................... 62,960 57,896
Transfer agent.............................................. 30,616 32,792
Registration................................................ 13,000 16,500
Amortization of deferred organization expenses.............. 23,112 11,512
Audit....................................................... 25,300 16,750
Legal....................................................... 10,200 4,500
Printing.................................................... 13,511 5,339
Directors................................................... 2,574 2,426
Miscellaneous............................................... 5,832 5,738
---------- ----------
Total expenses........................................... 359,046 283,604
---------- ----------
Expenses waived by the Adviser (Note 2).................. (102,707) (56,894)
Expenses reimbursed by the Adviser (Note 2).............. (61,195) (137,364)
---------- ----------
(163,902) (194,258)
---------- ----------
Net expenses............................................. 195,144 89,346
---------- ----------
Net investment income....................................... 2,082,671 1,075,779
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments................................................. 163,516 244,290
Options..................................................... -- (10,078)
---------- ----------
163,516 234,212
Net change in unrealized depreciation........................... 745,207 840,392
---------- ----------
Net gain on investments......................................... 908,723 1,074,604
---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................................... $2,991,394 $2,150,383
========== ==========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 11
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT THE CORE FIXED
DURATION PORTFOLIO INCOME PORTFOLIO
------------------ ----------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH Cash flows used for operating activities:
Interest received ................................................ $ 2,242,198 $ 911,230
Expenses paid .................................................... (175,126) (79,160)
Interest expense paid ............................................ (46,084) (6,819)
Proceeds (purchase of) from disposition of short-term
portfolio investments, net .................................... 4,249,000 (3,131,000)
Purchase of long-term portfolio investments ...................... (244,114,502) (112,221,637)
Proceeds from disposition of long-term portfolio
investments.................................................... 217,008,819 96,522,130
------------- -------------
Net cash flows used for operating activities .................... (20,835,695) (18,005,256)
------------- -------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements......................... 11,213,775 --
Dividends paid (excluding reinvestment of dividends
of $1,972,138 and $995,146, respectively)...................... (149,314) (76,380)
Proceeds from Trust shares sold .................................. 35,832,684 18,993,483
Cost of Trust shares redeemed .................................... (25,500,008) (1,362,388)
------------- -------------
Net cash flows provided by financing activities .................. 21,397,137 17,554,715
------------- -------------
Net increase (decrease) in cash ...................................... 561,442 (450,541)
Cash at beginning of year............................................. 76,243 453,236
------------- -------------
Cash at end of year................................................... $ 637,685 $ 2,695
============= =============
RECONCILIATION OF NET INCREASE (DECREASE)
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net increase in net assets resulting from operations ................. $ 2,991,394 $ 2,150,383
------------- -------------
Increase in investments .............................................. (12,225,986) (21,912,647)
Net realized gain .................................................... (163,516) (234,212)
Increase in unrealized appreciation .................................. (745,207) (840,392)
(Increase) decrease in receivable for investments sold ............... (9,996,073) 1,257,288
Increase in interest receivable ...................................... (122,314) (234,144)
Decrease in deferred organization expenses and other assets .......... 22,686 11,421
Decrease (increase) in payable for investments purchased ............. (599,521) 1,805,074
Increase (decrease) in accrued expenses and other liabilities......... 2,842 (8,027)
------------- -------------
Total adjustments ................................................ (23,827,089) (20,155,639)
------------- -------------
Net cash flows used for operating activities ......................... $ (20,835,695) $ (18,005,256)
============= =============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 12
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income.......................................... $ 2,082,671 $ 1,725,504
Net realized gain ............................................. 163,516 107,050
Net change in unrealized appreciation (depreciation)........... 745,207 (854,281)
------------ -----------
Net increase in net assets resulting
from operations............................................. 2,991,394 978,273
------------ -----------
Dividends and distributions:
Net investment income.......................................... (2,092,080) (1,771,675)
Net realized gain.............................................. (27,706) --
------------ ------------
(2,119,786) (1,771,675)
------------ ------------
Capital share transactions:
Proceeds from shares subscribed................................ 35,832,684 36,449,281
Cost of shares redeemed........................................ (25,455,008) (57,608,135)
Net asset value of shares issued in
reinvestment of dividends.................................... 1,972,138 1,605,782
------------ ------------
Increase (decrease) in net assets from capital
share transactions........................................... 12,349,814 (19,553,072)
------------ ------------
Net increase (decrease).......................................... 13,221,422 (20,346,474)
NET ASSETS
Beginning of year.................................................. 31,264,810 51,611,284
------------ ------------
End of year........................................................ $ 44,486,232 $ 31,264,810
============ ============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 13
THE BFM INSTITUTIONAL TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income....................................... $ 1,075,779 $ 544,253
Net realized gain (loss).................................... 234,212 (221,036)
Net change in unrealized appreciation
(depreciation) on investments............................ 840,392 (567,698)
----------- -----------
Net increase (decrease) in net assets resulting
from operations.......................................... 2,150,383 (244,481)
----------- -----------
Dividends and distributions:
Net investment income....................................... (1,083,760) (542,010)
Net realized gain........................................... (9,414) (292,003)
----------- -----------
(1,093,174) (834,013)
----------- -----------
Capital share transactions:
Proceeds from shares subscribed.......................... 18,993,483 9,073,497
Cost of shares redeemed.................................. (1,362,388) (4,087,689)
Net asset value of shares issued in
reinvestment of dividends and distributions............ 995,146 797,134
----------- -----------
Increase in net assets from capital
share transactions..................................... 18,626,241 5,782,942
----------- -----------
Net increase................................................ 19,683,450 4,704,448
NET ASSETS
Beginning of year............................................... 12,507,354 7,802,906
----------- -----------
End of year..................................................... $32,190,804 $12,507,354
=========== ===========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 14
THE BFM INSTITUTIONAL TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
YEAR YEAR JULY 17, 1992(a)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 9.71 $ 9.96 $ 10.00
------- ------- -------
Net investment income (net of $.014, $.011 and
$.005 respectively, of interest expense) (b)........ 0.58 0.48 0.51
Net realized and unrealized loss on investments........ 0.13 (0.25) (0.06)
------- ------- -------
Net increase from investment operations................... 0.71 0.23 0.45
------- ------- -------
Dividends from net investment income...................... (0.58) (0.48) (0.49)
Distributions from net realized capital gains............. (0.01) -- --
------- ------- -------
Total dividends and distributions...................... (0.59) (0.48) (0.49)
------- ------- -------
Net asset value, end of period............................ $ 9.83 $ 9.71 $ 9.96
======= ======= =======
TOTAL INVESTMENT RETURN (c)............................... 6.99% 2.33% 4.63%
RATIOS TO AVERAGE NET ASSETS:
Expenses (b).............................................. 0.57% 0.57% 0.56%(d)
Net investment income (b)................................. 6.08% 4.70% 5.32%(d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $34,236 $36,686 $67,540
Portfolio turnover ....................................... 586% 455% 513%
Net assets, end of period (in thousands).................. $44,486 $31,265 $51,611
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $102,707 and $110,232 and reimbursed
expenses amounting to $61,195 and $55,582, for the periods ended June
30, 1995 and June 30, 1994, respectively. For the period July 17, 1992
through June 30, 1993, the Administrator waived fees amounting to
$64,580. If the Fund had borne all expenses, the expense ratios would
have been 1.05%, 1.02% and 0.66% for the periods ended June 30, 1995,
June 30, 1994 and June 30, 1993, respectively. The net investment income
ratios would have been 5.60%, 4.25% and 5.22% for the periods ended June
30, 1995, June 30, 1994 and June 30, 1993, respectively. The net
investment income on a per share basis would have been $0.53, $0.43 and
$0.49 for the periods ended June 30, 1995, June 30, 1994 and June 30, 1993,
respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(d) Annualized.
The information above represents the audited operating performance based on
an average share of common stock outstanding, total investment return,
ratios to average net assets and other supplemental data, for each of the
periods indicated. This information has been determined based upon
financial information provided in the financial statements.
See Notes to Financial Statements.
19
<PAGE> 15
THE BFM INSTITUTIONAL TRUST INC.
FINANCIAL HIGHLIGHTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
YEAR YEAR DECEMBER 9, 1992 (a)
ENDED ENDED THROUGH
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 9.36 $ 10.37 $10.00
------- ------- ------
Net investment income (net of $.004, $.003 and
$.001, respectively, of interest expense) (b)........ 0.62 0.55 0.32
Net realized and unrealized gains on investments........ 0.50 (0.60) 0.37
------- ------- ------
Net (decrease) increase from investment operations......... 1.12 (0.05) 0.69
------- ------- ------
Dividends from net investment income....................... (0.62) (0.55) (0.32)
Distributions from net realized capital gains.............. (0.01) (0.41) --
------- ------- ------
Total dividends and distributions....................... (0.63) (0.96) (0.32)
------- ------- ------
Net asset value, end of period............................. $ 9.85 $ 9.36 $10.37
======= ======= ======
TOTAL INVESTMENT RETURN (c)................................ 11.79% (0.69)% 6.88%
RATIOS TO AVERAGE NET ASSETS:
Expenses (b)............................................... 0.55% 0.55% 0.55%(d)
Net investment income (b).................................. 6.62% 5.61% 5.57%(d)
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $16,247 $ 9,702 $6,622
Portfolio turnover ....................................... 435% 722% 354%
Net assets, end of period (in thousands) ................. $32,191 $12,507 $7,803
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of investment operations.
(b) The Adviser waived fees amounting to $56,894, $34,010 and $24,761 and
reimbursed expenses amounting to $137,364, $137,179 and $0 for the periods
ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The
Administrator waived fees amounting to $32,500 and $3,701 for the periods
ended June 30, 1994 and June 30, 1993, respectively. For the period ended
June 30, 1993, the Custodian and the Transfer Agent waived fees amounting
to $24,272 and $17,283, respectively. If the Fund had borne all expenses,
the expense ratios would have been 1.75%, 2.65% and 2.44% for the periods
ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively. The net
investment income ratios would have been 5.43%, 3.51% and 3.68% for the
periods ended June 30, 1995, June 30, 1994 and June 30, 1993, respectively.
The net investment income on a per share basis would have been $0.51, $0.34
and $0.22 for the periods ended June 30, 1995, June 30, 1994 and June 30,
1993, respectively.
(c) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(d) Annualized.
The information above represents audited operating performance based on an
average share of common stock outstanding, total investment return, ratios
to average net assets and other supplemental data, for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements.
See Notes to Financial Statements.
20
<PAGE> 16
THE BFM INSTITUTIONAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company organized as a Maryland corporation. The Articles
of Incorporation permit the Board of Directors to create an unlimited number of
series (or "Portfolios"), each of which issues a separate class of shares and
has its own investment objective and policies. The Trust was formed on November
27, 1991 and had no operations through June 18, 1992 other than those related to
organizational matters and the sale and issuance of 10,000 shares of The Short
Duration Portfolio to BlackRock Financial Management, Inc. ( the "Adviser") for
$100,000 on June 18, 1992. The Short Duration Portfolio and The Core Fixed
Income Portfolio commenced investment operations on July 17, 1992 and December
9, 1992, respectively. On October 6, 1994, The BFM Institutional Trust Inc.,
Multi-Sector Mortgage Securities Portfolio III commenced investment operations
and is being shown in a separate report.
The Adviser has advanced certain organizational and offering expenses of
the Trust and is to be reimbursed by the Trust. Organizational costs estimated
at $282,000 have been deferred. $115,250 and $57,500 have been allocated to The
Short Duration Portfolio and to The Core Fixed Income Portfolio, respectively,
and are being amortized over a period not to exceed 60 months from the date each
Portfolio commenced investment operations. In the event that any of the original
shares owned by the Adviser (or any subsequent holder) are repurchased by the
Trust prior to the end of the 60-month period, the proceeds from the repurchase
payable in respect of such shares shall be reduced by the pro rata share (based
on the proportionate share of the original shares repurchased to the total
number of original shares outstanding at the time of repurchase) of the
unamortized deferred organization expenses as of the date of such repurchase. In
the event that a Portfolio is liquidated prior to the end of the 60-month
period, the Adviser (or any subsequent holder) shall bear the remaining
unamortized deferred organization expenses.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-
21
<PAGE> 17
market on a daily basis to ensure the adequacy of the collateral. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period that the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. Duration is a measure of the price
sensitivity of a security or a portfolio to relative changes in interest rates.
For instance, a duration of "one" means that a portfolio or a security's price
would be expected to change by approximately one percent with a one percent
change in interest rates, while a duration of "five" would imply that the price
would move approximately five percent in relation to a one percent change in
interest rates. In the same sense, futures contracts can be purchased to
lengthen a portfolio that is shorter than its duration target. Thus, by buying
or selling futures contracts, the Trust can effectively "hedge" more volatile
positions so that changes in interest do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, duration management or
other portfolio management purposes. Should interest rates move unexpectedly,
the Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
to offset potential price declines in similar securities owned. The Trust may
only make short sales "against-the-box". In this type of short sale, at the time
of the sale, the Trust owns or has the immediate and unconditional right to
acquire the identical security at no additional cost. When selling short
"against-the-box", the Trust foregoes an opportunity for capital appreciation in
the security.
22
<PAGE> 18
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the year ended June 30, 1995.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes premium or amortizes discount on securities
purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares dividends daily and pays
dividends and distributions monthly first from net investment income, then from
net realized short-term capital gains and other sources, if necessary. Net
long-term capital gains, if any, in excess of loss carryforwards are distributed
at least annually. Dividends and distributions are recorded on the ex-dividend
date. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage-backed securities.
DEFERRED ORGANIZATION EXPENSES: A total of $115,250 and $57,500 were incurred in
connection with the organization of The Short Duration Portfolio and The Core
Fixed Income Portfolio, respectively. These costs have been deferred and are
being amortized ratably over a period of 60 months from the date each Portfolio
commenced investment operations.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with the Adviser which
provides that The Short Duration Portfolio and The Core Fixed Income Portfolio
will pay to the Adviser for its services a monthly fee in an amount equal to
.30% and .35%, respectively, of average daily net assets on an annualized basis.
The Adviser has agreed to reimburse expenses from The Short Duration Portfolio
to the extent that the expenses of the Portfolio exceed .57% of average daily
net assets. For the year ended June 30, 1995, the Adviser waived fees of
$102,707 and reimbursed expenses of $61,195 from The Short Duration Portfolio.
The Adviser has agreed to waive a portion of its advisory fee from The Core
Fixed Income Portfolio to the extent that the expenses of the Portfolio exceed
.55% of average daily net assets. For the year ended June 30, 1995, the Adviser
waived fees of $56,894 and reimbursed expenses of $137,364 from The Core Fixed
Income Portfolio. The Trust has also entered into an Administration Agreement
with State Street Bank and Trust Company ("State Street"). State Street will
receive an annual fee equal to .08% of each Portfolio's net asset value up to
$75 million, .06% of the next $75 million and .04% in excess of $150 million,
subject to certain minimum requirements.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the Adviser. State Street pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses. The Adviser has agreed that, in any fiscal year, it will reimburse the
Trust for expenses (including the fees of the Adviser and amortization of
organization expenses but excluding taxes, interest, brokerage fees,
commissions, litigation
23
<PAGE> 19
and indemnification expenses and other extraordinary expenses) that exceed the
most restrictive expense limitation imposed by state securities commissions. The
most restrictive expense limitation is 2 1/2% of the average value of the
Trust's net assets during the year up to $30 million, 2% of the next $70 million
of average net assets and 1 1/2% thereafter. Such expense reimbursement, if any,
will be estimated and accrued daily. No expense reimbursement was required due
to such limitation for the year ended June 30, 1995.
The Trust has entered into a Distribution Agreement with Provident
Distributors, Inc. (the "Distributor"). Pursuant to the terms of the
Distribution Agreement, the Distributor serves as the principal underwriter and
distributor of the Trust's shares, and in that capacity makes a continuous
offering of the Trust's shares and bears the costs and expenses of printing and
distributing any copies of any prospectuses and annual and interim reports for
the Trust (after such items have been prepared and set in type) which are used
in connection with the offering of shares to securities dealers or investors,
and the cost and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by securities
dealers in connection with the offering of the shares for sale to the public.
There is no fee payable by the Trust pursuant to the Distribution Agreement, and
there is no sales or redemption charge. The Distribution Agreement provides for
indemnification by the Trust of the Distributor, its partners, employees, agents
and affiliates for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions. The
continuance of the Distribution Agreement must be approved in the same manner as
the Investment Advisory Agreement, and the Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable with respect
to any Portfolio at any time without penalty by the Rule 12b-1 Directors (as
defined below) or by vote of a majority of the outstanding shares of the
Portfolio (as such term is defined in the Investment Company Act) on not more
than 60 days' nor less than 30 days' written notice to the Distributor and by
the Distributor on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(i) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to the
Distributor. The Trust is not required or permitted under the Plan to make
payments over and above the amount of the advisory fee to promote the sale of
its shares; the Plan merely permits the reallocation of a portion of the
advisory fee the Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such office
space, equipment, telephone facilities and various personnel as may be necessary
or beneficial to establish and maintain stockholders' accounts and records,
process purchase and redemption transactions, answer routine client inquiries
and provide such other services to the Trust as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would
24
<PAGE> 20
materially increase the amount of money to be spent by a Portfolio must also be
submitted to the stockholders of the Portfolio for approval.
Certain directors of the Trust who are not interested parties are paid a
fee for their services in the amount of $2,500 on an annual basis.
On February 28, 1995, the Adviser was acquired by PNC Bank, NA. Following
the acquisition, the Adviser has become a wholly-owned corporate subsidiary of
PNC Asset Management Group, Inc., the holding company for PNC's asset management
businesses. Additionally, on July 1, 1995, the transfer agent, custodial and
administration function for Trust were assumed by PFPC (a wholly-owned corporate
subsidiary of PNC Bank, NA) and PNC Bank NA.
25
<PAGE> 21
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for each Portfolio for the year ended June 30,
1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
The Short Duration Portfolio ................... $223,262,351 $205,368,569
The Core Fixed Income Portfolio ................ 91,607,699 72,142,031
</TABLE>
The federal income tax basis of the investments of The Short Duration
Portfolio at June 30, 1995 was substantially the same as the basis for financial
reporting. The federal income tax basis of the investments of The Core Fixed
Income Portfolio at June 30, 1995 was $35,166,628. Accordingly, net unrealized
appreciation (depreciation) for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
GROSS UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
<S> <C> <C> <C>
The Short Duration Portfolio ................... $283,149 $ (99,247) $183,902
The Core Fixed Income Portfolio ................ 498,120 (100,767) 397,353
</TABLE>
For federal income tax purposes, The Short Duration Portfolio had a capital
loss carryforward at June 30, 1995 of $258,570 which will expire in 2002. The
Core Fixed Income Portfolio had a capital loss carryforward at June 30, 1995 of
$114,851 which will expire in 2003. Accordingly, no capital gains distribution
is expected to be paid to shareholders until net gains have been realized in
excess of such amounts. A tax election will be made to defer all losses incurred
in the post-October period of the current fiscal year to the fiscal year ended
June 30, 1996.
NOTE 4. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse Repurchase Agreements: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding in
The Short Duration Portfolio during the year ended June 30, 1995 was
approximately $1,437,000 at a weighted average interest rate of approximately
5.86%. The maximum amount of reverse repurchase agreements outstanding at any
month-end during the year was $11,213,775 as of June 30, 1995 which was 19.24%
of total assets. The average daily balance of reverse repurchase agreements
outstanding in The Core Fixed Income Portfolio during the year ended June 30,
1995 was approximately $424,000 at a weighted average interest rate of
approximately 5.32%. The maximum amount of reverse repurchase agreements
outstanding at any month-end during the period was $509,975 as of March 31, 1995
which was 2.34% of total assets. There were no reverse repurchase agreements
outstanding at June 30, 1995.
Dollar Rolls: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
26
<PAGE> 22
The average monthly balance of dollar rolls outstanding in The Short
Duration Portfolio during the year ended June 30, 1995 was $165,599. The maximum
amount of dollar rolls outstanding at any month-end during the year was $994,375
as of October 31, 1994, which was 0.52% of total assets. There were no dollar
rolls outstanding at June 30, 1995. The average monthly balance of dollar rolls
outstanding in The Core Fixed Income Portfolio during the year ended June 30,
1995 was $89,553 The maximum amount of dollar rolls outstanding at any month-end
during the year was $284,186 as of November 30, 1994, which was 2.02% of total
assets. There were no dollar rolls outstanding at June 30, 1995.
NOTE 5. CAPITAL
The Trust is authorized to issue 2 billion shares of $.0001 par value
capital stock in one or more classes or series. The Short Duration Portfolio and
The Core Fixed Income Portfolio are each authorized to issue 100 million shares.
Of the 4,524,485 shares of The Short Duration Portfolio outstanding at June 30,
1995, the Adviser owned 11,718 shares. Of the 3,267,452 shares of The Core Fixed
Income Portfolio outstanding at June 30, 1995, the Adviser owned 2 shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
THE SHORT DURATION PORTFOLIO
----------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Shares subscribed .................................... 3,732,764 3,673,276
Shares issued in connection with
the reinvestment of dividends .................... 202,717 162,452
---------- ----------
3,935,481 3,835,728
Shares redeemed ...................................... (2,629,898) (5,800,442)
---------- ----------
Net increase (decrease)............................... 1,305,583 (1,964,714)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
THE CORE FIXED INCOME PORTFOLIO
-------------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Shares subscribed .................................... 1,971,644 903,352
Shares issued in connection with the
reinvestment of dividends and distributions....... 104,932 80,352
--------- -------
2,076,576 983,704
Shares redeemed ...................................... (145,220) (399,930)
--------- --------
Net increase ......................................... 1,931,356 583,774
========= ========
</TABLE>
NOTE 6. DIVIDENDS
Subsequent to June 30, 1995 the Board of Directors of the Trust declared a
dividend from undistributed earnings of $0.05304 and $0.05613 per share for The
Short Duration Portfolio and The Core Fixed Income Portfolio, respectively,
payable July 31, 1995 to shareholders of record on July 31, 1995.
27
<PAGE> 23
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BFM Institutional Trust Inc.:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of The Short Duration Portfolio and The Core
Fixed Income Portfolio of The BFM Institutional Trust Inc. as of June 30, 1995
and the related statements of operations and of cash flows for the year then
ended, the statements of changes in net assets for the years ended June 30, 1995
and 1994, and financial highlights for the years ended June 30, 1995 and 1994,
and (i) the period July 17, 1992 (commencement of investment operations) to June
30, 1993 for The Short Duration Portfolio and (ii) the period December 9, 1992
(commencement of investment operations) to June 30, 1993 for The Core Fixed
Income Portfolio. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Short Duration
Portfolio and The Core Fixed Income Portfolio of The BFM Institutional Trust
Inc. at June 30, 1995 and the results of their operations, their cash flows, the
changes in their net assets and their financial highlights for the periods
stated, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 7, 1995
27
<PAGE> 24
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
As of The Core Fixed Income Porfolio's fiscal year end (June 30, 1995) total
dividends to shareholders exceeded taxable income by $9,414, or $0.003 per
share, and was paid from current realized capital gains income. This designation
does not impact the net asset value of the Portfolio or the number or shares
owned.
In January 1996, after definitive information has been provided to the
Portfolio, shareholders will receive a Form 1099-DIV which will reflect the
amount of the dividends declared and the actual amount which is taxable in
calendar 1995 and reportable on their 1995 federal tax return.
If you have any questions regarding your investment, please do not hesitate to
contact BlackRock Financial Management, Inc., the Investment Adviser, at (800)
227-7BFM.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
policies that have not been approved by the shareholders, or to its charter or
by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
At a Special Meeting of Trust Shareholders on February 15, 1995, the
Shareholders approved the investment advisory agreement for the Portfolio with
BlackRock Financial Management, Inc. The results of the voting is as follows:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
----- ------- --------
<S> <C> <C> <C>
The Short Duration Portfolio 930,411 -- --
The Core Fixed Income Portfolio 1,098,752 -- --
</TABLE>
28
<PAGE> 25
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates
SECURITIES (ARMS): that adjust at periodic intervals at a
fixed amount relative to the market levels
of interest rates as reflected in specified
indexes. ARMS are backed by mortgage loans
secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
COLLATERALIZED MORTGAGE Mortgage-backed securities which separate
OBLIGATIONS (CMOS): mortgage pools into short-, medium-, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares dividends daily and pays dividends
on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however; they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
</TABLE>
29
<PAGE> 26
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA
(Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage
Corporation).
INTEREST-ONLY SECURITIES: Mortgage securities that receive only the
(I/O) interest cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as a Strip.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
MORTGAGE PASS- Mortgage-backed securities issued by
THROUGHS: Fannie Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS- See Collateralized Mortgage Obligations.
THROUGHS:
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, plus income accrued on its
investments, minus any liabilities including
accrued expenses, divided by the total
number of outstanding shares. It is the
underlying value of a single share on a
given day. Net asset value for the Trust is
calculated daily and published in The New
York Times and The Wall Street Journal.
OPEN-END FUND: Investment vehicle which continually offers
its shares to the public at net asset value
and redeems its shares anytime at the
prevailing net asset value. The fund invests
in a portfolio of securities in accordance
with its stated investment objectives and
policies.
30
<PAGE> 27
- --------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
PRINCIPAL-ONLY SECURITIES Mortgage securities that receive only the
(P/O): principal cash flows from an underlying pool
of mortgage loans of underlying pass-through
securities, also known as a strip.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
REMIC: Real Estate Mortgage Investment Conduit, a
multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets
that elects to be treated as a REMIC for
federal tax purposes. Generally, Fannie Mae
REMICs are formed as trusts and are backed
by mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPS: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
32
<PAGE> 28
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
<TABLE>
TAXABLE TRUSTS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
MATURITY
STOCK SYMBOL DATE
------------ --------
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Income Trust Inc. ......................................... BKT N/A
The BlackRock North American Government Income Trust Inc, ............... BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. ...................................... BBT 12/98
The BlackRock 1999 Term Trust Inc. ...................................... BNN 12/99
The BlackRock Target Term Trust Inc. .................................... BTT 12/00
The BlackRock 2001 Term Trust Inc. ...................................... BLK 06/01
The BlackRock Strategic Term Trust Inc. ................................. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. ........................ BQT 12/04
The BlackRock Advantage Term Trust Inc. ................................. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. ............... BCT 12/09
</TABLE>
<TABLE>
TAX-EXEMPT TRUSTS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
MATURITY
STOCK SYMBOL DATE
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Investment Quality Municipal Trust Inc. ................... BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. ........ RAA N/A
The BlackRock Florida Investment Quality Municipal Trust................. RFA N/A
The BlackRock New Jersey Investment Quality Municipal
Trust Inc............................................................ RNJ N/A
The BlackRock New York Investment Quality Municipal
Trust Inc............................................................ RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. .......................... BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. .................... BRM 12/08
The BlackRock California Insured Municipal 2008 Term
Trust Inc. ......................................................... BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust.................. BRF 12/08
The BlackRock New York Insured Municipal 2008 Term
Trust Inc. ........................................................ BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. ......................... BMT 12/10
</TABLE>
If would like further information
please call BlackRock
33
<PAGE> 29
at (800) 227-7BFM (7236) or
consult with your financial advisor.
34
<PAGE> 30
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. (BlackRock), is a registered
investment adviser which specializes in managing high quality fixed income
securities, both taxable and tax-exempt. BlackRock currently manages over $32
billion of assets in 80 portfolios of government, mortgage, corporate and
municipal securities. These assets are managed on behalf of many individual
investors in twenty-one closed-end funds and four open-end funds and on behalf
of more than 80 institutional clients in the United States and overseas.
BlackRock's institutional investor base includes Chrysler Corporation Master
Retirement Trust, General Retirement System of the City of Detroit, State
Treasurer of Florida, Ford Motor Company Pension Plan, General Electric Pension
Trust and Unisys Corporation Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who sought
to create an asset management firm specializing in managing fixed income
securities for individual and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities markets, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolios of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. BlackRock introduced the first closed-end mortgage fund, the first
taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAAf rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
BlackRock's closed-end funds currently have dividend reinvestment plans which
are designed to provide an ongoing source of demand for the stock in the
secondary market. BlackRock manages a ladder of alternative investment vehicles,
with each fund having specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
35
<PAGE> 31
[To be inserted after Portfolio of Investments]
KEY TO ABBREVIATIONS
ABS: Asset-Backed Security
ARM: Adjustable Rate Mortgage
CMO: Collateralized Mortgage Obligation
GNMA: Government National Mortgage Association
FHA: Federal Housing Authority
FHLMC: Federal Home Loan Mortgage Corporation
FNMA: Federal National Mortgage Association
I/O: Interest-Only
MBS: Mortgage-Backed Security
NAV: Net Asset Value
PAC: Planned Amortization Class
P/O: Principal-Only
REMIC: Real Estate Mortgage Conduit
36
<PAGE> 32
DIRECTORS
Kent Dixon
Frank J. Fabozzi
James Grosfeld
OFFICERS
James Grosfeld, President
Frank J. Fabozzi, Vice President
Kent Dixon, Treasurer and Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
THE BFM INSTITUTIONAL TRUST INC.
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
<PAGE> 33
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
- --------------------------------------------------
ANNUAL REPORT
JUNE 30, 1995
<PAGE> 34
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS - 97.3%
COMMERCIAL MORTGAGE-BACKED SECURITIES - 90.5%
A $4,000 American Southwest Financial Securities Corporation,
8.00%, Series 1994-C2, Class A4, 08/25/10 ................................ $ 3,946,394
AA 1,500 Bellaire Finance Incorporated,
8.97%, Class A, 02/01/08.................................................. 1,573,125
CBA Mortgage Corporation,
BBB 4,074 7.15%, Series 1993-C1, Class D, 12/25/03 ................................. 3,981,515
AAA 300 7.15%, Series 1993-C1, Class A2, 12/25/03 ................................ 306,906
Central Life Assurance Company,
AA+ 3,444 8.90%, Series 1994-1, Class A2, 11/01/20 ................................. 3,623,092
A 1,126 9.10%, Series 1994-1, Class B1, 11/01/20 ................................. 1,177,927
AA 4,887 Citibank of New York, Mortgage Pass-Through Certificate
8.00%, Series 1994-1 Class A, 01/25/19 ................................... 5,059,729
AA 3,988 Creekwood Capital Corporation, Collateral Note,
8.47%, 03/16/15........................................................... 4,257,438
AA 3,500 CS First Boston Mortgage Securities Corporation,
9.59%, Series 1995-M1, Class B, 04/25/25 ................................. 3,915,625
DLJ Mortgage Acceptance Corporation,
AA 5,000 7.86%, Series 1992-3, Class A, 06/18/07................................... 5,117,500
AA 1,000 7.65%, Series 1993-M12, Class A2, 09/18/03............................... 1,023,500
BBB 3,000 FSA Finance Incorporated,
8.31%,Class C, 06/01/02................................................... 3,068,174
A 4,000 Gentra Capital Commercial Real Estate,
8.50%, Series 1994-1, Class D, 07/25/28 .................................. 4,093,018
BB- 1,020 Kearny Street Real Estate L P,
9.56%, Series 1993-1, Class D, 07/15/03 .................................. 1,032,848
KP Acceptance Corporation I,
A 2,500 7.00%, Series 1994-C1, Class C, 02/01/06 ................................. 2,466,846
BBB 1,074 6.50%, Series 1993- M3, Class D, 11/25/25................................. 997,931
A 3,000 Lehman Brothers Mortgage Trust,
8.00%, Series 1992-M1, Class B, 12/25/01 ................................. 2,940,000
Lennar United States Partners Limited,
AA 2,906 6.66%, Series 1994-1, 09/15/01 ........................................... 2,909,614
BB 1,500 9.75%, Series 1995-1, Class E, 05/15/05................................... 1,510,524
B 1,000 11.70%, Series 1995-1, Class F, 05/15/05.................................. 1,005,587
A 2,125 LTC,
9.50%, Series 1994-1, Class C, 06/15/26 .................................. 2,345,326
Nomura Asset Capital Corporation,
AA 2,000 7.64%, Series 1993-M1, Class A1, 11/25/03................................. 2,045,249
BBB 2,000 7.64%, Series 1993-M1, Class A3, 11/25/03................................. 1,966,075
</TABLE>
THE BFM INSTITUTIONAL TRUST INC.
See Notes to Financial Statements.
4
<PAGE> 35
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES - (CONT.)
Resolution Trust Corporation,
AAA $ 2,682 6.58%, Series 1994-C2, Class A1, 04/25/25................................. $ 2,680,628
BBB 3,000 6.90%, Series 1995-C1, Class D, 02/25/27.................................. 2,754,375
Aa2 4,800 7.26%, Series 1992-C4, Class A2, 06/25/24................................. 4,886,671
AA- 1,433 7.70%, Series 1992-C6, Class B, 07/25/24.................................. 1,442,547
Baa2 1,950 8.00%, Series 1992-C6, Class C, 07/25/24.................................. 1,963,292
A 2,966 8.00%, Series 1994-C2, Class D, 04/25/25.................................. 2,946,561
AA- 5,795 8.13%, Series 1992-C1, Class B, 08/25/23.................................. 5,930,393
A 3,167 8.50%, Series 1993-C2, Class D, 03/25/23.................................. 3,234,020
A+ 2,602 8.85%, Series 1992-C5, Class C, 05/25/22.................................. 2,708,323
B+ 2,500 10.63%, Series 1994-N2, Class A, 12/15/04................................. 2,490,362
BB 3,000 SKW Real Estate,
9.05%, Series 1994, Class D, 04/15/04 .................................... 3,004,994
SKW Real Estate II,
B 500 11.00%, Class E, 04/15/05................................................. 502,099
B 2,222 12.80%, Class E, 04/15/05................................................. 2,236,168
A 4,500 TVO Southwest,
9.37%, Series 1994-MF1, Class A2, 11/18/09 ............................... 4,955,557
------------
102,099,933
------------
U.S. GOVERNMENT SECURITIES - 6.8%
U.S. Treasury Notes,
970 # 4.75%, 8/31/98............................................................ 944,693
2,135 6.88%, 3/31/00............................................................ 2,229,409
4,300 7.25%, 2/15/98............................................................ 4,467,313
-----------
7,641,415
Total long-term investments
(cost $106,007,269)....................................................... 109,741,348
------------
SHORT-TERM INVESTMENTS - 5.6%
REPURCHASE AGREEMENT
6,300 Lehman Brothers Inc., 6.15%, dated 6/30/95, due 7/03/95 in the
amount of $6,303,229 (cost $6,300,000, collateralized by
$5,000,000 U.S. Treasury Bond, 10.375%, due 11/15/09
with a value of $6,510,879)............................................... 6,300,000
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 36
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
VALUE
CONTRACTS## DESCRIPTION (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALL OPTIONS PURCHASED- 0.0%
28 U.S. Treasury Bond Future, expiring December 1995
(cost $84,324)........................................................... $ 64,750
Total short-term investments
(cost $6,384,324)........................................................ 6,364,750
------------
Total investments - 102.9%
(cost $112,391,593)...................................................... 116,106,098
Liabilities in excess of other assets - (2.9%)...................................... (3,296,433)
------------
NET ASSETS - 100%................................................................... $112,809,665
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Using the higher of Standard & Poor's, Moody's, or Fitch's rating.
# A portion of the above denoted securities market value was segregated to
cover margin requirements for open financial futures contracts.
## One contract equals $100,000 face value.
See Notes to Financial Statements.
6
<PAGE> 37
THE BFM INSITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $112,391,593) (Note 1)............................................ $116,106,098
Cash.......................................................................................... 42,116
Interest receivable........................................................................... 765,887
Receivable for variation margin on futures.................................................... 83,531
Receivable for investments sold............................................................... 2,683
Other......................................................................................... 97
------------
117,000,412
------------
LIABILITIES
Payable for investments purchased............................................................. 4,105,014
Custodian fee payable......................................................................... 13,420
Other......................................................................................... 72,313
------------
4,190,747
------------
NET ASSETS.................................................................................... $112,809,665
============
Net assets were comprised of:
Common stock, at par (Note 5)............................................................ $ 10
Paid-in capital in excess of par......................................................... 105,744,127
------------
105,744,137
Accumulated net realized gain............................................................ 3,568,972
Net unrealized appreciation ............................................................. 3,496,556
------------
Net assets, June 30,1995................................................................. $112,809,665
============
Net asset value per share..................................................................... $ 1,068.11
============
Total shares outstanding at end of period..................................................... 105,616
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 38
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 4, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
<S> <C>
Income
Interest (including discount accretion of $111,768)........................................ $ 6,000,734
-----------
Expenses
Investment advisory........................................................................ 189,677
Custodian.................................................................................. 41,989
Registration............................................................................... 34,574
Administration............................................................................. 32,948
Audit...................................................................................... 14,333
Legal...................................................................................... 9,555
Transfer agent............................................................................. 2,500
Directors.................................................................................. 1,970
Miscellaneous.............................................................................. 10,320
-----------
Total expenses.......................................................................... 337,866
Expenses waived by the Adviser (Note 2)................................................. (56,269)
-----------
Net expenses............................................................................ 281,597
-----------
Net investment income...................................................................... 5,719,137
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain on:
Investments............................................................................. 2,332,081
Futures................................................................................. 1,236,891
-----------
Net realized gain....................................................................... 3,568,972
-----------
Net unrealized appreciation (depreciation) on:
Investments............................................................................. 3,714,505
Futures................................................................................. (217,949)
-----------
Net unrealized appreciation on investments.............................................. 3,496,556
-----------
Net gain on investments........................................................................ 7,065,528
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................................................... $12,784,665
===========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
See Notes to Financial Statements.
8
<PAGE> 39
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF CASH FLOWS
FOR THE PERIOD OCTOBER 4, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Interest received ................................................ $ 5,123,709
Expenses paid .................................................... (195,865)
Variation margin paid............................................. (301,480)
Purchase of short-term portfolio
investments, net .............................................. (6,300,000)
Gain/loss on closed futures contracts ............................ 1,236,891
Purchase of long-term portfolio investments ...................... (278,912,706)
Proceeds from disposition of long-term
portfolio investments.......................................... 179,366,567
-------------
Net cash flows used for operating activities ..................... (99,982,884)
-------------
Cash flows provided by financing activities:
Dividends paid (excluding reinvestment of dividends
of $5,719,137)................................................. 0
Proceeds from Trust shares sold .................................. 100,000,000
-------------
Net cash flows provided by financing activities ............... 100,000,000
-------------
Net increase in cash ................................................. 17,116
Cash at beginning of period........................................... 25,000
-------------
Cash at end of period ................................................ $ 42,116
=============
RECONCILIATION OF NET INCREASE
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES
Net increase in net assets resulting from operations ................. $ 12,784,665
-------------
Increase in investments .............................................. (109,040,570)
Net realized gain .................................................... (3,568,972)
Increase in unrealized appreciation .................................. (3,496,556)
Increase in receivable for investments sold .......................... (2,683)
Increase in interest receivable ...................................... (765,887)
Increase in margin variation on futures .............................. (83,531)
Increase in other assets ............................................. (97)
Increase in payable for investments purchased ........................ 4,105,014
Increase in accrued expenses and other liabilities.................... 85,733
-------------
Total adjustments ................................................ (112,767,549)
-------------
Net cash flows used for operating activities ......................... $ (99,982,884)
=============
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
See Notes to Financial Statements.
9
<PAGE> 40
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 4, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C>
Operations:
Net investment income..................................................................... $ 5,719,137
Net realized gain on investments.......................................................... 3,568,972
Net unrealized appreciation
on investments......................................................................... 3,496,556
------------
Net increase in net assets resulting
from operations........................................................................ 12,784,665
------------
Dividends from net investment income.......................................................... (5,719,137)
------------
Capital share transactions:
Proceeds from shares subscribed........................................................ 100,000,000
Net asset value of shares issued in
reinvestment of dividends............................................................ 5,719,137
------------
Increase in net assets from capital
share transactions................................................................... 105,719,137
------------
Net increase.............................................................................. 112,784,665
NET ASSETS
Beginning of period........................................................................... 25,000
------------
End of period................................................................................. $112,809,665
============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
See Notes to Financial Statements.
10
<PAGE> 41
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
FINANCIAL HIGHLIGHTS
FOR THE PERIOD OCTOBER 6, 1994* THROUGH JUNE 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
<S> <C>
Net asset value, beginning of period............................................ $1,000.00
---------
Net investment income (a).................................................... 55.81
Net realized and unrealized gain on investments.............................. 68.11
---------
Net increase from investment operations......................................... 123.92
---------
Dividends from net investment income............................................ (55.81)
---------
Net asset value, end of period.................................................. $1,068.11
=========
TOTAL INVESTMENT RETURN (b)..................................................... 12.78%
RATIOS TO AVERAGE NET ASSETS:
Expenses (a).................................................................... 0.37% (c)
Net investment income (a)....................................................... 7.54% (c)
SUPPLEMENTAL DATA:
Average net assets (in thousands) .............................................. $103,332
Portfolio turnover ............................................................. 215%
Net assets, end of period (in thousands)........................................ $112,810
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of investment operations.
(a) For the period ended June 30, 1995, the Adviser waived expenses amounting
to $56,269. Net investment income before waiver of fees would have been
$55.28 on a per share basis and the ratio of net operating expenses to
average net assets and the ratio of net investment income to average net
assets would have been 0.45% and 7.46%, respectively.
(b) Total investment return is calculated assuming a purchase of common stock
at net asset value per share on the first day and a sale at net asset value
per share on the last day of the period reported. Dividends are assumed,
for purposes of this calculation, to be reinvested at the net asset value
per share on the payment date.
(c) Annualized.
Contained above is audited operating performance based on an average share
of common stock outstanding, total investment return, ratios to average net
assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided
in the financial statements.
See Notes to Financial Statements.
11
<PAGE> 42
THE BFM INSTITUTIONAL TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The BFM Institutional Trust Inc. (the "Trust") is a no-load, open-end
management investment company organized as a Maryland corporation. The Articles
of Incorporation permit the Board of Directors to create an unlimited number of
series (or "Portfolios"), each of which issues a separate class of shares and
has its own investment objective and policies. The Trust was formed on November
27, 1991 and had no operations through June 18, 1992 other than those related to
organizational matters and the sale and issuance of 10,000 shares of The Short
Duration Portfolio to BlackRock Financial Management Inc. ( the "Adviser") for
$100,000 on June 18, 1992. The Multi-Sector Mortgage Securities Portfolio III
(the "Portfolio") commenced investment operations on October 6, 1994. The Short
Duration Portfolio and The Core Fixed Income Portfolio commenced investment
operations on July 17, 1992 and December 9, 1992, respectively.
As of June 30, 1995, 99.98% of the shares of capital stock of the Portfolio
are owned by Ameritech Pension/VEBA Trust.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
12
<PAGE> 43
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly. In general, the Trust uses options to
hedge a long or short position or an overall portfolio that is longer or shorter
than the benchmark security. A call option gives the purchaser of the option the
right (but not obligation) to buy, and obligates the seller to sell (when the
option is exercised), the underlying position at the exercise price at any time
or at a specified time during the option period. A put option gives the holder
the right to sell and obligates the writer to buy, the underlying position at
the exercise price at any time or at a specified time during the option period.
Put options can be purchased to effectively hedge a position or a portfolio
against price declines if a portfolio is long. In the same sense, call options
can be purchased to hedge a portfolio that is shorter than its benchmark against
price changes. The Trust can also sell (or write) covered call options and put
options to hedge portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period that the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, to help in maintaining
a targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. Duration is a measure of the price
sensitivity of a security or a portfolio to relative changes in interest rates.
For instance, a duration of "one" means that a portfolio's or a security's price
would be expected to change by approximately one percent with a one percent
change in interest rates, while a duration of "five" would imply that the price
would move approximately five percent in relation to a one percent change in
interest rates. In the same sense, futures contracts can be purchased to
lengthen a portfolio that is shorter than its duration target. Thus, by buying
or selling futures contracts, the Trust can effectively "hedge" more volatile
positions so that changes in interest do not change the duration of the
portfolio unexpectedly.
13
<PAGE> 44
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates, or for risk management, duration management or
other portfolio management purposes. Should interest rates move unexpectedly,
the Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes premium or amortizes discount on securities
purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders.
Therefore, no federal income or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares dividends daily and pays
dividends and distributions monthly first from net investment income, then from
net realized short-term capital gains and other sources, if necessary. Net
long-term capital gains, if any, in excess of loss carryforwards are distributed
at least annually. Dividends and distributions are recorded on the ex-dividend
date. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage-backed securities.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with the Adviser which
provides that the Portfolio will pay to the Adviser for its services a monthly
fee in an amount equal to .25% of average daily net assets on an annualized
basis. The Adviser has agreed to waive a portion of its advisory fee from the
Portfolio to the extent that the expenses of the Portfolio exceed .37% of
average daily net assets. For the period ended June 30, 1995, the Adviser
reimbursed expenses of $56,269 from the Portfolio. The Trust has also entered
into an Administration Agreement with State Street Bank and Trust Company
("State Street"). State Street will receive an annual fee equal to .04% of the
Portfolio's average daily net asset value.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust, who
are affiliated persons of the Adviser. State Street pays occupancy and certain
clerical and accounting costs of the Trust. The Trust bears all other costs and
expenses. The Adviser has agreed that, in any fiscal year, it will reimburse the
Trust for expenses (including the fees of the Adviser but excluding taxes,
interest, brokerage fees, commissions, litigation and indemnification expenses
and other extraordinary expenses) that exceed the most restrictive expense
limitation imposed by state securities commissions. The most restrictive expense
limitation is 2 1/2% of the average value of the Trust's net assets during the
year up to $30 million, 2% of the next $70 million of average net assets and 1
1/2% thereafter. Such expense reimbursement, if any, will be estimated and
accrued daily. No expense reimbursement was required due to such limitation for
the period ended June 30, 1995.
14
<PAGE> 45
The Trust has entered into a Distribution Agreement with Provident
Distributors, Inc. (the "Distributor"). Pursuant to the terms of the
Distribution Agreement, the Distributor serves as the principal underwriter and
distributor of the Trust's shares, and in that capacity makes a continuous
offering of the Trust's shares and bears the costs and expenses of printing and
distributing any copies of any prospectuses and annual and interim reports for
the Trust (after such items have been prepared and set in type) which are used
in connection with the offering of shares to securities dealers or investors,
and the cost and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by securities
dealers in connection with the offering of the shares for sale to the public.
There is no fee payable by the Trust pursuant to the Distribution Agreement, and
there is no sales or redemption charge. The Distribution Agreement provides for
indemnification by the Trust of the Distributor, its partners, employees, agents
and affiliates for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions. The
continuance of the Distribution Agreement must be approved in the same manner as
the Investment Advisory Agreement, and the Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable with respect
to any Portfolio at any time without penalty by the Rule 12b-1 Directors (as
defined below) or by vote of a majority of the outstanding shares of the
Portfolio (as such term is defined in the Investment Company Act) on not more
than 60 days' nor less than 30 days' written notice to the Distributor and by
the Distributor on like notice to the Trust.
The Trust has adopted a Distribution and Stockholder Servicing Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to
which the Adviser is permitted to use a portion of the advisory fee it receives
from the Trust to promote the distribution of the Trust's shares and to enhance
the provision of stockholder services. The Plan was approved by a majority of
(i) the directors of the Trust and (ii) the directors of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(Rule 12b-1 Directors). The Plan permits the Adviser to pay fees to the
Distributor. The Trust is not required or permitted under the Plan to make
payments over and above the amount of the advisory fee to promote the sale of
its shares; the Plan merely permits the reallocation of a portion of the
advisory fee the Adviser receives to pay for distribution-related activities.
From amounts received by it under the Plan, the Distributor is authorized
to make payments to securities dealers with which the Distributor has entered
into solicitation fee agreements. The Distributor may also use a portion of the
fee it receives under the Plan to cover the Distributor's cost of marketing
services and advertising on behalf of the Portfolios and to compensate
institutions who perform support services that would otherwise be performed by
the Trust or its agent. These support services may include providing such office
space, equipment, telephone facilities and various personnel as may be necessary
or beneficial to establish and maintain stockholders' accounts and records,
process purchase and redemption transactions, answer routine client inquiries
and provide such other services to the Trust as may reasonably be requested.
The Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Rule 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated with respect to any Portfolio at any time, without penalty, by the
vote of a majority of the Rule 12b-1 Directors or by the vote of the holders of
a majority of the outstanding shares of the Portfolio. The Plan may not be
amended materially without the approval of the Board of Directors, including a
majority of the Rule 12b-1 Directors, cast in person at a meeting called for
that purpose. Any modification to the Plan which would materially increase the
amount of money to be spent by a Portfolio must also be submitted to the
stockholders of the Portfolio for approval.
Certain directors of the Trust who are not interested parties are paid a
fee for their services in the amount of $2,500 on an annual basis.
15
<PAGE> 46
On February 28, 1995, the Adviser was acquired by PNC Bank, NA.
Following the acquisition, the Adviser has become a wholly-owned corporate
subsidiary of PNC Asset Management Group, Inc., the holding company for PNC's
asset management businesses. Additionally, on July 1, 1995, the transfer agent,
custodial and administration function for Trust were assumed by PFPC (a wholly
owned corporate subsidiary of PNC Bank, NA) and PNC Bank NA.
16
<PAGE> 47
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for the period from October 6, 1994 (commencement
of investment operations) to June 30, 1995 were $282,858,655 and $179,295,235
respectively. The federal income tax bases of the investments of the Portfolio
at June 30, 1995 was $112,407,036, and accordingly, as of June 30, 1995, net
unrealized appreciation for Federal income tax purposes aggregated $3,699,062 of
which $3,758,064 related to appreciated securities and $59,002 related to
depreciated securities.
During the period ended June 30, 1995, the Trust entered into financial
futures contracts. Details of open contracts at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT UNREALIZED APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1995 (DEPRECIATION)
---------- ---- ---------- ---------- ------------- ------------------------
<S> <C> <C> <C> <C> <C>
SHORT POSITIONS:
30 yr. December
14 T-Bond 1995 $1,597,322 $1,583,313 $14,009
10 yr. September 1,217,840 1,211,031 6,809
11,000 T-Note 1995
LONG POSITIONS:
30 yr. September
166 T-Bond 1995 19,053,496 18,846,188 (207,308)
5 yr. September
94 T-Bond 1995 9,772,750 9,747,359 (25,391)
2 yr. September
7 T-Note 1995 757,474 751,406 (6,068)
---------
$(217,949)
=========
</TABLE>
NOTE 4. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse Repurchase Agreements: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement. There were no reverse repurchase agreements during the
period ended June 30, 1995.
Dollar Rolls: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. There were no dollar roll transactions during the
period ended June 30, 1995.
17
<PAGE> 48
NOTE 5. CAPITAL
The Trust is authorized to issue 2 billion shares of $.0001 par value
capital stock in one or more classes or series. The Portfolio is authorized to
issue 1 million shares. Of the 105,616 shares of the Portfolio outstanding at
June 30, 1995, the Adviser owned 25 shares. Transactions in shares were as
follows:
<TABLE>
<CAPTION>
OCTOBER 6, 1994*
THROUGH
JUNE 30, 1995
-------------
<S> <C>
Shares subscribed .......................................................... 100,000
Shares issued in connection with
the reinvestment of dividends .............................................. 5,591
-------
105,591
Shares redeemed ............................................................ 0
-------
Net increase ............................................................... 105,591
=======
</TABLE>
* Commencement of investment operations
NOTE 6. DIVIDENDS
Subsequent to June 30, 1995 the Board of Directors of the Trust declared a
dividend from undistributed earnings of $676.106 per share, payable July 31,
1995 to shareholders of record on July 31, 1995.
18
<PAGE> 49
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BFM Institutional Trust Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Multi-Sector Mortgage Securities Portfolio
III of The BFM Institutional Trust Inc. as of June 30, 1995 and the related
statements of operations, cash flows and changes in net assets for the period
October 4, 1994 (commencement of operations) to June 30, 1995 and financial
highlights for the period October 6, 1994 (commencement of investment
operations) to June 30, 1995. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Multi-Sector
Mortgage Securities Portfolio III of The BFM Institutional Trust Inc. at June
30, 1995 and the results of its operations, its cash flows, the changes in its
net assets and its financial highlights for the periods stated in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 7, 1995
18
<PAGE> 50
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
THE MULTI-SECTOR MORTGAGE SECURITIES PORTFOLIO III
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
policies that have not been approved by the shareholders, or to its charter or
by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
At a Special Meeting of Trust Shareholders on February 15, 1995, the
Shareholders approved the investment advisory agreement for the Portfolio with
BlackRock Financial Management, Inc. The results of the voting is as follows:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
<S> <C> <C>
101,092 -- --
</TABLE>
19
<PAGE> 51
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
ADJUSTABLE RATE Mortgage instruments with interest
MORTGAGE-BACKED rates that adjust at periodic intervals at a
SECURITIES fixed amount relative to the market levels
of interest rates as reflected in
(ARMS): specified indexes. ARMS are backed
by mortgage loans secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
COLLATERALIZED MORTGAGE Mortgage-backed securities which separate
OBLIGATIONS (CMOS): mortgage pools into short-, medium-,
and long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares dividends daily and pays dividends
on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
20
<PAGE> 52
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however; they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
21
<PAGE> 53
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA
(Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage
Corporation).
INTEREST-ONLY SECURITIES (I/O): Mortgage securities that receive only the
interest cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as a Strip.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie
Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: See Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, plus income accrued on its
investments, minus any liabilities including
accrued expenses, divided by the total
number of outstanding shares. It is the
underlying value of a single share on a
given day. Net asset value for the Trust is
calculated daily and published in The New
York Times and The Wall Street Journal.
22
<PAGE> 54
OPEN-END FUND: Investment vehicle which continually offers
its shares to the public at net asset value
and redeems its shares anytime at the
prevailing net asset value. The fund invests
in a portfolio of securities in accordance
with its stated investment objectives and
policies.
23
<PAGE> 55
- -------------------------------------------------------------------------------
THE BFM INSTITUTIONAL TRUST INC.
GLOSSARY
- -------------------------------------------------------------------------------
PRINCIPAL-ONLY SECURITIES (P/O): Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans of underlying pass-through
securities, also known as a strip.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
REMIC: Real Estate Mortgage Investment Conduit, a
multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets
that elects to be treated as a REMIC for
federal tax purposes. Generally, Fannie Mae
REMICs are formed as trusts and are backed
by mortgage-backed securities.
REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
STRIPS: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
24
<PAGE> 56
- -------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE TRUSTS
- ---------------------------------------------------------------------------------------------------------------
MATURITY
STOCK SYMBOL DATE
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Income Trust Inc. ......................................... BKT N/A
The BlackRock North American Government Income Trust Inc, ............... BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. ...................................... BBT 12/98
The BlackRock 1999 Term Trust Inc. ...................................... BNN 12/99
The BlackRock Target Term Trust Inc. .................................... BTT 12/00
The BlackRock 2001 Term Trust Inc. ...................................... BLK 06/01
The BlackRock Strategic Term Trust Inc. ................................. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. ........................ BQT 12/04
The BlackRock Advantage Term Trust Inc. ................................. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. ............... BCT 12/09
<CAPTION>
TAX-EXEMPT TRUSTS
- -------------------------------------------------------------------------------------------------------------------
MATURITY
STOCK SYMBOL DATE
<S> <C> <C>
PERPETUAL TRUSTS
The BlackRock Investment Quality Municipal Trust Inc. ................... BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. ........ RAA N/A
The BlackRock Florida Investment Quality Municipal Trust................. RFA N/A
The BlackRock New Jersey Investment Quality Municipal
Trust Inc............................................................ RNJ N/A
The BlackRock New York Investment Quality Municipal
Trust Inc............................................................ RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. .......................... BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. .................... BRM 12/08
The BlackRock California Insured Municipal 2008 Term
Trust Inc. ......................................................... BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust.................. BRF 12/08
The BlackRock New York Insured Municipal 2008 Term
Trust Inc. ........................................................ BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. ......................... BMT 12/10
</TABLE>
If would like further information
please call BlackRock
25
<PAGE> 57
at (800) 227-7BFM (7236) or
consult with your financial advisor.
26
<PAGE> 58
- -------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- -------------------------------------------------------------------------------
BlackRock Financial Management, Inc. (BlackRock), is a registered
investment adviser which specializes in managing high quality fixed income
securities, both taxable and tax-exempt. BlackRock currently manages over $32
billion of assets in 80 portfolios of government, mortgage, corporate and
municipal securities. These assets are managed on behalf of many individual
investors in twenty-one closed-end funds and four open-end funds and on behalf
of more than 80 institutional clients in the United States and overseas.
BlackRock's institutional investor base includes Chrysler Corporation Master
Retirement Trust, General Retirement System of the City of Detroit, State
Treasurer of Florida, Ford Motor Company Pension Plan, General Electric Pension
Trust and Unisys Corporation Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who
sought to create an asset management firm specializing in managing fixed income
securities for individual and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities markets, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolios of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. BlackRock introduced the first closed-end mortgage fund, the first
taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAAf rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
BlackRock's closed-end funds currently have dividend reinvestment plans which
are designed to provide an ongoing source of demand for the stock in the
secondary market. BlackRock manages a ladder of alternative investment vehicles,
with each fund having specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
27
<PAGE> 59
DIRECTORS
Kent Dixon
Frank J. Fabozzi
James Grosfeld
OFFICERS
James Grosfeld, President
Frank J. Fabozzi, Vice President
Kent Dixon, Treasurer and Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
THE BFM INSTITUTIONAL TRUST INC.
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
<PAGE> 1
EXHIBIT (17)(x)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
October 28, 1994
Dear Shareholder:
We are pleased to present the Annual Report to Shareholders of The PNC Fund
covering the year ended September 30, 1994. This report includes security
listings, performance results and important tax information for the money market
portfolios of The PNC Fund.
These portfolios cover a wide range of money market fund objectives,
allowing shareholders to more precisely match their investments with their
overall financial goals. The portfolios are managed with a sophisticated blend
of discipline, experience and expertise. Each of the money market portfolios
continues to provide investors with a competitive short-term investment product
that seeks a high level of current income consistent with maintaining liquidity
and stability of principal.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
Sincerely,
[LOGO]
G. Willing Pepper
Chairman and President
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 2
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE MUNICIPAL MONEY MARKET
PORTFOLIOS OF THE PNC FUND
During the fiscal year ended September 30, 1994, 100% of the dividends paid
by each of the following Municipal Money Market Portfolios were exempt-interest
dividends for purposes of federal income taxes and free from such taxes.
However, the percentage of these dividends subject to the alternative minimum
tax is as follows: Municipal Money Market Portfolio 19.66%, Ohio Municipal Money
Market Portfolio 28.59%, Pennsylvania Municipal Money Market Portfolio 27.91%,
North Carolina Municipal Money Market Portfolio 13.36% and Virginia Municipal
Money Market Portfolio 21.88%.
In January 1995, you will be furnished with a schedule showing the
percentage breakdown by state or U.S. possession of the source of interest
earned by each Portfolio in 1994.
2
<PAGE> 3
THE PNC FUND
ANNUAL REPORT OF THE INVESTMENT ADVISER
One year ago, the nation's economy was exhibiting only faint signs of a
recovery and short-term interest rates, the Federal Reserve's tool to govern the
rate of economic growth, were being maintained at a very stimulative level of
3%. Inflation was a mild 2.5%. In the four quarters since last summer, the
financial markets have witnessed a pick up in all three areas -- the economy,
interest rates and inflation. In the first two quarters of 1994, real gross
domestic product (GDP) grew by 3.3% and 4.1%, versus 1.2% and 2.4% during the
first two quarters of 1993. Short-term interest rates jumped to 4.75% over the
last fiscal year, an increase of 175 basis points, as the Federal Reserve took
pre-emptive actions against inflation and raised the federal funds rate on five
separate occasions. Presently, it's too early to determine the effect of this
more restrictive monetary policy. However, inflation has shown signs of
escalating and is averaging about 3.0-3.5%. Pressure on consumer and producer
prices has been evidenced by large jumps in commodity prices and capacity
utilization, the latter hitting a five-year high in August at 84.7%.
In the taxable money markets, the key factor was a series of Fed
tightenings, in February, March, April, May and August, that increased
short-term interest rates by a total of 175 basis points. Each of these moves
was targeted to keep inflation from rekindling. For much of the period, the
actual news on inflation remained quite mild, and the Fed's actions were viewed
with a degree of skepticism by investors. The reality of the dramatic change in
policy, however, encouraged even the most bullish investor to shorten the
maturities of investments and increase holdings in variable rate obligations.
Municipal bond prices tumbled in the aftermath of the five Federal Reserve
tightenings. Tax-exempt bonds fell in tandem with prices in the U.S. Treasury
market amid concerns that the economy would begin generating inflation.
Investors shifted their municipal investments out of longer-term municipal bond
funds, causing the tax-exempt money market sector to experience tremendous asset
growth during the period. Total tax-exempt assets grew almost $10 billion during
the period and peaked out at $118.8 billion during April, according to
IBC/Donoghue's Money Fund Report. This increase in assets, coupled with a
general lack of supply and portfolio managers' concerns over future rate
increases caused variable rate demand instruments to remain below 2% for much of
the period. During the summer, investors began feeling comfortable that further
tightening would be put on hold for the near-term and assets began moving back
into longer-term, higher yielding instruments.
During the last year, the stock market advanced 2.6% as measured by the
Standard and Poor's 500 Composite Stock Price Index. However, there were wide
variances in performance within various sectors of the market. The Dow Jones
Industrial Average rose 7.2% for the period and the NASDAQ was up 3.1%. Within
sectors, the best performance was registered by industrial companies which
benefitted from the continuing economic expansion and resulting strength in
earnings. However, those sectors which react to the level and direction of
interest rates did not fare as well. The S&P Financial and Utility Indices were
off 1.1% and 15.7%, respectively.
Interest rates rose sharply in the taxable fixed income market during the
year, as the Federal Reserve increased the federal funds rate and the discount
rate to 4.75% and 4.00%, respectively. By changing monetary policy from
accommodative to neutral, the Fed attempted to prevent inflationary pressures
from becoming a problem. The effect of the Fed's actions was to initially
steepen the U.S. Treasury yield curve as long-term rates rose faster than
short-term rates. By May, the slope of the yield curve was 375 basis points
versus 300 basis points last August. Since May, however, the curve has flattened
to 300 basis points again, as long-term yields have held steady near 7.50% while
short-term rates have jumped by 50-75 basis points.
3
<PAGE> 4
Yields in the long-term tax-exempt market remained fairly constant in the
fourth quarter of 1993, and through January 1994. However, evidence of an
accelerating economy prompted the Federal Reserve to tighten credit in early
February 1994. Additional increases in short-term rates were made over the next
six months to curb inflation and protect the dollar. For the twelve-month period
ended August 31, 1994, the Bond Buyer Index (BBI) increased 86 basis points to
6.16%, while the longer Revenue Bond Index (RBI) increased 90 basis points to
6.43%. The RBI, as a percentage of the 30-year Treasury, increased from 91.71%
to 86.36%, as municipals outperformed Treasuries for the period.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
October 28, 1994
4
<PAGE> 5
THE PNC(R) FUND
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 5.0%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION DISCOUNT NOTES
4.77% 12/29/94 $ 15,000 $ 14,823,113
5.02% 02/13/95 20,000 19,623,500
5.37% 03/22/95 10,000 9,743,433
5.40% 03/22/95 10,000 9,742,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $53,932,046) 53,932,046
------------
CERTIFICATES OF DEPOSIT -- 10.2%
DOMESTIC -- 1.4%
NationsBank North Carolina
5.35% 06/07/95 5,000 4,999,843
Northern Trust Bank
5.25% 06/16/95 10,000 9,995,264
------------
14,995,107
------------
YANKEE DOLLAR -- 8.8%
Australia and New Zealand
Banking Group
5.12% 01/31/95 10,000 10,000,000
National Westminster Bank
4.90% 12/08/94 15,000 15,000,000
Rabobank Nederland
4.70% 12/12/94 25,000 25,000,000
Sanwa Bank Ltd. Japan
5.00% 11/28/94 25,000 25,000,000
Societe Generale
4.88% 12/28/94 10,000 10,000,000
Sumitomo Bank
5.00% 12/15/94 10,000 10,000,000
------------
95,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $109,995,107) 109,995,107
------------
COMMERCIAL PAPER -- 23.5%
ASSET BACKED SECURITIES -- 3.9%
Beta Finance, Inc.
5.12% 02/03/95 18,000 17,680,000
5.07% 03/08/95 10,000 9,777,483
5.20% 03/13/95 15,000 14,646,833
------------
42,104,316
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- ------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
BANKS -- 9.1%
Abbey National North America Corp.
5.07% 03/06/95 $ 10,000 $ 9,780,300
5.07% 03/07/95 10,000 9,778,892
National City Corporation
4.75% 12/12/94 10,000 9,905,000
4.80% 12/19/94 5,000 4,947,333
5.00% 12/27/94 25,000 24,697,917
5.10% 03/06/95 10,000 9,779,000
Republic National Bank
4.85% 01/04/95 15,000 14,808,021
Toronto Dominion Holding Corp.
4.95% 02/06/95 15,000 14,736,000
------------
98,432,463
------------
FINANCE LESSORS -- 3.2%
General Electric Capital Corp.
5.40% 03/27/95 15,000 14,601,750
IBM Credit Corp.
4.86% 11/14/94 20,000 19,881,200
------------
34,482,950
------------
PERSONAL CREDIT INSTITUTIONS -- 5.5%
BMW US Capital Corp.
4.80% 11/14/94 10,000 9,941,333
Ford Motor Credit Corp.
4.85% 11/15/94 15,000 14,909,063
Household Finance Corp.
4.75% 10/04/94 15,000 14,994,063
4.57% 10/12/94 20,000 19,972,072
------------
59,816,531
------------
SHORT-TERM BUSINESS CREDIT INSTITUTION -- 1.8%
Asset Securitization Coop Corp.
4.65% 10/24/94 20,000 19,940,583
------------
TOTAL COMMERCIAL PAPER
(Cost $254,776,843) 254,776,843
------------
MEDIUM TERM NOTES -- 9.7%
FINANCE LESSORS -- 2.8%
General Electric Capital Corp.
4.75% 10/25/94 30,000 30,000,000
------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- ------------
<S> <C> <C> <C>
MEDIUM TERM NOTES (CONTINUED)
SECURITY BROKERS AND DEALERS -- 6.9%
Bear Stearns Treasury Rate Notes
5.13% 10/04/94 $ 15,000 $ 15,000,000
J.P. Morgan Securities, Inc.
5.00% 11/10/94 45,000 45,000,000
Morgan Stanley Group
4.99% 01/18/95 15,000 15,000,000
------------
75,000,000
------------
TOTAL MEDIUM TERM NOTES
(Cost $105,000,000) 105,000,000
------------
TIME DEPOSITS -- 6.9%
Bank of Tokyo
4.8437% 10/03/94 25,000 25,000,000
Mitsubishi Bank
4.8437% 10/07/94 50,000 50,000,000
------------
TOTAL TIME DEPOSITS
(Cost $75,000,000) 75,000,000
------------
U.S. TREASURY OBLIGATIONS -- 2.3%
U.S. Treasury Notes
6.00% 11/15/94 25,000 25,077,353
(Cost $25,077,353)
VARIABLE RATE OBLIGATIONS -- 24.7%
BANKS -- 4.1%
First National Bank Chicago
4.92%** 10/03/94 45,000 44,985,021
------------
SECURITY BROKERS AND DEALERS -- 14.5%
Bear Stearns & Co., Inc.
5.41%** 10/04/94 30,000 30,000,000
Goldman Sachs Group L.P.
5.125%** 10/11/94 47,000 47,000,000
Lehman Brothers Holdings, Inc.
5.15%** 12/07/94 50,000 50,000,000
Morgan Stanley Group
5.29%** 10/04/94 30,000 29,998,328
------------
156,998,328
------------
STUDENT LOAN MARKETING ASSOCIATION -- 6.1%
5.07%** 10/04/94 25,000 25,000,000
5.11%** 10/04/94 20,000 20,000,000
5.12%** 10/04/94 21,000 20,995,482
------------
65,995,482
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $267,978,831) 267,978,831
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 16.2%
Kidder, Peabody & Co.
5.40% 10/03/94 $100,000 $100,000,000
(Agreement dated 09/30/94 to
be repurchased at
$100,045,000. Collateralized
by $163,802,662 Federal
National Mortgage Association
and Federal Home Loan Mortgage
Corporation, 5.00% to 10.15%
due 4/15/97 to 09/01/24. The
market value of the collateral
is $102,431,318.)
Morgan Stanley & Co.
5.32% 10/03/94 65,000 65,000,000
(Agreement dated 09/30/94 to
be repurchased at $65,028,817.
Collateralized by $75,050,000
Federal Home Loan Bank
Discount Notes, 5.32% due
12/01/99. The market value of
the collateral is
$66,366,339.)
PaineWebber Group
4.95% 10/03/94 10,000 10,000,000
------------
(Agreement dated 09/30/94 to
be repurchased at $10,004,125.
Collateralized by $13,698,000
Federal National Mortgage
Association and Federal Home
Loan Mortgage Corporation,
5.75% to 7.00% due 11/15/08 to
12/15/23. The market value of
the collateral is
$10,240,428.)
TOTAL REPURCHASE AGREEMENTS
(Cost $175,000,000) 175,000,000
------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- --------------
<S> <C> <C> <C>
INFINITY CASH RESERVE -- PRIME -- 1.5%
(Cost $16,259,362) 16,259,362 $ 16,259,362
--------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,083,019,542*) 100.0% $1,083,019,542
OTHER ASSETS IN EXCESS OF
LIABILITIES 0% 242,106
------ --------------
NET ASSETS (Equivalent to
$1.00 per share based on
502,962,691 Institutional
shares, 575,957,482
Service shares and
4,342,111 Series A
Investor shares
outstanding) 100.0% $1,083,261,648
====== ==============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($1,083,261,648 / 1,083,262,284) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994, and maturities shown are
the longer of the next interest readjustment date or the date the principal
amount owed can be recovered through demand.
See accompanying notes to financial statements.
7
<PAGE> 8
THE PNC(R) FUND
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
ALABAMA -- 1.2%
Port City Medical Clinic Board
of Mobile RB (Mobile Infirmary
Association)
3.15% 10/11/94 $1,000 $ 1,000,000
Port City Medical Clinic Board
of Mobile RB Series 1992 A
(Mobile Infirmary Association)
2.95% 10/17/94 1,000 1,000,000
------------
2,000,000
------------
ARIZONA -- 5.3%
Apache County IDA Series 1983 B
(Tucson Electric Power Company
Springerville Project)
3.55%** 10/07/94 2,000 2,000,000
Arizona Health Facilities
Authority RB (Sambor 86)
3.80%** 10/07/94 900 900,000
Maricopa County Pollution
Control Refunding RB
Series 1994 F Arizona Public
Service Co. (Palo Verde
Project)
3.80%** 10/01/94 1,800 1,800,000
Phoenix IDA Multifamily Housing
Refunding RB (Paradise Shadows
II)
3.55%** 10/07/94 75 75,000
Salt River Project Agriculture
Improvement Power District
Electric System Refunding RB
Series C
3.90%** 10/07/94 3,840 3,840,000
------------
8,615,000
------------
CALIFORNIA -- 11.6%
California Higher Education Loan
Authority Student Loan
Refunding RB Series 1987 A
3.60% 05/01/95 1,000 1,000,000
City of Long Beach Harbor
Department Commercial Paper
Notes Series A
3.05% 10/19/94 2,000 2,000,000
Los Angeles County TRAN
4.50% 06/30/95 4,000 4,018,651
State of California RAW Series
1994 A
3.75% 12/21/94 2,000 2,003,245
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
State of California 1994-95 RAN
Series A
5.00% 06/28/95 $5,000 $ 5,029,011
State of California 1994-95 RAN
Series B
3.51% 10/30/94 5,000 5,000,000
------------
19,050,907
------------
COLORADO -- 13.2%
Arapahoe County Capital
Improvement Highway RB Series K
3.90% 02/28/95 3,000 3,000,000
Arapahoe County Capital
Improvement Highway RB Series L
3.90% 02/28/95 3,000 3,000,000
City & County of Denver Airport
System Subordinated RB Series B
3.50% 11/14/94 2,000 2,000,000
3.70% 12/16/94 2,000 2,000,000
City & County of Denver Airport
System Subordinated RB Series D
3.40% 10/14/94 700 700,000
City & County of Denver Airport
System Subordinated RB Series E
3.40% 10/14/94 1,000 1,000,000
3.25% 10/25/94 3,000 3,000,000
3.60% 11/07/94 2,700 2,700,000
3.50% 11/14/94 1,700 1,700,000
3.70% 11/30/94 2,500 2,500,000
------------
21,600,000
------------
DISTRICT OF COLUMBIA -- 0.8%
District of Columbia Hospital RB
Series A (Columbia Hospital for
Women)
3.65%** 10/07/94 1,300 1,300,000
------------
FLORIDA -- 8.8%
Florida Housing Finance Agency
Housing RB Series J (Ashley
Lake II Project)
3.65%** 10/07/94 400 400,000
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
FLORIDA (CONTINUED)
Jacksonville Pollution Control
Refunding RB (Florida Power and
Light)
3.10% 10/26/94 $2,500 $ 2,500,000
3.10% 10/27/94 2,500 2,500,000
2.85% 11/07/94 2,800 2,800,000
Jacksonville Pollution Control
Refunding RB (Florida Power
& Light)
3.00% 11/01/94 5,000 5,000,000
Sarasota County Public Hospital
District (Sarasota Memorial
Hospital Project)
2.90% 10/14/94 1,200 1,200,000
------------
14,400,000
------------
GEORGIA -- 0.9%
Municipal Association Pooled
Bonds
3.55%** 10/07/94 440 440,000
Private Colleges & Universities
Authority RB (Emory University
Project)
3.40% 11/16/94 1,000 1,000,000
------------
1,440,000
------------
HAWAII -- 3.8%
State of Hawaii GO Refunding
Bonds of 1993, Series CD
3.75%** 10/07/94 6,190 6,190,000
------------
ILLINOIS -- 1.8%
Chicago Gas Supply RB (Peoples
Gas & Light)
2.55% 12/01/94 2,000 2,000,000
Chicago O'Hare RB Series 1984 B
3.35% 01/01/95 1,000 1,000,000
------------
3,000,000
------------
INDIANA -- 2.6%
Sullivan Hoosier Energy Rural
Electric Corporation, Inc.
Series 1985
2.90% 10/13/94 2,000 2,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
INDIANA (CONTINUED)
Sullivan PCRB Hoosier Energy
Rural Electric Cooporative
Series 1985
2.95% 10/17/94 $2,185 $ 2,185,000
------------
4,185,000
------------
KANSAS -- 0.7%
Burlington PCRB Series B (Kansas
Power & Light)
3.00% 10/17/94 1,200 1,200,000
------------
KENTUCKY -- 0.6%
Maysville Solid Waste Disposal
Facilities RB
3.50% 11/07/94 1,035 1,035,000
------------
LOUISIANA -- 1.2%
Plaquesmines Port Harbor
3.40% 03/15/95 2,000 2,000,000
------------
MARYLAND -- 4.9%
Maryland GO Tender Option Bonds
Series K
4.00%** 10/07/94 8,000 8,000,000
------------
MASSACHUSETTS -- 3.6%
Commonwealth of Massachusetts GO
Bonds (Custodial
Receipts -- Topstar) Series
1992
3.85% 10/07/94 2,900 2,900,000
Massachusetts Health & Education
Capital Asset Program Series C
3.40%** 10/01/94 3,000 3,000,000
------------
5,900,000
------------
MICHIGAN -- 3.0%
Michigan State Housing
Development Authority Rental
Housing RB Series 1994 C
3.10% 02/28/95 3,000 3,000,000
Northville IDA (Thrifty
Northville Project)
3.925%** 10/07/94 2,000 2,000,000
------------
5,000,000
------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
MINNESOTA -- 1.2%
Becker PCRB Northern States
Power Company (Sherburne County
Station Unit 3 Project)
3.45% 11/21/94 $2,000 $ 2,000,000
------------
MISSOURI -- 0.9%
Mid America Health Series
3.95%** 10/07/94 1,400 1,400,000
------------
NEW HAMPSHIRE -- 2.7%
Business Finance Authority PCRB
(New England Power Company
Project)
3.20% 10/11/94 1,000 1,000,000
3.40% 11/29/94 3,500 3,500,000
------------
4,500,000
------------
NEW YORK -- 9.0%
City of Yonkers IDA Series 1985
(Kawasaki Rolling Stock, Inc.
Project)
3.80%** 10/01/94 2,500 2,500,000
Metropolitan Transportation
Authority Transit Facilities RB
Series K (Municipal Securities
Trust Receipts Pre-Refunded)
3.80%** 10/07/94 1,000 1,000,000
New York City GO RAN Fiscal 1995
Series B
3.4125%** 10/07/94 8,000 8,000,000
New York Dormitory Authority
Series B (New York State
University)
3.75%** 10/07/94 3,300 3,300,000
------------
14,800,000
------------
OHIO -- 2.3%
Columbus GO Tender Option Bonds
Putters Program Series 15 C
3.75%** 10/07/94 1,500 1,500,000
Findlay Water Works
3.40%** 10/07/94 300 300,000
Montgomery County Hospital
Facility Series 1985 B (Miami
Valley Hospital)
2.90% 10/12/94 2,000 2,000,000
------------
3,800,000
------------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
PENNSYLVANIA -- 1.8%
Emmaus General Authority Local
Government RB (Bond Pool
Program) Sub-Series B-7
Shanghai
3.85%** 10/07/94 $2,900 $ 2,900,000
------------
TENNESSEE -- 0.7%
Knox County IDB (Middlebrook
Property Ltd.)
3.30%** 10/07/94 1,100 1,100,000
------------
TEXAS -- 7.5%
Brazos River Harbor Navigation
District Brazoria County Harbor
RB Series 1992 (Dow Chemical
Project)
3.05% 10/12/94 1,800 1,800,000
Brazos River Harbor Navigation
District Brazoria County (Dow
Chemical Project)
3.00% 10/13/94 1,000 1,000,000
Lower Neches Valley Authority
Chevron, Inc.
3.50% 02/15/95 1,000 1,000,000
Port of Corpus Christi of Nueces
County Refunding RB Series 1992
(Union Pacific Corp. Project)
2.95% 10/14/94 2,500 2,500,000
West Side Calhoun County
Development Authority (Sonio
Chemical Co. Project)
3.20% 10/03/94 6,000 6,000,000
------------
12,300,000
------------
UTAH -- 2.7%
Intermountain Power Agency Power
Supply Series F-2
2.85% 10/11/94 1,400 1,400,000
Intermountain Power Agency Power
Supply RB Series 1985 F
3.75% 03/15/95 3,000 3,000,000
------------
4,400,000
------------
VIRGINIA -- 1.8%
Chesapeake IDA Series 1985
(Virginia Electric Power
Company Project)
2.90% 10/07/94 1,000 1,000,000
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
VIRGINIA (CONTINUED)
Chesterfield County IDA PCRB
(Virginia Electric & Power)
2.95% 10/11/94 $2,000 $ 2,000,000
------------
3,000,000
------------
WASHINGTON -- 3.3%
State of Washington Various
Purpose GO Refunding Bonds
Series B-2 Ref. Topstar
Custodial Receipts
3.90%** 10/07/94 5,400 5,400,000
------------
WYOMING -- 1.8%
Sweetwater County Environmental
Improvement RB Series 1990 A
(Pacific Corp. Project)
3.05% 10/07/94 3,000 3,000,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $163,515,907*) 99.7% $163,515,907
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.3% 490,848
------ ------------
NET ASSETS(Equivalent $1.00 per
share based on 30,612,000
Institutional shares,
133,376,516 Service shares and
41,199 Series A Investor shares
outstanding) 100.0% $164,006,755
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($164,006,755 / 164,029,715) $1.00
=====
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994,
and the maturities shown are the longer of the next
interest readjustment date or the date the principal
amount owed can be recovered through demand.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
THE PNC(R) FUND
GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 49.1%
FEDERAL FARM CREDIT BANK
DISCOUNT NOTES -- 13.3%
4.75% 11/21/94 $15,000 $ 14,899,063
5.00% 02/02/95 7,000 6,879,444
4.93% 03/01/95 14,425 14,126,711
4.94% 03/06/95 10,000 9,785,933
5.32% 03/21/95 9,400 9,162,462
------------
54,853,613
------------
FEDERAL HOME LOAN BANK
CONSOLIDATED DISCOUNT
NOTES -- 14.9%
4.66% 10/11/94 20,000 19,974,111
4.92% 11/02/94 5,000 4,978,133
4.66% 12/20/94 7,000 6,927,511
4.69% 01/11/95 7,000 6,906,982
5.15% 01/27/95 8,000 7,864,956
5.22% 02/09/95 15,000 14,715,075
------------
61,366,768
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 0.9%
4.78% 12/09/94 3,900 3,864,270
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION DISCOUNT
NOTES -- 20.0%
4.45% 10/27/94 8,000 7,974,289
4.62% 10/27/94 10,000 9,966,633
4.64% 10/27/94 21,000 20,929,627
4.60% 11/01/94 6,000 5,976,233
4.89% 11/07/94 10,000 9,949,742
4.75% 11/29/94 10,000 9,922,152
5.09% 02/17/95 8,000 7,842,776
5.04% 03/06/95 10,000 9,781,600
------------
82,343,052
------------
TOTAL AGENCY OBLIGATIONS
(Cost $202,427,703) 202,427,703
------------
U.S. TREASURY OBLIGATIONS -- 1.5%
U.S. TREASURY NOTES
7.625% 12/31/94 6,000 6,038,299
(Cost $6,038,299)
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
VARIABLE RATE OBLIGATIONS -- 30.3%
FEDERAL HOME LOAN BANK VARIABLE
RATE BONDS -- 2.4%
4.655%** 11/01/94 $10,000 $ 9,990,654
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION VARIABLE RATE
NOTES -- 10.9%
4.66%** 10/03/94 25,000 25,000,000
5.44%** 10/04/94 20,000 20,000,000
------------
45,000,000
------------
STUDENT LOAN MARKETING
ASSOCIATION VARIABLE RATE
NOTES -- 17.0%
5.09%** 10/04/94 5,000 4,997,090
5.10%** 10/04/94 5,000 5,000,000
5.11%** 10/04/94 5,000 5,000,000
5.12%** 10/04/94 6,000 6,000,000
5.14%** 10/04/94 5,000 5,002,846
5.22%** 10/04/94 5,500 5,503,738
5.27%** 10/04/94 20,600 20,668,185
5.295%** 10/04/94 4,000 4,012,169
5.345%** 10/04/94 5,825 5,859,743
5.52%** 10/04/94 7,750 7,760,470
------------
69,804,241
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $124,794,895) 124,794,895
------------
REPURCHASE AGREEMENTS -- 19.2%
Kidder, Peabody & Co.
5.33% 10/03/94 9,058 9,058,000
(Agreement dated 09/30/94 to
be repurchased at $9,062,023.
Collateralized by $15,896,537
Federal National Mortgage
Association and Federal Home
Loan Mortgage Corporation,
6.00% to 13.391% due 09/01/09
to 03/15/24. The market value
of the collateral is
$9,223,686.)
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Morgan Stanley & Co.
5.32% 10/03/94 $70,000 $ 70,000,000
------------
(Agreement dated 09/30/94
to be repurchased at
$70,031,033. Collateralized
by $87,810,000 Federal Home
Loan Bank Discount Notes,
5.32% due 12/20/00. The
market value of the
collateral is $71,498,063.)
TOTAL REPURCHASE AGREEMENTS
(Cost $79,058,000) 79,058,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $412,318,897*) 100.1% $412,318,897
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1%) (311,141)
------- ------------
<CAPTION>
VALUE
------------
<S> <C> <C> <C>
NET ASSETS (Equivalent to $1.00
per share based on 37,517,721
Institutional shares,
372,829,107 Service shares and
1,655,806 Series A Investor
shares outstanding) 100.0% $412,007,756
======= ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($412,007,756 / 412,002,634) $1.00
=====
</TABLE>
- ---------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994 and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
13
<PAGE> 14
THE PNC(R) FUND
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO -- 99.9%
Clermont County Hospital
Facilities RB Series B
3.50%** 10/07/94 $2,033 $ 2,033,000
Cleveland Airport System RB Series
A
3.90% 01/01/95 415 415,000
Cleveland City School District
TRAN
4.50% 12/30/94 1,000 1,003,370
Cleveland Power System Improvement
Subordinate Notes (Cleveland
Public Power) Series 1994
4.00% 12/29/94 2,500 2,503,603
Columbus GO Tender Option Bonds
3.75%** 10/07/94 2,290 2,290,000
Columbus GO Tender Option Bonds
Series 15-C
3.75%** 10/07/94 1,550 1,550,000
County of Montgomery (Miami Valley
Hospital) Hospital Facility Bonds
Series C
3.10%** 10/07/94 1,500 1,500,000
2.80% 10/11/94 800 800,000
2.90% 10/12/94 1,000 1,000,000
3.05% 10/17/94 2,000 2,000,000
Cuyahoga County IDRB
(Allen Group, Inc. Project)
3.65%** 10/07/94 2,000 2,000,000
Evandale IDRB (SHV Real
Estate, Inc.)
3.40%** 10/07/94 1,700 1,700,000
Findlay Water Revenue Mortgage
Bonds
3.20%** 10/03/94 1,400 1,400,000
Muskeegan County Hospital
Facilities (Bethesda Care Systems
Project)
3.75%** 10/07/94 1,900 1,900,000
Ohio Air Development Authority
PCRB (PPG Industries, Inc.)
Series 1988 A
3.75%** 10/07/94 2,300 2,300,000
Ohio Air Development Authority
PCRB for Duquesne Power & Light
Series 1988
3.20% 10/14/94 1,600 1,600,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Ohio Air Quality Development
Authority PCR (Cincinnati Gas &
Electric Co.) Series 1985 A
3.25% 11/09/94 $2,000 $ 2,000,000
Ohio Air Quality Development
Authority PCR (Cleveland Electric
Illuminating Co. Project) Series
1988 B
2.95% 10/13/94 1,000 1,000,000
Ohio Housing Finance Agency Multi
Family Housing RB (Lincoln Park
Association Project)
3.20% 11/01/94 665 665,000
Ohio Housing Finance Agency Single
Family Mortgage RB Series 1992
A-1
3.40% 12/01/94 300 300,000
Ohio Housing Finance Agency Single
Family Mortgage Revenue Tender
Option Refunding Bonds Series
10-B
3.65%** 10/07/94 100 100,000
Ohio Housing Finance Agency Single
Family Mortgage Revenue Tender
Option Refunding Bonds Series 5-B
3.65%** 10/07/94 700 700,000
Ohio Housing Finance Agency Single
Family Mortgage Revenue Tender
Option Refunding Bonds Series 6-A
3.85%** 10/07/94 400 400,000
Ohio State Environmental
Improvement PCRB
3.65%** 10/07/94 1,000 1,000,000
Ohio State University General
Receipts Bonds Series A-1
3.60% 12/01/94 850 851,322
Ohio State University RB Series B
3.50%** 10/07/94 300 300,000
Ohio Water Development Authority
PCR Refunding Bonds
3.10% 10/18/94 650 650,000
Ohio Water Development Authority
PCRB (Cleveland Electric
Illuminating Co.) Series 1988 A
3.35% 11/08/94 2,000 2,000,000
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Ohio Water Development Authority
PCRB (Duquesne Power & Light)
Series 1988 A
3.20% 10/14/94 $2,000 $ 2,000,000
3.20% 10/18/94 1,400 1,400,000
Ohio Water PCRB (Ohio
Edison Company Project)
4.25% 09/01/95 1,750 1,750,000
Sandusky County IDRB
(Brighton Manor Co. Project)
3.65%** 10/07/94 1,000 1,000,000
Scioto County Hospital Facilities
RB
3.70% 10/07/94 500 500,000
State of Ohio GO Tender Option
Bonds Series 1994
3.75%** 10/07/94 1,650 1,650,000
State of Ohio IDRB (Anomatic Co.
Project)
4.00%** 10/06/94 1,000 1,000,000
Student Loan Funding Corp. of
Cincinnati RB Series A-1
3.70%** 10/07/94 800 800,000
Student Loan Funding Corp. of
Cincinnati RB Series A-3
3.70%** 10/07/94 2,600 2,600,000
Student Loan Funding Corp. of
Cincinnati RB Series 1983 A
3.70%** 10/07/94 1,000 1,000,000
Summit County IDA (Austin Printing
Company, Inc. Project)
4.00% 10/07/94 650 650,000
Toledo-Lucas County Port
Authority Refunding RB (CSX
Transportation, Inc. Project)
2.95% 10/17/94 2,000 2,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Westlake Ohio Economic Development
Revenue Bonds (Oaks Development
Company Project)
3.85%** 10/07/94 $2,025 $ 2,025,000
Wooster IDRB (Allen Group, Inc.)
Series 1985
3.50%** 10/07/94 200 200,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $54,536,295*) 99.9% $54,536,295
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 78,231
------ -----------
NET ASSETS (Equivalent to $1.00 per
share based on 10,521,093
Institutional shares, 44,068,135
Service shares and 27,583
Series A Investor shares
outstanding). 100.0% $54,614,526
====== ===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($54,614,526 / 54,616,811) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
15
<PAGE> 16
THE PNC(R) FUND
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA -- 92.9%
Allegheny County Higher
Education Building Authority
(University of Pittsburgh
Project) Series 1985 C DN
3.45%** 10/07/94 $ 360 $ 360,000
Allegheny County IDA PCR
Refunding Bonds MB
3.70% 02/24/95 6,000 6,000,000
Beaver County IDA (Duquesne
Light Co.) Series B DN
3.80%** 10/07/94 4,100 4,100,000
Beaver County IDA PCR (Duquesne
Light Co.) Series A MB
3.80%** 10/07/94 900 900,000
Beaver County IDA PCR Refunding
Bonds MB
3.20% 11/09/94 3,250 3,250,000
Beaver County IDA PCRB MB
3.40% 12/12/94 1,500 1,500,000
3.30% 12/14/94 300 300,000
Beaver County PCRB
Duquesne Light Co. (Beaver
Valley Project) MB
3.00% 11/17/94 2,500 2,500,000
Bedford County IDA Industrial RB
(Sepa, Inc. Facility) DN
3.55% 10/07/94 2,000 2,000,000
Berks County IDA Commercial
Development RB (Sixth Penn
Street Project) DN
3.60% 10/07/94 300 300,000
Bradford County IDA Commercial
Development RB DN
3.25% 10/07/94 2,300 2,300,000
Bucks County IDA Industrial
Development Refunding RB
(Sundstrand Corp. Project)
Series 1991 DN
3.20% 10/07/94 1,505 1,505,000
Bucks County IDA RB (SHV Real
Estate, Inc.) Series 1985 DN
3.40% 10/07/94 1,200 1,200,000
Cambria County IDA Adjustable
Rate Resource Recovery RB
(Cambria Cogen Co. Project)
Series 1989B-1 DN
3.85%** 10/07/94 700 700,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Cambria County IDA Adjustable
Rate Resource Recovery RB
(Cambria Cogen Co. Project)
Series 1991B-1 DN
3.85% 10/07/94 $ 3,600 $ 3,600,000
Carbon County IDA Resource
Recovery (Panther Creek
Project) Series B MB
3.45% 10/14/94 500 500,000
Carbon County IDA Resource
Recovery MB
3.20% 10/28/94 450 450,000
3.30% 12/14/94 400 400,000
3.45% 01/13/95 500 500,000
3.55% 01/19/95 300 300,000
Carbon County IDA Resource
Recovery Series A MB
3.15% 12/15/94 200 200,000
Carbon County IDA Resource
Recovery Series 1991 A MB
3.15% 12/14/94 1,410 1,410,000
3.25% 12/14/94 1,000 1,000,000
3.15% 12/15/94 300 300,000
Clinton County IDA Annual Tender
Solid Waste Disposal MB
(International Paper Co.
Project) Series 1992 A
2.90% 01/15/95 1,500 1,500,000
Cumberland County IDA
(Lane Enterprises, Inc.
Project) Series 1994 DN
4.20%** 10/07/94 1,000 1,000,000
Delaware County IDA (Scott Paper
Co. Project) Series B DN
3.80%** 10/07/94 1,300 1,300,000
Delaware County IDA (Scott Paper
Co. Project) Series E DN
3.80%** 10/07/94 4,100 4,100,000
Delaware County IDA
(Scott Paper Co. Project)
Series 1984 A DN
3.80%** 10/07/94 3,200 3,200,000
Delaware County IDA
Airport Facilities (United
Parcel Service) DN
3.60%** 10/01/94 3,400 3,400,000
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Delaware County IDA PCR
(B.P. Oil, Inc. Project)
Series 1985 TECP
3.20% 10/03/94 $10,000 $ 10,000,000
Delaware County IDA PCR
Refunding Bonds (Philadelphia
Electric Co.) MB
2.95% 10/21/94 1,000 1,000,000
Delaware County IDA PCR
Refunding Bonds
3.25% 11/08/94 5,500 5,500,000
3.20% 12/09/94 900 900,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series C DN
3.80%** 10/07/94 1,700 1,700,000
Delaware County IDA Solid Waste
(Scott Paper Co. Project)
Series D DN
3.80%** 10/07/94 800 800,000
Delaware County PCR
(Philadelphia Electric Co.
Project) Series 1988 A MB
3.25% 11/10/94 4,000 4,000,000
Emmaus General Authority Pooled
Loan Bond Pool Program
Sub-Series B-7 DN
3.85%** 10/07/94 2,700 2,700,000
Emmaus General Authority DN
3.85%** 10/05/94 100 100,000
Emmaus General Authority Local
Government Series C-7 DN
3.80%** 10/07/94 2,000 2,000,000
Emmaus General Authority Local
Government Series D-6 DN
3.85%** 10/07/94 2,000 2,000,000
Emmaus General Authority Local
Government Series D-7 DN
3.85%** 10/01/94 7,200 7,200,000
Emmaus General Authority Local
Government Series G-3 DN
3.80%** 10/07/94 300 300,000
Emmaus General Authority Local
Government Series G-4 DN
3.85%** 10/07/94 400 400,000
Emmaus General Authority Local
Government Series H-2 DN
3.85%** 10/07/94 4,600 4,600,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Emmaus General Authority
Pooled Loan Series 1989 C
(Sub-Series C-6) DN
3.85%** 10/07/94 $ 500 $ 500,000
Franciscan Health System Pooled
Finance St. Mary's Hospital
Series 1985 A DN
3.60%** 10/01/94 400 400,000
Harrisburg Redevelopment
Authority Multifamily Housing
Washington Square
Apartments DN
3.40%** 10/07/94 2,500 2,500,000
Lehigh County Authority Water DN
3.55%** 10/07/94 6,945 6,945,000
Lehigh County Pennsylvania
Industrial Development
Authority Allegheny Elec Coop,
Inc. Series 1985 A DN
3.40%** 10/07/94 100 100,000
Montgomery County IDA (Quaker
Chemical Corporation Project)
Series 1984 DN
3.25%** 10/07/94 500 500,000
Montgomery County IDA (Three
Valley Square Associates
Project) Series 1987 DN
3.60%** 10/07/94 2,800 2,800,000
Montgomery Higher Education
Hospital DN
3.55%** 10/07/94 8,000 8,000,000
Northampton County IDA GO
(Citizens Utility Co. Project)
Series 1991 MB
3.05% 11/10/94 1,000 1,000,000
Northampton County IDA
Industrial Development RB
(Citizens Utility Co. Project)
3.40% 11/10/94 1,000 1,000,000
Northumberland County IDA
Resource Recovery (Foster
Wheeler Mt. Carmel Project)
Series 1987 A DN
3.75%** 10/07/94 4,000 4,000,000
Pennsylvania Energy Development
Authority (B&W Ebensburg
Project) Series 1988 DN
3.70%** 10/07/94 900 900,000
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Pennsylvania Energy Development
Authority (Piney Creek Project)
Series A DN
3.85%** 10/05/94 $ 4,450 $ 4,450,000
Pennsylvania Energy Development
Authority (Piney Creek Project)
Series C DN
3.85%** 10/07/94 2,300 2,300,000
Pennsylvania Energy Development
Authority (B&W Ebensburg
Project) Series 1986 DN
3.70%** 10/07/94 900 900,000
Pennsylvania Higher Education
Assistance Agency Student Loan
Series 1988 B DN
3.75%** 10/07/94 12,720 12,720,000
Pennsylvania Higher Education
Facility Authority Temple
University Series 1984-1 DN
3.80%** 10/01/94 2,600 2,600,000
Pennsylvania Improvement
Municipalities Alleghany County
Hospital DN
3.70%** 10/07/94 700 700,000
Pennsylvania State Higher
Education Assistance Agency
Student Loan DN
3.95%** 10/07/94 5,200 5,200,000
Philadelphia Authority
Industrial Development-Revenue
Bonds Commercial Development
Airport/Hotel DN
3.75%** 10/07/94 1,400 1,400,000
Philadelphia Gas Works TECP
Series B
2.95% 12/15/94 1,800 1,800,000
Philadelphia GO TECP Series 1990
3.30% 10/13/94 500 500,000
Philadelphia Higher Education &
Hospital Authority
(Children's Hospital Project)
Series 1992 B DN
3.80%** 10/01/94 1,400 1,400,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Hospital Higher
Education Facility Authority
Hospital (Frankford Hospital)
DN
3.875%** 10/07/94 $ 2,400 $ 2,400,000
Philadelphia IDA (30th Street
Station Project) DN
2.80%** 10/07/94 3,000 3,000,000
Quakertown General Authority
Health Facilities (Lifequest &
Affiliates) DN
3.60%** 10/07/94 2,500 2,500,000
Sayre Health Care Facility
Authority DN
3.70%** 10/07/94 3,500 3,500,000
Sayre Health Care Facility
Authority Series J DN
3.70%** 10/07/94 3,900 3,900,000
Sayre Health Care Facility
Authority Variable Rate
Hospital DN
3.70%** 10/07/94 1,800 1,800,000
Schuylkill County IDA Resource
Recovery RB (Northeast
Project B) DN
3.70%** 10/01/94 5,400 5,400,000
Schuylkill IDA Resource Recovery
Series 1985 DN
3.65%** 10/01/94 2,600 2,600,000
University of Pittsburgh
Commonwealth System of Higher
Education Series 1989 A
3.60%** 10/07/94 500 500,000
Venango IDA Resource Recovery
Bond Series B MB
3.05% 10/14/94 1,300 1,300,000
Venango IDA Resource Recovery
Bond Series 1993 MB
3.20% 12/09/94 1,000 1,000,000
3.45% 12/12/94 1,500 1,500,000
3.40% 12/13/94 600 600,000
3.25% 12/14/94 1,300 1,300,000
3.15% 12/15/94 200 200,000
3.40% 12/15/94 1,275 1,275,000
3.45% 01/18/95 300 300,000
3.55% 01/19/95 610 610,000
Venango IDA Resource
Recovery MB
3.20% 12/09/94 1,200 1,200,000
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Washington County Authority
Lease DN
3.60%** 10/05/94 $10,400 $ 10,400,000
York County IDA PCRB
(Philadelphia Electric Co.)
Series 1993 A DN
3.75%** 10/07/94 2,000 2,000,000
------------
203,175,000
------------
PUERTO RICO -- 7.0%
Government Development Bank
Series 1985 DN
3.55%** 10/07/94 6,000 6,000,000
Puerto Rico Industrial Medical &
Environmental Pollution Control
Facilities Funding Authority
(Ana G. Mendez Foundation) DN
3.40%** 10/07/94 3,000 3,000,000
Puerto Rico Industrial Medical
Higher Education &
Environmental Pollution
Control Financing Authority
(Inter-American University of
Puerto Rico Project) Series
1988 MB
2.75% 10/25/94 1,100 1,100,000
2.85% 10/25/94 200 200,000
3.20% 11/08/94 2,000 2,000,000
3.05% 11/09/94 1,000 1,000,000
2.80% 11/10/94 1,000 1,000,000
Puerto Rico Industrial Medical,
Higher Education and
Environmental Pollution Control
Facilities Authority MB
(Reynolds Metals Co. Project)
4.00% 09/01/95 600 600,534
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
PUERTO RICO (CONTINUED)
Puerto Rico Maritime Shipping
Authority TECP
2.90%** 10/05/94 $ 500 $ 500,000
------------
15,400,534
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $218,575,534*) 99.9% $218,575,534
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 225,546
------- ------------
NET ASSETS (Equivalent to $1.00
per share based on 158,102,179
Institutional shares, 60,559,762
Service shares, and 139,009
Series A Investor shares
outstanding) 100.0% $218,801,080
======== =============
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND
SERIES A INVESTOR SHARE
($218,801,080 / 218,800,950) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994 and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
19
<PAGE> 20
THE PNC(R) FUND
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
NORTH CAROLINA -- 94.3%
Bladen County Industrial
Facilities Pollution Control
Financing Authority Industrial
(Hornet & Henderson YARNS) RB
3.85%** 10/07/94 $ 775 $ 775,000
Bladen County Industrial
Facilities Pollution Control
Financing Authority Resource
Recovery Bonds (BCH Energy)
3.85%** 10/07/94 2,000 2,000,000
Catawba County Industrial
Facilities Pollution Control
Financing Authority RB (WSMP,
Inc. Project)
3.85%** 10/07/94 500 500,000
Charlotte Airport Refunding
RB Series A
3.60%** 10/07/94 3,500 3,500,000
City of Asheville Certificates of
Participation Series 1993 A
3.40%** 10/07/94 1,500 1,500,000
City of Durham Public Improvement
BAN
Series 1994 A
4.00% 02/22/95 1,000 1,002,487
City of Durham Public Improvement
Bonds
3.55%** 10/07/94 3,535 3,535,000
4.70% 02/01/95 575 577,432
City of Winston-Salem Water and
Sewer System RB
3.50%** 10/07/94 2,100 2,100,000
Cleveland County Industrial
Facility & Pollution Control
Financing Authority Industrial RB
(KMG Minerals, Inc. Project)
3.85%** 10/07/94 400 400,000
Cumberland County GO
4.90% 04/01/95 125 125,909
Durham County GO
5.10% 03/01/95 1,000 1,008,421
Durham County Public
Improvement Bonds
3.55%** 10/07/94 2,350 2,350,000
Highpoint GO Public
Improvement BAN
3.35% 03/08/95 2,000 2,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
NORTH CAROLINA (CONTINUED)
Mecklenburg County GO
3.45%** 10/07/94 $2,500 $ 2,500,000
Mecklenburg County Industrial
Facility and Pollution Control
Financing Authority Industrial RB
(Otto Industries, Inc. Project)
3.45%** 10/07/94 1,000 1,000,000
New Hanover County Industrial
Facilities and Pollution Control
Financing Authority (Interroll
Corp. Project) RB
3.85%** 10/06/94 1,495 1,495,000
3.85%** 10/07/94 405 405,000
North Carolina Eastern Municipal
Power Agency
3.15% 10/17/94 842 842,000
3.20% 11/16/94 1,500 1,500,000
North Carolina Eastern Municipal
Power Agency Series A (Escrowed
in US Treasuries)
10.10% 01/01/95 1,780 1,862,036
North Carolina Education
Facilities Finance Agency RB (The
Bowman Gray School of Medicine
Project) Series 1990
3.65%** 10/07/94 2,700 2,700,000
North Carolina Educational
Facilities Finance Agency RB
(Duke University Project) Series
1987 A
3.50%** 10/07/94 1,100 1,100,000
North Carolina Educational
Facilities Finance Agency RB
(Duke University Project) Series
1991 B
3.50%** 10/07/94 3,800 3,800,000
North Carolina Medical Care
Baptist Hospital DN Series 1992 B
3.65%** 10/07/94 2,600 2,600,000
North Carolina Medical Care
Commission (Moses H. Cone
Memorial Hospital Project)
Refunding RB
3.65%** 10/07/94 6,000 6,000,000
North Carolina Medical Care
(Commission Pooled Financing
Project) Hospital RB
3.70%** 10/07/94 800 800,000
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 21
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
NORTH CAROLINA (CONTINUED)
North Carolina Municipal Power
Agency (Catawba Project)
3.35% 10/14/94 $2,000 $ 2,000,000
3.00% 10/20/94 5,000 5,000,000
North Carolina Municipal Power
Agency Power System
RB Series 1988 B
3.00% 10/17/94 1,200 1,200,000
Person County Industrial
Facilities Authority PCRB
(Carolina Power & Light)
3.65%** 10/07/94 3,000 3,000,000
University of North Carolina
(Chapel Hill Foundation, Inc.)
3.25% 10/17/94 1,600 1,600,000
University of North Carolina
(Chapel Hill School of Medicine
Ambulatory Care Clinic)
3.25% 10/21/94 1,000 1,000,000
Wake County Industrial Facility &
Pollution Control Financing
Authority DN (Carolina Power &
Light) Series 1985
3.60%** 10/07/94 400 400,000
Wake County Industrial Facility &
PCRB (Carolina Power & Light)
Series 1990 A
3.20% 11/15/94 2,000 2,000,000
Wilson County Industrial
Facilities Pollution Control
Financing Authority Industrial RB
(Chip Project)
3.85%** 10/07/94 1,000 1,000,000
Winston Salem (Certificates of
Participation Risk Acceptance
Management Corp.) Series 1988
3.65%** 10/07/94 500 500,000
-----------
65,678,285
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PUERTO RICO -- 5.3%
Government Developmental Bank for
Puerto Rico Refunding Bonds
Series 1985 DN
3.55%** 10/07/94 $2,400 $ 2,400,000
Puerto Rico Industrial Medical and
Environmental Pollution Control
Facilities Funding Authority (Ana
G. Mendez Project) DN
3.40%** 10/07/94 300 300,000
Puerto Rico Industrial Medical
Higher Education & Environmental
Pollution Control Financing
Authority (Inter-American
University of Puerto Rico
Project) MB Series 1988
2.75% 10/25/94 1,000 1,000,000
-----------
3,700,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $69,378,285*) 99.6% $69,378,285
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.4% 294,612
------ -----------
NET ASSETS (Equivalent to $1.00 per
share based on 69,673,009
Institutional shares outstanding) 100.0% $69,672,897
======= ===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($69,672,897 / 69,673,009) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
See accompanying notes to financial statements.
21
<PAGE> 22
THE PNC(R) FUND
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PUERTO RICO -- 23.1%
Government Development Bank DN
Series 1985
3.55%** 10/07/94 $1,900 $ 1,900,000
Puerto Rico Industrial Medical &
Environmental Pollution Control
Facilities Authority DN (Ana G.
Mendez Foundation)
3.40%** 10/07/94 600 600,000
Puerto Rico Industrial Medical
Higher Education & Environmental
Pollution Control Facilities
Finance Authority MB Series 1988
(Inter-American University of
Puerto Rico Project)
2.75% 10/25/94 400 400,000
Puerto Rico Maritime Shipping
Authority TECP
3.40% 11/01/94 300 300,000
-----------
3,200,000
-----------
VIRGINIA -- 76.0%
Alexandria IDA Adjustable Tender
Resource Recovery Bonds Series
1986 A (Alexandria/ Arlington
Waste-To-Energy Facility)
3.85%* 10/01/94 1,200 1,200,000
Arlington County GO
Pre-refunded Bonds
9.00% 06/01/95 250 263,385
Charles County IDA Solid Waste
4.10%** 10/07/94 500 500,000
Fairfax County IDA RB Series 1988
C (Fairfax Hospital System, Inc.)
3.70%** 10/07/94 300 300,000
Fairfax County Public Improvement
GO Tender Option Bonds
3.75%** 10/07/94 500 500,000
Fairfax County Public Improvement
Tender Option Bonds Series MGT
48-B
3.75%** 10/07/94 100 100,000
Greenville County IDA RB
4.00%** 10/01/94 600 600,000
Hanover County IDA Series 1983
(Carter Machine Co. Project)
3.60%** 10/05/94 600 600,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
VIRGINIA (CONTINUED)
Henrico County IDA (Monument
Association Urology Labs)
3.60%** 10/07/94 $ 330 $ 330,000
Henrico County IDA (Strawberry
Hill Outdoor Amphitheater)
3.60%** 10/07/94 388 388,000
Henrico County IDA Cedarfield
Hermitage Series 1994
3.80%** 10/03/94 300 300,000
Lynchburg IDA Hospital RB Series
1985 C (VHA Mid-Atlantic States
Capital Asset
Finance Program)
3.70%** 10/07/94 300 300,000
Lynchburg IDA Hospital RB Series
1985 E (VHA Mid-Atlantic States
Capital Asset
Finance Program)
3.70%** 10/07/94 200 200,000
Norfolk GO Pre-refunded Bonds
8.50% 04/01/95 200 208,263
Peninsula Port Authority of
Virginia Industrial Development
RB Series 1988 (Kinyo Virginia,
Inc.)
4.00%** 10/01/94 500 500,000
Peninsula Port Authority of
Virginia Coal Terminal Refunding
RB Series 1987 D (Dominion
Terminal Associates Project)
3.45%** 10/01/94 600 600,000
Peninsula Port Authority of
Virginia Port Facility Refunding
RB Series 1987 (Shell Coal and
Terminal Company)
3.55%** 10/01/94 900 900,000
Prince William County IDRB
(Electric Power Company)
3.25% 11/10/94 300 300,000
Richmond Redevelopment Housing
Authority Tobacco Row RB Series
1989 B-1
4.10%** 10/07/94 100 100,000
Richmond Redevelopment Housing
Authority Tobacco Row RB Series
1989 B-2 (Inv Agr Bayerische
Landesbank)
4.10%** 10/07/94 200 200,000
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
VIRGINIA (CONTINUED)
Roanoke City of IDA Hospital RB
Series 1992 A (Roanoke Memorial
Community Hospital of Roanoke
Valley, Bedford Co. Mem., Giles
Mem. and
Radford Comm.)
3.80%** 10/01/94 $ 600 $ 600,000
Southeastern Public Service
Regional Solid Waste MB Series A
10.50% 07/01/95 300 320,628
Virginia Beach GO Pre-refunded
Bonds
8.20% 02/01/95 100 101,509
Virginia Housing Development
Authority Commonwealth Mortgage
Bonds Series 1993 F Sub-Series
F-Stem
3.90% 05/10/95 400 400,116
Virginia Housing Development
Authority Series 1987 A (AHC
Service Corporation Woodbury Park
Project)
3.50%** 10/07/94 500 500,000
York County IDA PCRB Series 1985
(Virginia Electric Power Company)
3.25% 11/10/94 200 200,000
-----------
10,511,901
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $13,711,901*) 99.1% $13,711,901
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.9% 119,217
------ -----------
<CAPTION>
VALUE
-----------
<S> <C> <C> <C>
NET ASSETS (Equivalent to $1.00 per
share based on 13,831,098
Institutional shares outstanding) 100.0% $13,831,118
====== ===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($13,831,118 / 13,831,098) $1.00
=====
</TABLE>
- -------------
* Aggregate cost for Federal tax purposes.
** Rates shown are the rates as of September 30, 1994, and the maturities shown
are the longer of the next interest readjustment date or the date the
principal amount owed can be recovered through demand.
INVESTMENT ABBREVIATIONS
BAN.......................................................Bond Anticipation Note
DN...................................................................Demand Note
GO............................................................General Obligation
IDA.............................................Industrial Development Authority
IDB..................................................Industrial Development Bond
IDRB.........................................Industrial Development Revenue Bond
MB................................................................Municipal Bond
PCR....................................................Pollution Control Revenue
PCRB..............................................Pollution Control Revenue Bond
RAN....................................................Revenue Anticipation Note
RAW.................................................Revenue Anticipation Warrant
RB..................................................................Revenue Bond
TECP.................................................Tax-Exempt Commercial Paper
TRAN...........................................Tax and Revenue Anticipation Note
See accompanying notes to financial statements.
23
<PAGE> 24
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR (OR PERIOD) ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest................................. $37,214,883 $4,632,663 $11,105,336 $1,343,703 $2,345,552
----------- ---------- ----------- ---------- ----------
Expenses:
Investment advisory fee.................. 4,311,077 771,325 1,267,972 224,662 378,994
Administration fee....................... 1,344,415 257,109 422,657 74,887 126,331
Custodian fee............................ 177,983 49,117 64,479 20,115 29,877
Transfer agent fee....................... 67,179 47,827 75,877 20,618 20,043
Service fees............................. 1,382,350 368,547 677,020 97,034 56,294
Distribution fees........................ 10,092 165 427 252 193
Legal and audit.......................... 127,847 23,621 38,606 9,504 9,232
Printing................................. 125,866 27,724 35,755 10,110 12,220
Registration fees and expenses........... 48,658 50,195 50,116 16,693 25,542
Organization............................. 24,608 4,442 5,508 4,738 4,562
Trustees' fees and officer's salary...... 30,138 3,597 5,864 1,035 1,700
Other.................................... 43,033 7,654 13,552 1,802 2,112
----------- ---------- ----------- ---------- ----------
7,693,246 1,611,323 2,657,833 481,450 667,100
Less fees voluntarily waived and
expenses reimbursed.................... (3,900,913) (814,098) (1,275,957) (318,131) (476,317)
----------- ---------- ----------- ----------- ----------
Total expenses......................... 3,792,333 797,225 1,381,876 163,319 190,783
----------- ---------- ----------- ----------- ----------
Net investment income..................... 33,422,550 3,835,438 9,723,460 1,180,384 2,154,769
Net realized gain (loss) on investments... (16,921) (19,387) 13,624 (2,285) 130
----------- ---------- ----------- ---------- ----------
Net increase in net assets resulting from
operations............................... $33,405,629 $3,816,051 $ 9,737,084 $1,178,099 $2,154,899
=========== ========== =========== ========== ==========
<CAPTION>
NORTH CAROLINA VIRGINIA
MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO(1)
-------------- -------------
<S> <C> <C>
Investment income:
Interest................................. $1,460,674 $ 59,385
---------- --------
Expenses:
Investment advisory fee.................. 249,914 8,925
Administration fee....................... 83,304 2,975
Custodian fee............................ 20,623 3,324
Transfer agent fee....................... 22,237 3,167
Service fees............................. 87 --
Distribution fees........................ -- --
Legal and audit.......................... 8,712 187
Printing................................. 13,001 150
Registration fees and expenses........... 17,771 533
Organization............................. 5,690 932
Trustees' fees and officer's salary...... 1,110 42
Other.................................... 2,130 68
---------- --------
424,579 20,303
Less fees voluntarily waived and
expenses reimbursed.................... (368,956) (18,321)
---------- --------
Total expenses......................... 55,623 1,982
---------- --------
Net investment income..................... 1,405,051 57,403
Net realized gain (loss) on investments... -- 20
---------- --------
Net increase in net assets resulting from
operations............................... $1,405,051 $ 57,423
========== ========
</TABLE>
- ---------------
(1) July 25, 1994 (commencement of operations) through September 30, 1994.
See accompanying notes to financial statements.
24
<PAGE> 25
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
-------------------------------------- --------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income...................... $ 33,422,550 $ 22,766,585 $ 3,835,438 $ 2,928,067
Net gain (loss) on investments............. (16,921) 16,285 (19,387) (1,678)
-------------- ------------- ------------ ------------
Net increase in net assets resulting from
operations............................... 33,405,629 22,782,870 3,816,051 2,926,389
-------------- ------------- ------------ ------------
Distributions to shareholders from
Net investment income
Institutional Class........................ (15,773,507) (2,231,577) (774,065) (163,823)
Service Class.............................. (17,580,544) (20,545,646) (3,060,695) (2,763,660)
Series A Investor Class.................... (68,499) (3,864) (678) (583)
-------------- ------------- ------------ ------------
Total distributions to shareholders.... (33,422,550) (22,781,087) (3,835,438) (2,928,066)
-------------- ------------- ------------ ------------
Capital share transactions.................... 232,315,691 12,948,631 30,926,057 7,949,993
-------------- ------------- ------------ ------------
Total increase in net assets........... 232,298,770 12,950,414 30,906,670 7,948,316
Net assets:
Beginning of period........................ 850,962,878 838,012,464 133,100,085 125,151,769
-------------- ------------ ------------ ------------
End of period.............................. $1,083,261,648 $850,962,878 $164,006,755 $133,100,085
============== ============ ============ =============
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------ ------------------
<S> <<C> <C>
Increase (decrease) in net assets:
Operations
Net investment income...................... $ 9,723,460 $ 4,753,522
Net gain (loss) on investments............. 13,624 (8,502)
------------ ------------
Net increase in net assets resulting from
operations............................... 9,737,084 4,745,020
------------ ------------
Distributions to shareholders from
Net investment income
Institutional Class........................ (1,018,580) (79,754)
Service Class.............................. (8,701,808) (4,671,156)
Series A Investor Class.................... (3,072) (2,612)
------------ ------------
Total distributions to shareholders.... (9,723,460) (4,753,522)
------------ ------------
Capital share transactions.................... 213,031,001 38,703,080
------------ ------------
Total increase in net assets........... 213,044,625 38,694,578
Net assets:
Beginning of period........................ 198,963,131 160,268,553
------------ ------------
End of period.............................. $412,007,756 $198,963,131
============ ============
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 26
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
OHIO MUNICIPAL PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------------- --------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 1, 1993(1) FOR THE JUNE 1, 1993(1)
YEAR ENDED THROUGH YEAR ENDED THROUGH
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations
Net investment income......... $ 1,180,384 $ 148,034 $ 2,154,769 $ 91,364
Net gain (loss) on
investments................. (2,285) -- 130 --
----------- ----------- ------------ ------------
Net increase in net assets
resulting from operations... 1,178,099 148,034 2,154,899 91,364
----------- ----------- ------------ ------------
Distributions to shareholders
from Net investment income
Institutional Class........... (343,817) (47,177) (1,675,898) (48,555)
Service Class................. (835,590) (100,857) (478,057) (42,809)
Series A Investor Class....... (977) -- (814) --
----------- ----------- ------------ ------------
Total distributions to
shareholders............. (1,180,384) (148,034) (2,154,769) (91,364)
----------- ----------- ------------ ------------
Capital share transactions....... 27,351,445 27,265,366 207,640,309 11,160,641
----------- ----------- ------------ ------------
Total increase in net
assets................... 27,349,160 27,265,366 207,640,439 11,160,641
Net assets:
Beginning of period........... 27,265,366 -- 11,160,641 --
----------- ------------ ------------ ------------
End of period................. $54,614,526 $27,265,366 $218,801,080 $ 11,160,641
=========== ============ ============ ============
<CAPTION>
NORTH CAROLINA MUNICIPAL VIRGINIA MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
--------------------------------------- ------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE MAY 3, 1993(1) JULY 25, 1994(1)
YEAR ENDED THROUGH THROUGH
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Increase (decrease) in net
assets:
Operations
Net investment income......... $ 1,405,051 $ 245,409 $ 57,403
Net gain (loss) on
investments................. -- (112) 20
----------- ----------- -----------
Net increase in net assets
resulting from operations... 1,405,051 245,297 57,423
----------- ----------- -----------
Distributions to shareholders
from Net investment income
Institutional Class........... (1,404,199) (245,409) (57,403)
Service Class................. (852) -- --
Series A Investor Class....... -- -- --
----------- ----------- -----------
Total distributions to
shareholders............. (1,405,051) (245,409) (57,403)
----------- ----------- -----------
Capital share transactions....... 35,537,466 34,135,543 13,831,098
----------- ----------- -----------
Total increase in net
assets................... 35,537,466 34,135,431 13,831,118
Net assets:
Beginning of period........... 34,135,431 -- --
----------- ----------- -----------
End of period................. $69,672,897 $34,135,431 $13,831,118
=========== =========== ===========
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
26
<PAGE> 27
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------- --------------------------------------------
FOR THE
PERIOD
YEAR 8/2/93(1) YEAR YEAR YEAR YEAR
ENDED THROUGH ENDED ENDED ENDED ENDED
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92 9/30/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income............................ 0.0359 0.0054 0.0333 0.0274 0.0391 0.0645
Net realized gain (loss) on investments.......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from investment operations............. 0.0359 0.0054 0.0333 0.0274 0.0391 0.0645
-------- -------- -------- -------- -------- --------
Less distributions
Distributions from net investment income......... (0.0359) (0.0054) (0.0333) (0.0274) (0.0391) (0.0645)
Distributions from net realized capital gains.... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions.......................... (0.0359) (0.0054) (0.0333) (0.0274) (0.0391) (0.0645)
-------- -------- -------- -------- -------- --------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return........................................ 3.64% 0.54% 3.37% 2.77% 4.05% 6.64%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $502,972 $435,586 $575,948 $415,328 $838,012 $637,076
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.25% 0.27%(2) 0.51% 0.59% 0.61% 0.62%
Before advisory/administration fee waivers..... 0.66% 0.38%(2) 0.92% 0.70% 0.66% 0.67%
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 3.64% 3.01%(2) 3.35% 2.73% 3.86% 6.45%
Before advisory/administration fee waivers..... 3.23% 2.90%(2) 2.95% 2.62% 3.81% 6.40%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
------- --------------------
FOR THE FOR THE
PERIOD PERIOD
10/4/89(1) YEAR 1/13/93(1)
THROUGH ENDED THROUGH
9/30/90 9/30/94 9/30/93
------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income............................ 0.0778 0.0308 0.0188
Net realized gain (loss) on investments.......... -- -- --
-------- ------- --------
Total from investment operations............. 0.0778 0.0308 0.0188
-------- ------- --------
Less distributions
Distributions from net investment income......... (0.0778) (0.0308) (0.0188)
Distributions from net realized capital gains.... -- -- --
-------- ------- --------
Total distributions.......................... (0.0778) (0.0308) (0.0188)
-------- ------- --------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00
======== ======= ========
Total return........................................ 8.07% 3.12% 1.89%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $628,075 $ 4,342 $ 49
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.62%(2) 0.75% 0.67%(2)
Before advisory/administration fee waivers..... 0.70%(2) 1.16% 0.78%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 7.83%(2) 3.39% 2.62%(2)
Before advisory/administration fee waivers..... 7.75%(2) 2.98% 2.51%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
27
<PAGE> 28
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE
PERIOD
YEAR 8/2/93(1) YEAR YEAR YEAR YEAR
ENDED THROUGH ENDED ENDED ENDED ENDED
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92 9/30/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income............................ 0.0246 0.0040 0.0219 0.0205 0.0281 0.0438
Net realized gain (loss) on investments.......... -- -- -- -- -- --
-------- -------- -------- ------- -------- --------
Total from investment operations............. 0.0246 0.0040 0.0219 0.0205 0.0281 0.0438
-------- -------- -------- ------- -------- --------
Less distributions
Distributions from net investment income......... (0.0246) (0.0040) (0.0219) (0.0205) (0.0281) (0.0438)
Distributions from net realized capital gains.... -- -- -- -- -- --
-------- -------- -------- ------- -------- --------
Total distributions.......................... (0.0246) (0.0040) (0.0219) (0.0205) (0.0281) (0.0438)
-------- -------- -------- ------- -------- --------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======== ========
Total return........................................ 2.48% 0.40% 2.20% 2.10% 2.85% 4.47%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $ 30,608 $ 39,148 $133,358 $93,937 $125,152 $ 89,312
Ratios of expenses to average
net assets
After advisory/administration fee waivers...... 0.25% 0.25%(2) 0.51% 0.61% 0.63% 0.65%
Before advisory/administration fee waivers..... 0.73% 0.36%(2) 0.99% 0.72% 0.68% 0.70%
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 2.48% 2.45%(2) 2.18% 2.02% 2.78% 4.40%
Before advisory/administration fee waivers..... 2.01% 2.34%(2) 1.71% 1.91% 2.73% 4.35%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
------- -------------------
FOR THE FOR THE
PERIOD PERIOD
11/1/89(1) YEAR 11/2/92(1)
THROUGH ENDED THROUGH
9/30/90 9/30/94 9/30/93
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income............................ 0.0486 0.0193 0.0181
Net realized gain (loss) on investments.......... -- -- --
-------- -------- --------
Total from investment operations............. 0.0486 0.0193 0.0181
-------- -------- --------
Less distributions
Distributions from net investment income......... (0.0486) (0.0193) (0.0181)
Distributions from net realized capital gains.... -- -- --
-------- -------- --------
Total distributions.......................... (0.0486) (0.0193) (0.0181)
-------- -------- --------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return........................................ 4.97% 1.95% 1.83%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $112,108 $ 41 $ 15
Ratios of expenses to average
net assets
After advisory/administration fee waivers...... 0.65%(2) 0.75% 0.72%(2)
Before advisory/administration fee waivers..... 0.70%(2) 1.23% 0.83%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 5.31%(2) 2.05% 2.23%(2)
Before advisory/administration fee waivers..... 5.26%(2) 1.58% 2.12%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
28
<PAGE> 29
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
----------------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------- --------------------------------------------
FOR THE
PERIOD
YEAR 8/2/93(1) YEAR YEAR YEAR YEAR
ENDED THROUGH ENDED ENDED ENDED ENDED
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92 9/30/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------- -------- --------
Income from investment operations
Net investment income............................ 0.0357 0.0049 0.0331 0.0269 0.0394 0.0627
Net realized gain (loss) on investments.......... -- -- -- -- -- --
------- ------- -------- -------- -------- --------
Total from investment operations............. 0.0357 0.0049 0.0331 0.0269 0.0394 0.0627
------- ------- -------- -------- -------- --------
Less distributions
Distributions from net investment income......... (0.0357) (0.0049) (0.0331) (0.0269) (0.0394) (0.0627)
Distributions from net realized capital gains.... -- -- -- -- -- --
------- ------- -------- -------- -------- --------
Total distributions.......................... (0.0357) (0.0049) (0.0331) (0.0269) (0.0394) (0.0627)
------- ------- -------- -------- -------- --------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======== ======== ========
Total return........................................ 3.63% 0.49% 3.36% 2.72% 4.01% 6.46%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $37,519 $13,513 $372,883 $185,400 $160,269 $180,776
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.25% 0.25%(2) 0.52% 0.60% 0.62% 0.65%
Before advisory/administration fee waivers..... 0.70% 0.38%(2) 0.97% 0.73% 0.67% 0.70%
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 3.69% 3.01%(2) 3.42% 2.68% 3.91% 6.27%
Before advisory/administration fee waivers..... 3.24% 2.88%(2) 2.97% 2.55% 3.86% 6.22%
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
------- -------------------
FOR THE FOR THE
PERIOD PERIOD
11/1/89(1) YEAR 1/14/93(1)
THROUGH ENDED THROUGH
9/30/90 9/30/94 9/30/93
-------- ------- -------
<S> <C> <C> <C>
Net asset value at beginning of period.............. $ 1.00 $ 1.00 $ 1.00
-------- ------- -------
Income from investment operations
Net investment income............................ 0.0697 0.0309 0.0183
Net realized gain (loss) on investments.......... -- -- --
-------- ------- -------
Total from investment operations............. 0.0697 0.0309 0.0183
-------- ------- -------
Less distributions
Distributions from net investment income......... (0.0697) (0.0309) (0.0183)
Distributions from net realized capital gains.... -- -- --
-------- ------- -------
Total distributions.......................... (0.0697) (0.0309) (0.0183)
-------- ------- -------
Net asset value at end of period.................... $ 1.00 $ 1.00 $ 1.00
======== ======= =======
Total return........................................ 7.29% 3.11% 1.85%
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $146,148 $ 1,656 $ 50
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.65%(2) 0.75% 0.65%(2)
Before advisory/administration fee waivers..... 0.70%(2) 1.20% 0.78%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee waivers...... 7.62%(2) 3.60% 2.57%(2)
Before advisory/administration fee waivers..... 7.57%(2) 3.14% 2.44%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
29
<PAGE> 30
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
----------------------- --------
FOR THE
PERIOD
YEAR 6/10/93(1) YEAR
ENDED THROUGH ENDED
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................................................................ 0.0252 0.0073 0.0225
Net realized gain (loss) on investments.............................................. -- -- --
------- ------- -------
Total from investment operations................................................. 0.0252 0.0073 0.0225
------- ------- -------
Less distributions
Distributions from net investment income............................................. (0.0252) (0.0073) (0.0225)
Distributions from net realized capital gains........................................ -- -- --
------- ------- -------
Total distributions.............................................................. (0.0252) (0.0073) (0.0225)
------- ------- -------
Net asset value at end of period........................................................ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return............................................................................ 2.55% 0.73% 2.27%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................... $10,521 $12,026 $44,066
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................... 0.13% 0.10%(2) 0.40%
Before advisory/administration fee waivers......................................... 0.77% 0.83%(2) 1.04%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................... 2.56% 2.45%(2) 2.29%
Before advisory/administration fee waivers......................................... 1.93% 1.72%(2) 1.65%
<CAPTION>
OHIO MUNICIPAL MONEY
MARKET PORTFOLIO
-----------------------
SERIES A
SERVICE INVESTOR
CLASS CLASS
------- --------
FOR THE FOR THE
PERIOD PERIOD
6/1/93(1) 10/5/93(1)
THROUGH THROUGH
9/30/93 9/30/94
-------- --------
<S> <C> <C>
Net asset value at beginning of period.................................................. $ 1.00 $ 1.00
------- -------
Income from investment operations
Net investment income................................................................ 0.0074 0.0199
Net realized gain (loss) on investments.............................................. -- --
------- -------
Total from investment operations................................................. 0.0074 0.0199
------- -------
Less distributions
Distributions from net investment income............................................. (0.0074) (0.0199)
Distributions from net realized capital gains........................................ -- --
------- -------
Total distributions.............................................................. (0.0074) (0.0199)
------- -------
Net asset value at end of period........................................................ $ 1.00 $ 1.00
======= =======
Total return............................................................................ 0.75% 2.01%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................... $15,239 $ 28
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................... 0.23%(2) 0.62%(2)
Before advisory/administration fee waivers......................................... 0.96%(2) 1.26%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................... 2.23%(2) 1.94%(2)
Before advisory/administration fee waivers......................................... 1.50%(2) 1.30%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
30
<PAGE> 31
The PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET
PORTFOLIO
--------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
----------------------- --------
<S> <C> <C> <C>
FOR THE
PERIOD
YEAR 6/1/93(1) YEAR
ENDED THROUGH ENDED
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.................................................................... 0.0247 0.0078 0.0221
Net realized gain (loss) on investments.................................................. -- -- --
-------- -------- -------
Total from investment operations..................................................... 0.0247 0.0078 0.0221
-------- -------- -------
Less distributions
Distributions from net investment income................................................. (0.0247) (0.0078) (0.0221)
Distributions from net realized capital gains............................................ -- -- --
-------- -------- -------
Total distributions.................................................................. (0.0247) (0.0078) (0.0221)
-------- -------- -------
Net asset value at end of period............................................................ $ 1.00 $ 1.00 $ 1.00
======== ======== =======
Total return................................................................................ 2.49% 0.78% 2.24%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................... $158,102 $ 2,242 $60,560
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................................. 0.16% 0.09%(2) 0.42%
Before advisory/administration fee waivers............................................. 0.73% 0.97%(2) 0.99%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................................. 2.64% 2.15%(2) 2.31%
Before advisory/administration fee waivers............................................. 2.07% 1.27%(2) 1.75%
<CAPTION>
PENNSYLVANIA MUNICIPAL
MONEY MARKET PORTFOLIO
-----------------------
SERIES A
SERVICE INVESTOR
CKASS CLASS
-------- --------
FOR THE FOR THE
PERIOD PERIOD
6/11/93(1) 12/28/93(1)
THROUGH THROUGH
9/30/93 9/30/94
-------- ---------
<S> <C> <C>
Net asset value at beginning of period...................................................... $ 1.00 $ 1.00
------- --------
Income from investment operations
Net investment income.................................................................... 0.0074 0.0153
Net realized gain (loss) on investments.................................................. -- --
------- --------
Total from investment operations..................................................... 0.0074 0.0153
------- --------
Less distributions
Distributions from net investment income................................................. (0.0074) (0.0153)
Distributions from net realized capital gains............................................ -- --
------- --------
Total distributions.................................................................. (0.0074) (0.0153)
------- --------
Net asset value at end of period............................................................ $ 1.00 $ 1.00
======= ========
Total return................................................................................ 0.74% 1.58%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................... $ 8,919 $ 139
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................................. 0.32%(2) 0.65%(2)
Before advisory/administration fee waivers............................................. 1.20%(2) 1.22%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................................. 2.42%(2) 2.11%(2)
Before advisory/administration fee waivers............................................. 1.54%(2) 1.54%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
31
<PAGE> 32
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY MARKET
PORTFOLIO
-----------------------
INSTITUTIONAL
CLASS
----------------------
FOR THE
PERIOD
YEAR 5/4/93(1)
ENDED THROUGH
9/30/94 9/30/93
-------- -------
<S> <C> <C>
Net asset value at beginning of period.......................................................... $ 1.00 $ 1.00
-------- --------
Income from investment operations
Net investment income........................................................................ 0.0249 0.0097
Net realized gain (loss) on investments...................................................... -- --
-------- --------
Total from investment operations......................................................... 0.0249 0.0097
-------- --------
Less distributions
Distributions from net investment income..................................................... (0.0249) (0.0097)
Distributions from net realized capital gains................................................ -- --
-------- --------
Total distributions...................................................................... (0.0249) (0.0097)
--------- -------
Net asset value at end of period................................................................ $ 1.00 $ 1.00
========= ========
Total return.................................................................................... 2.52% 0.97%
Ratios/Supplemental data
Net assets at end of period (in thousands)................................................... $ 69,673 $ 34,135
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................................. 0.10% 0.10%(2)
Before advisory/administration fee waivers................................................. 0.76% 0.81%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................................. 2.53% 2.35%(2)
Before advisory/administration fee waivers................................................. 1.87% 1.64%(2)
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY MARKET
PORTFOLIO
----------------------
SERVICE
CLASS
-------
FOR THE
PERIOD
4/29/94(1)
THROUGH
9/30/94
-------
<S> <C>
Net asset value at beginning of period......................................................... $ 1.00
--------
Income from investment operations
Net investment income....................................................................... 0.0099
Net realized gain (loss) on investments..................................................... --
-------
Total from investment operations........................................................ 0.0099
-------
Less distributions
Distributions from net investment income.................................................... (0.0099)
Distributions from net realized capital gains............................................... --
-------
Total distributions..................................................................... (0.0099)
--------
Net asset value at end of period............................................................... $ 1.00
========
Total return................................................................................... 0.99%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................................. $ -- (3)
Ratios of expenses to average net assets
After advisory/administration fee waivers................................................. 0.36%(2)
Before advisory/administration fee waivers................................................ 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................................. 2.54%(2)
Before advisory/administration fee waivers................................................ 1.87%(2)
<CAPTION>
VIRGINA 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.
(3) There were no Service shares outstanding as of September 30, 1994.
See accompanying notes to financial statements.
32
<PAGE> 33
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
The PNC Fund (the "Fund") was organized on December 22, 1988 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-five separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed Income Portfolio and
Government Income Portfolio. As of September 30, 1994, the International Fixed
Income Portfolio and Government Income Portfolio had not commenced operations.
This report relates solely to Money Market Portfolio, Municipal Money Market
Portfolio, Government Money Market Portfolio, Ohio Municipal Money Market
Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio and Virginia Municipal Money Market Portfolio
(the "Portfolios").
Each Portfolio (except Money Market Portfolio) has three classes of shares,
one class being referred to as the Service shares, one class being referred to
as the Institutional shares and one class being referred to as the Series A
Investor shares. Money Market Portfolio has a fourth class of shares being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for the Money Market Portfolio through September 30, 1994. Series A
Investor, Series B Investor, Institutional and Service shares in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Series A Investor shares bear the expense of the Distribution
and Service Plan at an annual rate not to exceed .55% of the average daily net
asset value of each Portfolio's outstanding Series A Investor shares. Series B
Investor shares bear the expense of the Series B Distribution Plan at an annual
rate not to exceed .75% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Series B Investor shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
shares. Under the Fund's Service Plan, Service shares bear the expense of fees
at an annual rate not to exceed .15% of the average daily net asset value of
each Portfolio's outstanding Service shares. Service shares also bear the
expense of a service fee at an annual rate not to exceed .15% of the average
daily net asset value of each Portfolio's outstanding Service shares for other
shareholder support activities provided by service organizations. Institutional
shares do not bear the expense of the Distribution and Service Plan, the Service
Plan, the Series B Distribution Plan or the Series B Service Plan. The Series A
Investor and Service classes are currently bearing such respective expenses at
annual rates of .50% of the average daily net asset value of Series A Investor
shares and at rates aggregating .30% of the average daily net asset value of
Service shares.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities are valued under the amortized
cost method which approximates current market value. Under this method,
securities are valued at cost when purchased and thereafter, a constant
proportionate amortization of any discount or premium is recorded until the
33
<PAGE> 34
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
maturity of the security. Regular review and monitoring of the valuation is
performed in an attempt to avoid dilution or other unfair results to
shareholders. The Fund seeks to maintain the net asset value per share of each
Portfolio at $1.00.
Dividends to Shareholders -- Dividends from net investment income are
declared daily and paid monthly. Net realized short-term capital gains, if any,
will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Certain expenses, principally Service and Distribution fees, are class specific
expenses. Expenses not directly attributable to a specific Portfolio or class
are allocated among all of the Portfolios or classes of the Fund based on their
relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment adviser for each of the Fund's
Portfolios. PNC Bank serves as the sub-adviser for each of the Funds'
Portfolios. PNC Bank is an indirect wholly-owned subsidiary of PNC Bank Corp.
For its advisory services, PIMC is entitled to receive fees, computed daily
and payable monthly based on each Portfolio's average daily net assets, at the
following annual rates: .45% of the first $1 billion, .40% of the next $1
billion, .375% of the next $1 billion, and .35% of net assets in excess of $3
billion.
34
<PAGE> 35
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any Portfolio. For the year ended September 30, 1994, advisory
fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY FEE WAIVER ADVISORY FEE
------------------- ---------- -------------------
<S> <C> <C> <C>
Money Market Portfolio........................... $4,311,077 $3,359,847 $951,230
Municipal Money Market Portfolio................. 771,325 599,920 171,405
Government Money Market Portfolio................ 1,267,972 986,201 281,771
Ohio Municipal Money Market Portfolio............ 224,662 217,938 6,724
Pennsylvania Municipal Money Market Portfolio.... 378,994 336,382 42,612
North Carolina Municipal Money Market
Portfolio...................................... 249,914 249,914 --
Virginia Municipal Money Market Portfolio........ 8,925 8,925 --
</TABLE>
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
The combined administration fee is computed daily and payable monthly, based on
a percentage of the average daily net assets of each Portfolio, at the following
annual rates: .15% of the first $500 million, .13% of the next $500 million,
.11% of the next $1 billion and .10% of net assets in excess of $2 billion.
PFPC and PDI may, at their discretion, voluntarily waive all or any portion
of their administration fees for any Portfolio. For the year ended September 30,
1994, administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION FEES WAIVER ADMINISTRATION FEES
------------------- ---------- -------------------
<S> <C> <C> <C>
Money Market Portfolio........................... $1,344,415 $541,066 $803,349
Municipal Money Market Portfolio................. 257,109 214,178 42,931
Government Money Market Portfolio................ 422,657 289,756 132,901
Ohio Municipal Money Market Portfolio............ 74,887 72,646 2,241
Pennsylvania Municipal Money Market Portfolio.... 126,331 114,573 11,758
North Carolina Municipal Money Market
Portfolio...................................... 83,304 83,304 --
Virginia Municipal Money Market Portfolio........ 2,975 2,975 --
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also voluntarily agreed to reimburse for expenses
in the amount of $27,547 with respect to the Ohio Municipal Money Market
Portfolio, $25,362 with respect to the Pennsylvania Municipal Money Market
Portfolio and $35,738 with respect to the North Carolina Municipal Money Market
Portfolio and $6,421 with respect to the Virginia Municipal Money Market
Portfolio for the year ended September 30, 1994.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the year ended September
30, 1994.
35
<PAGE> 36
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
(C) CAPITAL SHARES
The Portfolios have each sold and redeemed shares only at a constant net
asset value of $1.00 per share, the number of shares represented by such sales,
acquisitions, reinvestments, and redemptions is the same as the dollar amounts
shown below for such transactions.
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------- ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class......... $ 1,541,859,975 $ 658,187,692 $ 112,801,931 $ 53,876,801
Service Class............... 3,340,513,140 2,792,438,653 626,534,455 406,177,364
Series A Investor Class..... 10,165,172 21,144,569 57,540 2,596,081
Shares issued in acquisition
Institutional Class......... -- -- -- --
Service Class............... 3,334,564 -- -- --
Series A Investor Class..... -- -- -- --
Shares issued in reinvestment
of dividends:
Institutional Class......... 1,406 -- -- --
Service Class............... 2,125,570 653,541 305,101 93,985
Series A Investor Class..... 54,629 2,066 619 426
Shares redeemed:
Institutional Class......... (1,474,467,520) (222,618,861) (121,338,119) (14,728,613)
Service Class............... (3,185,344,683) (3,215,761,266) (587,403,447) (437,484,610)
Series A Investor Class..... (5,926,562) (21,097,763) (32,023) (2,581,441)
--------------- --------------- ------------- -------------
Net increase.................. $ 232,315,691 $ 12,948,631 $ 30,926,057 $ 7,949,993
=============== =============== ============= =============
</TABLE>
36
<PAGE> 37
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
GOVERNMENT OHIO MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------------- ----------------------------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR JUNE 1,1993(1)
ENDED ENDED ENDED THROUGH SEPTEMBER
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 SEPTEMBER 30, 1994 30, 1993
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Shares sold:
Institutional Class.................... $ 228,682,656 $ 26,173,814 $ 125,595,359 $ 13,864,950
Service Class.......................... 1,915,338,460 1,004,437,512 158,217,405 31,975,195
Series A Investor Class................ 1,753,740 4,865,523 115,346 --
Shares issued in reinvestment
of dividends:
Institutional Class.................... 0 -- 15,291 --
Service Class.......................... 1,768,196 609,167 194,375 10,385
Series A Investor Class................ 1,952 2,127 909 --
Shares redeemed:
Institutional Class.................... (204,678,202) (12,660,547) (127,116,173) (1,838,333)
Service Class.......................... (1,729,686,389) (979,906,392) (129,582,395) (16,746,831)
Series A Investor Class................ (149,412) (4,818,124) (88,672) --
--------------- -------------- ------------- ------------
Net increase............................. $ 213,031,001 $ 38,703,080 $ 27,351,445 $ 27,265,366
=============== ============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
VIRGINIA MUNICIPAL
PENNSYLVANIA MUNICIPAL NORTH CAROLINA MUNICIPAL MONEY MARKET
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO PORTFOLIO
---------------------------------------- ---------------------------------------- ------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR JUNE 1, 1993(1) FOR THE YEAR MAY 1, 1993(1) JULY 25, 1994(1)
ENDED THROUGH SEPTEMBER ENDED THROUGH THROUGH
SEPTEMBER 30, 1994 30, 1993 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Shares sold:
Institutional
Class............ $ 376,513,609 $ 22,693,888 $ 323,582,453 $ 78,064,992 $15,828,907
Service Class...... 130,876,896 15,997,372 648,753 -- --
Series A Investor
Class............ 161,583 -- -- -- --
Shares issued in
reinvestment of
dividends:
Institutional
Class............ 4,063 24,291 20,890 375 --
Service Class...... 271,409 25,722 806 -- --
Series A Investor
Class............ 595 -- -- -- --
Shares redeemed:
Institutional
Class............ (220,657,499) (20,476,174) (288,065,877) (43,929,824) (1,997,809)
Service Class...... (79,507,178) (7,104,458) (649,559) -- --
Series A Investor
Class............ (23,169) -- -- -- --
------------- ------------ ------------- ------------ -----------
Net increase......... $ 207,640,309 $ 11,160,641 $ 35,537,466 $ 34,135,543 $13,831,098
============= ============ ============= ============ ===========
</TABLE>
- -------------
(1) Commencement of operations.
37
<PAGE> 38
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
(D) AT SEPTEMBER 30, 1994, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
OHIO
MUNICIPAL GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid in....................... $1,083,262,285 $164,029,715 $412,002,635 $54,616,811
Accumulated net realized gain (loss)
on investment transactions............ (637) (22,960) 5,121 (2,285)
-------------- ------------ ------------ -----------
$1,083,261,648 $164,006,755 $412,007,756 $54,614,526
============== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
NORTH
PENNSYLVANIA CAROLINA VIRGINIA
MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid in........................................ $218,800,950 $69,673,009 $13,831,098
Accumulated net realized gain (loss)
on investment transactions............................. 130 (112) 20
------------ ----------- -----------
$218,801,080 $69,672,897 $13,831,118
============ =========== ===========
</TABLE>
(E) CAPITAL LOSS CARRYOVER
At September 30, 1994, capital loss carryovers were available to offset
possible future realized capital gains as follows: $637 in the Money Market
Portfolio which expire in 2002, $22,960 in the Municipal Money Market Portfolio
which expire in 2002, $2,285 in the Ohio Municipal Money Market Portfolio which
expire in 2002, and $112 in the North Carolina Municipal Money Market Portfolio
which expire in 2001.
(F) ACQUISITION OF THE MONEY MARKET PORTFOLIO OF THE PNC FINANCIAL COMMON TRUST
FOR RETIREMENT ASSETS
On December 27, 1993, The PNC Fund acquired all the assets of the Money
Market Portfolio of the PNC Financial Common Trust for Retirement Assets from
the participants of these accounts. The acquisition was accomplished by a
tax-free exchange of assets with a value of $3,334,564 for 3,334,564 shares of
the Service class of the Money Market Portfolio at $1.00 per share.
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PNC FUND:
We have audited the accompanying statements of net assets of The PNC Fund
(Money Market, Municipal Money Market, Government Money Market, Ohio Municipal
Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal
Money Market, and the Virginia Municipal Money Market Portfolios), as of
September 30, 1994, and the related statements of operations for the year (or
period) then ended, the statements of changes in net assets for each of the two
years (or periods) in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian as of September 30, 1994. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
PNC Fund (Money Market, Municipal Money Market, Government Money Market, Ohio
Municipal Money Market, Pennsylvania Municipal Money Market, North Carolina
Municipal Money Market, and the Virginia Municipal Money Market Portfolios), as
of September 30, 1994, and the results of their operations for the year (or
period) then ended, the changes in their net assets for each of the two years
(or periods) in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 23, 1994
39
<PAGE> 40
- ----------------------------------------------------
- ----------------------------------------------------
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01M
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
[NEW LOGO TO COME]
THE PNC(R) FUND
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
GOVERNMENT MONEY MARKET PORTFOLIO
OHIO MUNICIPAL MONEY
MARKET PORTFOLIO
PENNSYLVANIA MUNICIPAL MONEY
MARKET PORTFOLIO
NORTH CAROLINA MUNICIPAL MONEY
MARKET PORTFOLIO
VIRGINIA MUNICIPAL MONEY
MARKET PORTFOLIO
Annual Report to Shareholders
September 30, 1994
- ----------------------------------------------------
- ----------------------------------------------------
<PAGE> 1
EXHIBIT (17)(y)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
October 28, 1994
Dear Shareholder:
We are pleased to present the Annual Report to Shareholders of The PNC Fund
covering the year ended September 30, 1994. This report includes security
listings, performance results and important tax information for the fixed income
portfolios of The PNC Fund.
The fixed income portfolios focus on a specific client need -- income. The
range of portfolios allows shareholders to pick investments best suited to
meeting their financial and tax objectives. These portfolios are managed with a
sophisticated blend of discipline, experience and expertise. The goal of the PNC
fixed income portfolios is to provide you with consistent returns and
above-average results.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
Sincerely,
/s/ G. Willing Pepper
----------------------
G. Willing Pepper
Chairman and President
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.
<PAGE> 2
FIXED INCOME ANNUAL REPORT
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE PNC FIXED INCOME PORTFOLIOS
During the year ended September 30, 1994, The PNC Fund declared the
following dividends from net realized capital gains:
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
CAPITAL GAIN, CAPITAL GAIN,
PER SHARE PER SHARE
------------- -------------
<S> <C> <C>
Managed Income Portfolio $ .14 $.015
Tax-Free Income Portfolio .11 .23
Intermediate Government Portfolio .055 .04
Ohio Tax-Free Income Portfolio .0175 --
Pennsylvania Tax-Free Income Portfolio .027 --
Intermediate-Term Bond Portfolio .06 --
</TABLE>
IMPORTANT TAX INFORMATION FOR THE TAX-FREE INCOME, OHIO TAX-FREE INCOME AND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIOS
During the year ended September 30, 1994, 100% of the income dividends paid
by the Tax-Free Income Portfolio, Ohio Tax-Free Income Portfolio and
Pennsylvania Tax-Free Income Portfolio were exempt-interest dividends for
purposes of federal income taxes and free from such taxes. In addition, none of
such dividends was attributable to interest on private activity bonds which must
be included in federal alternative minimum taxable income for the purpose of
determining liability for federal alternative minimum tax.
In January 1995, you will be furnished with a schedule showing the annual
percentage breakdown by state or U.S. possession of the source of interest
earned by each Portfolio in 1994.
2
<PAGE> 3
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT
MANAGED INCOME PORTFOLIO
The fixed income markets plummeted from October '93 highs over the last
twelve months as a stronger-than-expected economy prompted several Federal
Reserve Bank tightenings totaling 175 basis points in short rates. Inflation
fears were sparked early into 1994 as signs of strength in production,
employment and consumer confidence jittered the markets.
Accordingly, interest rates rose over 200 basis points on average during
this period. The Treasury long bond yield rose from 6.03% to 7.82% while the
two-year Treasury note rose from 3.86% to 6.59% during the same twelve month
period ending September 30, 1994. As a result, the Treasury yield curve
flattened 94 basis points during that period.
Substantial cash outflows from domestic fixed income funds along with
weakness in the U.S. dollar (primarily versus the Japanese Yen and German DM)
placed additional pressure on fixed income security prices. In this environment,
shorter duration portfolios performed the best.
The Managed Income Portfolio, after being long in duration for the first
six months of 1994, shortened its duration from a high of 6.1 years to its
current 5.4 duration. The Portfolio's longer duration for the majority of the
year led to the underperformance of the Portfolio versus the Lehman
Government/Corporate Index over the last twelve months ending September 30,
1994.
Comparison of Change in Value of $10,000 investment in the Managed Income
Portfolio and the Lehman Government/Corporate Index from inception and at each
Fiscal Year End:
[CHART 1]
[CHART 2]
[CHART 3]
3
<PAGE> 4
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
TAX-FREE INCOME PORTFOLIO
One year ago, the nation's economy was demonstrating only faint signs of a
recovery and short-term interest rates, the Federal Reserve's tool to govern the
rate of economic growth, were being maintained at a very stimulative level of
3%. Inflation was a mild 2.5%. In the four quarters since last summer, the
financial markets have witnessed a pick up in all three areas -- the economy,
interest rates and inflation. In the first two quarters of 1994, real gross
domestic product (GDP) grew by 3.3% and 4.1%, versus 1.2% and 2.4% during the
first two quarters of 1993. Short-term interest rates jumped to 4.75%, an
increase of 175 basis points, as the Federal Reserve took pre-emptive actions
against inflation and raised the federal funds rate on five separate occasions.
Presently, it's too early to determine the effect of this more restrictive
monetary policy, however, inflation has shown signs of escalating and is
averaging about 3.0-3.5%. Pressure on consumer and producer prices has been
evidenced by large jumps in commodity prices and capacity utilization, the
latter hitting a five-year high in August at 84.7%.
Municipal credit quality showed mixed results in 1994. Standard & Poor's
upgraded 95 issues totalling $5.1 billion, while downgrading 43 issues totalling
$6.5 billion. Moody's upgraded 65 issues totalling $4.6 billion, while
downgrading 61 issues totalling $9.9 billion. Though downgrades have been
dominating the headlines, overall economic improvement is being seen in
municipal coffers. The Center for Study of the States reported a year-over-year
increase in revenues for 45 of the 50 states. This largess presents an
opportunity for states to strengthen their financial position and thus their
credit quality.
Yields in the long-term tax-exempt market remained fairly constant in the
fourth quarter of 1993, and through January 1994. However, evidence of an
accelerating economy prompted the Federal Reserve to tighten credit in early
February 1994. Additional increases in short-term rates were made over the next
six months to curb inflation and protect the dollar. For the twelve-month period
ended September 30, 1994, the Bond Buyer Index (BBI) increased 113 basis points
to 6.43%, while the longer Revenue Bond Index (RBI) increased 117 basis points
to 6.70%. The RBI, as a percentage of the 30-year Treasury, decreased from
91.71% to 85.78%, as municipals outperformed Treasuries for the period.
The Tax-Free Income Portfolio maintained an essentially fully invested
position for the entire period. Modest cash positions were established
periodically as a reserve for redemptions. The average weighted maturity
remained constant at approximately 16 years. The yield curve beyond 20 years is
quite flat providing little incentive to extend maturities. As the market
continued to deteriorate, the average coupon was gradually increased to 6% to
reduce portfolio volatility. The Portfolio continues to emphasize higher quality
issues. Currently, 100% of the assets are rated AA or higher by either Moody's
Investment Service or Standard & Poor's.
4
<PAGE> 5
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
Comparison of Change in Value of $10,000 investment in the Tax-Free Income
Portfolio and the Lehman Municipal Bond Index from inception and at each Fiscal
Year End:
[CHART 4]
[CHART 5]
[CHART 6]
5
<PAGE> 6
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERMEDIATE GOVERNMENT PORTFOLIO
The fixed income markets plummeted from October '93 highs over the last
twelve months as a stronger-than-expected economy prompted several Federal
Reserve Bank tightenings totaling 175 basis points in short rates. Inflation
fears were sparked early into 1994 as signs of strength in production,
employment and consumer confidence jittered the markets.
Accordingly, interest rates rose over 200 basis points on average during
this period. The Treasury long bond yield rose from 6.03% to 7.82% while the
two-year Treasury note rose from 3.86% to 6.59% during the same twelve month
period ending September 30, 1994. As a result, the Treasury yield curve
flattened 94 basis points during that period.
Substantial cash outflows from domestic fixed income funds along with
weakness in the U.S. dollar placed additional pressure on fixed income security
prices. In this environment, shorter duration portfolios performed the best.
The Intermediate Government Portfolio, after being long in duration for the
first six months of 1994, shortened its duration from a high of 4.1 years to its
current 3.4 duration. The Portfolio's longer duration for the majority of the
year led to the underperformance of the Portfolio versus the Lehman Intermediate
Government Index over the last twelve months ended September 30, 1994.
Comparison of Change in Value of $10,000 investment in the Intermediate
Government Portfolio and the Lehman Intermediate Government Index from inception
and at each Fiscal Year End:
[CHART 7]
[CHART 8]
[CHART 9]
6
<PAGE> 7
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
OHIO TAX-FREE INCOME PORTFOLIO
Since the beginning of the year, economic data reflected evidence of
forward momentum in the U.S. economy. In addition, the U.S. dollar had
experienced weakness causing municipal bond yields to rise. Since February 1994,
the Federal Reserve has raised short term interest rates 175 basis points and
will likely continue this course of action to slow economic growth and suppress
inflation. Sharp price declines occurred in March with prices of longer maturing
issues dropping as much as 7 1/2 points. Much of the selling pressure came
chiefly from mutual funds raising cash to meet redemptions. From January 1, 1994
to March 31, 1994 the Bond Buyer 20-year Index (BBI) rose from 5.28% to 6.07%.
The fixed income markets were marred in the second quarter by volatility,
in the currency markets. During that period tax-exempts experienced brief bouts
of illiquidity. The tone of the market improved when the Federal Reserve boosted
rates 50 basis points. By the end of the second quarter the BBI 20-year index
had continued its move upward, increasing 21 basis points to 6.28%.
During the third quarter bond prices declined approximately 1.7% as
reflected by the BBI of 1994 rise of 15 basis points to 6.43%. Tax-exempt new
issue supply thus far in 1994 has declined 44% with higher interest rates paring
issuer refundings. While tax-exempts have outperformed Treasuries this year,
investors wary of inflation have decreased their demand for tax-free bonds.
In an environment of rising interest rates and heightened volatility the
Portfolio has maintained a defensive posture by purchasing premium bonds while
selling into demand for current coupon issues. The portfolio manager has added
value by buying off-the-run secondary issues and selected negotiated issues. The
inherent steepness of the municipal yield curve, as well as tax-exempt yields as
a percentage of Treasuries, continues to offer value in the 15-20 year maturity
range. The average life of the Ohio Tax-Free Income Portfolio as of September
30, 1994 was 15.8 years.
Comparison of Change in Value of $10,000 investment in the Ohio Tax-Free
Income Portfolio and the Lehman Local General Obligation Index from inception
and at each Fiscal Year End:
[CHART 10]
[CHART 11]
[CHART 12]
7
<PAGE> 8
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
Taxable interest rates started rising in October, 1993; while municipal
interest rates did not follow until February, 1994. During 1994, long-term
treasury rates have gone up by 225 basis points while municipals have risen by
approximately 135 basis points. This has allowed the municipal market to
outperform the taxable market, due to the lack of new issue supply which has
declined by 44% from 1994. As municipals became more expensive relative to
taxables, the demand for tax-exempt bonds declined and municipals are once again
in equilibrium with the taxable market.
As interest rates rose, the Portfolio became more defensive and purchased
premium bonds which tend to hold their value in a declining market. The
Portfolio will continue to purchase defensive bonds until interest rates have
stabilized.
The Portfolio has never purchased derivative products and does not intend
to purchase these types of products in the future.
Comparison of Change in Value of $10,000 investment in the Pennsylvania
Tax-Free Income Portfolio and the Lehman Local General Obligation Index from
inception and at each Fiscal Year End:
[CHART 13]
[CHART 14]
[CHART 15]
8
<PAGE> 9
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
SHORT-TERM BOND PORTFOLIO
The fixed income markets plummeted from October '93 highs over the last
twelve months as a stronger-than-expected economy prompted several Federal
Reserve Bank tightenings totaling 175 basis points in short rates. Inflation
fears were sparked early into 1994 as signs of strength in production,
employment and consumer confidence jittered the markets.
Accordingly, interest rates rose over 200 basis points on average during
this period. The Treasury long bond yield rose from 6.03% to 7.82% while the
two-year Treasury note rose from 3.86% to 6.59% during the same twelve month
period ending September 30, 1994. As a result, the Treasury yield curve
flattened 94 basis points during that period.
Substantial cash outflows from domestic fixed income funds along with
weakness in the U.S. dollar placed additional pressure on fixed income security
prices. In this environment, shorter duration portfolios performed the best.
The Short-Term Bond Portfolio, after being long in duration for the first
four months of 1994, shortened its duration from a high of 2.3 years to its
current 1.6 duration (1.98 years average maturity). The Portfolio's longer
duration for the majority of the year led to the underperformance of the
Portfolio versus the Lehman 1-3 year Government Index over the last twelve
months ending September 30, 1994.
Comparison of Change in Value of $10,000 investment in the Short-Term Bond
Portfolio and the Lehman 1-3 year Government Index from inception and at each
Fiscal Year End:
[CHART 16]
[CHART 17]
[CHART 18]
9
<PAGE> 10
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERMEDIATE-TERM BOND PORTFOLIO
The fixed income markets plummeted from October '93 highs over the last
twelve months as a stronger-than-expected economy prompted several Federal
Reserve Bank tightenings totaling 175 basis points in short rates. Inflation
fears were sparked early into 1994 as signs of strength in production,
employment and consumer confidence jittered the markets.
Accordingly, interest rates rose over 200 basis points on average during
this period. The Treasury long bond yield rose from 6.03% to 7.82% while the
two-year Treasury note rose from 3.86% to 6.59% during the same twelve month
period ending September 30, 1994. As a result, the Treasury yield curve
flattened 94 basis points during that period.
Substantial cash outflows from domestic fixed income funds along with
weakness in the U.S. dollar (primarily versus the Yen and DM) placed additional
pressure on fixed income security prices. In this environment, shorter duration
portfolios performed the best.
The Intermediate-Term Bond Portfolio, after being long in duration for the
first four months of 1994, shortened its duration from a high of 4.6 years to
its current 3.3 duration. The Portfolio's longer duration for the majority of
the year led to the underperformance of the Portfolio versus the Lehman
Intermediate Government/Corporate Index over the last twelve months ended
September 30, 1994.
Comparison of Change in Value of $10,000 investment in the Intermediate
Bond Portfolio and the Lehman Intermediate Government/Corporate Index from
inception and at each Fiscal Year End:
[CHART 19]
[CHART 20]
[CHART 21]
10
<PAGE> 11
THE PNC(R) FUND
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 33.8%
FEDERAL HOME LOAN BANK BONDS -- 5.5%
5.07% 11/17/94 $ 5,000 $ 4,990,000
6.25% 02/19/95 5,245 5,202,384
6.109% 07/07/97 5,000 4,975,000
7.13% 08/26/99 5,000 4,934,375
7.46% 09/09/04 6,000 5,824,079
------------
25,925,838
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 2.9%
7.50% 10/01/98 4,980 4,882,296
6.50% 10/15/20 10,000 8,797,762
------------
13,680,058
------------
FEDERAL HOME LOAN MORTGAGE
DISCOUNT NOTE -- 4.3%
4.75% 10/03/94 20,600 20,594,564
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 12.8%
8.50% 08/25/95 7,000 7,119,420
7.50% 06/25/97 10,000 9,997,318
6.95% 11/01/98 4,200 4,023,545
7.50% 03/25/00 10,000 9,494,293
8.25% 12/18/00 12,000 12,378,119
7.30% 07/10/02 5,000 4,793,900
6.50% 09/25/02 5,100 4,458,943
7.05% 11/12/02 1,000 952,550
6.40% 03/25/03 3,000 2,703,360
7.65% 04/29/04 5,000 4,781,350
------------
60,702,798
------------
FEDERAL NATIONAL MORTGAGE DISCOUNT
NOTE -- 0.9%
4.75% 10/05/94 4,265 4,262,749
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 6.4%
9.00% 01/15/96 4,091 4,203,061
10.00% 11/15/98 164 174,085
9.00% 03/15/00 1,177 1,208,964
9.00% 06/15/00 44 44,829
9.50% 06/15/00 202 212,675
9.00% 08/15/00 3,971 4,080,530
9.00% 04/15/01 358 367,885
8.50% 07/05/01 393 393,781
8.50% 08/15/01 708 709,138
8.50% 09/15/01 258 258,603
8.00% 02/15/03 6,264 6,087,639
8.00% 03/15/03 2,458 2,388,617
8.00% 05/15/03 6,050 5,879,875
7.00% 02/15/05 1,412 1,283,177
6.50% 06/15/05 3,479 3,046,473
------------
30,339,332
------------
TENNESSEE VALLEY AUTHORITY -- 1.0%
7.318% 05/31/99 5,000 4,915,625
------------
TOTAL AGENCY OBLIGATIONS
(Cost $165,849,111) 160,420,964
------------
ASSET BACKED SECURITIES -- 3.3%
Premier Auto Trust
6.35% 04/02/97 5,000 4,933,000
6.85% 03/02/99 5,000 4,965,625
United Companies
Financial Corp.
6.575% 04/10/96 5,790 5,760,584
------------
TOTAL ASSET BACKED SECURITIES
(Cost $15,782,285) 15,659,209
------------
CORPORATE BONDS -- 21.9%
AUTOMOTIVE -- 2.5%
Ford Motor Co.
8.00% 10/01/96 7,000 7,113,750
9.00% 09/15/01 3,000 3,146,250
Ford Motor Credit Co.
6.75% 05/15/05 2,000 1,790,000
------------
12,050,000
------------
BANKS -- 3.0%
ABN-AMRO Yankee Bank
7.75% 05/15/23 4,000 3,625,000
Comerica Bank
7.25% 10/15/02 6,000 5,670,000
National Bank of Canada
8.125% 08/15/04 5,000 4,900,000
------------
14,195,000
------------
BROKERAGE -- 2.0%
Morgan Stanley Group
7.50% 09/01/99 5,000 4,925,000
PaineWebber Group
6.25% 06/15/98 5,000 4,712,500
------------
9,637,500
------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
ELECTRONICS -- 0.6%
Phillips Electronics Co.
8.375% 09/15/06 $ 3,000 $ 2,980,680
------------
FINANCE -- 1.0%
Household International Corp.
6.00% 03/15/99 5,000 4,687,500
------------
MISCELLANEOUS -- 0.0%
Larwin Group -- Participation
in Asset Exchange
8.00% 12/01/99 3 2,838
------------
PAPER & ALLIED PRODUCTS -- 1.0%
Georgia Pacific
8.25% 03/01/23 5,000 4,531,250
------------
TELEPHONE -- 3.0%
AT&T Corp.
6.40% 06/02/99 10,000 9,810,000
Illinois Bell Telephone
7.25% 03/15/24 5,000 4,337,500
------------
14,147,500
------------
UTILITIES (ELECTRIC) -- 2.1%
Niagara Mohawk
5.875% 09/01/02 6,000 4,905,000
Texas Utilities Electric Co.
9.75% 05/01/21 5,000 5,181,250
------------
10,086,250
------------
YANKEE -- 6.7%
Bell Telephone, Canada
7.75% 04/01/06 5,000 4,875,000
BHP Finance
6.75% 11/01/13 4,000 3,290,000
Hydro Quebec
8.05% 07/07/06 3,000 2,925,000
Noranda, Inc.
8.00% 06/01/03 6,500 6,275,685
8.125% 06/15/04 4,500 4,387,500
Province of Ontario Global
Bond
7.625% 06/22/04 5,000 4,825,000
Westpac Banking Corp.
9.125% 08/15/01 5,000 5,256,250
------------
31,834,435
------------
TOTAL CORPORATE BONDS
(Cost $109,343,696) 104,152,953
------------
MEDIUM TERM NOTES -- 1.8%
AUTOMOTIVE -- 1.0%
General Motors Acceptance
Corp.
6.30% 03/31/97 5,000 4,887,500
------------
BROKERAGE -- 0.8%
Salomon Brothers, Inc.
5.26% 02/10/99 4,000 3,730,680
------------
TOTAL MEDIUM TERM NOTES
(Cost $8,945,150) 8,618,180
------------
U.S. TREASURY OBLIGATIONS -- 34.4%
U.S. TREASURY BONDS -- 14.7%
7.25% 05/15/16 4,000 3,697,120
8.125% 08/15/19 20,000 20,243,198
7.875% 02/15/21 11,000 10,848,089
8.00% 11/15/21 20,000 20,041,198
7.625% 11/15/22 4,000 3,858,520
7.125% 02/15/23 12,000 10,914,359
------------
69,602,484
------------
U.S. TREASURY NOTES -- 19.7%
7.875% 07/15/96 1,000 1,022,980
7.875% 07/31/96 15,000 15,355,649
4.375% 11/15/96 2,500 2,390,175
6.25% 01/31/97 25 24,779
7.125% 10/15/98 5,000 5,005,850
8.875% 11/15/98 1,000 1,060,440
5.125% 11/30/98 2,500 2,317,825
6.875% 07/31/99 3,000 2,953,230
8.00% 08/15/99 1,300 1,340,807
7.875% 02/15/00 6,000 6,055,019
8.75% 08/15/00 7,000 7,459,200
8.50% 11/15/00 1,500 1,582,800
8.00% 05/15/01 1,000 1,030,810
7.875% 08/15/01 15,800 16,179,040
7.50% 11/15/01 1,250 1,252,562
7.50% 05/15/02 1,200 1,201,224
6.375% 08/15/02 6,750 6,292,687
7.25% 05/15/04 21,000 20,474,368
------------
92,999,445
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $168,412,795) 162,601,929
------------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
MANAGED INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
VARIABLE RATE OBLIGATIONS -- 3.2%
AUTOMOBILES -- 1.1%
Ford Motor Credit Corp.
5.68%** 12/23/94 $ 5,000 $ 4,934,373
------------
BROKERAGE -- 2.1%
Morgan Stanley Group
5.69%** 12/09/94 10,000 10,000,000
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $15,000,000) 14,934,373
------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 0.2%
Smith Barney Money Market Fund
(Cost $761,022) 761,022 761,022
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $484,094,059*) 98.6% 467,148,630
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.4% 6,487,725
------- ------------
NET ASSETS (Applicable to
40,360,617 Institutional
shares, 6,911,853 Service
shares and 1,115,757 Series A
Investor shares outstanding) 100.0% $473,636,355
======= ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE ($473,636,355 /
48,388,227) $ 9.79
======
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $ 9.79
======
MAXIMUM OFFERING PRICE PER SERIES A
INVESTOR SHARE ($9.79 / .955) $10.25
======
</TABLE>
- -------------
* Cost for Federal income tax purposes at September 30, 1994 was $485,368,937.
The gross unrealized appreciation (depreciation) on a tax basis is as
follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 49,973
Gross unrealized depreciation (18,270,280)
------------
$(18,220,307)
============
</TABLE>
** Rates shown are rates as of September 30, 1994, and the maturities shown are
the longer of the next interest readjustment date or the date the principal
amount can be recovered through demand.
See accompanying notes to financial statements.
13
<PAGE> 14
THE PNC(R) FUND
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ----------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 97.3%
ARIZONA -- 2.2%
Phoenix General Obligation Bonds
6.375% 07/01/13 $200 $ 201,250
----------
COLORADO -- 3.2%
Jefferson County School District
General Obligation Bonds
6.00% 12/15/12 300 291,000
----------
DELAWARE -- 2.5%
University of Delaware Housing
and Dining Revenue Bonds
5.50% 11/01/15 250 228,437
----------
DISTRICT OF COLUMBIA -- 3.3%
District of Columbia General
Obligation Series 1991 B-3
3.95% 06/01/03 300 300,000
----------
FLORIDA -- 4.4%
Florida Department of
Transportation General
Obligation Bonds
6.25% 07/01/07 400 408,000
----------
GEORGIA -- 11.9%
Georgia General Obligation Bonds
6.30% 03/01/10 310 321,238
Georgia Municipal Electric
Authority Revenue Bonds
6.125% 01/01/14 400 385,000
Gwinnett County General
Obligation Bonds
6.00% 01/01/10 400 394,000
----------
1,100,238
----------
KANSAS -- 14.1%
Johnson County Internal
Inspection Refunding Bonds
6.00% 09/01/07 400 400,000
Kansas Department of
Transportation Revenue Bonds
6.125% 09/01/10 500 502,500
Kansas Department of
Transportation Revenue Bonds
Series A
6.00% 09/01/12 400 392,500
----------
1,295,000
----------
KENTUCKY -- 4.3%
Louisville Water Supply Revenue
Bonds (Louisville Water Company)
6.00% 11/15/14 400 395,500
----------
LOUISIANA -- 0.2%
Louisiana Housing Finance
Authority Single Family Mortgage
Revenue Bonds Series 1985 A
9.375% 02/01/15 20 20,825
----------
MARYLAND -- 4.2%
Maryland Health & Higher
Education Authority (Johns
Hopkins Hospital)
5.60% 07/01/09 300 285,375
Mayor and City of Baltimore Port
Facility Revenue Industrial
Development Bonds
(E.I. Du Pont Company)
6.50% 10/01/11 100 101,250
----------
386,625
----------
NEBRASKA -- 3.1%
Omaha Public Power District
Electric Revenue Bonds
5.50% 02/01/07 300 288,000
----------
NEW JERSEY -- 1.1%
New Jersey State Turnpike
Authority Revenue Bonds
6.50% 01/01/16 100 103,750
----------
NEW MEXICO -- 5.2%
New Mexico State University
Revenue Bonds
5.70% 04/01/09 500 477,500
----------
NORTH CAROLINA -- 3.2%
North Carolina Municipal Power
Agency Catawba Electric Revenue
Bonds
6.00% 01/01/10 300 295,875
----------
OHIO -- 8.4%
Ohio State University General
Receipt Bonds
5.75% 12/01/09 500 473,125
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Ohio Water Development Authority
(Clean Water Series)
5.65% 12/01/05 $ 300 $ 297,750
----------
770,875
----------
OREGON -- 3.2%
Portland Sewer System Bonds
Series A
6.00% 10/01/12 300 292,500
----------
SOUTH CAROLINA -- 4.4%
South Carolina Public Service
Authority Revenue Bonds Series
1991 D (Santee Cooper Project)
6.50% 07/01/14 100 100,000
Spartanburg Water Systems
Improvement Revenue Bonds
6.20% 06/01/09 300 302,625
----------
402,625
----------
TEXAS -- 5.5%
Sabine River Authority Pollution
Control Revenue Bonds
(Southwestern Electric
Power Project)
8.20% 07/01/14 85 90,844
San Antonio Refunding Bonds
5.75% 08/01/13 450 418,500
----------
509,344
----------
UTAH -- 1.2%
Salt Lake City Hospital Revenue
Bonds Series A
8.125% 05/15/15 100 111,625
----------
VIRGINIA -- 11.7%
Richmond Refunding Bonds Series A
5.50% 01/15/13 400 360,500
Roanoke County General Obligation
Bonds
5.55% 06/01/08 400 380,000
Virginia State Transportation
Board Revenue Refunding Bonds
5.25% 05/15/12 400 350,500
----------
1,091,000
----------
TOTAL MUNICIPAL BONDS
(Cost $9,238,231) 8,969,969
----------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 1.1%
Smith Barney Tax-Free Money
Market Fund
(Cost $97,912) 97,912 $ 97,912
----------
TOTAL INVESTMENT IN SECURITIES
(Cost $9,336,143*) 98.4% 9,067,881
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.6% 145,473
-------- ----------
NET ASSETS (Applicable to 13,194
Institutional shares, 210,114
Service shares and 694,590 Series
A Investor shares outstanding) 100.0% $9,213,354
======== ==========
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($9,213,354 / 917,898) $10.04
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $10.04
======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE ($10.04 / .955) $10.51
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 41,850
Gross unrealized depreciation (310,112)
---------
$(268,262)
==========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
THE PNC(R) FUND
INTERMEDIATE GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 50.5%
FEDERAL HOME LOAN BANK -- 6.9%
6.109% 07/07/97 $ 5,000 $ 4,939,650
6.44% 07/25/97 5,000 4,936,450
7.46% 09/09/04 4,000 3,867,500
------------
13,743,600
------------
FEDERAL HOME LOAN MORTGAGE
CORP. -- 14.3%
7.00% 11/01/94 642 629,488
7.00% 08/01/96 894 821,740
6.95% 09/15/96 5,197 4,983,980
6.50% 10/15/96 3,885 3,417,931
7.00% 06/15/97 3,000 2,737,005
7.31% 09/03/99 8,000 7,879,838
6.55% 04/02/03 4,000 3,635,800
5.78% 10/22/03 5,000 4,282,750
------------
28,388,532
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 18.7%
7.50% 06/25/95 2,000 1,999,464
8.50% 08/25/95 3,000 3,051,180
7.50% 03/25/97 5,000 4,747,146
8.15% 05/11/98 2,500 2,571,550
6.50% 09/25/98 5,000 4,371,512
8.35% 11/10/99 5,000 5,181,100
6.69% 01/19/00 2,000 1,919,880
7.80% 06/10/02 4,000 3,913,760
6.625% 04/10/03 5,000 4,572,350
5.75% 12/25/03 5,000 4,734,735
------------
37,062,677
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 8.3%
7.00% 10/15/98 5,000 4,872,911
7.00% 01/15/99 2,480 2,374,693
6.50% 05/01/99 3,755 3,502,512
7.50% 06/01/00 1,779 1,674,832
6.50% 10/15/03 426 373,073
6.50% 11/15/03 4,244 3,716,153
------------
16,514,174
------------
TENNESSEE VALLEY AUTHORITY -- 2.3%
6.125% 07/15/03 5,000 4,443,750
------------
TOTAL AGENCY OBLIGATIONS
(Cost $106,593,045) 100,152,733
------------
U.S. TREASURY OBLIGATIONS -- 48.0%
U.S. TREASURY BONDS -- 3.5%
7.25% 05/15/16 $ 4,500 $ 4,159,260
7.125% 02/15/23 3,000 2,728,590
------------
6,887,850
------------
U.S. TREASURY NOTES -- 44.5%
6.00% 11/15/94 5,000 5,007,400
5.50% 02/15/95 7,000 7,002,240
5.875% 05/15/95 11,000 11,015,288
7.875% 07/15/96 5,000 5,114,900
6.50% 11/30/96 5,000 4,986,550
6.25% 01/31/97 5,000 4,955,850
5.50% 07/31/97 5,000 4,832,300
5.50% 09/30/97 3,000 2,890,500
5.75% 10/31/97 6,000 5,807,940
6.00% 12/31/97 5,000 4,863,450
5.625% 01/31/98 5,000 4,799,850
5.25% 07/31/98 5,000 4,692,550
7.125% 10/15/98 5,000 5,005,850
5.125% 12/31/98 5,000 4,629,150
6.375% 07/15/99 5,000 4,827,000
6.00% 10/15/99 3,000 2,841,658
7.50% 11/15/01 1,500 1,503,074
6.375% 08/15/02 3,700 3,449,324
------------
88,224,874
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $99,196,581) 95,112,724
------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENT -- 0.0%
Smith Barney Money Market Fund
(Cost $78,252) 78,252 78,252
------------
TOTAL INVESTMENT IN SECURITIES
(Cost $205,867,878*) 98.5% 195,343,709
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.5% 2,950,238
------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
INTERMEDIATE GOVERNMENT PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
NET ASSETS (Applicable to
13,384,405 Institutional
shares, 6,310,819 Service
shares, and 882,983 Series A
Investor shares outstanding) 100.0% $198,293,947
===== ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($198,293,947 / 20,578,207) $ 9.64
======
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $ 9.64
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($9.64 / .955) $10.09
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 32,396
Gross unrealized depreciation (10,556,565)
------------
$(10,524,169)
=============
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
THE PNC(R) FUND
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO -- 96.8%
Akron, Bath, Copley Joint Township
Hospital District Revenue Bonds
5.50% 11/15/03 $250 $ 214,687
Akron, Bath, Copley Revenue Bonds
(Children's Hospital)
7.45% 11/15/00 100 113,125
Berea City School District Unlimited
Tax General Obligation Bonds
7.50% 12/15/03 75 85,031
Brunswick Limited Tax Improvement
General Obligation Bonds
6.30% 12/01/05 210 203,700
Butler County Hospital Facilities
Refunding Improvement Bonds
(Middletown Regional Hospital)
6.75% 11/15/03 50 52,188
Cincinnati City School District
7.125% 12/01/02 60 66,075
Clark County Public Improvement
General Obligation Bonds
5.55% 12/01/03 200 186,500
Cleveland Airport System Improvement
Revenue Bonds Series 1994 B
5.70% 01/01/04 150 145,688
Cleveland Public Power System
Improvement Series B (First
Mortgage)
7.00% 11/15/01 100 102,250
Cleveland Public Power System Series
B
6.25% 11/15/02 60 63,375
Cleveland Regional Sewer District
Pre-refunded Bonds
6.75% 05/15/04 95 102,956
Cleveland University General Receipts
Revenue Bonds
5.50% 06/01/03 100 90,750
Columbus General Obligation Bonds
9.00% 09/15/96 100 108,250
Columbus Municipal Airport Authority
Revenue Bonds
6.00% 01/01/04 150 146,250
Columbus Unlimited Tax General
Obligation Bonds
9.00% 09/15/97 175 194,906
Cuyahoga County Hospital Facility
Refunding Revenue Bonds Series 1994
A (Cleveland Health Center)
5.50% 02/15/04 200 175,000
Cuyahoga County Hospital Improvement
Revenue Bonds (Cleveland Clinic
Foundation)
6.75% 12/01/99 200 207,750
Franklin County Hospital Revenue
Bonds (Children's Hospital)
6.60% 11/01/11 150 154,875
Franklin County Pre-refunded
General Obligation Bonds
6.80% 12/01/00 150 164,625
Franklin County Revenue Refunding
Bonds (Doctors' Hospital)
5.875% 12/01/03 330 294,112
Greene County Sewer Revenue
Bonds
5.50% 12/01/03 160 145,000
Hamilton County Electric System
Revenue Refunding Bonds
Series A
6.00% 10/15/02 160 156,600
Hamilton County General Obligation
Bonds
5.10% 12/01/03 200 174,750
Hamilton Waterworks Mortgage Revenue
Bonds Series A
6.40% 10/15/07 140 144,725
Kettering Local School District
Unlimited Tax General Obligation
Bonds
5.30% 12/01/05 250 220,937
Lake County Revenue Bonds (Lake
County Hospital)
5.50% 08/15/03 100 87,750
Lockland City School District
General Obligation Bonds
7.00% 12/01/01 100 106,625
Miami University General Receipts
Revenue Bonds
5.60% 12/01/03 100 93,375
Montgomery County Hospital Refunding
Revenue Bonds
(Dayton Osteopathic Hospital)
7.40% 12/01/08 340 359,125
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ---- ----------
<S> <C> <C> <C>
OHIO (CONTINUED)
Montgomery County Hospital Revenue
Bonds (Kettering Memorial Hospital)
7.375% 04/01/99 $200 $ 217,500
Montgomery County Water Revenue Bonds
(Greater Moraine-Beavercreek)
6.25% 11/15/02 100 98,500
North Olmstead General Obligation
Bonds
6.25% 12/15/02 250 247,812
North Royalton City School District
General Obligation Bonds
6.625% 12/01/06 100 107,875
Northwestern Local School District
Unlimited Tax General Obligation
Bonds
7.20% 12/01/10 300 329,250
Ohio Building Authority Facilities
Pre-refunded Bonds (DAS Data Center
Project A)
7.80% 10/01/97 45 49,500
Ohio Higher Education Facilities
Commission Revenue Bonds
(Ohio Dominican College)
6.625% 12/01/04 250 242,500
Ohio Housing Finance Agency
Residential Mortgage Revenue Bonds
Series B-2
6.35% 09/01/04 150 149,250
Ohio Housing Finance Agency Series
1992 A-2 (Single Family)
6.125% 03/01/05 275 269,156
Ohio State Building Authority Revenue
Bonds Series A (Administration
Building Fund Project)
5.50% 10/01/03 200 179,500
Ohio State Building Authority Toledo
Government Center Series A
8.80% 10/01/95 25 26,688
Ohio State Higher Education Case
Western Reserve
7.125% 10/01/00 150 161,813
Ohio State Higher Education Facility
Commission (University of Dayton
Project)
5.80% 12/01/04 100 94,250
Commission Revenue Bonds (Kenyon
College)
7.125% 12/01/96 55 58,850
Ohio State Water Development
Authority Revenue Bonds Series D
(Pure Water)
7.25% 06/01/97 50 54,500
Ohio Turnpike Commission Revenue
Bonds Series A
5.60% 02/15/04 120 110,850
Ottawa County Sanitary Sewer Bonds
7.375% 10/01/99 100 111,500
Stark County Limited Tax General
Obligation Bonds
5.70% 11/15/03 100 91,875
Summit County Hospital Facilities
Revenue Bonds Series A (Cuyahoga
Falls General Hospital Project)
6.65% 07/01/14 200 193,750
University of Cincinnati General
Receipts Revenue Bonds
6.70% 06/01/03 100 107,500
University of Cincinnati General
Receipts Revenue Bonds Series G
7.00% 06/01/01 250 264,688
University of Toledo General Receipts
Revenue Bonds
5.75% 12/01/02 200 191,000
Wadsworth Housing Development
Corporation Mortgage Revenue Bonds
Series 1993
5.75% 03/01/06 130 124,475
Warren County Sewer System Revenue
Bonds
6.70% 12/01/02 115 120,031
West Geauge Local School District
General Obligation Bonds
5.95% 11/01/04 100 96,500
Worthington City School District Pre-
refunded Unlimited Tax General
Obligation Bonds
7.45% 12/01/99 45 50,400
----------
8,110,493
----------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 20
OHIO TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ----------
<S> <C> <C> <C>
PUERTO RICO -- 2.6%
Puerto Rico Commonwealth
Highway and Transportation
Authority -- Highway Revenue
Refunding Bonds Series W
5.50% 07/01/03 $250 $ 218,438
----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $8,800,203*) 99.4% 8,328,931
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.6% 51,293
----- ----------
NET ASSETS (Applicable to 13,197
Institutional shares, 461,217
Service shares and 398,330 Series A
Investor shares outstanding) 100.0% $8,380,224
===== ==========
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($8,380,224 / 872,744) $9.60
=====
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $9.60
=====
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE
($9.60 / .955) $10.05
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized depreciation
on a tax basis is $471,272.
See accompanying notes to financial statements.
20
<PAGE> 21
THE PNC(R) FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 96.9%
PENNSYLVANIA -- 95.5%
Allegheny County General
Obligation Bonds Series C-38
6.20% 09/01/01 $ 250 $ 259,688
Allegheny County Hospital
Authority Revenue Bonds --
Mercy Hospital of Pittsburgh
6.35% 04/01/00 300 314,250
Allegheny County Hospital
Development Authority Refunded
Revenue Bonds Mercy Hospital
Series 1986
7.375% 04/01/15 750 785,625
Allegheny County PA Residential
Financial Authority Single
Family Mtge Revenue Series
1994-Y
6.20% 05/01/17 400 398,000
Allegheny County Pennsylvania
Refunding Bonds Series C-42
5.00% 10/01/10 1,000 866,250
Allentown Parking Authority
Guaranteed Revenue Bonds
7.00% 10/01/12 500 520,625
Beaver County Hospital Authority
Revenue Bonds -- Medical Center
Series A
6.25% 07/01/11 250 248,125
Berks County General Obligation
Refunding Bonds
5.75% 11/15/12 300 282,750
Bristol Township School District
Series 1993
5.10% 02/15/08 1,000 916,250
Central Bucks School District
General Obligation Revenue Bond
Series 1993 A
5.15% 05/15/08 1,015 933,800
Centre County General Obligation
Series B 1993
5.30% 07/01/18 530 457,788
Charleroi Area School District
General Obligation Series C
5.75% 11/15/13 300 284,250
Chester County General
Obligation Revenue Bonds Series
1991
6.70% 12/15/04 385 404,731
Chester County Pennsylvania
Health and Education Facilities
Authority Health Systems
Revenue Bond Series 1994 A
5.30% 05/15/07 2,605 2,360,781
Chester County Solid Waste
Authority -- Guaranteed Solid
Waste Revenue Bonds Series 1990
A
6.75% 01/01/99 250 266,250
Chester Upland School Authority
Pennsylvania Bank Qualified
5.60% 11/15/14 850 769,250
Coatesville School District
General Obligation Revenue
Bonds
6.40% 01/15/05 500 529,375
Commodore Perry School District
Bank Qualified
7.10% 02/01/16 445 475,594
Dauphin County General Authority
Revenue Bonds
6.85% 06/01/09 800 836,000
Dauphin County General Authority
Revenue Bonds Series 1986 Sub
Series BBB
5.30% 06/01/05 535 494,875
5.40% 06/01/06 565 519,800
5.50% 06/01/07 550 503,938
Dauphin County General Authority
Revenue Bonds Series 1994 A
6.80% 01/01/08 500 488,125
Delaware County Authority Health
Facilities Revenue Bonds Series
1993 B
6.00% 11/15/07 1,000 913,750
Duquesne Penn School District
General Obligation Bonds
5.75% 10/01/18 1,000 880,000
Erie County Prison Authority
Lease Revenue Bonds
Pre-refunded
6.25% 11/01/01 500 527,500
Fox Chapel School District
General Obligation
5.50% 08/15/11 575 522,531
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 22
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Harrisburg Authority Lease
Revenue -- Greene County Prison
Capital Guarantee Bonds
6.50% 06/01/04 $ 500 $ 529,375
Indiana County Hospital
Authority Hospital Revenue
Bonds Series A
7.125% 07/01/23 1,500 1,483,125
Lancaster Higher Education
Authority College Revenue
Bonds -- (Franklin and Marshall
University)
5.65% 04/15/10 500 471,875
Lebanon County Good Samaritan
Hospital Authority -- Hospital
Revenue Bonds Series 1993
5.55% 11/15/04 355 331,038
Lebanon County Good Samaritan
Hospital Authority Revenue
Bonds
6.00% 11/15/18 750 653,438
Lehigh County Pennsylvania
General Purpose Authority
Hospital Revenue Bonds Series
1994 A
6.00% 07/01/09 2,520 2,453,850
Ligonier Valley Pennsylvania
School District
5.65% 03/01/14 2,000 1,837,500
Lycoming County Authority
Hospital Lease Revenue Bonds
7.75% 07/01/16 2,000 2,162,500
North Allegheny School District
General Obligation Bonds Series
A
6.35% 11/01/12 1,000 1,003,750
Northampton County Higher
Education Authority
Pennsylvania College
Revenue Bonds
6.10% 07/01/12 1,950 1,889,063
Oil City Pennsylvania School
District Series B
5.30% 05/15/11 565 508,500
Pennsylvania Finance Authority
Refunded Revenue Bonds --
(Municipal Capital Improvement
Project)
6.60% 11/01/09 2,760 2,773,800
Pennsylvania Higher Educational
Authority Facilities
Philadelphia College of
Textiles and Science College
Refunding Revenue Bonds
5.45% 02/01/07 285 260,418
Pennsylvania Higher Educational
Facilities Authority --
Philadelphia College of
Textiles and Science College
Revenue Bonds
4.95% 02/01/02 255 237,788
Pennsylvania Higher Educational
Facilities Authority
Philadelphia College of
Textiles and Science College
Bonds
5.15% 02/01/04 1,230 1,122,375
Pennsylvania Higher Educational
Facilities Authority Revenue
Bond
5.15% 11/01/11 500 436,875
Pennsylvania Housing Finance
Authority Single Family Revenue
Bonds Series 1991-32
7.15% 04/01/15 300 305,250
Pennsylvania Intergovernmental
Cooperative Authority Special
Tax Revenue Bonds
5.75% 06/15/15 1,000 902,500
Pennsylvania Intergovernmental
Cooperative Authority Special
Tax Revenue Bonds -- City of
Philadelphia Funding Program
5.25% 06/15/06 1,000 927,500
Pennsylvania State Certificates
of Participation Series A
5.20% 07/01/05 400 377,000
Pennsylvania State General
Obligation Bonds Refunding
Bonds
8.00% 12/15/99 350 371,438
Pennsylvania State General
Obligation Bonds Second Series
A
6.50% 11/01/05 250 259,375
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Pennsylvania State Higher
Educational Facilities Revenue
Bonds -- (Thomas Jefferson
University) Series A
6.625% 08/15/09 $ 500 $ 514,375
Pennsylvania State University
Revenue Bonds
5.50% 08/15/16 2,000 1,780,000
Pennsylvania Turnpike
Authority -- Common Turnpike
Revenue Bonds Series L
6.50% 06/01/04 445 467,805
Philadelphia Health and Higher
Educational Facilities
Authority Revenue
Bonds -- (Graduate Hospital)
6.25% 07/01/13 1,450 1,319,500
Philadelphia Hospital and Higher
Education Authority Hospital
Revenue Bonds (Friends
Hospital)
6.20% 05/01/11 500 451,875
Philadelphia Hospital and Higher
Education Authority Hospital
Revenue Bonds -- (Friends
Hospital)
5.95% 05/01/04 500 478,125
Philadelphia Hospital and Higher
Education Facilities Authority
Hospital Revenue Bonds --
(Children's Hospital)
5.375% 02/15/14 1,000 867,500
Philadelphia Hospital and Higher
Education Facilities Authority
Hospital Revenue Bonds (Wills
Eye Hospital)
5.25% 07/01/02 500 475,000
Philadelphia Hospital and Higher
Education Facility Authority
Revenue Bonds (Graduate Health
Systems) Series A
5.10% 07/01/98 470 461,188
Philadelphia Industrial
Development Authority Revenue
Bonds -- PGH Corp.
5.25% 07/01/17 810 682,425
Philadelphia Municipal Authority
Lease Revenue Refunding Bonds
Series A
5.625% 11/15/14 $ 1,000 $ 912,500
Philadelphia Pennsylvania
Authority Individual
Development Revenue Refunding
Bonds -- PGH Development
Corporation
5.25% 07/01/17 1,000 842,500
Philadelphia Pennsylvania Higher
Education Facilities Authority
Revenue Bonds (Graduate Health
Systems) Series B
6.25% 07/01/13 750 682,500
Philadelphia Pennsylvania
Hospital & Higher Education
Facilities Authority Hospital
Revenue Bonds (Frankford
Hospital) Series 1993 A
6.00% 06/01/23 815 687,655
Philadelphia Pennsylvania
Hospital Higher Education
Facilities Authority Hospital
Revenue Refunding Bonds
(Childrens Hospital) -- Series
A
5.00% 02/15/21 1,000 798,750
Philadelphia School District
General Obligation Refunding
Bonds Series 1991 A
6.70% 07/01/99 250 263,750
Pittsburgh Water and Sewer
Authority -- Water and Sewer
Systems Refunding Bonds
6.60% 09/01/02 250 272,188
Pittsburgh Water and Sewer
Authority Series A
6.00% 09/01/16 200 208,000
Scranton-Lackawanna Health and
Welfare Authority Revenue Bonds
Pre-refunded (University of
Scranton Project) Series B
7.40% 06/15/00 200 223,750
State Public School Building
Authority College Revenue Bonds
Series V -- (Delaware County
Community College)
5.375% 10/01/17 1,000 891,250
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
State Public School Building
Authority Revenue Bonds --
(North Star School Project H)
6.50% 08/15/11 $ 500 $ 511,875
Trinity Area School District
Refunding Bonds Series A
5.50% 11/01/11 2,000 1,847,500
Westmoreland County General
Obligation Bonds Series D
5.25% 08/01/09 500 465,625
Westmoreland County Industrial
Development Authority Revenue
Bonds -- (Westmoreland County
Health Systems)
6.00% 07/01/11 200 194,500
York County Hospital Authority
Hospital Revenue Bonds
(Hanover General Hospital,
Inc.)
Series 1994 A
4.60% 12/01/04 605 548,280
4.70% 12/01/05 680 612,000
4.80% 12/01/06 635 568,325
-----------
56,086,975
-----------
PUERTO RICO -- 1.4%
Puerto Rico Electric Power
Authority -- Power Revenue
Bonds
6.75% 07/01/03 250 268,750
Puerto Rico Public Buildings
Authority Guaranteed Refunding
Bonds Series J
6.50% 07/01/03 500 521,250
-----------
790,000
-----------
TOTAL MUNICIPAL BONDS
(Cost $60,281,436) 56,876,975
-----------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----------
<S> <C> <C>
TEMPORARY INVESTMENT -- 1.6%
Smith Barney Tax Free Money
Market Fund
(Cost $936,238) 936,238 $ 936,238
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $61,217,674*) 98.5% 57,813,213
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.5% 905,878
-------- -----------
NET ASSETS (Applicable to 65,010
Institutional shares, 1,172,254
Service shares and 4,742,341
Series A Investor shares
outstanding) 100.0% $58,719,091
======= ===========
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($58,719,091 / 5,979,605) $9.82
=====
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $9.82
=====
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE ($9.82 / .955) $10.28
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 54,237
Gross unrealized depreciation (3,458,698)
-----------
$(3,404,461)
===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
THE PNC(R) FUND
SHORT-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 17.3%
FEDERAL HOME LOAN BANK BONDS -- 12.3%
5.07% 11/17/94 $ 1,000 $ 998,000
4.675% 12/17/96 2,000 1,973,750
-----------
2,971,750
-----------
FEDERAL HOME LOAN MORTGAGE CORP.
NOTES -- 5.0%
4.75% 10/03/94 1,200 1,199,683
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $4,199,683) 4,171,433
-----------
ASSET BACKED SECURITIES -- 31.8%
AUTOMOTIVE -- 11.9%
Capital Auto Receivables Asset
Trust
3.65% 02/15/95 458 457,648
John Deere Owner Trust
4.10% 10/15/00 1,248 1,224,267
Toyota Motor Credit Auto
Receivable
3.90% 08/17/98 93 90,858
Union Federal Master Trust
4.875% 11/15/95 1,126 1,101,458
-----------
2,874,231
-----------
FINANCE -- 19.9%
Advanta Mortgage Loan Trust
5.55% 03/15/97 885 826,615
CoreStates Home Equity Trust
5.10% 03/15/96 801 763,746
The Money Store Home Equity
Trust
5.075% 11/15/95 1,328 1,278,905
United Companies
Financial Corp.
6.575% 04/10/96 1,930 1,920,195
-----------
4,789,461
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $7,864,950) 7,663,692
-----------
CORPORATE BONDS -- 17.3%
AUTOMOTIVE -- 5.4%
Ford Motor Credit Corp.
5.625% 03/03/97 1,000 966,120
Ford Motor Equipment Trust
5.30% 07/01/97 350 330,995
-----------
1,297,115
-----------
BROKERAGE -- 8.1%
Lehman Brothers, Inc.
Subordinated Notes
7.375% 08/15/97 $ 1,000 $ 992,500
Merrill Lynch Co., Inc.
5.00% 12/15/96 1,000 956,250
-----------
1,948,750
-----------
FINANCE -- 3.8%
Great Western Financial Corp.
6.375% 07/01/00 1,000 920,450
-----------
TOTAL CORPORATE BONDS
(Cost $4,343,559) 4,166,315
-----------
MEDIUM TERM NOTES -- 11.8%
AUTOMOTIVE -- 7.9%
Chrysler Financial Corp.
5.08% 01/27/97 1,000 957,500
General Motors Acceptance Corp.
5.25% 12/06/96 1,000 960,870
-----------
1,918,370
-----------
BROKERAGE -- 3.9%
Salomon Brothers, Inc.
5.26% 02/10/99 1,000 932,670
-----------
TOTAL MEDIUM TERM NOTES
(Cost $2,998,537) 2,851,040
-----------
U.S. TREASURY OBLIGATIONS -- 21.1%
U.S. Treasury Notes
7.625% 05/31/96 5,000 5,096,000
-----------
(Cost $5,102,284)
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money
Market Fund
(Cost $8,024) 8,024 8,024
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $24,517,037*) 99.3% 23,956,504
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.7% 169,876
------- -----------
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 26
SHORT-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----------
<S> <C> <C>
NET ASSETS (Applicable
to 1,839,811 Institutional
shares, 650,563 Service shares
and 28,876 Series A Investor
shares outstanding) 100.0% $24,126,380
===== ===========
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE
AND SERIES A INVESTOR SHARE
($24,126,380 / 2,519,250) $9.58
=====
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $9.58
=====
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE ($9.58 / .955) $10.03
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 71
Gross unrealized depreciation (560,604)
---------
$(560,533)
=========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 27
THE PNC(R) FUND
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 43.4%
FEDERAL HOME LOAN BANK BONDS -- 6.0%
5.07% 11/17/94 $ 2,000 $ 1,996,000
6.99% 04/25/97 2,500 2,506,175
7.04% 05/24/99 2,000 1,969,580
------------
6,471,755
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 22.6%
4.75% 10/03/94 7,550 7,548,008
4.75% 05/15/96 2,000 1,928,482
4.75% 03/15/97 3,000 2,839,300
5.50% 06/15/97 5,000 4,722,693
9.50% 08/15/97 313 323,877
9.00% 09/15/97 304 310,736
8.50% 08/15/98 218 220,758
8.50% 09/15/98 69 69,895
9.00% 09/15/98 38 38,906
8.50% 10/15/98 68 69,247
7.00% 07/15/00 716 687,071
7.00% 08/15/00 1,318 1,264,345
9.00% 12/01/01 85 87,278
9.50% 07/01/03 175 180,786
7.05% 03/24/04 1,500 1,378,125
7.74% 06/01/04 2,000 1,942,940
9.50% 11/01/04 309 319,211
8.50% 01/01/05 67 68,172
9.50% 01/01/05 328 339,642
9.00% 12/01/16 34 34,465
------------
24,373,937
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 10.6%
7.60% 01/10/97 2,500 2,543,100
5.75% 06/25/98 3,304 3,114,020
7.85% 09/10/98 500 509,735
8.70% 06/10/99 1,000 1,049,300
6.35% 08/10/99 1,000 955,370
8.25% 12/18/00 2,000 2,063,020
9.00% 08/01/02 153 158,205
6.95% 09/10/02 1,000 936,870
9.50% 03/01/05 45 47,080
------------
11,376,700
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 3.4%
8.00% 05/15/99 355 356,321
7.50% 04/15/07 53 52,223
7.50% 06/15/07 42 40,684
7.50% 07/15/07 59 57,462
7.50% 08/15/07 40 39,269
7.50% 10/15/07 82 80,795
7.50% 12/15/07 3,012 2,952,993
9.50% 08/15/18 29 30,306
9.50% 04/15/19 59 62,302
------------
3,672,355
------------
TENNESSEE VALLEY AUTHORITY -- 0.8%
6.125% 07/15/03 1,000 888,750
------------
TOTAL AGENCY OBLIGATIONS
(Cost $47,601,953) 46,783,497
------------
ASSET BACKED SECURITIES -- 3.3%
AUTOMOTIVE -- 2.9%
Capital Auto Receivables
Asset Trust
4.90% 02/16/98 2,000 1,987,600
Union Federal Master Trust
4.875% 11/15/95 1,126 1,101,458
------------
3,089,058
------------
FINANCE -- 0.4%
First Chicago Master Trust II,
Series 1991 D
8.40% 12/15/96 500 512,050
------------
TOTAL ASSET BACKED SECURITIES
(Cost $3,610,333) 3,601,108
------------
CORPORATE BONDS -- 17.4%
AUTOMOTIVE -- 1.7%
Ford Motor Credit Co.
5.625% 12/15/98 1,000 926,250
5.625% 01/15/99 1,000 923,750
------------
1,850,000
------------
BANKS -- 4.0%
Bank of New York, Inc.
6.50% 12/01/03 1,000 885,000
BankAmerica Corp.
6.00% 07/15/97 1,100 1,062,875
National Westminster Bank
9.45% 05/01/01 1,250 1,340,625
Westpac Banking Corp.
9.125% 08/15/01 1,000 1,051,250
------------
4,339,750
------------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 28
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
BROKERAGE -- 0.9%
Lehman Brothers Holdings, Inc.
5.50% 06/15/96 $ 1,000 $ 975,000
------------
FINANCE -- 3.8%
Associates Corp. of North
America
9.70% 05/01/97 1,000 1,057,500
Fleet Financial Group
7.25% 09/01/99 1,000 978,750
Grand Metropolitan Investment
Corp.
7.125% 09/15/04 1,000 955,000
Great Western Financial Corp.
6.375% 07/01/00 1,150 1,058,518
------------
4,049,768
------------
RETAIL DEPARTMENT STORES -- 0.9%
J.C. Penney Co.
5.375% 11/15/98 1,000 927,500
------------
TELECOMMUNICATIONS -- 2.6%
GTE Southwest, Inc.
5.82% 12/01/99 2,000 1,837,500
Southwestern Bell Telephone Co.
6.375% 04/01/01 1,000 930,000
------------
2,767,500
------------
UTILITIES (ELECTRIC) -- 0.8%
Public Service Colorado
6.00% 01/01/01 1,000 905,000
------------
YANKEE -- 2.7%
Bell Telephone, Canada
7.75% 04/01/06 1,000 975,000
National Bank of Canada
8.125% 08/15/04 1,000 980,000
Noranda, Inc.
8.00% 06/01/03 1,000 965,490
------------
2,920,490
------------
TOTAL CORPORATE BONDS
(Cost $20,030,227) $ 18,735,008
------------
MEDIUM TERM NOTES -- 5.5%
AUTOMOTIVE
Chrysler Financial Corp.
5.08% 01/27/97 $ 3,500 3,351,250
General Motors Acceptance Corp.
7.75% 01/24/97 2,500 2,525,000
------------
TOTAL MEDIUM TERM NOTES
(Cost $6,123,788) 5,876,250
------------
U.S. TREASURY OBLIGATIONS -- 29.1%
U.S. TREASURY NOTES
8.625% 10/15/95 1,000 1,025,980
4.25% 05/15/96 4,000 3,869,040
6.75% 05/31/97 1,700 1,697,739
6.375% 06/30/97 1,100 1,089,682
7.875% 01/15/98 3,000 3,076,200
7.875% 04/15/98 100 102,536
5.25% 07/31/98 10,000 9,385,100
7.125% 10/15/98 1,000 1,001,170
6.375% 01/15/99 3,000 2,912,940
6.375% 01/15/00 1,000 960,320
7.75% 02/15/01 2,300 2,342,297
6.25% 02/15/03 1,000 919,160
7.25% 05/15/04 3,000 2,924,910
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $32,448,209) 31,307,074
------------
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 29
INTERMEDIATE-TERM BOND PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $109,814,510*) 98.7% $106,302,937
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.3% 1,444,091
----- ------------
NET ASSETS (Applicable to
7,946,735 Institutional shares,
3,952,897 Service shares and
9,630 Series A Investor shares
outstanding) 100.0% $107,747,028
===== ============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($107,747,028 / 11,909,262) $9.05
=====
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $9.05
=====
MAXIMUM OFFERING PRICE PER SERIES A
INVESTOR SHARE ($9.05 / .955) $9.48
=====
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 107,264
Gross unrealized depreciation (3,618,837)
-----------
$(3,511,573)
===========
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 30
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MANAGED TAX-FREE INTERMEDIATE
INCOME INCOME GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- ------------
<S> <C> <C> <C>
Investment Income:
Interest............................................. $ 26,631,926 $ 522,665 $ 10,865,757
------------ --------- ------------
Expenses:
Investment advisory fee.............................. 1,997,633 47,655 921,365
Administration fee................................... 799,053 19,062 368,546
Custodian fee........................................ 76,557 12,380 39,103
Transfer agent fee................................... 36,247 47,988 37,794
Service fees......................................... 106,193 3,523 99,744
Distribution fees.................................... 43,985 33,891 20,618
Legal and audit...................................... 56,091 1,367 25,875
Printing............................................. 48,132 1,788 26,559
Registration fees and expenses....................... 27,749 15,055 30,715
Organization......................................... 1,526 10,078 5,428
Trustees' fees and officer's salary.................. 8,168 191 3,724
Other................................................ 23,380 9,065 12,606
------------ --------- ------------
3,224,714 202,043 1,592,077
Less fees voluntarily waived
and expenses reimbursed........................... (877,139) (116,974) (734,623)
------------ --------- ------------
Total expenses.................................. 2,347,575 85,069 857,454
------------ --------- ------------
Net investment income.................................. 24,284,351 437,596 10,008,303
------------ --------- ------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment
transactions...................................... (3,552,929) 21,842 (525,898)
Change in unrealized depreciation of investments..... (41,157,885) (924,036) (15,514,416)
------------ --------- ------------
Net loss on investments.............................. (44,710,814) (902,194) (16,040,314)
------------ --------- ------------
Net decrease in net assets resulting from
operations........................................ $(20,426,463) $(464,598) $ (6,032,011)
============ ========= ============
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 31
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA
TAX-FREE TAX-FREE SHORT-TERM INTERMEDIATE
INCOME INCOME BOND TERM BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Interest.................................. $ 380,143 $ 3,032,628 $ 1,634,723 $ 4,028,542
--------- ------------ ----------- ------------
Expenses:
Investment advisory fee................... 35,709 276,649 174,589 337,365
Administration fee........................ 14,284 109,878 69,836 134,946
Custodian fee............................. 13,706 14,992 17,095 22,453
Transfer agent fee........................ 23,124 40,804 27,286 25,286
Service fees.............................. 5,089 24,652 13,458 69,088
Distribution fees......................... -- 53,423 316 34
Legal and audit........................... 3,466 7,498 4,893 9,337
Printing.................................. 1,581 7,393 5,759 8,730
Registration fees and expenses............ 1,673 16,808 25,996 43,079
Organization.............................. 2,471 2,697 4,369 4,569
Trustees' fees and officer's salary....... 146 1,128 715 1,522
Other..................................... 10,669 14,494 1,908 4,840
--------- ------------ ----------- ------------
111,918 570,416 346,220 661,249
Less fees voluntarily waived
and expenses reimbursed................ (99,688) (330,526) (192,774) (288,499)
--------- ------------ ----------- ------------
Total expenses....................... 12,230 239,890 153,446 372,750
--------- ------------ ----------- ------------
Net investment income....................... 367,913 2,792,738 1,481,277 3,655,792
--------- ------------ ----------- ------------
Realized and unrealized gain (loss) on
investments:
Net realized loss from investment
transactions........................... (96,503) (285,131) (1,064,511) (972,851)
Change in unrealized depreciation of
investments............................ (589,748) (4,507,643) (557,603) (4,627,426)
--------- ------------ ----------- ------------
Net loss on investments................... (686,251) (4,792,774) (1,622,114) (5,600,277)
--------- ------------ ----------- ------------
Net decrease in net assets resulting from
operations............................. $(318,338) $ (2,000,036) $ (140,837) $ (1,944,485)
========= ============ =========== ============
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 32
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO TAX-FREE INCOME PORTFOLIO
----------------------------- -------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/94 9/30/93 9/30/94 9/30/93
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income................................... $ 24,284,351 $ 20,493,314 $ 437,596 $ 439,718
Net gain (loss) on investments.......................... (44,710,814) 17,617,144 (902,194) 684,372
------------ ------------ ---------- ----------
Net increase (decrease) in net assets resulting from
operations............................................ (20,426,463) 38,110,458 (464,598) 1,124,090
------------ ------------ ---------- ----------
Distributions to shareholders from
Net investment income
Institutional Shares.................................... (21,168,266) (20,175,277) (27,983) (19,460)
Service Shares.......................................... (2,559,717) (131,481) (66,611) (4,896)
Series A Investor Shares................................ (556,368) (240,370) (341,872) (415,194)
In excess of net investment income
Institutional Shares.................................... (955,052) -- -- --
Service Shares.......................................... (115,487) -- -- --
Series A Investor Shares................................ (25,102) -- -- --
Net realized gains
Institutional Shares.................................... (4,274,701) (3,995,549) (21,944) --
Service Shares.......................................... (352,557) -- (31,866) --
Series A Investor Shares................................ (108,326) (23,951) (235,722) (91,172)
In excess of realized gains
Institutional Shares.................................... (439,375) -- -- --
Service Shares.......................................... (36,239) -- -- --
Series A Investor Shares................................ (11,134) -- -- --
------------ ------------ ---------- ----------
Total distributions to shareholders................. (30,602,324) (24,566,628) (725,998) (530,722)
------------ ------------ ---------- ----------
Capital share transactions.................................. 160,300,119 35,328,768 1,264,721 1,196,601
------------ ------------ ---------- ----------
Total increase in net assets........................ 109,271,332 48,872,598 74,125 1,789,969
Net assets:
Beginning of period..................................... 364,365,023 315,492,425 9,139,229 7,349,260
------------ ------------ ---------- ----------
End of period........................................... $473,636,355 $364,365,023 $9,213,354 $9,139,229
============ ============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 33
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
OHIO TAX-FREE PENNSYLVANIA TAX-FREE
INTERMEDIATE INCOME PORTFOLIO INCOME PORTFOLIO
GOVERNMENT PORTFOLIO ------------------------- ---------------------------
----------------------------- FOR THE FOR THE
FOR THE FOR THE FOR THE PERIOD FOR THE PERIOD
YEAR YEAR YEAR 12/1/92(1) YEAR 12/1/92(1)
ENDED ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------------ ------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations
Net investment income....... $ 10,008,303 $ 7,016,467 $ 367,913 $ 86,887 $ 2,792,738 $ 902,086
Net gain (loss) on
investments............... (16,040,314) 2,605,443 (686,251) 125,746 (4,792,774) 1,302,856
------------ ------------ ---------- ---------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations................ (6,032,011) 9,621,910 (318,338) 212,633 (2,000,036) 2,204,942
------------ ------------ ---------- ---------- ----------- -----------
Distributions to shareholders
from
Net investment income
Institutional Shares........ (7,450,156) (6,726,648) (88,527) (27,579) (15,967) (23,223)
Service Shares.............. (2,071,221) (117,099) (103,043) (6,761) (490,091) (22,760)
Series A Investor Shares.... (427,436) (199,121) (176,343) (52,547) (2,289,938) (856,103)
Net realized gains
Institutional Shares........ (1,220,708) (225,827) (4,339) -- (280) (3,043)
Service Shares.............. (251,878) -- (1,752) -- (18,964) (1,884)
Series A Investor Shares.... (68,191) (3,983) (5,046) -- (108,860) (69,563)
------------ ------------ ---------- ---------- ----------- -----------
Total distributions to
shareholders.......... (11,489,590) (7,272,678) (379,050) (86,887) (2,924,100) (976,576)
------------ ------------ ---------- ---------- ----------- -----------
Capital share transactions...... 56,048,683 51,797,788 4,108,295 4,843,471 23,558,899 38,855,862
------------ ------------ ---------- ---------- ----------- -----------
Total increase in
net assets............ 38,527,082 54,147,020 3,410,907 4,969,217 18,634,763 40,084,228
Net assets:
Beginning of period......... 159,766,865 105,619,845 4,969,317 100 40,084,328 100
------------ ------------ ---------- ---------- ----------- -----------
End of period............... $198,293,947 $159,766,865 $8,380,224 $4,969,317 $58,719,091 $40,084,328
============ ============ ========== ========== =========== ===========
</TABLE>
- -------------
1 Commencement of operations.
See accompanying notes to financial statements.
33
<PAGE> 34
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
SHORT-TERM BOND INTERMEDIATE-TERM BOND
PORTFOLIO PORTFOLIO
-------------------------- ----------------------------
FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD
YEAR 9/1/93(1) YEAR 9/17/93(1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income.................................... $ 1,481,277 $ 11,296 $ 3,655,792 $ 102,572
Net gain (loss) on investments........................... (1,622,114) (2,937) (5,600,277) (53,408)
----------- ---------- ------------ -----------
Net increase (decrease) in net assets resulting from
operations............................................. (140,837) 8,359 (1,944,485) 49,164
----------- ---------- ------------ -----------
Distributions to shareholders from
Net investment income
Institutional Shares..................................... (1,256,883) (4,908) (2,313,063) --
Service Shares........................................... (219,277) (6,388) (1,431,162) --
Series A Investor Shares................................. (5,117) -- (531) --
Net realized gains
Institutional Shares..................................... -- -- (166,177) --
Service Shares........................................... -- -- (34,163) --
Series A Investor Shares................................. -- -- -- --
----------- ---------- ------------ -----------
Total distributions to shareholders.................. (1,481,277) (11,296) (3,945,096) --
----------- ---------- ------------ -----------
Capital share transactions................................... 19,189,531 6,561,900 56,832,649 56,754,796
----------- ---------- ------------ -----------
Total increase in net assets......................... 17,567,417 6,558,963 50,943,068 56,803,960
Net assets:
Beginning of period...................................... 6,558,963 -- 56,803,960 --
----------- ---------- ------------ -----------
End of period............................................ $24,126,380 $6,558,963 $107,747,028 $56,803,960
=========== ========== ============ ===========
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
34
<PAGE> 35
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
--------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 11/1/891
ENDED ENDED ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 11.17 $ 10.74 $ 10.26 $ 9.70 $ 10.00
-------- -------- -------- -------- -------
Income from investment operations
Net investment income........................... 0.64 0.67 0.69 0.74 0.66
Net gain (loss) on investments
(both realized and unrealized)................ (1.21) 0.56 0.48 0.63 (0.29)
-------- -------- -------- -------- -------
Total from investment operations............ (0.57) 1.23 1.17 1.37 0.37
-------- -------- -------- -------- -------
Less distributions
Distributions from net investment income........ (0.64) (0.67) (0.69) (0.73) (0.66)
Distribution in excess of net investment
income........................................ (0.02) -- -- (0.08) (0.01)
Distributions from net realized capital gains... (0.14) (0.13) -- -- --
Distributions in excess of net realized gains... (0.01) -- -- -- --
-------- -------- -------- -------- -------
Total distributions......................... (0.81) (0.80) (0.69) (0.81) (0.67)
-------- -------- -------- -------- -------
Net asset value at end of period.................... $ 9.79 $ 11.17 $ 10.74 $ 10.26 $ 9.70
======== ======== ======== ======== =======
Total return........................................ (5.27)% 12.13% 11.80% 14.74% 3.80%
Ratios/Supplemental data
Net assets at end of period
(in thousands)................................ $395,060 $341,791 $314,075 $ 52,802 $38,328
Ratios of expenses to average net assets
After advisory/administration fee waivers..... 0.55% 0.74% 0.80% 0.80% 0.80% (2)
Before advisory/administration fee waivers.... 0.77% 0.78% 0.80% 0.84% 0.82% (2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers..... 6.11% 6.25% 6.28% 7.36% 7.31% (2)
Before advisory/administration fee waivers.... 5.89% 6.21% 6.28% 7.32% 7.29% (2)
Portfolio turnover rate......................... 61% 72% 56% 38% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
35
<PAGE> 36
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
------------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
------------------- ---------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/29/93(1) YEAR YEAR 2/05/92(1)
ENDED THROUGH ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.......................... $ 11.17 $ 10.96 $ 11.18 $10.74 $10.40
------- ------- ------- ------ ------
Income from investment operations
Net investment income....................................... 0.59 0.11 0.57 0.66 0.46
Net gain (loss) on investments (both realized and
unrealized)............................................... (1.18) .21 (1.19) 0.57 0.34
------- ------- ------- ------ ------
Total from investment operations........................ (0.59) 0.32 (0.62) 1.23 0.80
------- ------- ------- ------ ------
Less distributions
Distributions from net investment income.................... (0.62) (0.11) (0.60) (0.66) (0.46)
Distribution in excess of net investment income............. (0.02) -- (0.02) -- --
Distributions from net realized capital gains............... (0.14) -- (0.14) (0.13) --
Distributions in excess of net realized gains............... (0.01) -- (0.01) -- --
------- ------- ------- ------ ------
Total distributions..................................... (0.79) (0.11) (0.77) (0.79) (0.46)
------- ------- ------- ------ ------
Net asset value at end of period................................ $ 9.79 $ 11.17 $ 9.79 $11.18 $10.74
======= ======= ======= ====== ======
Total return.................................................... (5.49)% 2.93% (5.76)%(3) 12.13%(3) 7.86%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).................. $67,655 $15,322 $10,921 $7,252 $1,417
Ratios of expenses to average net assets
After advisory/administration fee waivers................. 0.80% 0.80%(2) 1.00% 0.84% 0.80%(2)
Before advisory/administration fee waivers................ 1.02% 0.84%(2) 1.22% 0.88% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................. 5.95% 5.83%(2) 5.66% 6.09% 6.28%(2)
Before advisory/administration fee waivers................ 5.73% 5.79%(2) 5.44% 6.05% 6.28%(2)
Portfolio turnover rate..................................... 61% 72% 61% 72% 56%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
36
<PAGE> 37
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
--------------------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 1/21/93 (1) YEAR 7/29/93 (1)
ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................................... $11.31 $10.61 $11.31 $10.97
------ ------ ------ ------
Income from investment operations
Net investment income................................................. 0.53 0.42 0.51 0.09
Net gain (loss) on investments (both realized and unrealized)......... (0.93) 0.70 (0.93) 0.34
------ ------ ------ ------
Total from investment operations.................................. (0.40) 1.12 (0.42) 0.43
------ ------ ------ ------
Less distributions
Distributions from net investment income.............................. (0.53) (0.42) (0.51) (0.09)
Distributions from net realized capital gains......................... (0.34) -- (0.34) --
------ ------ ------ ------
Total distributions............................................... (0.87) (0.42) (0.85) (0.09)
------ ------ ------ ------
Net asset value at end of period.......................................... $10.04 $11.31 $10.04 $11.31
====== ====== ======= ======
Total return.............................................................. (3.77)% 10.72% (4.02)% 3.92%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................ $ 132 $ 675 $2,109 $ 634
Ratios of expenses to average net assets
After advisory/administration fee waivers........................... 0.50% 0.50%(2) 0.75% 0.71% (2)
Before advisory/administration
fee waivers....................................................... 1.73% 1.28%(2) 1.98% 1.49% (2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................... 4.97% 5.14%(2) 4.75% 4.99% (2)
Before advisory/administration fee waivers.......................... 3.74% 4.36%(2) 3.52% 4.21% (2)
Portfolio turnover rate............................................... 40% 71% 40 % 71%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
37
<PAGE> 38
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
----------------------------------------------------------------
SERIES A INVESTOR CLASS
----------------------------------------------------------------
FOR THE
PERIOD
YEAR YEAR YEAR YEAR 5/14/90(1)
ENDED ENDED ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............... $11.31 $10.60 $10.33 $ 9.91 $10.00
------ ------ ------ ------ ------
Income from investment operations
Net investment income............................ 0.48 0.55 0.58 0.64 0.25
Net gain (loss) on investments (both realized and
unrealized).................................... (0.93) 0.83 0.49 0.46 (0.11)
------ ------ ------ ------ ------
Total from investment operations............. (0.45) 1.38 1.07 1.10 0.14
------ ------ ------ ------ ------
Less distributions
Distributions from net investment income......... (0.48) (0.55) (0.59) (0.66) (0.23)
Distributions from net realized capital gains.... (0.34) (0.12) (0.21) (0.02) --
------ ------ ------ ------ ------
Total distributions.......................... (0.82) (0.67) (0.80) (0.68) (0.23)
------ ------ ------ ------ ------
Net asset value at end of period..................... $10.04 $11.31 $10.60 $10.33 $ 9.91
====== ====== ====== ====== ======
Total return......................................... (4.19)%(3) 13.48%(3) 10.67%(3) 11.40%(3) 1.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)....... $6,972 $7,831 $7,349 $3,510 $4,044
Ratios of expenses to average net assets
After advisory/administration fee waivers...... 0.95% 0.57% 0.53% 1.00% 1.00%(2)
Before advisory/administration fee waivers..... 2.18% 1.36% 1.67% 1.89% 1.70%(2)
Ratios of net investment income to average net
assets
After advisory/administration fee waivers...... 4.53% 5.06% 5.56% 6.23% 6.56%(2)
Before advisory/administration fee waivers..... 3.30% 4.27% 4.42% 5.34% 5.86%(2)
Portfolio turnover rate.......................... 40% 71% 38% 95% 18%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
38
<PAGE> 39
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
----------------------------------------
INSTITUTIONAL CLASS
----------------------------------------
FOR THE
PERIOD
YEAR YEAR 4/20/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.......................................... $ 10.60 $ 10.46 $ 10.00
-------- -------- --------
Income from investment operations
Net investment income....................................................... 0.55 0.54 0.24
Net gain (loss) on investments (both realized and unrealized)............... (0.86) 0.16 0.46
-------- -------- --------
Total from investment operations........................................ (0.31) 0.70 0.70
-------- -------- --------
Less distributions
Distributions from net investment income.................................... (0.55) (0.54) (0.24)
Distributions from net realized capital gains............................... (0.10) (0.02) --
-------- -------- --------
Total distributions..................................................... (0.65) (0.56) (0.24)
-------- -------- --------
Net asset value at end of period................................................ $ 9.64 $ 10.60 $ 10.46
======== ======== ========
Total return.................................................................... (3.08)% 6.88% 7.14%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................. $128,974 $137,065 $105,620
Ratios of expenses to average net assets
After advisory/administration fee waivers................................. 0.40% 0.73% 0.80%(2)
Before advisory/administration fee waivers................................ 0.80% 0.81% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................. 5.48% 5.23% 5.28%(2)
Before advisory/administration fee waivers................................ 5.08% 5.15% 5.28%(2)
Portfolio turnover rate......................................................... 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
39
<PAGE> 40
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
-----------------------------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
-------------------- -------------------------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR 7/29/93(1) YEAR YEAR 5/11/92(1)
ENDED THROUGH ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period........................ $ 10.60 $ 10.45 $10.60 $10.46 $10.05
------- ------- ------ ------ ------
Income from investment operations
Net investment income..................................... 0.53 0.09 0.53 0.54 0.24
Net gain (loss) on investments (both realized and
unrealized)............................................. (0.86) 0.15 (0.87) 0.16 0.41
------- ------- ------ ------ ------
Total from investment operations...................... (0.33) 0.24 (0.34) 0.70 0.65
------- ------- ------ ------ ------
Less distributions
Distributions from net investment income.................. (0.53) (0.09) (0.52) (0.54) (0.24)
Distributions from net realized capital gains............. (0.10) -- (0.10) (0.02) --
------- ------- ------ ------ ------
Total distributions................................... (0.63) (0.09) (0.62) (0.56) (0.24)
------- ------- ------ ------ ------
Net asset value at end of period.............................. $ 9.64 $ 10.60 $ 9.64 $10.60 $10.46
======== ======= ======= ====== ======
Total return.................................................. (3.31)% 2.30% (3.36)%(3) 6.84%(3) 6.64%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)................ $60,812 $15,035 $8,508 $7,666 $1,484
Ratios of expenses to average net assets
After advisory/administration fee waivers............... 0.65% 0.67%(2) 0.65% 0.76% 0.80%(2)
Before advisory/administration fee waivers.............. 1.05% 0.75%(2) 1.05% 0.84% 0.80%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............... 5.30% 5.14%(2) 5.24% 5.19% 5.28%(2)
Before advisory/administration fee waivers.............. 4.90% 5.06%(2) 4.84% 5.11% 5.28%(2)
Portfolio turnover rate....................................... 9% 80% 9% 80% 38%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
40
<PAGE> 41
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
--------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
-------------------- -------------------- --------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/1/92(1) YEAR 7/29/93(1) YEAR 12/1/92(1)
ENDED THROUGH ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.......... $10.53 $10.00 $10.53 $10.24 $10.53 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income....................... 0.53 0.36 0.49 0.09 0.53 0.36
Net gain (loss) on investments (both
realized and unrealized).................. (0.91) 0.53 (0.91) 0.29 (0.91) 0.53
------ ------ ------ ------ ------ ------
Total from investment operations........ (0.38) 0.89 (0.42) 0.38 (0.38) 0.89
------ ------ ------ ------ ------ ------
Less distributions
Distributions from net investment income.... (0.53) (0.36) (0.49) (0.09) (0.53) (0.36)
Distributions from net realized capital
gains..................................... (0.02) -- (0.02) -- (0.02) --
------ ------ ------ ------ ------ ------
Total distributions..................... (0.55) (0.36) (0.51) (0.09) (0.55) (0.36)
------ ------ ------ ------ ------ ------
Net asset value at end of period................ $ 9.60 $10.53 $ 9.60 $10.53 $ 9.60 $10.53
====== ====== ====== ====== ====== ======
Total return.................................... (3.75)% 9.10% (4.00)% 3.68% (3.75)%(3) 9.10%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands)................................ $ 127 $1,676 $4,428 $ 907 $3,825 $2,386
Ratios of expenses to average net assets
After advisory/administration
fee waivers............................. 0.10% 0.08%(2) 0.35% 0.32%(2) 0.10% 0.07%(2)
Before advisory/administration
fee waivers............................. 1.49% 2.59%(2) 1.74% 2.83%(2) 1.49% 2.58%(2)
Ratios of net investment income to average
net assets
After advisory/administration
fee waivers............................. 5.16% 4.99%(2) 5.06% 4.71%(2) 5.18% 4.90%(2)
Before advisory/administration
fee waivers............................. 3.77% 2.48%(2) 3.67% 2.20%(2) 3.79% 2.39%(2)
Portfolio turnover rate......................... 61% 36% 61% 36% 61% 36%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
41
<PAGE> 42
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
------------------- ------------------- --------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 12/1/92(1) YEAR 7/29/93(1) YEAR 12/1/92(1)
ENDED THROUGH ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $10.70 $10.00 $ 10.70 $10.43 $ 10.70 $ 10.00
------ ------ ------- ------ ------- -------
Income from investment operations
Net investment income......................... 0.53 0.39 0.51 0.09 0.52 0.42
Net gain (loss) on investments (both realized
and unrealized)............................. (0.85) 0.73 (0.85) 0.28 (0.85) 0.73
------ ------ ------- ------ ------- -------
Total from investment operations.......... (0.32) 1.12 (0.34) 0.37 (0.33) 1.15
------ ------ ------- ------ ------- -------
Less distributions
Distributions from net investment income...... (0.53) (0.39) (0.51) (0.09) (0.52) (0.42)
Distributions from net realized
capital gains............................... (0.03) (0.03) (0.03) (0.01) (0.03) (0.03)
------ ------ ------- ------ ------- -------
Total distributions....................... (0.56) (0.42) (0.54) (0.10) (0.55) (0.45)
------ ------ ------- ------ ------- -------
Net asset value at end of period.................. $ 9.82 $10.70 $ 9.82 $10.70 $ 9.82 $ 10.70
====== ====== ======= ====== ======= =======
Total return...................................... (2.96)% 11.69% (3.20)% 3.54% (3.06)%(3) 11.69%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands).... $ 639 $ 256 $11,518 $3,894 $46,563 $35,934
Ratios of expenses to average net assets
After advisory/administration
fee waivers............................... 0.39% 0.09%(2) 0.55% 0.34%(2) 0.41% 0.07%(2)
Before advisory/administration
fee waivers............................... 0.99% 0.97%(2) 1.15% 1.22%(2) 1.01% 0.95%(2)
Ratios of net investment income to average net
assets
After advisory/administration
fee waivers............................... 5.27% 5.19%(2) 4.97% 4.90%(2) 5.06% 5.19%(2)
Before advisory/administration
fee waivers............................... 4.67% 4.31%(2) 4.37% 4.02%(2) 4.46% 4.31%(2)
Portfolio turnover rate........................... 30% 40% 30% 40% 30% 40%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
42
<PAGE> 43
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
---------------------- ---------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/1/93(1) YEAR 9/1/93(1) 11/17/93(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........... $ 10.00 $10.00 $10.00 $10.00 $ 9.96
-------- ------ ------ ------ ------
Income from investment operations
Net investment income........................ 0.42 0.02 0.39 0.02 0.34
Net gain (loss) on investments (both realized
and unrealized)............................ (0.42) -- (0.42) -- (0.38)
-------- ------ ------ ------ ------
Total from investment operations......... -- 0.02 (0.03) 0.02 (0.04)
-------- ------ ------ ------ ------
Less distributions
Distributions from net investment income..... (0.42) (0.02) (0.39) (0.02) (0.34)
Distributions from net realized capital
gains...................................... -- -- -- -- --
-------- ------ ------ ------ ------
Total distributions...................... (0.42) (0.02) (0.39) (0.02) (0.34)
-------- ------ ------ ------ ------
Net asset value at end of period................. $ 9.58 $10.00 $ 9.58 $10.00 $ 9.58
======== ====== ====== ====== ======
Total return..................................... (0.02)% 0.23% (0.26)% 0.21% (0.43)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)... $ 17,619 $3,748 $6,230 $2,811 $ 277
Ratios of expenses to average net assets
After advisory/administration fee
waivers.................................. 0.40% 0.40%(2) 0.65% 0.65%(2) 0.65%(2)
Before advisory/administration fee
waivers.................................. 0.95% 1.42%(2) 1.20% 1.67% 1.20%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers.................................. 4.27% 2.92%(2) 4.07% 2.57%(2) 4.19%(2)
Before advisory/administration fee
waivers.................................. 3.72% 1.90%(2) 3.52% 1.55%(2) 3.64%(2)
Portfolio turnover rate.......................... 113% 0% 113% 0% 113%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
43
<PAGE> 44
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
------------------------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS INVESTOR CLASS
---------------------- ---------------------- --------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
YEAR 9/17/93(1) YEAR 9/23/93(1) 5/20/94(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........... $ 10.01 $ 10.00 $ 10.01 $ 9.99 $ 9.23
-------- -------- -------- ------ ------
Income from investment operations
Net investment income........................ 0.54 0.02 0.54 -- 0.20
Net gain (loss) on investments (both realized
and unrealized)............................ (0.88) (0.01) (0.91) 0.02 (0.17)
--------- ------- -------- ------ ------
Total from investment operations......... (0.34) 0.01 (0.37) 0.02 0.03
-------- ------- -------- ------ ------
Less distributions
Distributions from net investment income..... (0.56) -- (0.53) -- (0.21)
Distributions from net realized capital
gains...................................... (0.06) -- (0.06) -- --
-------- ------- -------- ------ ------
Total distributions...................... (0.62) -- (0.59) -- (0.21)
--------- ------- -------- ------ ------
Net asset value at end of period................. $ 9.05 $ 10.01 $ 9.05 $10.01 $ 9.05
======== ======= ======== ====== ======
Total return..................................... (3.52)% 0.10% (3.80)% 0.20% 0.31%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)... $ 71,896 $56,713 $ 35,764 $ 91 $ 87
Ratios of expenses to average net assets
After advisory/administration fee
waivers.................................. 0.45% 0.45%(2) 0.70% 0.70%(2) 0.85%(2)
Before advisory/administration fee
waivers.................................. 0.88% 0.84%(2) 1.13% 1.09%(2) 1.28%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers.................................. 5.54% 4.72%(2) 5.33% 4.35%(2) 5.35%(2)
Before advisory/administration fee
waivers.................................. 5.11% 4.33%(2) 4.90% 3.96%(2) 4.92%(2)
Portfolio turnover rate.......................... 92% 4% 92% 4% 92%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
44
<PAGE> 45
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
The PNC Fund (the "Fund") was organized on December 22, 1988 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-five separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed Income Portfolio and
Government Income Portfolio. As of September 30, 1994, the International Fixed
Income Portfolio and Government Income Portfolio had not commenced operations.
This report relates solely to Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio and
Intermediate-Term Bond Portfolio (the "Portfolios").
Each Portfolio has four classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Series A Investor shares and one class being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for any of these Portfolios through September 30, 1994. Series A
Investor, Series B Investor, Institutional and Service shares in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Series A Investor shares bear the expense of the Distribution
and Service Plan at an annual rate not to exceed .55% of the average daily net
asset value of each Portfolio's outstanding Series A Investor shares. Series B
Investor shares bear the expense of the Series B Distribution Plan at an annual
rate not to exceed .75% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Series B Investor shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
shares. Under the Fund's Service Plan, Service shares bear the expense of fees
at an annual rate not to exceed .15% of the average daily net asset value of
each Portfolio's outstanding Service shares. Service shares also bear the
expense of a service fee at an annual rate not to exceed .15% of the average
daily net asset value of each Portfolio's outstanding Service shares for other
shareholder support activities provided by service organizations. Institutional
shares do not bear the expenses of the Distribution and Service Plan, the
Service Plan, the Series B Distribution Plan or the Series B Service Plan. The
Series A Investor and Service classes are currently bearing such respective
expenses at annual rates of 0% to .50% of the average daily net asset value of
Series A Investor shares and at rates aggregating .25% of the average daily net
asset value of Service shares.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean
45
<PAGE> 46
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
between the last reported bid and asked prices. Corporate bonds and tax-exempt
bonds are valued on the basis of quotations provided by a pricing service which
uses information with respect to transactions on bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities in determining value. Short-term obligations with maturities
of 60 days or less are valued at amortized cost which approximates market value.
Discounts and premiums on debt securities are amortized for book and tax
purposes using the effective yield-to-maturity method over the term of the
instrument with the exception of Managed Income Portfolio which does not
amortize discount or premium for tax purposes.
Dividends to Shareholders -- Dividends from net investment income are
declared and paid monthly for each of the Managed Income, Tax-Free Income,
Intermediate Government and Intermediate-Term Bond Portfolios. The net
investment income of each of the Pennsylvania Tax-Free Income, Ohio Tax-Free
Income and Short-Term Bond Portfolios is declared daily as a dividend to
investors who are shareholders of such Portfolio at, and whose payment for share
purchases are available to the particular Portfolio, in Federal funds by, the
close of business on the day of declaration. Net realized capital gains, if any,
will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Certain expenses, principally Service and Distribution fees, are class specific
expenses. Expenses not directly attributable to a specific Portfolio or class
are allocated among all of the Portfolios or classes of the Fund based on their
relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
Implementation of AICPA Statement of Position 93-2: -- As of October 1,
1993, the Fund implemented AICPA Statement of Position 93-2 -- Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. Adoption of this
standard results in the reclassification to paid-in capital of permanent
differences between tax and financial reporting of net investment income and net
realized gain (loss). The change has had no material
46
<PAGE> 47
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
effect on paid-in capital or other components of the net assets of any of the
Portfolios at October 1, 1993. Distributions to shareholders and net asset
values were not affected by this change.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as adviser for each of the Fund's Portfolios.
PNC Bank serves as sub-adviser for the Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Short-Term Bond Portfolio and
Intermediate-Term Bond Portfolio. PNC Bank, Ohio, National Association ("PNC
Bank Ohio"), serves as the sub-adviser for the Ohio Tax-Free Income Portfolio.
PNC Bank and PNC Bank Ohio are indirect wholly-owned subsidiaries of PNC Bank
Corp.
For its advisory services, PIMC is entitled to receive fees at the
following annual rates, computed daily and payable monthly, based on each
Portfolio's average daily net assets: .50% of the first $1 billion, .45% of the
next $1 billion, .425% of the next $1 billion and .40% of net assets in excess
of $3 billion.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any Portfolio. For the year ended September 30, 1994, advisory
fees and waivers and reimbursement for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET ADVISORY
ADVISORY FEE WAIVER FEE
------------ -------- ------------
<S> <C> <C> <C>
Managed Income Portfolio.................. $1,997,633 $599,290 $1,398,343
Tax-Free Income Portfolio................. 47,655 47,655 --
Intermediate Government Portfolio......... 921,365 552,819 368,546
Ohio Tax-Free Income Portfolio............ 35,709 35,709 --
Pennsylvania Tax-Free Income Portfolio.... 276,649 227,003 49,646
Short-Term Bond Portfolio................. 174,589 137,696 36,893
Intermediate-Term Bond Portfolio.......... 337,365 206,071 131,294
</TABLE>
PIMC pays PNC Bank and PNC Bank Ohio fees for their sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
The combined administration fee is computed daily and payable monthly, based on
a percentage of the average daily net assets of each Portfolio, at the following
annual rates: .20% of the first $500 million, .18% of the next $500 million,
.16% of the next $1 billion and .15% of net assets in excess of $2 billion.
47
<PAGE> 48
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
PFPC and PDI may, at their discretion, voluntarily waive all or any portion
of their administration fees for any Portfolio. For the year ended September 30,
1994, administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------- --------------
<S> <C> <C> <C>
Managed Income Portfolio.................. $799,053 $277,849 $521,204
Tax-Free Income Portfolio................. 19,062 19,062 --
Intermediate Government Portfolio......... 368,546 181,804 186,742
Ohio Tax-Free Income Portfolio............ 14,284 14,284 --
Pennsylvania Tax-Free Income Portfolio.... 109,878 90,020 19,858
Short-Term Bond Portfolio................. 69,836 55,078 14,758
Intermediate-Term Bond Portfolio.......... 134,946 82,428 52,518
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also voluntarily agreed to reimburse for expenses
in the amount of $50,257 with respect to the Tax-Free Income Portfolio, $49,695
with respect to the Ohio Tax-Free Income Portfolio and $13,503 with respect to
the Pennsylvania Tax-Free Income Portfolio for the year ended September 30,
1994.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the year ended September
30, 1994.
(C) PURCHASES AND SALES OF SECURITIES
For the year ended September 30, 1994, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -------------
<S> <C> <C>
Managed Income Portfolio................................ $239,730,336 $ 179,162,722
Tax-Free Income Portfolio............................... 4,861,671 3,624,546
Intermediate Government Portfolio....................... 83,492,343 2,186,302
Ohio Tax-Free Income Portfolio.......................... 8,601,801 4,236,805
Pennsylvania Tax-Free Income Portfolio.................. 40,026,196 17,022,412
Short-Term Bond Portfolio............................... 40,258,016 20,671,871
Intermediate-Term Bond Portfolio........................ 87,171,760 39,944,186
</TABLE>
48
<PAGE> 49
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
For the year ended September 30, 1994, purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
Managed Income Portfolio................................. $141,530,574 $51,423,328
Intermediate Government Portfolio........................ 31,121,094 13,793,086
Short-Term Bond Portfolio................................ 21,885,416 14,158,000
Intermediate-Term Bond Portfolio......................... 29,163,774 21,188,688
</TABLE>
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
MANAGED INCOME PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class...................... 12,186,561 $124,468,452 7,421,047 $ 80,336,982
Service Class............................ 8,352,936 87,090,065 1,389,371 15,338,120
Series A Investor Class.................. 628,230 6,631,737 542,927 5,898,085
Shares issued in acquisition:
Institutional Class...................... 3,649,044 36,599,918 290,838 3,274,839
Service Class............................ -- -- -- --
Series A Investor Class.................. -- -- -- --
Shares issued in reinvestment of dividends:
Institutional Class...................... 2,074,139 21,617,113 2,035,683 21,790,311
Service Class............................ 205,275 2,116,342 8,978 99,979
Series A Investor Class.................. 59,113 615,438 18,592 201,580
Shares redeemed:
Institutional Class...................... (8,140,174) (85,121,512) (8,404,154) (90,821,836)
Service Class............................ (3,017,544) (31,450,922) (27,163) (302,078)
Series A Investor Class.................. (220,470) (2,266,512) (44,567) (487,214)
---------- ------------ ---------- ------------
Net increase............................... 15,777,110 $160,300,119 3,231,552 $ 35,328,768
========== ============ ========== ============
</TABLE>
49
<PAGE> 50
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
TAX-FREE INCOME PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class...................... 30,016 $ 320,369 182,328 $ 2,000,681
Service Class............................ 299,743 3,207,629 104,211 1,144,523
Series A Investor Class.................. 102,083 1,081,748 420,778 4,547,839
Shares issued in reinvestment of dividends:
Institutional Class...................... 3,035 33,037 1,273 13,953
Service Class............................ 4,080 43,401 388 4,349
Series A Investor Class.................. 43,152 463,438 35,628 383,454
Shares redeemed:
Institutional Class...................... (79,482) (827,433) (123,976) (1,362,485)
Service Class............................ (149,752) (1,559,420) (48,556) (534,598)
Series A Investor Class.................. (142,876) (1,498,048) (457,350) (5,001,115)
---------- ------------ ---------- ------------
Net increase............................... 109,999 $ 1,264,721 114,724 $ 1,196,601
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class...................... 5,241,062 $ 53,297,377 7,183,418 $ 74,733,079
Service Class............................ 7,063,429 70,892,359 1,531,120 16,084,512
Series A Investor Class.................. 319,769 3,266,107 707,454 7,413,197
Shares issued in reinvestment of dividends:
Institutional Class...................... 515,901 5,204,029 548,154 5,687,283
Service Class............................ 162,581 1,624,604 8,941 94,420
Series A Investor Class.................. 48,076 484,534 17,934 187,297
Shares redeemed:
Institutional Class...................... (5,308,429) (53,437,379) (4,748,957) (49,609,857)
Service Class............................ (2,334,076) (23,159,926) (121,176) (1,281,483)
Series A Investor Class.................. (208,394) (2,123,022) (143,734) (1,510,660)
---------- ------------ ---------- ------------
Net increase............................... 5,499,919 $ 56,048,683 4,983,154 $ 51,797,788
========== ============ ========== ============
</TABLE>
50
<PAGE> 51
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
OHIO TAX-FREE INCOME PORTFOLIO
----------------------------------------------------
FOR THE PERIOD
DECEMBER 1, 1992(1)
FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................ 175,112 $ 1,807,527 332,416 $ 3,418,528
Service Class.............................. 422,283 4,189,332 215,998 2,219,872
Series A Investor Class.................... 191,083 1,965,179 236,888 2,420,175
Shares issued in reinvestment of dividends:
Institutional Class........................ 5,038 51,291 1,277 13,128
Service Class.............................. 3,851 38,380 212 2,210
Series A Investor Class.................... 17,230 172,308 3,527 36,194
Shares redeemed:
Institutional Class........................ (326,154) (3,233,385) (174,492) (1,787,962)
Service Class.............................. (51,056) (506,812) (130,071) (1,336,759)
Series A Investor Class.................... (36,633) (375,525) (13,775) (141,915)
---------- ------------ --------- -----------
Net increase................................. 400,754 $ 4,108,295 471,980 $ 4,843,471
========== ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
----------------------------------------------------
FOR THE PERIOD
DECEMBER 1, 1992(1)
FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................ 64,868 $ 647,801 256,351 $ 2,672,903
Service Class.............................. 1,233,208 12,861,509 365,347 3,851,830
Series A Investor Class.................... 2,269,114 23,724,954 3,486,306 36,073,560
Shares issued in reinvestment of dividends:
Institutional Class........................ 325 3,463 881 9,177
Service Class.............................. 15,516 158,276 478 5,073
Series A Investor Class.................... 212,735 2,147,477 60,602 632,451
Shares redeemed:
Institutional Class........................ (24,130) (253,996) (233,285) (2,425,665)
Service Class.............................. (440,397) (4,431,356) (1,898) (20,350)
Series A Investor Class.................... (1,097,528) (11,299,229) (188,898) (1,943,117)
---------- ------------ --------- -----------
Net increase................................. 2,233,711 $ 23,558,899 3,745,884 $38,855,862
========== ============ ========= ===========
</TABLE>
- -------------
(1) Commencement of operations.
51
<PAGE> 52
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
----------------------------------------------------
FOR THE PERIOD
SEPTEMBER 1, 1993(1)
FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................ 3,720,716 $ 37,120,901 375,000 $ 3,750,000
Service Class.............................. 755,330 7,473,735 316,515 3,165,152
Series A Investor Class.................... 29,976 294,033 -- --
Shares issued in reinvestment of dividends:
Institutional Class........................ 21,968 214,759 -- --
Service Class.............................. 14,450 141,147 -- --
Series A Investor Class.................... 532 5,175 -- --
Shares redeemed:
Institutional Class........................ (2,277,873) (22,096,796) -- --
Service Class.............................. (400,419) (3,947,645) (35,313) (353,252)
Series A Investor Class.................... (1,632) (15,778) -- --
---------- ------------ --------- -----------
Net increase................................. 1,863,048 $ 19,189,531 656,202 $ 6,561,900
========== ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
----------------------------------------------------
FOR THE PERIOD
SEPTEMBER 17, 1993(1)
FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class........................ 2,440,016 $ 22,611,998 34,087 $ 341,383
Service Class.............................. 2,720,032 25,860,499 9,096 91,284
Series A Investor Class.................... 9,574 87,478 -- --
Shares issued in acquisition:
Institutional Class........................ 3,673,356 33,684,821 5,662,188 56,621,877
Service Class.............................. 3,055,695 29,793,024 -- --
Series A Investor Class.................... -- -- -- --
Shares issued in reinvestment of dividends:
Institutional Class........................ 84,197 768,975 -- --
Service Class.............................. 101,940 943,961 -- --
Series A Investor Class.................... 58 531 -- --
Shares redeemed:
Institutional Class........................ (3,917,113) (38,816,847) (29,996) (299,748)
Service Class.............................. (1,933,866) (18,101,776) -- --
Series A Investor Class.................... (2) (15) -- --
---------- ------------ --------- -----------
Net increase................................. 6,233,887 $ 56,832,649 5,675,375 $56,754,796
========== ============ ========= ===========
</TABLE>
- -------------
(1) Commencement of operations.
52
<PAGE> 53
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
(E) AT SEPTEMBER 30, 1994, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
MANAGED TAX-FREE INTERMEDIATE
INCOME INCOME GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ------------
<S> <C> <C> <C>
Capital paid-in......................................... $495,845,612 $9,455,902 $209,322,348
Undistributed net investment income..................... -- 1,074 17,575
Distributions in excess of net investment income........ (1,274,878) -- --
Distributions in excess of net realized gains........... (371,881) -- --
Accumulated net realized gain (loss)
on investment transactions............................ (3,617,069) 24,640 (521,807)
Net unrealized depreciation on investments.............. (16,945,429) (268,262) (10,524,169)
------------ ---------- ------------
$473,636,355 $9,213,354 $198,293,947
============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA SHORT-TERM INTERMEDIATE-
TAX-FREE INCOME TAX-FREE INCOME BOND TERM BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Capital paid-in........................ $8,951,866 $62,414,861 $25,751,431 $112,414,132
Undistributed net investment income.... -- -- -- 13,608
Distributions in excess of net
investment income.................... -- (3,258) -- --
Accumulated net realized loss on
investment transactions.............. (100,370) (288,051) (1,064,515) (1,169,139)
Net unrealized depreciation on
investments.......................... (471,272) (3,404,461) (560,536) (3,511,573)*
---------- ----------- ----------- ------------
$8,380,224 $58,719,091 $24,126,380 $107,747,028
========== =========== =========== ============
</TABLE>
- -------------
* Includes $1,173,313 of unrealized appreciation, at time of acquisition.
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1994, capital loss carryovers were available to offset
possible future realized capital gains as follows: $3,617,069 in the Managed
Income Portfolio which expire in the year 2002, $521,807 in the Intermediate
Government Portfolio which expire in the year 2002, and $1,064,515 in the
Short-Term Bond Portfolio which expire in the year 2002. At September 30, 1994,
the deferred post-October losses were as follows: $371,881 for the Managed
Income Portfolio, $100,370 for the Ohio Tax-Free Income Portfolio, $285,131 for
the Pennsylvania Tax-Free Income Portfolio, and $1,155,530 for the
Intermediate-Term Bond Portfolio.
(G) ACQUISITION OF PNC COLLECTIVE FUNDS
On September 16, 1993, The PNC Fund acquired all the assets of the Citizens
Fidelity Institutional Active Fixed Income Fund from the participants of such
fund. The acquisition was accomplished by a taxable exchange of assets with a
value of $3,274,839 for 290,838 Institutional shares of the Managed Income
Portfolio at $11.26 per share.
53
<PAGE> 54
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
On September 16, 1993, The PNC Fund acquired all the assets of the Citizens
Fidelity Institutional Bond Fund from participants of such fund. The acquisition
was accomplished by a taxable exchange of assets with a value of $56,621,877 for
5,662,188 Institutional shares of the Intermediate-Term Bond Portfolio at $10.00
per share.
On December 28, 1993, The PNC Fund acquired all the assets of the PNC
Financial Common Trust for Retirement Assets Fixed Income Portfolio from
participants of such fund. The acquisition was accomplished by a tax-free
exchange of assets with a value of $29,793,024 for 3,055,695 Service shares of
the Intermediate-Term Bond Portfolio at $9.75 per share. The Fixed Income
Portfolio's net assets on that date included $1,173,313 in unrealized
appreciation of securities.
On May 26, 1994, The PNC Fund acquired all the assets of the PNC Pension
Plan Assets Fixed Income Portfolio from participants of such fund. The
acquisition was accomplished by a tax-free exchange of assets with a value of
$22,388,535 for 2,444,163 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.16 per share and a value of $24,915,125 for 2,484,060
Institutional shares of the Managed Income Portfolio at $10.03 per share.
On June 21, 1994, The PNC Fund acquired all the assets of the PNC Incentive
Savings Plan Assets Fixed Income Portfolio from participants of such fund. The
acquisition was accomplished by a tax-free exchange of assets with a value of
$11,296,286 for 1,229,193 Institutional shares of the Intermediate-Term Bond
Portfolio at $9.19 per share and a value of $11,684,793 for 1,164,984
Institutional shares of the Managed Income Portfolio at $10.03 per share.
54
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PNC FUND:
We have audited the accompanying statements of net assets of The PNC Fund
(Managed Income, Tax-Free Income, Intermediate Government, Ohio Tax-Free Income,
Pennsylvania Tax-Free Income, Short-Term Bond, and the Intermediate Term-Bond
Portfolios), as of September 30, 1994, and the related statements of operations
for the year (or period) then ended, the statements of changes in net assets for
each of the two years (or periods) in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian as of September 30, 1994. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
PNC Fund (Managed Income, Tax-Free Income, Intermediate Government, Ohio
Tax-Free Income, Pennsylvania Tax-Free Income, Short-Term Bond, and the
Intermediate Term-Bond Portfolios), as of September 30, 1994, and the results of
their operations for the year (or period) then ended, the changes in their net
assets for each of the two years (or periods) in the period then ended, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 23, 1994
55
<PAGE> 56
================================================================================
Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser -- Managed Income Portfolio, Tax-Free Income Portfolio, Intermediate
Government Portfolio, Pennsylvania Tax-Free Income
Portfolio, Short-Term Bond Portfolio
and Intermediate-Term Bond Portfolio
and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Sub-Adviser -- Ohio Tax-Free
Income Portfolio
PNC Bank, Ohio, National Association
Cincinnati, Ohio 45202
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01F
================================================================================
================================================================================
[NEW LOGO TO COME]
THE PNC(R) FUND
MANAGED INCOME PORTFOLIO
TAX-FREE INCOME PORTFOLIO
INTERMEDIATE GOVERNMENT PORTFOLIO
OHIO TAX-FREE INCOME PORTFOLIO
PENNSYLVANIA TAX-FREE
INCOME PORTFOLIO
SHORT-TERM BOND PORTFOLIO
INTERMEDIATE-TERM BOND PORTFOLIO
Annual Report to Shareholders
September 30, 1994
================================================================================
<PAGE> 1
EXHIBIT (17)(z)
THE PNC(R) FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
October 28, 1994
Dear Shareholder:
We are pleased to present the Annual Report to Shareholders of The PNC Fund
covering the year ended September 30, 1994. This report includes security
listings, performance results and important tax information for the equity
portfolios of The PNC Fund.
Each equity portfolio focuses on a specific equity investment style. This
array of portfolios enables shareholders to more precisely structure their
investments according to their overall financial goals. These portfolios are
managed with a sophisticated blend of discipline, experience and expertise. The
goal of the PNC equity portfolios is to provide you with consistency as well as
above-average results.
If you have any questions regarding The PNC Fund or the enclosed
information, please contact the Fund at 1-800-422-6538.
We appreciate your participation in The PNC Fund and we welcome
opportunities to better service your needs.
Sincerely,
/s/ G. WILLING PEPPER
-------------------------
G. Willing Pepper
Chairman and President
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.
<PAGE> 2
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE EQUITY PORTFOLIOS
During the year ended September 30, 1994, The PNC Fund declared the
following dividends from realized capital gains:
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
CAPITAL GAIN, CAPITAL GAIN,
PER SHARE PER SHARE
------------- -------------
<S> <C> <C>
Value Equity Portfolio $.095 $ .12
Growth Equity Portfolio -- .10
Index Equity Portfolio .045 .065
Small Cap Value Equity Portfolio .25 --
International Equity Portfolio .185 .06
Balanced Portfolio .06 --
</TABLE>
FOR CORPORATE SHAREHOLDERS ONLY:
The percentage of dividends from net investment income declared in the year
ended September 30, 1994, which qualify for the corporate dividends received
deduction is as follows:
<TABLE>
<S> <C>
Value Equity Portfolio 91.6%
Growth Equity Portfolio 100.0
Small Cap Growth Equity Portfolio 100.0
Core Equity Portfolio 100.0
Index Equity Portfolio 79.7
Small Cap Value Equity Portfolio 42.5
International Equity Portfolio 0.0
Balanced Portfolio 43.9
</TABLE>
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF PNC INTERNATIONAL EQUITY PORTFOLIO
During the fiscal year ended September 30, 1994, the International Equity
Portfolio distributed $1,227,665 of foreign source income on which the Portfolio
paid foreign taxes of $204,404. This information is being furnished to you
pursuant to notice requirements of Sections 853(a) and 855(d) of the Internal
Revenue Code, as amended, and the Treasury Regulations thereunder.
2
<PAGE> 3
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT
VALUE EQUITY PORTFOLIO
The fiscal year commenced in a very upbeat fashion, as the steadily
improving economic landscape supported noteworthy gains for stocks. Equity
returns for the December 1993 quarter (including the Value Equity Portfolio)
were generally positive. Subsequent quarters, however, proved far less conducive
for equities and the Portfolio, owing to heightened investor concerns about the
prospective direction and magnitude of interest rates.
For the fiscal year ended September 30, 1994, the above influences, among
others, culminated in a return of 3.76% for the Institutional Shares of the
Value Equity Portfolio. This return was generally in line with the S&P 500's
return of 3.68%.
In addition to the aforementioned factors, sectoral positioning influenced
returns for the Portfolio. A strong drug weighting paid off late in the year, as
investor concerns regarding changes in health care began to subside. Basic
Industry sector stocks (e.g. chemicals and paper) also aided performance due to
a return of some measure of pricing power. Conversely, utility stocks peaked at
the beginning of the fiscal year and steadily eroded as interest rates rose.
Higher interest rates also hurt cyclical weightings, since investors reasoned
that the recovery would be undermined by Federal Reserve Board actions.
Despite present uncertainties, the Portfolio's investment approach remains
unchanged. To wit, future portfolio decisions will continue to be heavily
influenced by the composition of the low-P/E Universe.
Comparison of Change in Value of $10,000 investment in the Value Equity
Portfolio and the Standard & Poor's 500 Composite Stock Price Index ("S&P 500")
from inception and at each Fiscal Year End:
[CHART 1]
3
<PAGE> 4
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
GROWTH EQUITY PORTFOLIO
The total return for the Institutional shares of the Growth Equity
Portfolio was (11.14)% compared with 3.68% for the S&P 500 for the fiscal year
ending September 30, 1994. The portfolio underperformed the S&P for several
reasons. First, the most damaging to the Portfolio was the continuing increases
in interest rates by the Federal Reserve. Any systematic increase in interest
rates forces a reduction in P/E's, so those Portfolios with high P/E's suffered
most. Additionally, the Portfolio was over-weighted in the Consumer Cyclical
area for most of the fiscal year and that was one of the areas hardest hit.
Further, the Portfolio went into the calendar year with a full weight in
healthcare which reacted very poorly to the initiatives of the Clinton
Administration.
The Portfolio has made adjustments lowering the Beta from 130 to 118. We
have also lowered the relative strength from the mid-80's to the low-70's.
Another step taken was to raise the average market cap from $8.5 billion to $12
billion.
The Portfolio's performance was most difficult at the beginning of the year
and as changes were made, performance improved. We feel we have now positioned
the Portfolio to take advantage of the new investment climate.
Comparison of Change in Value of $10,000 investment in the Growth Equity
Portfolio and the S&P 500 from inception and at each Fiscal Year End:
[CHART 2]
4
<PAGE> 5
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
SMALL CAP GROWTH EQUITY PORTFOLIO
The twelve-month period ending September 30, 1994 was a difficult period
for investing in growth stocks. The Portfolio produced a loss of slightly under
3%, which compared to a gain of 1.6% by the Russell 2000 Index during the
identical period. Pressure on interest rates and the dollar led to heightened
volatility in the equity markets, and the Portfolio's higher Beta contributed to
a period of relative underperformance versus our benchmark.
In acknowledgement of these market conditions, a great deal of our
investment focus has been on diversifying the securities held in the Portfolio.
While our holdings maintain a high concentration in the technology (36%),
consumer (34%), and healthcare (14%) areas, we have broadened our focus in these
groups to limit the downside risk of sharp sell-offs in any particular industry
sub-sector. These holdings still have all of the characteristics that we look
for: strong revenue growth, solid balance sheets, and above-average earnings
momentum. While the correction in small-capitalization stocks may not yet be
over, the Portfolio is positioned to take advantage of the recovery that we
believe will follow.
Comparison of Change in Value of $10,000 investment in the Small Cap Growth
Portfolio and the Russell 2000 Index from inception and at each Fiscal Year End:
[CHART 3]
5
<PAGE> 6
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
CORE EQUITY PORTFOLIO
During fiscal year 1994, the equity market experienced the cross currents
of rising interest rates and accelerating corporate earnings which impacted
investment returns for the Core Equity Portfolio. Rising interest rates hurt
returns in the utility and financial sectors as evidenced by the S&P group price
only returns of -17.74% and -10.09%, respectively, for the twelve months ending
September 30, 1994. The Portfolio was over-weighted in telephone utility stocks,
but under-weighted in financial and electric utility stocks. Accelerating
corporate earnings benefitted returns in the capital equipment-technology and
basic industry sectors as evidenced by the S&P group price only returns of
+13.4% and +23.5%, respectively, for the twelve months ending September 30,
1994. The Portfolio was over-weighted in both of these sectors.
Another factor which impacted returns of the Portfolio versus the S&P 500
was the divergence of returns between high quality stocks and low quality stocks
during the twelve months ending September 30, 1994. As measured by Merrill Lynch
stocks with quality ratings of B+ or better returned -2.18% during this period
versus +9.24 for stocks with quality ratings of B or worse. The Portfolio
consists of stocks that are large capitalization and of high quality,
consequently this quality return divergence hampered returns during the fiscal
year. The sum of the above factors resulted in a total return for the Portfolio
of 1.79% and 1.55% for the Institutional and Service Class shares respectively
versus a return of 3.68% for the S&P 500.
Comparison of Change in Value of $10,000 investment in the Core Equity
Portfolio and the S&P 500 from inception and at each Fiscal Year End:
[CHART 4]
6
<PAGE> 7
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INDEX EQUITY PORTFOLIO
The total return for Institutional Shares of the Index Equity Portfolio for
the year ended September 30, 1994 was 3.07%. This compares with a total return
of 3.68% for the S&P 500 for the same period. The Portfolio seeks to replicate
the performance of the S&P 500 by owning substantially all the stocks in the S&P
500.
As of year end, the Portfolio consisted of between 90-95% equities with the
remainder in cash. However, in an effort to more closely approximate the S&P
500, the cash portion of the Portfolio is hedged using S&P 500 futures. The goal
of the futures position is to provide the Portfolio with the capital
appreciation of the S&P 500. In order to achieve the total return of the S&P
500, the underlying cash is then invested in high quality fixed income
instruments. The combination of the two provides for an approximate return equal
to the S&P 500.
Comparison of Change in Value of $10,000 investment in the Index Equity
Portfolio and the S&P 500 from inception and at each Fiscal Year End.
[CHART 5]
7
<PAGE> 8
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
SMALL CAP VALUE EQUITY PORTFOLIO
For the twelve months ended September 30, 1994, the Institutional Shares of
the Small Cap Value Equity Portfolio returned 6.28%, well in excess of the
Russell 2000 Index's return of 2.64%. In all but the most recent fiscal quarter,
the Portfolio outperformed the Russell 2000 benchmark.
The Portfolio has been positioned to take advantage of the growth in the
U.S. economy, with increased weightings in the Basic Industries and Capital
Goods sectors. These sectors aided in the stronger performance of the Portfolio
relative to the benchmark. Small cap stocks in general suffered an intra-cycle
correction during the March and June quarters, which dampened all returns.
Provident Capital Management's low P/E style, as we would expect, outperformed
the Russell 2000 in both quarters. The September quarter found small cap stocks
strong once again with growth stocks outperforming value.
In spite of the current resurgence of growth stocks, PCM will adhere to its
long-term value discipline.
Comparison of Change in Value of $10,000 investment in the Small Cap Value
Equity Portfolio and the Russell 2000 Index from inception and at each Fiscal
Year End:
[CHART 6]
8
<PAGE> 9
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio has had another good year. The return
for the Institutional Shares was 10.71%, nearly 60 basis points ahead of the
Morgan Stanley Europe, Australia, and Far East (EAFE) Index's return of 10.11%.
This was achieved despite the costs involved with a partial currency hedge which
we believe to be a prudent policy considering the very low level reached by the
U.S. dollar.
The last 12 months have been characterized by high volatility in emerging
markets and very uneventful times in the mature markets, including Japan and
Western Europe.
Both Western Europe and in Japan, stock market valuations are taking into
account an economic recovery as well as weaker bond markets. Company earnings
are getting better due to stronger demand and cost reductions, but higher
interest rates are holding stock markets back. Until the market operators will
be convinced that inflation is under control worldwide, these two opposing
forces will continue to neutralize each other.
The Portfolio is not overweighted in Europe and is underweighted in Japan
as valuations are more attractive in the old world. Also, over the summer, we
have started to shift money into the Hong Kong market to take advantage of a
weak stock market and rapid economic growth in the Far East.
Comparison of Change in Value of $10,000 investment in the International
Equity Portfolio and the EAFE Index from inception and at each Fiscal Year End:
[CHART 7]
9
<PAGE> 10
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
INTERNATIONAL EMERGING MARKETS PORTFOLIO
The PNC International Emerging Markets Portfolio had a positive start
thanks to a rebound in most markets of Asia and Latin America over the summer.
It has, however, trailed its peers in the first quarter of its existence due
mainly to two factors: the initial money has been put to work slowly, as the
markets were running away and, secondly, the Portfolio is not yet authorized to
invest in some major markets like Brazil and S. Korea.
Looking ahead, the Portfolio is now fully invested and will remain so
(i.e., a maximum cash position of 10%). The Portfolio's investments are
diversified over 17 countries from Asia to Central Europe.
There are three major geographic areas in which the Portfolio is invested.
First, the Asian markets represent the fastest economic growth, but they are
also more expensive. Secondly, the Latin American markets have had mixed
performance over the last quarter. While Brazil has been -- by far -- the best
performing market, Chile has been a steady performer, however, Mexico and
Argentina are now offering the best opportunities to value investors. Thirdly,
Central and Southern Europe and the Middle East offer good opportunities to
value investors. These markets have, in general, not done well in the recent
past. We have, however, started to put some money to work in this part of the
world as we believe these markets have been neglected for too long by
international investors.
Comparison of Change in Value of $10,000 investment in the International
Emerging Markets Portfolio and the EAFE Index from inception and at each Fiscal
Year End:
[CHART 8]
10
<PAGE> 11
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
BALANCED PORTFOLIO
Performance of the Institutional Class of the Balanced Portfolio was
essentially flat for the year ended September 30, 1994 with a total return of
(0.11)%. During the period, the S&P 500 returned 3.68% and the Lehman
Government/Corporate Index returned (4.14)%. The invested equity portion of the
Portfolio matched the S&P 500 performance at 3.6%, but the fixed income portion
lost ground over its benchmark index because of its longer duration for the
first nine months. Total assets grew from $68.1 million to $146.1 million from
net contributions.
At the end of the last fiscal year, interest rates were at bottom and the
upward directional path from then has impeded positive results for both equity
and fixed income markets. The Portfolio attempted to reduce the
interest-sensitivity by reducing financial and utility holdings and being
under-invested in each asset class. Cash reserves represented 4% to 15% of total
holdings at various times during the year as new cash inflows were invested
opportunistically but with some caution. Equity investments are broadly
diversified among industry sectors and more emphasis was placed on issues
considered to be undervalued and of high financial quality. Over 70 individual
equity holdings are utilized not only to disperse risk but also to maintain
manageable trading liquidity. The present recommended portfolio mix is 58.5%
equity, 35% bonds and 6.5% cash, reflecting the steady reduction in equity
exposure from 70%-65% earlier this year.
The fixed income markets plummeted over the year due to inflation fears
resulting from a stronger-than-expected economy. These factors prompted the
Federal Reserve to raise short-term rates by 175 basis points. Yields on long
Treasury bonds rose from 6.03% to 7.82% while the yield on the two-year Treasury
note rose from 3.86% to 6.59% during the year. As a result, the yield curve
flattened by 94 basis points over the year ended September 30, 1994. The fixed
income portion of the Portfolio has shortened duration by reducing exposure to
the corporate and mortgage sectors and by increasing holdings of Treasuries and
cash alternatives.
11
<PAGE> 12
THE PNC FUND
ANNUAL INVESTMENT ADVISER'S REPORT (Continued)
BALANCED PORTFOLIO
Comparison of Change in Value of $10,000 investment in the Balanced
Portfolio, S&P 500 and Lehman Goverment/Corporate Index from inception and at
each Fiscal Year End:
[CHART 9]
12
<PAGE> 13
THE PNC(R) FUND
VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS -- 97.3%
AEROSPACE -- 3.5%
Boeing Co. 310,300 $ 13,381,687
United Technologies Corp. 178,900 11,203,612
------------
24,585,299
------------
AIR TRANSPORT -- 2.1%
British Airways PLC ADR 190,400 10,971,800
Delta Air Lines, Inc. 87,100 3,897,725
------------
14,869,525
------------
APPAREL -- 1.1%
V.F. Corp. 150,000 7,406,250
------------
BANKS -- 8.7%
Comerica, Inc. 297,000 8,241,750
CoreStates Financial Corp. 348,426 9,276,842
First Chicago Corp. 244,600 11,221,025
Meridian Bancorp, Inc. 338,900 9,743,375
Michigan National Corp. 107,000 8,158,750
NationsBank Corp. 150,000 7,350,000
Republic New York Corp. 151,800 6,603,300
------------
60,595,042
------------
BUSINESS MACHINES -- 5.8%
International Business
Machines Corp. 122,000 8,479,000
Stratus Computer, Inc. 276,500** 9,608,375
Sun Microsystems, Inc. 404,200** 11,873,375
Xerox Corp. 97,200 10,376,100
------------
40,336,850
------------
CHEMICALS -- 10.8%
Allied-Signal, Inc. 240,400 8,203,650
Dow Chemical Co. 150,850 11,804,012
E.I. Du Pont
De Nemours & Co. 179,025 10,383,450
IMC Global, Inc. 278,350 12,386,575
Lubrizol Corp. 460,500 14,333,062
Monsanto Co. 147,200 11,831,200
PPG Industries, Inc. 151,400 5,999,225
------------
74,941,174
------------
CONGLOMERATES -- 0.7%
ITT Corp. 59,200 4,935,800
------------
CONSUMER-DURABLES -- 1.0%
Whirlpool Corp. 131,700 6,766,088
------------
CONSUMER-NON-DURABLES -- 0.8%
First Brands Corp. 155,559 5,211,227
------------
DRUGS AND HEALTH CARE -- 7.6%
American Home
Products Corp. 183,000 $ 10,980,000
Beckman Instruments, Inc. 381,500 11,254,250
Bristol Meyers Squibb Co. 177,100 10,161,112
Eli Lilly & Co. 189,400 10,961,525
Merck & Co., Inc. 265,350 9,419,925
------------
52,776,812
------------
ENERGY & RAW MATERIALS -- 4.6%
Elf Aquitaine ADR 344,900 12,416,400
Royal Dutch Petroleum Co. 109,100 11,714,612
Ultramar PLC ADR 298,200 7,604,100
------------
31,735,112
------------
ENERGY & UTILITIES -- 6.1%
American Electric
Power Co., Inc. 200,000 6,275,000
Ohio Edison Co. 479,900 9,118,100
PECO Energy Co. 449,900 11,416,212
Southern Co. 320,000 5,960,000
Unicom Corp. 428,230 9,528,117
------------
42,297,429
------------
FINANCE -- 2.2%
Dean Witter Discover & Co. 245,936 9,253,342
Travelers, Inc. 172,200 5,661,075
------------
14,914,417
------------
INSURANCE -- 7.9%
AMBAC, Inc. 178,200 6,593,400
American General Corp. 213,900 5,802,038
American International
Group, Inc. 93,950 8,349,806
AON Corp. 222,300 7,419,263
Chubb Corp. 101,400 7,212,075
General Reinsurance Corp. 80,600 8,533,525
MBIA, Inc. 118,700 7,077,488
TIG Holdings, Inc. 197,800 3,906,550
------------
54,894,145
------------
MOTOR VEHICLES -- 4.2%
Chrysler Corp. 217,400 9,755,825
Ford Motor Co. 377,200 10,467,300
General Motors Corp. 184,304 8,639,250
------------
28,862,375
------------
NON FERROUS METALS -- 2.6%
Inco Limited 102,800 3,096,850
Phelps Dodge Corp. 180,300 11,201,138
Reynolds Metals Co. 71,000 4,020,375
------------
18,318,363
------------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 14
VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL DOMESTIC -- 5.5%
Atlantic Richfield Co. 135,600 $ 13,678,650
Phillips Petroleum Co. 236,900 8,113,825
Tenneco, Inc. 234,500 10,347,313
Texaco, Inc. 97,800 5,868,000
------------
38,007,788
------------
OIL INTERNATIONAL -- 3.7%
Chevron Corp. 136,800 5,694,300
Diamond Shamrock, Inc. 231,900 5,971,425
Exxon Corp. 117,400 6,765,175
Mobil Corp. 93,300 7,382,363
------------
25,813,263
------------
PAPER AND FOREST PRODUCTS -- 4.4%
Bowater, Inc. 120,000 3,495,000
Champion International Corp. 225,100 8,722,625
Federal Paper Board Co., Inc. 159,900 5,036,850
International Paper Co. 100,900 7,920,650
Weyerhaeuser Co. 126,500 5,645,063
------------
30,820,188
------------
PRODUCER GOODS -- 1.6%
General Electric Co. 223,200 10,741,500
------------
RAILROADS & SHIPPING -- 2.2%
Consolidated Rail Corp. 159,000 7,870,500
Norfolk Southern Corp. 124,300 7,737,675
------------
15,608,175
------------
RETAIL MERCHANDISING -- 4.1%
Fingerhut Companies, Inc. 349,700 8,043,100
K Mart Corp. 728,000 13,013,000
Sears, Roebuck & Co. 153,000 7,344,000
------------
28,400,100
------------
TELEPHONE -- 3.5%
NYNEX Corp. 288,600 11,111,100
Sprint Corp. 75,000 2,859,375
U.S. West, Inc. 270,200 10,470,250
------------
24,440,725
------------
TIRE AND RUBBER -- 1.5%
Goodyear Tire & Rubber Co. 300,000 10,012,500
------------
TOBACCO -- 1.1%
UST, Inc. 270,100 $ 7,731,613
------------
TOTAL COMMON STOCKS
(Cost $631,500,340) 675,021,760
------------
TEMPORARY INVESTMENTS -- 2.0%
Smith Barney Money Market Fund
(Cost $13,484,263) 13,484,263
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $644,984,603) 99.3% 688,506,023
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%
4,936,680
NET ASSETS (Applicable to
49,730,049 Institutional
shares, 9,037,147 Service
shares, and 895,820 Series A
Investor shares outstanding) 100.0% $693,442,703
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE, AND SERIES A
INVESTOR SHARE
($693,442,703 divided by 59,663,016) $11.62
OFFERING PRICE PER INSTITUTIONAL AND
SERVICE SHARE $11.62
MAXIMUM OFFERING PRICE PER SERIES A
INVESTOR SHARE
($11.62 divided by .955) $12.17
- -------------
* Also for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $ 59,336,338
Gross unrealized depreciation (15,814,918)
------------
$ 43,521,420
=============
** Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
THE PNC(R) FUND
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 11.7%
FEDERAL HOME LOAN MORTGAGE
CORPORATION DISCOUNT NOTES -- 7.2%
4.75% 10/03/94 $10,000 $ 9,997,361
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES -- 4.5%
5.00% 10/03/94 6,325 6,323,243
------------
TOTAL AGENCY OBLIGATIONS
(Cost $16,320,604) 16,320,604
------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 89.5%
ADVERTISING -- 0.9%
Omnicom Group, Inc. 25,000 1,256,250
------------
AUTOMOTIVE -- 1.2%
Pep Boys-Manny Moe & Jack 50,000 1,737,500
------------
BANKS -- 1.7%
BankAmerica Corp. 9,500 419,188
Baybanks, Inc. 6,500 357,500
Boatmen's Bancshares, Inc. 30,000 931,875
NationsBank Corp. 15,000 735,000
------------
2,443,563
------------
BUSINESS SERVICES -- 2.6%
Cintas Corp. 54,000 1,863,000
Federal Express Corp. 9,300** 575,438
Reuters Holdings PLC ADR 12,000 540,000
Xerox Corp. 6,200 661,850
------------
3,640,288
------------
CHEMICALS -- 3.5%
Air Products and Chemicals,
Inc. 21,000 981,750
Dow Chemical Co. 24,000 1,878,000
E.I. Du Pont De Nemours & Co. 18,000 1,044,000
Monsanto Co. 12,000 964,500
------------
4,868,250
------------
COMPUTER & OFFICE EQUIPMENT -- 10.6%
Automatic Data Processing, Inc. 28,000 1,571,500
Compaq Computer Corp. 36,000** 1,174,500
Computer Sciences Corp. 29,000** 1,261,500
Hewlett Packard Co. 15,000 1,310,625
Informix Corp. 28,500** 790,875
Intel Corp. 23,800 1,463,700
International Business Machines 20,000 1,390,000
Micron Technology, Inc. 35,000 1,207,500
Microsoft Corp. 24,000** 1,347,000
COMPUTER & OFFICE EQUIPMENT (CONTINUED)
Oracle Systems Corp. 30,000** $ 1,290,000
Staples, Inc. 10,000** 328,750
Three Com Corp. 40,000** 1,495,000
------------
14,630,950
------------
CONSTRUCTION -- 4.0%
Fluor Corp. 25,000 1,243,750
Foster Wheeler Corp. 15,000 515,625
Home Depot, Inc. 40,000 1,680,000
Nucor Corp. 31,000 2,158,375
------------
5,597,750
------------
COSMETICS AND TOILETRIES -- 1.6%
Gillette Co. 31,000 2,193,250
------------
DRUGS AND HEALTH CARE -- 7.5%
Abbott Laboratories, Inc. 20,800 652,600
Columbia Healthcare Corp. 24,000 1,044,000
Eli Lilly & Co. 15,000 868,125
Forest Laboratories, Inc. 13,000** 640,250
Humana, Inc. 60,000** 1,417,500
Johnson & Johnson, Inc. 30,600 1,579,725
Pacificare Health Systems, Inc.
Class B 8,000** 600,000
Pfizer, Inc. 10,000 691,250
Teva Pharmaceutical
Industries, Ltd. ADR 40,000 1,135,000
United Healthcare Corp. 34,400 1,823,200
------------
10,451,650
------------
ELECTRICAL EQUIPMENT -- 3.3%
AMP, Inc. 15,000 1,160,625
General Instruments 32,000** 912,000
Molex, Inc. Class A 43,000 1,687,750
W.W. Grainger, Inc. 15,000 888,750
------------
4,649,125
------------
ELECTRONICS -- 11.8%
Atmel Corp. 51,000** 1,600,125
Diebold, Inc. 39,000 1,603,875
Duracell International 40,000 1,825,000
Emerson Electric Co. 45,000 2,683,125
General Electric Co. 46,000 2,213,750
LSI Logic Corp. 55,000** 2,055,625
Motorola, Inc. 25,500 1,345,125
Texas Instruments, Inc. 8,000 547,000
Varian Associates, Inc. 70,000 2,555,000
------------
16,428,625
------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT -- 0.8%
Walt Disney Co. 28,500 $ 1,107,937
------------
FINANCE -- 2.1%
Federal National Mortgage
Association 15,000 1,181,250
First Financial
Management Corp. 30,000 1,725,000
------------
2,906,250
------------
FINANCIAL SERVICES -- 2.4%
First Data Corp. 66,000 3,316,500
------------
FOOD & AGRICULTURE -- 1.3%
Albertsons, Inc. 60,000 1,747,500
------------
FOOD AND BEVERAGE -- 5.2%
Anheuser-Busch Cos., Inc. 26,000 1,322,750
Coca-Cola Co. 24,500 1,191,313
Conagra, Inc. 35,500 1,118,250
CPC International, Inc. 34,000 1,721,250
Dr. Pepper/Seven Up Cos., Inc. 50,000** 1,162,500
Tyson Foods, Inc. 28,000 672,000
------------
7,188,063
------------
HOME FURNISHINGS/HOUSEWARES -- 3.3%
Lancaster Colony Corp. 65,333 2,286,655
Newell Co. 55,600 1,237,100
Procter & Gamble Co. 17,300 1,031,513
------------
4,555,268
------------
HOTEL/MOTEL -- 3.0%
Hospitality Franchise
System, Inc. 67,000** 2,102,125
La Quinta Inns, Inc. 20,000 717,500
Marriot International Inc. 49,000 1,414,875
------------
4,234,500
------------
INSURANCE -- 0.5%
American International
Group, Inc. 8,000 711,000
------------
MACHINERY AND HEAVY EQUIPMENT -- 1.7%
Clark Equipment Co. 35,000 2,423,750
------------
MANUFACTURING -- 6.7%
Allied-Signal, Inc. 52,000 1,774,500
Applied Materials, Inc. 35,000** 1,636,250
MANUFACTURING (CONTINUED)
Millipore Corp. 30,000 $ 1,612,500
Minnesota Mining &
Manufacturing Co. 30,000 1,657,500
Parker-Hannifin Corp. 15,000 598,125
Premark International, Inc. 32,100 1,356,225
York International Corp. 18,000 749,250
------------
9,384,350
------------
MEDIA -- 0.7%
Capital Cities/ABC, Inc. 12,000 984,000
------------
MEDICAL AND MEDICAL SERVICES -- 0.8%
Healthsouth Rehabilitation
Corp. 30,000** 1,177,500
------------
PAPER -- 0.8%
Kimberly-Clark Corp. 20,000 1,175,000
------------
PRODUCER GOODS -- 2.4%
Dial Corp. 66,000 1,377,750
Illinois Tool Works, Inc. 38,000 1,624,500
Nike, Inc. 6,000 353,250
------------
3,355,500
------------
PUBLISHING -- 1.5%
McGraw Hill, Inc. 21,000 1,538,250
R. R. Donnelley and Sons Co. 20,000 600,000
------------
2,138,250
------------
RETAIL MERCHANDISING -- 3.3%
Dayton Hudson Corp. 18,000 1,377,000
Lowe's Cos., Inc. 40,000 1,545,000
Nordstrom, Inc. 15,000 600,000
J.C. Penney Co., Inc. 22,000 1,135,750
------------
4,657,750
------------
TELECOMMUNICATIONS -- 3.3%
AT&T Corp. 32,000 1,728,000
Equifax, Inc. 50,000 1,481,250
Sprint Corp. 36,000 1,372,500
------------
4,581,750
------------
TOYS -- 1.0%
Mattel, Inc. 51,250 1,390,155
------------
TOTAL COMMON STOCKS
(Cost $119,556,111) 124,932,224
------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $135,876,715*) 101.2% $141,252,828
LIABILITIES IN EXCESS
OF OTHER ASSETS (1.2%) (1,617,645)
--------- ------------
NET ASSETS (Applicable to
9,598,131 Institutional shares,
3,611,925 Service shares, and
496,922 Series A Investor
shares outstanding) 100.0% $139,635,183
======== ============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($97,834,319 divided by 9,598,131) $10.19
======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($36,751,810 divided by 3,611,925) $10.18
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($5,049,054 divided by 496,922) $10.16
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($10.16 divided by .955) $10.64
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 8,287,453
Gross unrealized depreciation (2,911,340)
-----------
$ 5,376,113
===========
** Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
THE PNC(R) FUND
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 11.5%
FEDERAL HOME LOAN MORTGAGE
CORPORATION
4.75% 10/03/94 $ 7,000 $ 6,998,153
5.00% 10/03/94 3,330 3,329,075
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $10,327,228) 10,327,228
-----------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 86.7%
AIR TRANSPORT -- 0.4%
Value Jet 17,000** 374,000
-----------
COMMUNICATIONS -- 1.9%
Cascade Communications 15,000** 708,750
Level One Communications, Inc. 30,000** 960,000
-----------
1,668,750
-----------
COMPUTER & OFFICE EQUIPMENT -- 7.9%
Acxiom Corp. 25,000** 712,500
Alias Research, Inc. 21,000** 409,500
Atria Software, Inc. 43,500** 989,625
Business Objects SA 700** 19,950
Electronics For Imaging, Inc. 33,000** 866,250
Fore Systems, Inc. 25,000** 1,112,500
IMRS, Inc. 22,000** 825,000
In Focus Systems, Inc. 35,000** 783,125
Micros Systems, Inc. 26,000** 786,500
Vmark Software 27,000** 567,000
-----------
7,071,950
-----------
CONSUMER-DURABLES -- 1.1%
Cobra Golf, Inc. 17,500** 969,063
-----------
CONSUMER-NON-DURABLES -- 1.7%
Norrell Corp. 40,900 733,644
Wackenhut Corrections Corp. 61,100** 824,850
-----------
1,558,494
-----------
ELECTRONICS -- 7.1%
Amphenol Corp. 48,500** 1,073,063
Electoglas, Inc. 15,000** 746,250
Harman International
Industries, Inc. 34,000 1,185,750
International Rectifier Corp. 35,000** 713,125
Lam Research Corp. 22,400** 901,600
Silicon Valley Group, Inc. 50,000** 718,750
Stratacom, Inc. 28,000** 1,043,000
-----------
6,381,538
-----------
ENTERTAINMENT -- 1.6%
Hollywood Entertainment
Corporation 37,000** $ 1,036,000
Movie Gallery 19,300** 400,475
-----------
1,436,475
-----------
FINANCE -- 0.7%
Paychex, Inc. 9,500 358,625
Regional Acceptance Corp. 18,575** 255,406
-----------
614,031
-----------
HEALTH CARE -- 7.5%
American Medical Response, Inc. 20,000** 502,500
Envoy Corp. 20,000** 380,000
HBO & Co. 26,000 884,000
Health Care & Rehabilitation 35,000** 993,125
Healthcare Services Group, Inc. 65,000** 755,625
IDEXX Corp. 23,000** 678,500
Medaphis Corp. 13,300** 482,125
Phycor, Inc. 12,600** 434,700
Quantum Health Resources, Inc. 17,100** 721,406
Sun Healthcare Group, Inc. 40,000** 875,000
-----------
6,706,981
-----------
HOME FURNISHINGS/HOUSEWARES -- 0.5%
Bush Inds., Inc. Class A 17,200 470,850
-----------
INSURANCE -- 0.6%
Vesta Insurance 20,000 530,000
-----------
MACHINERY (NON ELECTRIC) -- 1.1%
FSI International, Inc. 42,300** 972,900
-----------
MANUFACTURING -- 0.3%
SPS Transaction Co. 5,100** 265,200
-----------
MEDICAL INSTRUMENTS & SUPPLIES -- 2.0%
Gulf South Medical 6,000** 180,000
Omnicare, Inc. 25,000 1,003,125
Orthofix International, N.V. 52,800** 607,200
-----------
1,790,325
-----------
OFFICE SUPPLIES -- 0.9%
Viking Office Products, Inc. 28,000** 847,000
-----------
RESTAURANTS -- 5.7%
Apple South, Inc. 40,650 721,538
Bob Evans Farms, Inc. 25,000 512,500
Bugaboo Creek Steak House 16,400** 196,800
DSG International Ltd Ord 26,000** 695,500
Landry's Seafood
Restaurants, Inc. 39,900** 1,017,450
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RESTAURANTS (CONTINUED)
Morrison Restaurants, Inc. 32,300 $ 880,175
O'Charley's, Inc. 18,000** 243,000
Quality Dining, Inc. 9,700** 122,463
Rock Bottom Restaurants, Inc. 40,000** 520,000
Wall Street Deli, Inc. 13,000** 185,250
-----------
5,094,676
-----------
RETAIL -- 11.2%
Ann Taylor Stores, Inc. 10,000 360,000
Books-A-Million, Inc. 70,000** 962,500
Corporate Express 3,600** 74,700
Fair, Isaac & Co., Inc. 25,500 902,063
Hechinger Co. 70,000 1,006,250
Keane, Inc. 18,750** 417,188
Micro Warehouse, Inc. 28,400** 901,700
Robert Half International, Inc. 40,000** 765,000
St. John Knits, Inc. 30,000 870,000
Starbucks Corp. 24,700** 569,644
Storage USA, Inc. 40,000 1,045,000
Trendlines 16,500** 228,938
Tommy Hilfiger Corp. 25,000** 971,875
Williams-Sonoma, Inc. 28,500** 974,344
-----------
10,049,202
-----------
RETAIL MERCHANDISING -- 2.9%
Ethan Allen Interiors, Inc. 10,400** 235,300
Fusion System 43,000** 1,394,810
Pet Smart 25,000** 950,000
-----------
2,580,110
-----------
TECHNOLOGY -- 19.0%
Adaptec, Inc. 41,400** 784,013
American Management Systems,
Inc. 34,000** 799,000
Applied Digital Access, Inc. 30,000** 603,750
Avid Technology 30,000** 1,012,500
Bell Micro Products, Inc. 12,000** 177,000
Brandon Systems Corp. 20,000 330,000
Corel Corp. 14,100** 294,338
Corvel Corp. 3,300** 74,663
Cygne Designs, Inc. 16,100** 362,250
Dh Technology, Inc. 42,000** 966,000
Diagnostek, Inc. 43,000** 795,500
Gartner Group, Inc. New Class A 40,000** 1,140,000
KLA Instruments Corp. 16,300** 806,850
Microchip Technology, Inc. 19,500** 765,375
TECHNOLOGY (CONTINUED)
Network General Corp. 27,200** $ 533,800
Newpark Resources, Inc. 31,300** 594,700
Norand Corp. 15,000** 555,000
Peak Technologies Group 40,000** 530,000
Photronics, Inc. 45,000** 967,500
Proxima Corp. 19,500** 507,000
Quintiles Transnational 37,000** 994,375
Scientific Games Holding, Inc. 22,000** 918,500
Tencor Instruments 46,000** 1,713,500
Vencor International, Inc. 20,000** 910,000
-----------
17,135,614
-----------
TELECOMMUNICATIONS -- 3.5%
Adtran, Inc. 30,000** 1,008,750
ALC Communications Corp. 23,000** 753,250
General Datacomm
Industries, Inc. 35,500** 1,002,875
LDDS Communications
Group, Inc. 23,400** 516,263
-----------
3,281,138
-----------
TEXTILES -- 2.0%
Cyrk, Inc. 17,500** 537,031
Donnkenny, Inc. 23,400** 497,250
Nautica Enterprises 25,000** 773,438
-----------
1,807,719
-----------
TRANSPORTATION -- 0.7%
Swift Transportation, Inc. 15,000** 644,063
-----------
TRAVEL & RECREATION -- 3.9%
Doubletree Corp. 51,000** 953,063
Equity Inns, Inc. 40,000 435,000
Regal Cinemas 20,000** 756,250
RFS Hotel 48,000 772,500
Sholodge, Inc. 25,300** 556,600
-----------
3,473,413
-----------
TRUCKING & FREIGHT -- 1.6%
Landstar System, Inc. 26,000** 897,000
M.S. Carriers, Inc. 22,700** 505,070
-----------
1,402,070
-----------
WASTE MANAGEMENT -- 0.9%
United Waste Systems 33,500 829,125
-----------
TOTAL COMMON STOCKS
(Cost $68,691,117) 77,954,687
-----------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 20
SMALL CAP GROWTH EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
CORPORATE BONDS -- 1.7%
Sholodge, Inc.
7.50% 05/01/04 $ 1,500 $ 1,500,000
-----------
(Cost $1,500,000)
TOTAL INVESTMENTS IN SECURITIES
(Cost $80,518,345) 99.9% 89,781,915
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.1% 98,985
------- -----------
NET ASSETS (Applicable to
6,457,109 Institutional shares,
2,233,134 Service shares and
160,040 Series A Investor shares
outstanding) 100.0% $89,880,900
======= ===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER
INSTITUTIONAL SHARE
($65,612,111 divided by 6,457,109) $10.16
======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($22,648,382 divided by 2,233,134) $10.14
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($1,620,407 divided by 160,040) $10.12
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($10.12 divided by .955) $10.60
======
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $10,582,713
Gross unrealized depreciation (1,319,143)
-----------
$ 9,263,570
===========
** Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 21
THE PNC(R) FUND
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 12.0%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 6.9%
4.75% 10/03/94 $ 6,750 $ 6,748,219
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 5.1%
4.70% 10/18/94 5,000 4,988,903
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $11,737,122) 11,737,122
-----------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 88.3%
AEROSPACE -- 1.0%
United Technologies Corp. 15,000 939,375
-----------
AIR TRANSPORT -- 1.6%
Boeing Co. 37,000 1,595,625
-----------
BANKS -- 3.5%
Banc One Corp. 27,000 806,625
BankAmerica Corp. 31,000 1,367,875
NationsBank Corp. 25,000 1,225,000
-----------
3,399,500
-----------
BUSINESS MACHINES -- 1.4%
Pitney Bowes, Inc. 39,000 1,384,500
-----------
BUSINESS SERVICES -- 0.7%
Deluxe Corp. 25,000 734,375
-----------
CHEMICALS -- 8.5%
Air Products & Chemicals, Inc. 20,000 935,000
Dow Chemical Co. 23,000 1,799,750
E.I. Dupont De Nemours & Co. 26,000 1,508,000
Minnesota Mining & Manufacturing
Co. 40,000 2,210,000
PPG Industries, Inc. 30,000 1,188,750
Rohm & Haas Co. 12,000 685,500
-----------
8,327,000
-----------
COMPUTER PERIPHERAL -- 0.5%
Cisco Sytems 11,000** 301,125
Parametric Technology Corp. 6,000** 199,500
-----------
500,625
-----------
CONSTRUCTION -- 1.9%
Fluor Corp. 38,000 1,890,500
-----------
DRUGS AND HEALTH CARE -- 10.0%
American Home Products Corp. 29,000 $ 1,740,000
Columbia Healthcare, Corp. 28,000 1,218,000
Eli Lilly and Co. 18,000 1,041,750
Johnson & Johnson 40,000 2,065,000
Merck & Co., Inc. 17,000 603,500
Pfizer, Inc. 14,000 967,750
United Healthcare Corp. 40,000 2,120,000
-----------
9,756,000
-----------
ELECTRONICS -- 7.5%
AMP, Inc. 23,000 1,779,625
Emerson Electric Co. 29,000 1,729,125
Intel Corp. 29,000 1,783,500
Motorola, Inc. 23,000 1,213,250
Schlumberger Ltd 16,000 870,000
-----------
7,375,500
-----------
FINANCE -- 3.0%
Dean Witter Discover Co. 37,000 1,392,125
Federal National Mortgage
Association 20,000 1,575,000
-----------
2,967,125
-----------
FOOD & AGRICULTURE -- 2.4%
McCormick & Co., Inc. 40,000 795,000
Sara Lee Corp. 34,000 765,000
Sysco Corp. 33,000 837,375
-----------
2,397,375
-----------
FREIGHT AND SHIPPING -- 0.7%
W.W. Grainger, Inc. 12,000 711,000
-----------
INSURANCE -- 2.4%
American International
Group, Inc. 19,000 1,688,625
General Re Corp. 6,500 688,188
-----------
2,376,813
-----------
MANUFACTURING -- 1.7%
Illinois Tool Works, Inc. 38,000 1,624,500
-----------
OIL DOMESTIC -- 1.7%
Unocal Corp. 59,000 1,666,750
-----------
OIL INTERNATIONAL -- 7.0%
Amoco Corp. 30,500 1,807,125
Atlantic Richfield Co. 9,000 907,875
Chevron Corp. 46,000 1,914,750
Noble Affiliates, Inc. 20,000 535,000
Royal Dutch Petroleum Co. 16,000 1,718,000
-----------
6,882,750
-----------
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 22
CORE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER AND FOREST PRODUCTS -- 2.6%
International Paper Co. 15,000 $ 1,177,500
Temple Inland, Inc. 15,000 828,750
Union Camp Corp. 11,000 540,375
-----------
2,546,625
-----------
PRODUCER GOODS -- 2.9%
General Electric Co. 59,000 2,839,375
-----------
RAILROADS & SHIPPING -- 2.8%
Burlington Northern, Inc. 28,500 1,432,125
Conrail Corp. 25,500 1,262,250
-----------
2,694,375
-----------
RETAIL MERCHANDISING -- 4.6%
J.C. Penney Co., Inc. 36,000 1,858,500
Liz Claiborne, Inc. 40,000 910,000
May Department Stores Co. 25,000 984,375
Wal-Mart Stores., Inc. 34,000 794,750
-----------
4,547,625
-----------
SOAPS & COSMETICS -- 2.1%
International Flavors &
Fragrances, Inc. 30,000 1,248,750
Unilever N.V. 7,000 793,625
-----------
2,042,375
-----------
TELEPHONE -- 11.1%
Alltel Corp. 40,000 1,080,000
AT&T Corp. 47,000 2,538,000
Bell Atlantic Corp. 28,000 1,484,000
GTE Corp. 44,000 1,336,500
MCI Communications Corp. 64,000 1,640,000
Southwestern Bell Co. 34,000 1,445,000
U.S. West, Inc. 34,000 1,317,500
-----------
10,841,000
-----------
TOBACCO -- 1.7%
Philip Morris Cos., Inc. 28,000 1,711,500
-----------
TRAVEL & RECREATION -- 1.8%
Walt Disney Co. 46,000 1,788,250
-----------
UTILITIES (ELECTRIC) -- 2.9%
FPL Group, Inc. 34,000 $ 1,105,000
PECO Energy Co. 65,000 1,649,374
-----------
2,754,374
-----------
UTILITIES GAS & ELECTRIC -- 0.3%
Niagara Mohawk Power Corp. 23,000 304,750
-----------
TOTAL COMMON STOCKS
(Cost $86,165,689) 86,599,562
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $97,902,811*) 100.3% 98,336,684
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.3%) (319,310)
--------- -----------
NET ASSETS (Applicable to
4,851,728 Institutional shares,
4,969,723 Service shares, and
60,595 Series A Investor shares
outstanding) 100.0% $98,017,374
======= ===========
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE, AND SERIES A
INVESTOR SHARE
($98,017,374 divided by 9,882,046) $9.92
=====
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $9.92
=====
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($9.92 divided by .955) $10.39
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 3,730,659
Gross unrealized depreciation (3,296,786)
-----------
$ 433,873
===========
** Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
THE PNC(R) FUND
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 5.4%
FEDERAL HOME LOAN MORTGAGE CORP. DISCOUNT
NOTES
4.75% 10/03/94 $ 6,980 $ 6,978,158
FEDERAL NATIONAL MORTGAGE CORP.
DISCOUNT NOTES
5.00% 10/03/94 2,620 2,619,272
------------
TOTAL AGENCY OBLIGATIONS
(Cost $9,597,430) 9,597,430
------------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 94.3%
AEROSPACE -- 1.6%
Boeing Co. 16,700 720,187
E Systems, Inc. 1,900 78,612
General Dynamics Corp. 3,100 135,625
Lockheed Corp. 3,100 215,837
Martin Marietta Corp. 4,500 200,250
McDonnell Douglas Corp. 1,800 207,900
Northrop Grumman Corp. 2,200 99,550
Rockwell International Corp. 11,200 383,600
T.R.W., Inc. 3,200 232,000
Textron, Inc. 4,400 223,850
United Technologies Corp. 5,800 363,225
------------
2,860,636
------------
AIR TRANSPORT -- 0.3%
A.M.R. Corp. 4,000** 206,000
Delta Air Lines, Inc. 3,000 134,250
Federal Express Corp. 3,200** 198,000
U.S. Air Group, Inc. 2,800** 12,950
------------
551,200
------------
APPAREL -- 0.6%
Brown Group, Inc. 1,100 36,987
Genesco, Inc. 1,400** 3,325
Hartmarx Corp. 1,500** 8,062
Liz Claiborne, Inc. 3,900 88,725
Melville Corp. 6,100 217,312
Nike, Inc. 3,600 211,950
Oshkosh B' Gosh, Inc. 800 11,500
Reebok International, Ltd. 3,900 139,425
Russell Corp. 1,900 57,950
Spring Industries, Inc. 1,100 39,600
Stride Rite Corp. 2,500 35,000
V.F. Corp. 3,000 148,125
------------
997,961
------------
BANKS -- 5.7%
Banc One Corp. 19,845 $ 592,869
BankAmerica Corp. 17,612 777,130
Bankers Trust New York Corp. 3,500 233,625
Bank of Boston Corp. 5,600 149,100
Barnett Banks, Inc. 5,000 221,250
Boatmens Bancshares, Inc. 5,500 170,844
Chase Manhattan Corp. 12,400 429,350
Chemical Banking Corp. 12,430 435,050
Citicorp 18,900 803,250
CoreStates Financial Corp. 7,400 197,025
Federal Home Loan
Mortgage Corp. 10,800 576,450
First Chicago Corp. 5,200 238,550
First Fidelity Bancorp 4,500 189,000
First Interstate Bancorp 3,900 316,387
First Union Corp. 11,460 495,645
Fleet Financial Group, Inc. 6,900 259,612
J.P. Morgan & Co., Inc. 8,800 534,600
MBNA Corp. 9,950 230,094
Mellon Bank Corp. 3,500 196,875
N.B.D. Bancorp, Inc. 8,450 241,881
NationsBank Corp. 13,047 639,302
Norwest Corp. 16,300 403,425
Shawmut National Corp. 6,200 128,650
Suntrust Banks, Inc. 6,200 302,250
Travelers, Inc. 23,047 757,670
U.S. Bancorp 5,450 138,975
Wells Fargo & Co. 3,700 536,962
------------
10,195,821
------------
BUSINESS MACHINES -- 3.5%
Amdahl Corp. 6,600** 57,750
Apple Computer, Inc. 6,700 225,706
Autodesk, Inc. 1,400 87,500
Ceridian Corp. 2,500** 61,562
Compaq Computer Corp. 14,100** 460,012
Cray Research, Inc. 1,600** 32,800
D.S.C. Communication Corp. 5,200** 148,200
Data General Corp. 2,000** 20,000
Digital Equipment Corp. 7,800** 206,700
Honeywell, Inc. 7,400 255,300
Intergraph Corp. 2,500** 22,812
International Business
Machines Corp. 32,800 2,279,600
Lotus Development Corp. 2,400** 88,200
Novell, Inc. 18,400** 271,400
Oracle Systems Corp. 17,600** 756,800
Pitney Bowes, Inc. 8,500 301,750
Tandem Computers, Inc. 6,500** 105,625
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
BUSINESS MACHINES (CONTINUED)
Unisys Corp. 9,600** $ 103,200
Xerox Corp. 6,200 661,850
------------
6,146,767
------------
BUSINESS SERVICES -- 1.7%
Automatic Data Processing, Inc. 7,200 404,100
Browning Ferris Industries,
Inc. 9,500 301,625
Computer Associates
International, Inc. 7,800 347,100
Computer Sciences Corp. 3,000** 130,500
Deluxe Corp. 4,000 117,500
Dun & Bradstreet Corp. 8,300 477,250
Ecolab, Inc. 3,300 71,775
John H. Harland Co. 1,500 31,500
Moore Corp., Ltd. 5,100 93,712
National Education Corp. 1,300** 6,662
National Service Industries,
Inc. 3,000 79,500
Rollins Environmental
Services, Inc. 2,800** 17,150
Shared Medical Systems Corp. 900 24,750
Sun Microsystems, Inc. 5,860** 172,137
WMX Technologies, Inc. 24,500 707,437
------------
2,982,698
------------
CHEMICALS -- 4.9%
Air Products & Chemicals, Inc. 6,300 294,525
Allied-Signal, Inc. 13,200 450,450
American Cyanamid Co. 4,600 457,700
Dow Chemical Co. 13,800 1,079,850
Eastman Chemical Co. 4,925 267,797
E.I. Dupont de Nemours & Co. 33,200 1,925,600
Ethyl Corp. 6,300 71,662
First Mississippi Corp. 1,200 24,300
Great Lakes Chemical Corp. 3,900 229,125
Hercules, Inc. 2,300 236,612
Mallinckrodt Group, Inc. 3,700 119,787
Minnesota Mining &
Manufacturing Co. 21,400 1,182,350
Monsanto Co. 5,500 442,062
Morton International, Inc. 6,900 189,750
Nalco Chemical Co. 3,300 108,487
P.P.G. Industries, Inc. 9,900 392,287
Praxair, Inc. 7,600 185,250
Rohm & Haas Co. 3,400 194,225
Safety-Kleen Corp. 2,700 43,875
Sherwin Williams Co. 4,500 140,062
Union Carbide Corp. 7,300 248,200
CHEMICALS (CONTINUED)
Williams Cos., Inc. 5,500 $ 165,000
W.R. Grace & Co. 4,800 199,200
------------
8,648,156
------------
CONGLOMERATES -- 0.2%
I.T.T. Corp. 4,900 408,537
------------
CONSTRUCTION -- 1.3%
Armstrong World Industries,
Inc. 1,700 73,737
Centex Corp. 1,300 30,062
Corning, Inc. 10,000 323,750
Crane Co. 1,350 34,594
Fluor Corp. 3,900 194,025
Home Depot, Inc. 24,582 1,032,444
Kaufman & Broad Home Corp. 1,700 23,162
Masco Corp. 7,700 185,762
Morrison Knudson Corp. 1,300 21,612
Newell Co. 7,600 169,100
Owens-Corning
Fiberglass Corp. 1,900** 63,650
Pulte Corp. 1,100 23,925
Stanley Works 2,400 97,500
------------
2,273,323
------------
CONSUMER DURABLES -- 0.2%
Bassett Furniture, Inc. 750 19,594
Black & Decker Corp. 4,000 87,500
Maytag Corp. 5,300 85,462
Outboard Marine Corp. 700 15,925
Whirlpool Corp. 3,600 184,950
Zenith Electronics Corp. 1,800** 20,475
------------
413,906
------------
CONTAINERS -- 0.2%
Ball Corp. 1,600 45,400
Crown Cork & Seal Co., Inc. 4,200** 161,700
Stone Container Corp. 4,086** 79,677
------------
286,777
------------
DRUGS & HEALTH CARE -- 7.2%
Abbott Laboratories, Inc. 49,400 1,549,925
Allergan, Inc. 4,000 101,500
Alza Corp. 4,400** 90,750
American Home Products Corp. 17,400 1,044,000
Amgen, Inc. 7,600** 404,700
Bausch & Lomb, Inc. 3,500 136,500
Baxter International, Inc. 15,400 433,125
Becton, Dickinson & Co. 4,100 197,825
Beverly Enterprises, Inc. 4,300** 66,112
Biomet, Inc. 6,600** 81,675
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DRUGS & HEALTH CARE (CONTINUED)
Columbia/HCA
Healthcare Corp. 500 $ 21,750
Community Psychiatric Centers 2,600 35,425
C.R. Bard, Inc. 3,000 75,000
Eli Lilly & Co. 16,800 972,300
Johnson & Johnson 31,200 1,610,700
Manor Care, Inc. 3,450 91,856
McKesson Corp. 2,400 244,200
Medtronic, Inc. 7,000 370,125
Merck & Co., Inc. 56,700 2,012,850
National Medical
Enterprises, Inc. 8,200** 140,425
Pfizer, Inc. 19,200 1,327,200
Schering Plough Corp. 9,100 646,100
St. Jude Medical, Inc. 2,800 100,275
Therapeutic Discovery Corp. 420** 2,441
United States Surgical Corp. 3,200 86,000
Upjohn Co. 8,300 283,237
Warner Lambert Co. 8,300 666,075
------------
12,792,071
------------
ELECTRONICS -- 4.0%
A.M.P., Inc. 5,100 394,612
Advanced Micro Devices, Inc. 4,700** 139,825
Andrew Corp. 1,650** 82,706
E.G. & G., Inc. 2,800 42,700
Emerson Electric Co. 11,800 703,575
General Signal Corp. 2,300 80,787
Harris Corp. 1,800 87,525
Hewlett Packard Co. 11,400 996,075
Intel Corp. 21,500 1,322,250
Johnson Controls, Inc. 2,300 114,425
Litton Industries, Inc. 100** 3,725
Loral Corp. 3,900 153,562
M.A. Communications, Inc. 1,500** 11,437
Motorola, Inc. 26,900 1,418,975
National Semiconductor Corp. 5,800** 90,625
Northern Telecom, Ltd. 11,800 410,050
Perkin Elmer Corp. 2,000 62,750
Raytheon Co. 7,000 448,875
Scientific Atlanta Corp. 2,050 83,794
Tektronix, Inc. 1,700 65,875
Teledyne, Inc. 2,800 44,450
Texas Instruments, Inc. 4,900 335,037
Thomas & Betts Corp. 1,100 74,525
------------
7,168,160
------------
ENERGY & RAW MATERIALS -- 2.9%
Baker Hughes, Inc. 6,700 $ 124,787
Burlington Resources, Inc. 400 15,000
Dresser Industries, Inc. 7,900 159,975
Eastern Enterprises 1,100 28,875
Halliburton Co. 5,300 166,950
Helmerich & Payne, Inc. 1,500 42,187
Louisiana Land &
Exploration Co. 1,700 74,375
Maxus Energy Corp. 6,700** 30,150
McDermott International, Inc. 3,100 79,825
N L Industries, Inc. 200** 2,200
Nacco Industries, Inc. 500 29,687
Occidental Petroleum Corp. 18,000 378,000
Pittston Mineral Group 420 10,027
Pittston Services Group 2,200 62,700
Rowan Cos., Inc. 3,900** 28,275
Royal Dutch Petroleum Co. 26,000 2,791,750
Schlumberger, Ltd. 13,900 755,812
USX-Marathon Group, Inc. 16,800 298,200
------------
5,078,775
------------
ENERGY & UTILITIES -- 4.7%
American Electric
Power Co., Inc. 11,300 354,537
Baltimore Gas & Electric Co. 7,200 165,600
Carolina Power & Light Co. 9,500 250,562
Central & South West Corp. 11,500 255,875
Coastal Corp. 5,850 163,069
Columbia Gas System, Inc. 3,000** 80,625
Consolidated Edison Co., Inc. 14,200 353,225
Consolidated Natural Gas Co. 5,500 213,812
Detroit Edison Co. 7,100 181,050
Dominion Resources, Inc. 8,650 322,212
Duke Power Co. 10,200 397,800
Enron Corp. 12,800 387,200
Enserch Corp. 3,400 47,175
Entergy Corp. 13,700 318,525
F.P.L. Group, Inc. 11,100 360,750
Houston Industries, Inc. 7,500 264,375
Niagara Mohawk Power Corp. 8,100 107,325
Nicor, Inc. 3,200 77,600
Noram Energy Corp. 7,000 45,500
Northern States Power Co. 3,700 156,325
Ohio Edison Co. 8,700 165,300
Oneok, Inc. 1,100 18,563
Oryx Energy Co. 4,900 67,987
P.S.I. Resources, Inc. 3,300 73,837
Pacific Enterprises 4,500 95,625
Pacific Gas & Electric Co. 20,100 457,275
Pacificorp 15,900 268,312
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 26
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ENERGY & UTILITIES (CONTINUED)
Panhandle Eastern Corp. 6,500 $ 151,125
PECO Energy Co. 11,300 286,737
Peoples Energy Corp. 1,500 39,375
Public Service Enterprise
Group, Inc. 13,800 362,250
SCEcorp 27,200 353,600
Sonat, Inc. 5,100 160,012
Southern Co. 31,500 586,687
Texas Utilities Co. 10,400 339,300
Transco Energy Co. 1,900 28,500
Unicom Corp. 12,300 273,675
Union Electric Co. 4,900 171,500
------------
8,402,802
------------
FINANCE -- 2.3%
Beneficial Corp. 4,200 171,150
Dean Witter Discover & Co. 28,311 1,065,201
Federal National Mortgage
Association 15,000 1,181,250
Golden West Financial Corp. 4,500 178,312
Great Western Financial Corp. 9,700 186,725
H.F. Ahmanson & Co. 8,900 185,787
Household International, Inc. 5,900 210,925
Merrill Lynch & Co., Inc. 11,000 380,875
Salomon, Inc. 7,100 280,450
Wachovia Corp. 6,000 193,500
------------
4,034,175
------------
FOOD & AGRICULTURE -- 5.6%
Archer-Daniels-Midland Co. 16,977 441,402
Borden, Inc. 8,000 110,000
C.P.C. International, Inc. 7,900 399,937
Campbell Soup Co. 12,400 489,800
Coca Cola Co. 64,100 3,116,863
Conagra, Inc. 13,000 409,500
Fleming Cos., Inc. 2,200 51,425
General Cinema Cos., Inc. 430** 12,631
General Mills, Inc. 9,300 537,075
H.J. Heinz Co. 12,400 454,150
Hershey Foods Corp. 4,500 202,500
Kellogg Co. 11,600 665,550
Pepsico, Inc. 39,700 1,315,063
Pet, Inc. 5,900 116,525
Pioneer Hi Bred
International, Inc. 300 9,450
Quaker Oats Co. 3,800 290,700
Ralcorp Holdings, Inc. 2,033** 38,627
Ralston Purina Group 4,800 198,600
Sara Lee Corp. 23,700 533,250
FOOD & AGRICULTURE (CONTINUED)
Sysco Corp. 8,900 $ 225,838
Whitman Corp. 5,300 88,775
W.M. Wrigley Jr. Co. 5,900 240,425
------------
9,948,086
------------
GOLD -- 0.5%
American Barrick
Resources Corp. 16,400 436,650
Homestake Mining Co. 7,500 159,375
Placer Dome, Inc. 11,400 286,425
Santa Fe Pacific Gold Corp. 5,552** 93,695
------------
976,145
------------
INSURANCE -- 2.7%
Aetna Life & Casualty Co. 6,600 306,075
Alexander & Alexander Services,
Inc. 1,900 37,050
American General Corp. 12,500 339,063
American International
Group, Inc. 15,775 1,402,003
C.N.A. Financial Corp. 200** 12,600
Chubb Corp. 4,100 291,613
Cigna Corp. 3,400 209,525
Continental Corp. 2,700 36,450
General Re Corp. 4,500 476,438
Jefferson Pilot Corp. 2,250 118,969
Lincoln National Corp. 4,800 179,400
Marsh & McLennan Cos., Inc. 4,600 359,375
Providian Corp. 5,000 157,500
Safeco Corp. 3,200 164,800
St. Paul Cos., Inc. 4,200 170,625
Torchmark Corp. 4,300 188,663
Transamerica Corp. 3,200 160,800
U.S. Life Corp. 1,350 44,719
U.S.F. & G. Corp. 4,200 55,650
------------
4,711,318
------------
LIQUOR -- 0.8%
Anheuser-Busch Cos., Inc. 13,400 681,725
Brown Forman Corp. 3,400 91,800
Coors Adolph Co. 2,200 40,700
Seagram Co., Ltd. 17,800 538,450
------------
1,352,675
------------
MEDIA -- 2.5%
C.B.S., Inc. 700 224,525
Capital Cities/A.B.C., Inc. 5,000 410,000
Comcast Corp. 2,100** 32,025
Dow Jones & Co., Inc. 6,000 180,000
Gannett Co., Inc. 9,500 456,000
Harcourt General, Inc. 4,000 137,500
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 27
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MEDIA (CONTINUED)
King World Productions, Inc. 2,100** $ 80,325
Knight-Ridder, Inc. 3,300 164,175
McGraw Hill, Inc. 2,900 212,425
Meredith Corp. 900 41,850
New York Times Co. 4,700 102,813
R.R. Donnelly & Sons, Inc. 9,200 276,000
Tele Communications, Inc. Class
A 26,300** 583,531
Time-Warner, Inc. 21,300 748,163
Times Mirror Co. 7,500 230,625
Tribune Co. 3,900 210,600
Viacom, Inc. Class A 952** 38,318
Viacom, Inc. Class B 7,213** 283,118
Viacom, Inc. Non-voting 11,900** 14,875
------------
4,426,868
------------
METALS & MINING -- 1.0%
Alcan Aluminum, Ltd. 11,200 295,400
Aluminum Co. of America 4,000 339,000
Asarco, Inc. 1,900 62,463
Cyprus Amax Minerals Co. 5,050 157,813
Echo Bay Mines, Ltd. 5,200 71,500
Engelhard Corp. 5,425 145,797
Inco, Ltd. 5,400 162,675
Newmont Mining Corp. 3,992 179,640
Phelps Dodge Corp. 3,500 217,438
Reynolds Metals Co. 3,500 198,188
------------
1,829,914
------------
MOTOR VEHICLES -- 2.6%
Chrysler Corp. 16,900 758,388
Cummins Engine Co., Inc. 2,100 82,688
Dana Corp. 4,700 131,600
Eaton Corp. 3,500 166,250
Echlin, Inc. 2,900 88,088
Fleetwood Enterprises, Inc. 2,200 55,275
Ford Motor Co. 48,900 1,356,975
General Motors Corp. 36,400 1,706,250
Genuine Parts Co. 6,300 221,288
S.P.X. Corp. 800 13,800
Skyline Corp. 600 12,150
------------
4,592,752
------------
NON-DURABLES & ENTERTAINMENT -- 1.4%
Bally Entertainment Corp. 2,200** 16,500
Brunswick Corp. 5,300 106,663
Handleman Co. 1,500 16,125
Hasbro, Inc. 4,200 123,900
H&R Block, Inc. 5,200 238,550
NON-DURABLES & ENTERTAINMENT (CONTINUED)
Jostens, Inc. 2,600 $ 46,475
Luby's Cafeterias, Inc. 1,150 26,450
Marriott International, Inc. 6,000 173,250
Mattel, Inc. 7,250 196,656
McDonald's Corp. 36,400 955,500
Premark International, Inc. 3,300 139,425
Rubbermaid, Inc. 8,000 213,000
Ryan's Family Steak
Houses, Inc. 2,700** 16,031
Service Corp. International 4,100 105,575
Shoney's, Inc. 2,400** 33,300
Wendy's International, Inc. 5,800 84,100
------------
2,491,500
------------
OIL DOMESTIC -- 2.4%
Amerada-Hess Corp. 4,500 209,250
Amoco Corp. 24,600 1,457,550
Ashland Oil, Inc. 2,800 99,050
Atlantic Richfield Co. 8,200 827,175
Kerr-McGee Corp. 2,300 111,838
Pennzoil Co. 2,300 107,813
Phillips Petroleum Co. 13,600 465,800
Santa Fe Energy
Resources, Inc. 3,980** 36,815
Sun Co., Inc. 4,700 135,125
Tenneco, Inc. 8,100 357,413
Unocal Corp. 11,300 319,225
Western Atlas, Inc. 2,200** 96,250
------------
4,223,304
------------
OIL INTERNATIONAL -- 4.0%
Chevron Corp. 31,300 1,302,863
Exxon Corp. 61,400 3,538,175
Mobil Corp. 19,800 1,566,675
Texaco, Inc. 12,800 768,000
------------
7,175,713
------------
PAPER & FOREST PRODUCTS -- 2.0%
American Greetings Corp. 4,400 127,050
Avery Dennison Corp. 3,500 120,313
Bemis Co., Inc. 2,300 56,925
Boise Cascade Corp. 1,700 50,150
Champion International, Inc. 4,700 182,125
Federal Paper Board, Inc. 1,900 59,850
Georgia Pacific Corp. 4,700 359,550
International Paper Co. 6,700 525,950
James River Corp. 4,000 97,000
Kimberly Clark Corp. 8,300 487,625
Louisiana-Pacific Corp. 5,100 168,938
Mead Corp. 3,000 156,000
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 28
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER & FOREST PRODUCTS (CONTINUED)
Potlatch Corp. 1,200 $ 49,500
Scott Paper Co. 3,800 232,275
Temple Inland, Inc. 2,800 154,700
Union Camp Corp. 3,300 162,113
Westvaco Corp. 3,900 148,688
Weyerhaeuser Co. 10,300 459,638
------------
3,598,390
------------
PHOTO EQUIPMENT -- 0.5%
Eastman Kodak Co. 15,800 817,650
Polaroid Corp. 2,100 73,763
------------
891,413
------------
PRODUCER GOODS -- 4.1%
Alco Standard Corp. 2,800 173,950
Briggs & Stratton Corp. 800 56,200
Caterpillar, Inc. 11,600 627,850
Cincinnati Milacron, Inc. 1,600 41,200
Clark Equipment Co. 1,100** 76,175
Cooper Industries, Inc. 5,800 233,450
Deere & Co. 4,300 295,088
Denver Machinery, Inc. 264** 2,541
Dover Corp. 2,800 159,250
F.M.C. Corp. 1,600** 99,600
Foster Wheeler Corp. 1,600 55,000
General Electric Co. 76,200 3,667,125
Giddings & Lewis, Inc. 1,800 32,063
Harnischfeger Industries, Inc. 1,376 36,292
Illinois Tool Works, Inc. 5,500 235,125
Ingersoll Rand Co. 6,100 215,788
Millipore Corp. 1,200 64,500
Navistar International Corp. 1,620** 22,478
Paccar, Inc. 1,800 82,013
Pall Corp. 5,566 96,014
Parker-Hannifin Corp. 2,300 91,713
Raychem Corp. 2,400 98,400
Snap On, Inc. 2,500 88,125
Timken Co. 1,300 48,913
Trinova Corp. 1,200 41,850
Tyco International, Ltd. 2,600 123,500
Varity Corp. 1,490** 55,689
Westinghouse Electric Corp. 17,500 227,500
W.W. Grainger, Inc. 2,900 171,825
Zurn Industries, Inc. 700 13,738
------------
7,232,955
------------
RAILROADS & SHIPPING -- 1.1%
Burlington Northern, Inc. 4,600 231,150
C.S.X. Corp. 5,700 390,450
RAILROADS & SHIPPING (CONTINUED)
Consolidated Rail Corp. 3,700 $ 183,150
Norfolk Southern Corp. 6,500 404,625
Ogden Corp. 2,000 42,000
Santa Fe Pacific Corp. 9,252** 116,807
Union Pacific Corp. 9,800 525,525
------------
1,893,707
------------
RETAIL MERCHANDISING -- 5.7%
Albertsons, Inc. 13,000 378,625
American Stores Co. 6,900 174,225
Bruno's, Inc. 4,300 39,775
Charming Shoppes, Inc. 5,900 47,938
Circuit City Stores, Inc. 4,500 116,438
Dayton Hudson Corp. 4,200 321,300
Dillard Department Stores, Inc. 6,600 176,550
Gap, Inc. 8,100 266,288
Giant Food, Inc. 3,000 64,500
Great Atlantic & Pacific
Tea Co., Inc. 1,700 43,138
Interpublic Group of Cos., Inc. 200 6,600
J.C. Penney Co., Inc. 13,200 681,450
K Mart Corp. 22,200 396,825
Kroger Co. 5,300** 141,113
Limited, Inc. 21,400 419,975
Longs Drug Stores, Inc. 1,300 45,013
Lowe's Cos., Inc. 8,600 332,175
May Department Stores Co. 14,500 570,938
Mercantile Stores Co., Inc. 2,200 91,300
Nordstrom, Inc. 4,000 160,000
Pep Boys-Manny, Moe & Jack 3,100 107,725
Price/Costco, Inc. 6,238** 100,198
Rite Aid Corp. 4,200 87,150
Sears, Roebuck & Co. 20,400 979,200
Super Valu, Inc. 3,400 88,400
T.J.X. Cos., Inc. 3,700 77,700
Tandy Corp. 3,200 137,600
Toys "(LOGO)" Us, Inc. 16,100** 573,563
Wal-Mart Stores, Inc. 130,500 3,050,438
Walgreen Co. 5,800 218,225
Winn-Dixie Stores, Inc. 3,500 175,000
Woolworth Corp. 7,700 133,788
------------
10,203,153
------------
SOAPS & COSMETICS -- 3.4%
Alberto-Culver Co. 1,200 28,050
Avon Products, Inc. 3,400 203,150
Bristol-Myers Squibb Co. 24,700 1,417,163
Clorox Co. 2,700 140,738
Colgate-Palmolive Co. 7,200 417,600
Gillette Co. 10,800 764,100
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 29
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SOAPS & COSMETICS (CONTINUED)
International Flavors &
Fragrances, Inc. 5,300 $ 220,613
Proctor & Gamble Co. 33,616 2,004,354
Unilever N.V. 7,700 872,988
------------
6,068,756
------------
STEEL -- 0.4%
Armco, Inc. 6,100** 36,600
Bethlehem Steel Corp. 5,000** 105,000
Inland Steel Industries, Inc. 2,100** 82,688
National Intergroup, Inc. 600** 9,450
Nucor Corp. 4,100 285,463
USX-US Steel Group, Inc. 3,500 146,563
Worthington Industries, Inc. 4,400 94,600
------------
760,364
------------
TELECOMMUNICATIONS -- 0.0%
Comcast Corp. Special Class A
Non-Voting 1,650 25,266
------------
TELEPHONE -- 9.3%
Airtouch Communications, Inc. 24,500 701,313
Ameritech Corp. 26,400 1,062,600
AT&T Corp. 101,220 5,465,880
Bell Atlantic Corp. 21,700 1,150,100
Bellsouth Corp. 24,300 1,354,725
G.T.E. Corp. 53,200 1,615,950
MCI Communications Corp. 30,400 779,000
NYNEX Corp. 20,500 789,250
Pacific Telesis Group 20,500 630,375
Southwestern Bell Corp. 35,400 1,504,500
Sprint Corp. 16,700 636,688
U.S. West, Inc. 21,200 821,500
------------
16,511,881
------------
TIRES & RUBBER GOODS -- 0.2%
B.F. Goodrich Co. 1,500 63,000
Cooper Tire & Rubber Co. 4,000 93,500
Goodyear Tire & Rubber Co. 8,100 270,338
------------
426,838
------------
TOBACCO -- 1.9%
American Brands, Inc. 9,700 351,625
Philip Morris Cos., Inc. 44,300 2,707,837
U.S.T., Inc. 10,300 294,837
------------
3,354,299
------------
TRAVEL & RECREATION -- 0.8%
Dial Corp. 5,000 104,375
Hilton Hotels Corp. 2,800 167,650
TRAVEL & RECREATION (CONTINUED)
Promus Cos., Inc. 6,000** $ 201,750
Walt Disney Co. 25,600 995,200
------------
1,468,975
------------
TRUCKING & FREIGHT -- 0.1%
Consolidated Freightways, Inc. 1,800** 39,600
Roadway Services, Inc. 1,800 103,500
Ryder System, Inc. 3,600 92,250
Yellow Corp. 1,600 29,800
------------
265,150
------------
TOTAL COMMON STOCK
(Cost $153,258,219) 167,671,187
------------
<CAPTION>
PAR
MATURITY (000)
--------- ---------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 0.1%
U.S. Treasury Bills
4.55% 12/15/94 $100*** 99,052
------------
(Cost $99,052)
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
WARRANTS -- 0.0%
BANKS
Shawmut Warrants
01/18/96 (Cost $473) 90** 360
------------
TEMPORARY INVESTMENTS -- 0.0%
Smith Barney Money
Market Fund
(Cost $7,619) 7,619 7,619
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $162,962,793*) 99.8% 177,375,648
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.2% 378,393
--------- ------------
NET ASSETS(Applicable to
13,516,275 Institutional
shares, 2,504,449 Service
shares and 240,770 Series A
Investor shares outstanding) 100.0% $177,754,041
------ ------------
------ ------------
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND SERIES A
INVESTOR SHARE
($177,754,041 divided by 16,261,494) $10.93
------
------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 30
INDEX EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
------------
<S> <C>
OFFERING PRICE PER INSTITUTIONAL AND SERVICE
SHARE $10.93
------
------
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE
($10.93 divided by .955) $11.45
------
------
</TABLE>
- -------------
* Cost for Federal income tax purposes is $163,054,924. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $23,227,899
Gross unrealized depreciation (8,907,175)
-----------
$14,320,724
===========
</TABLE>
** Non-income producing security.
*** Principal amount of securities pledged as initial margin requirement of
$70,000 on 7 Standard & Poor's 500 Stock Index futures contracts expiring
December 1994.
See accompanying notes to financial statements.
30
<PAGE> 31
THE PNC(R) FUND
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 3.5%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION DISCOUNT NOTE
4.7859% 10/17/94 $ 8,000 $ 7,983,289
------------
(Cost $7,983,289)
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 94.1%
APPAREL -- 8.9%
Chic By H.I.S., Inc. 211,000** 2,294,625
Cone Mills Corp. 170,000** 2,188,750
Conso Products Co. 51,500** 708,125
Delta Woodside Industries, Inc. 30,700 341,539
Forstmann & Company, Inc. 60,000** 540,000
J Baker, Inc. 95,200 1,963,500
Jones Apparel Group, Inc. 79,300** 1,942,850
Lydall, Inc. 95,000** 3,277,499
Maxwell Shoe Company, Inc. 93,300** 1,113,769
Nine West Group, Inc. 80,000** 2,130,000
Spring Industries, Inc. 36,000 1,296,000
Velcro Industries 39,900 2,733,150
------------
20,529,807
------------
BANKS -- 3.4%
Bankatlantic Bancorp, Inc. 81,000 1,356,750
Banknorth Group, Inc. 90,200 2,187,350
BB&T Financial Corp. 50,900 1,476,100
Mercantile Bankshares Corp. 46,950 1,038,769
Security Capital Corp. 8,200** 378,225
Standard Federal Bank 51,300 1,397,925
------------
7,835,119
------------
CHEMICALS -- 2.6%
IMC Global, Inc. 56,000** 2,492,000
Vigoro Corp. 70,100 2,479,788
WD-40 Co. 25,600 1,094,400
------------
6,066,188
------------
COMPUTER & OFFICE EQUIPMENT -- 1.6%
GBC Technologies, Inc. 206,100 1,906,425
Nu Kote Holdings 99,900** 1,873,125
------------
3,779,550
------------
CONSTRUCTION -- 4.7%
Beazer Homes USA, Inc. 145,400** 2,126,474
Brenco, Inc. 124,500 1,571,813
BW/IP, Inc. 135,400 2,504,900
Crown Crafts, Inc. 132,000 2,145,000
Dames & Moore, Inc. 64,800 899,100
Heilig-Meyers Co. 60,168 1,564,368
------------
10,811,655
------------
CONSUMER-PRODUCTS -- 4.9%
First Brands Corp. 20,999 $ 703,467
General Housewares Corp. 42,400 530,000
Libbey, Inc. 120,000 2,069,999
Lillian Vernon Corp. 87,600 1,620,600
North American Watch Corp. 85,700 1,210,513
Oroamerica, Inc. 195,000** 1,365,000
Roberds, Inc. 114,800** 1,119,300
Safeskin Corp. 40,000** 570,000
Stanley Furniture, Inc. 155,900** 1,539,513
Stewart Enterprises, Inc. Class
A 23,250 575,438
------------
11,303,830
------------
DRUGS AND HEALTH CARE -- 2.2%
Beckman Instruments, Inc. 58,800 1,734,600
Emphesys Financial Group, Inc. 1,200 42,150
Herbalife International, Inc. 61,550 1,061,738
PCI Services, Inc. 70,900** 460,850
Physician Corporation of
America 78,600** 1,778,325
Physicians Health Services,
Inc. Class A 800** 18,200
------------
5,095,863
------------
ELECTRONICS -- 14.1%
Aetrium, Inc. 71,400** 803,250
AST Research, Inc. 170,000** 2,231,250
Belden, Inc. 205,600 4,266,200
Cable Design Techologies 150,700** 2,222,825
Computer Horizons Corp. 162,000 1,944,000
Concurrent Computers Corp. 390,900** 537,488
Conner Peripherals, Inc. 70,000** 761,250
DH Technology, Inc. 110,000** 2,530,000
Franklin Electronic
Publishers, Inc. 86,000** 1,300,750
FSI International, Inc. 43,400** 998,200
Holophane Corp. 80,400** 1,487,400
Input/Output, Inc. 125,000** 2,960,937
Instrument Systems Corp. 122,200** 962,325
Kemet Corp. 87,700** 1,841,700
Mark IV Industries, Inc. 106,366 2,419,826
Marshall Industries 45,200 1,135,650
MDL Information Systems, Inc. 117,000** 775,125
Oak Industries, Inc. 102,600** 2,526,524
Photronics, Inc. 38,300** 823,450
------------
32,528,150
------------
FINANCE -- 3.6%
Albank Financial Corp. 81,600 1,978,800
Amfed Financial, Inc. 82,170 1,828,283
W.R. Berkley Co. 24,500 882,000
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 32
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCE (CONTINUED)
First Colony Corp. 75,000 $ 1,565,625
Long Island Bancorp, Inc. 67,600** 1,073,150
Paul Revere Corp. 70,000 1,041,250
------------
8,369,108
------------
FOOD & AGRICULTURE -- 1.9%
Bush Boake Allen, Inc. 80,000** 1,610,000
Golden Poultry, Inc. 73,700 515,900
Marine Harvest, Inc. 83,000** 788,500
Sanderson Farms, Inc. 81,000 1,559,250
------------
4,473,650
------------
FOOD DISTRIBUTION -- 1.0%
Daka International, Inc. 144,400** 2,238,200
------------
INSURANCE -- 11.2%
Acordia, Inc. 69,600 1,896,600
American Income Holdings, Inc. 80,300 2,750,274
American Re Corp. 15,000** 453,750
Baldwin & Lyons, Inc. Class B 99,900 1,548,450
EMC Insurance Group, Inc. 76,900 692,100
Harleysville Group, Inc. 75,195 1,870,476
Integon Corp. 31,820 580,715
Life Partners Group, Inc. 20,000 380,000
Life USA, Inc. 109,400** 1,230,750
Merchants Group, Inc. 63,200 948,000
Midland Co. 15,400 587,125
National Re Corp. 72,000 1,827,000
Nymagic, Inc. 20,700 354,488
Partner Re 89,500 1,957,813
Penncorp Financial Group, Inc. 128,400 1,909,950
Pxre Corp. 29,200 846,800
State Auto Financial Corp. 138,800 2,047,299
TIG Holdings, Inc. 142,000 2,804,499
United Fire & Casualty Co. 30,800 1,247,400
------------
25,933,489
------------
MANUFACTURING -- 14.5%
Alamo Group, Inc. 105,000 1,443,750
Amtrol, Inc. 65,000 1,186,250
BMC West Corp. 124,850 1,989,797
Coltec Industries, Inc. 53,900** 1,024,100
DT Industries, Inc. 62,500 937,500
ILC Technology, Inc. 24,200** 217,800
Lattice Semiconductor Corp. 62,500** 1,156,250
LSB Industries, Inc. 100,000 575,000
Mueller Industries, Inc. 65,000** 2,161,250
Pentair, Inc. 76,700 3,029,649
Plantronics, Inc. 130,300** 3,127,200
MANUFACTURING (CONTINUED)
Quad Systems Corp. 145,000** $ 2,102,500
Roper Industries, Inc. 12,000 287,250
Rouge Steel Co. 87,000 2,555,625
A.O. Smith Corp. Class B 36,800 920,000
Stant Corp. 50,400 806,400
Steel of West Virginia, Inc. 38,300** 478,750
Syratech Corp. 70,000** 1,260,000
US Can Corp. 123,600** 2,008,500
Welbilt Corp. 132,000** 3,333,000
Wolverine Tube, Inc. 100,000** 2,575,000
------------
33,175,571
------------
MEDIA -- 0.7%
CSS Industries, Inc. 100,800 1,638,000
------------
MOTOR VEHICLES -- 1.3%
Excel Industries, Inc. 36,500 556,625
Masland Corp. 142,200 2,381,850
------------
2,938,475
------------
PAPER AND FOREST PRODUCTS -- 2.2%
Caraustar Industries, Inc. 159,000 3,289,313
Chesapeake Corp. 55,000 1,870,000
------------
5,159,313
------------
RAILROAD EQUIPMENT -- 1.3%
Harmon Industries, Inc. 85,500 1,774,125
Johnstown America
Industries, Inc. 50,400** 1,323,000
------------
3,097,125
------------
RETAIL GROCERY STORES -- 0.4%
Vons Companies, Inc. 56,000** 1,008,000
------------
RETAIL MERCHANDISING -- 6.1%
Bradlees, Inc. 94,600 1,620,025
Catherine Stores Corp. 243,500** 2,435,000
Fingerhut Companies, Inc. 98,700 2,270,100
Freds, Inc. 164,500 2,303,000
Little Switz, Inc. 170,000** 1,105,000
SLM International, Inc. 89,000** 634,125
Value City Department
Stores, Inc. 139,600** 1,849,700
Waban, Inc. 90,000** 1,766,250
------------
13,983,200
------------
TOBACCO -- 0.6%
Monk Austin, Inc. 30,000 438,750
Universal Corp. 37,300 913,850
------------
1,352,600
------------
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 33
SMALL CAP VALUE EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION -- 1.8%
Arkansas Best Corp. 70,000 $ 984,375
Arrow Transportation Co. 41,900** 240,925
Consorcio G Grupo Dina SA ADR
(Series 'l') 121,004** 1,255,417
TBC Corp. 166,100** 1,661,000
------------
4,141,717
------------
TRAVEL & RECREATION -- 5.1%
Apple South, Inc. 45,700 811,175
Caesars World, Inc. 36,000** 1,561,500
Carnival Corp. Class A 12,200 535,275
Cinergi Pictures Entertainment,
Inc. 104,200** 625,200
Harveys Casino Resorts 36,700 481,688
King World Productions, Inc. 45,700** 1,748,025
Mattel, Inc. 64,921 1,760,982
Royal Caribbean Cruises Ltd. 86,400 2,246,400
Sholodge, Inc. 26,333 579,326
Stop & Shop Cos., Inc. 55,600** 1,396,950
------------
11,746,521
------------
TOTAL COMMON STOCKS
(Cost $191,388,238) 217,205,131
------------
TEMPORARY INVESTMENT -- 4.2%
Smith Barney Money Market Fund
(Cost $9,665,186) 9,665,186 9,665,186
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $209,036,713*) 101.8% 234,853,606
LIABILITIES IN EXCESS OF OTHER
ASSETS (1.8%) $(4,238,560)
--------- ------------
NET ASSETS (Applicable to
12,362,677 Institutional shares
3,337,677 Service shares and
1,243,462 Series A Investor
shares outstanding) 100.0% $230,615,046
------- ------------
------- ------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($168,359,762 divided by 12,362,677) $13.62
------
------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($45,371,611 divided by 3,337,677) $13.59
------
------
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($16,883,673 divided by 1,243,462) $13.58
------
------
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR
SHARE
($13.58 divided by .955) $14.22
------
------
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $ 39,285,405
Gross unrealized depreciation (13,468,512)
------------
$ 25,816,893
=============
** Non-income producing security.
See accompanying notes to financial statements.
33
<PAGE> 34
THE PNC(R) FUND
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS -- 98.8%
ARGENTINA -- 1.1%
Cia Interamericana de
Automovil 274,607 $ 3,969,261
------------
AUSTRALIA -- 2.4%
Australia & New Zealand
Banking Group 695,000 2,010,098
Boral Ltd. 716,000 1,753,059
Broken Hill Proprietary Co. 223,000 3,239,679
Coles Myer Ltd. 534,300 1,648,075
------------
8,650,911
------------
BELGIUM -- 0.9%
Generale de Banque SA 12,320 3,045,597
------------
FRANCE -- 8.4%
Alcatel Alsthom (Cie Gen El) 17,525 1,618,990
Alcatel Cable 31,500 3,580,289
Banq National de Paris 47,400 2,192,580
BP France 34,000** 821,675
Canal Plus 17,500 2,692,816
Ecco SA 21,875 2,601,954
PSA Peugeot Citroen 16,000** 2,359,294
Roussel Uclaf 27,925 3,258,312
Schneider 10,000 715,567
Societe Nationale Elf
Aquitaine 50,000 3,587,275
Television Francaise 33,500 3,276,315
UAF 28,850 3,061,210
------------
29,766,277
------------
GERMANY -- 7.1%
Bayer AG 12,250 2,758,618
Commerzbank AG 14,100 2,773,666
Commerzbank Genusscheine 93,200 65,006
Deutsche Bank AG 8,250 3,588,112
Douglas Holding AG 10,000 3,240,979
Gea AG PFD 10,725 3,482,861
Henkel KGAA Vorzug 10,000 3,643,685
Spar Handels AG Non Voting 11,100 2,481,765
Veba AG 9,250 3,068,234
------------
25,102,926
------------
HONG KONG -- 6.8%
Cheung Kong 1,095,000 5,328,674
HSBC Holdings PLC 474,750 5,299,578
Hutchison Whampoa 1,165,000 5,503,462
South China Morning Post 6,490,000 3,998,240
Sun Hung Kai Properties 520,000 3,869,799
------------
23,999,753
------------
ITALY -- 2.2%
Istituto Mobiliare Italiano 225,000 $ 1,561,546
Rinascente 612,000 3,612,261
Telecom Italia SPA 960,000 2,714,391
------------
7,888,198
------------
JAPAN -- 30.4%
Amada Co. Ltd. 256,000 3,128,889
Daiwa House Industry 182,000 2,555,354
Fukuda Corp. 90,000 1,200,000
Hitachi Electronics 10,000 140,404
Hitachi Ltd. 315,000 3,041,818
Hokkoku Bank 160,000 1,454,545
Horiba 196,000 3,464,646
Ito-Yokado Co. Ltd. 71,000 3,793,838
Kagoshima Bank 90,000 714,545
Kamigumi 310,000 3,538,384
Kandenko Co. Ltd. 114,400 2,241,778
Keyence Corp. 23,000 2,555,556
Makita Corp. 139,000 2,695,758
Marui Co. Ltd. 219,000 3,804,848
Matsushita Electric
Industrial Co. 183,000 2,920,606
Mitsubishi Heavy Industrys
Ltd. 446,000 3,468,889
Mitsubishi Kasei 655,200 3,659,855
Mitsubishi Materials Corp. 630,000 3,449,091
Mitsubishi Motors 517,000 4,856,667
Mos Food Services 100,000 3,919,192
Nintendo Corp. Ltd. 45,500 2,647,273
Nippon Meat Packers 158,000 2,266,263
Nippon Sanso 600,000 3,624,242
Nissan Motor Co. Ltd. 408,000 3,334,061
Ricoh Co. 337,000 3,094,273
Sankyo Co. Ltd. 155,000 3,882,828
Shizouka Bank 223,000 3,085,960
Sumitomo Electric Industries 195,000 2,875,758
Suzuki Motor Co. Ltd. 250,000 3,030,303
Taisho Pharmaceutical 156,000 2,978,182
TDK Corp. 82,000 3,652,727
Teijin Ltd. 484,000 2,723,111
Tokushu Paper Mfg. Co. Ltd. 217,500 2,702,273
Toshiba Corp. 425,000 3,198,232
Yamaguchi Bank 60,000 1,078,788
Yamato Kogyo CO Ltd. 305,000 3,635,354
Yamazaki Baking Co. Ltd. 158,000 3,128,081
------------
107,542,372
------------
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 35
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MALAYSIA -- 2.0%
Magnum Corp. BHD 1,372,000 $ 3,318,276
The New Straits Times Press 940,000 3,776,868
------------
7,095,144
------------
MEXICO -- 0.8%
Grupo Financiero Banamex C 405,000 2,822,113
------------
NETHERLANDS -- 4.7%
AKZO Nobel NV 20,870 2,449,435
Getronics NV 129,116 3,935,105
Hollandsche Beton Groep NV 16,810 2,687,280
Internationale Nederlanden
Groep 64,062 2,762,881
Koninklijke Ahold NV 79,000 2,225,992
Koninklijke KNP BT 81,900 2,448,994
------------
16,509,687
------------
SINGAPORE -- 1.9%
Singapore Airlines Ltd.
Foreign 366,000 3,578,557
United Overseas Bank Foreign 301,990 3,034,154
------------
6,612,711
------------
SPAIN -- 2.0%
Corporacion Bancaria de
Espana SA 44,500 1,790,409
Corporacion Mapfre Cia
Internacional 73,675 3,331,891
Sevillana de Electricidad 404,800 1,979,022
------------
7,101,322
------------
SWEDEN -- 1.5%
Atlas Copco AB 'B' Free 250,000 3,146,043
Svenska Cellulosa 'B' 139,000 2,233,021
------------
5,379,064
------------
SWITZERLAND -- 5.5%
BBC Brown Boveri AG Bearer 1,950 1,683,126
Hero AG Bearer 5,900 2,890,358
Merkur Holding AG Regd 12,380 3,350,109
Nestle SA Regd 3,910 3,557,309
Sandoz AG Sf20 Regd 7,105 3,607,749
Schweizerischer Bankverein
Bearer 6,700 1,912,053
Zurich Versicherung Bearer 2,761 2,511,952
------------
19,512,656
------------
TAIWAN -- 0.1%
China Steel GDS 9,600** $ 196,800
------------
THAILAND -- 1.0%
The Thai Farmers Bank Ltd
Foreign 431,300 3,419,159
------------
UNITED KINGDOM -- 13.6%
Albert Fisher 3,380,000 2,502,839
Bass PLC 392,000 3,186,795
Bat Industries Ord 395,000 2,716,438
British Gas 635,000 2,986,321
British Telecom Reg Intm
Cert 605,000 2,320,987
General Electric PLC 828,000 3,809,181
GKN PLC 290,000 2,816,758
Guinness PLC 330,000 2,373,412
Hanson PLC 536,307 1,945,501
Kingfisher PLC 338,857 2,610,620
Laporte PLC 269,000 3,030,238
Powerscreen International 1,085,000 5,393,212
Prudential Corp. PLC 535,000 2,507,605
Scapa Group 645,000 2,144,177
Sedgwick Group 685,000 1,564,865
Tesco PLC 743,847 2,759,897
Tomkins PLC 1,050,000 3,664,219
------------
48,333,065
------------
UNITED STATES -- 6.4%
British Gas PLC ADR 6,900 323,437
China Steel ADR 125,000** 2,562,500
Empresas Ica SA ADS 99,000 3,192,750
President Enterprises GDR 104,200 1,849,550
Repsol SA ADR 120,000 3,675,000
Smithkline Beecham ADR 110,000 3,396,250
Taipei Fund IDR 20 1,830,000
Telefonica de Espana ADR 69,000 2,794,500
Vitro Sociedad Anonima ADR 118,300 3,061,012
------------
22,684,999
------------
TOTAL COMMON STOCKS
(Cost $321,124,079) 349,632,015
------------
WARRANTS -- 0.0%
Ciba-Geigy Warrants
06/06/95 (Cost $1,096) 400** 1,089
------------
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 36
INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY U.S. DOLLAR
VALUE VALUE
----------- ------------
<S> <C> <C>
INVESTMENTS IN CURRENCY -- 1.2%
Australia (Dollar) $ 39 $ 29
Belgium (Franc) 313,562 9,824
France (Franc) 298,054 56,274
Germany (Deutsche Mark) 60,490 38,976
Hong Kong (Dollar) 2,380,386 308,081
Italy (Lira) 16,252,267 10,444
Japan (Yen) 30,903,816 2,332,362
Malaysia (Ringgit) 30,082 11,735
Netherlands (Guilder) 1,529,667 879,624
Norway (Krone) 1 0
Singapore (Dollar) 17,636 11,892
Spain (Peseta) 660,462 5,150
Sweden (Krona) 2,856 382
Switzerland (Franc) 93,123 72,413
Thailand (Baht) 1,141,003 45,916
United Kingdom (Sterling) 400,533 631,039
------------
TOTAL INVESTMENTS IN CURRENCY
(Cost $4,419,241) 4,414,141
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $325,544,416*) 100.0% $354,047,245
------ ------------
------ ------------
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis
is as follows:
Gross unrealized appreciation $34,882,255
Gross unrealized depreciation (6,379,426)
-----------
$28,502,829
-----------
-----------
** Non-income producing security.
See accompanying notes to financial statements.
36
<PAGE> 37
THE PNC(R) FUND
INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $325,544,416)...................................... $ 354,047,245
Cash.......................................................................... 23,445,123
Forward currency contracts receivable......................................... 171,753,209
Investments sold receivable................................................... 1,887,398
Receivable for capital shares sold............................................ 488,803
Dividends and interest receivable............................................. 1,713,945
Other......................................................................... 16,133
-------------
TOTAL ASSETS.......................................................... 553,351,856
-------------
LIABILITIES
Payable for capital shares redeemed........................................... 83,752
Investments purchased payable................................................. 4,305,677
Forward currency contracts payable............................................ 173,993,264
Accrued expenses payable...................................................... 457,248
-------------
TOTAL LIABILITIES..................................................... 178,839,941
-------------
NET ASSETS (Applicable to 21,204,296 Institutional shares, 5,604,474 Service
shares and 1,077,374 Series A Investor shares outstanding).................... $ 374,511,915
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER INSTITUTIONAL SHARE
($284,904,903 divided by 21,204,296).......................................... $13.44
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SERVICE SHARE ($75,174,328
divided by 5,604,474).......................................................... $13.41
=======
NET ASSET VALUE AND REDEMPTION PRICE PER SERIES A INVESTOR SHARE ($14,432,684
divided by 1,077,374)........................................................... $13.40
=======
MAXIMUM OFFERING PRICE PER SERIES A INVESTOR SHARE ($13.40 divided by .955)..... $14.03
=======
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 38
THE PNC(R) FUND
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 40.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION
DISCOUNT NOTES
4.75% 10/03/94 $ 1,400 $ 1,399,630
5.00% 10/03/94 2,165 2,164,399
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $3,564,029) 3,564,029
-----------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 67.2%
ARGENTINA -- 6.9%
Banco Frances Del Rio Plata 19,850 201,538
Cia Interamericana De Automovil 14,000 202,361
Cia Naviera Perez Companc SA 36,400 204,993
-----------
608,892
-----------
CHILE -- 3.0%
Antofagasta Holding 44,000 262,037
-----------
GREECE -- 2.3%
Teletypos 30,800 208,637
-----------
HONG KONG -- 6.2%
Citic Pacific 50,000 154,663
Guangzhou Shipyard International
Company 470,000 220,811
Qingling Automobiles Company 430,000 176,975
-----------
552,449
-----------
HUNGARY -- 3.3%
Egis Gyogyszergyar 4,000 97,226
Pannonplast Muanyagipari RT 8,408 98,825
Pick Szeged Szalamigyar Es
Husuzem RT 1,457 96,996
-----------
293,047
-----------
INDONESIA -- 2.3%
Pt Sinar Mas Agro Research &
Technology 120,000 202,684
-----------
MALAYSIA -- 5.8%
Malaysian International Shipping
Corporation (Domestic) 38,666 118,403
Malaysian International Shipping
Corporation (Foreign) 18,000 60,035
Nylex (Malaysia) Berhard 65,000 149,600
The New Straits Times Press 46,000 184,825
-----------
512,863
-----------
MEXICO -- 4.4%
Empaques Ponderosa SA -- Series
B 63,806 $ 210,556
Grupo Financiero Banorte 'b' 40,000 181,497
-----------
392,053
-----------
THAILAND -- 6.2%
Bangkok Bank 13,000 134,970
Bumrungrad Hospital 65,000 175,251
Thai Farmers Bank-Foreign Reg. 8,000 63,421
Thai Stanley Electric Company
Ltd. 50,000 181,087
-----------
554,729
-----------
TURKEY -- 1.8%
Cukurova Elektrik A.S. 632,000 158,924
-----------
UNITED KINGDOM -- 8.8%
Central European Growth
Fund PLC 800,000 781,448
-----------
UNITED STATES -- 16.2%
Cemex CPO 11,800 200,600
China Steel GDR 9,900 202,950
Consorcio G Grupo Dina ADR 14,200 170,400
Embotelladora Andina SA ADR 8,700 213,150
Grupo Tribasa SA ADR 4,300 158,025
Hansol Paper GDR 5,775 167,475
PEC Israel Economic Corporation
ADR 6,700 195,975
Shandong Huaneng Power ADR 10,000 127,500
-----------
1,436,075
-----------
TOTAL COMMON STOCKS
(Cost $5,665,452) 5,963,838
-----------
RIGHTS -- 0.0%
UNITED STATES
Consorcio G Grupo Dina Rights 14,200 0
-----------
(Cost $0)
</TABLE>
See accompanying notes to financial statements.
38
<PAGE> 39
INTERNATIONAL EMERGING MARKETS PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
CONVERTIBLE BONDS -- 7.8%
Far Eastern Department Stores
Bonds
3.00% 07/06/01 $ 200 $ 192,000
Yang Ming Marine Transport, Inc.
Bonds
2.00% 10/06/99 500 500,000
-----------
TOTAL CONVERTIBLE BONDS
(Cost $698,901) 692,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $9,928,382*) 115.2% 10,219,867
LIABILITIES IN EXCESS OF OTHER
ASSETS (INCLUDING $1,411,848 OF
INVESTMENT PURCHASES PAYABLE) (15.2%) (1,346,882)
--------- -----------
NET ASSETS (Applicable to 237,862
Institutional shares, 332,191
Service shares and 271,033
Series A Investor shares
outstanding) 100.0% $ 8,872,985
------- -----------
------- -----------
<CAPTION>
VALUE
-----------
<S> <C>
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($2,511,093 divided by 237,862) $10.56
======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($3,504,680 divided by 332,191) $10.55
======
NET ASSET VALUE AND REDEMPTION PRICE PER
SERIES A INVESTOR SHARE
($2,857,212 divided by 271,033) $10.54
======
MAXIMUM OFFERING PRICE PER
SERIES A INVESTOR SHARE
($10.54 divided by .955) $11.04
======
</TABLE>
- -------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 534,945
Gross unrealized depreciation (243,460)
---------
$ 291,485
==========
</TABLE>
See accompanying notes to financial statements.
39
<PAGE> 40
THE PNC(R) FUND
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 23.3%
FEDERAL FARM CREDIT BANK
DISCOUNT NOTES -- 1.3%
6.70% 09/09/97 $ 2,000 $ 1,979,520
------------
FEDERAL HOME LOAN BANK
BONDS -- 0.9%
8.25% 11/25/96 200 206,150
8.375% 10/25/99 200 207,156
5.00% 09/20/00 1,000 875,370
------------
1,288,676
------------
FEDERAL HOME LOAN MORTGAGE
CORP. -- 15.5%
4.75% 10/03/94 20,600 20,594,564
4.83% 10/13/94 2,000 1,996,780
------------
22,591,344
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 0.6%
6.40% 03/25/03 1,000 901,120
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 3.8%
7.50% 04/15/24 978 920,127
7.50% 06/15/24 1,955 1,839,941
8.00% 06/15/24 2,855 2,774,911
------------
5,534,979
------------
TENNESSEE VALLEY AUTHORITY -- 1.2%
6.125% 07/15/03 2,000 1,777,500
------------
TOTAL AGENCY OBLIGATIONS
(Cost $34,679,679) 34,073,139
------------
ASSET BACKED SECURITIES -- 1.0%
AUTOMOTIVE
Nissan Auto Receivables Grantor
Trust 1994-A
6.45% 03/15/96 1,500 1,493,906
------------
(Cost $1,498,841)
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS -- 51.7%
AEROSPACE -- 1.5%
Boeing Co. 22,000 948,750
United Technologies Corp. 21,000 1,315,125
------------
2,263,875
------------
AIR TRANSPORT -- 0.7%
Southwest Airlines Co. 42,700 960,750
------------
APPAREL -- 1.3%
Melville Corp. 55,000 $ 1,959,375
------------
AUTOMOTIVE -- 0.6%
Ford Motor Co. 30,000 832,500
------------
BANKS -- 1.2%
Comerica, Inc. 15,300 424,575
NationsBank Corp. 25,000 1,225,000
------------
1,649,575
------------
BUSINESS MACHINES -- 2.4%
Novell, Inc. 52,500** 774,375
Sun Microsystems, Inc. 44,000** 1,292,500
Xerox Corp. 13,000 1,387,750
------------
3,454,625
------------
BUSINESS SERVICES -- 3.6%
Cintas Corp. 20,000** 690,000
Deluxe Corp. 40,000 1,175,000
First Data Corp. 30,000 1,507,500
Pitney Bowes, Inc. 55,000 1,952,500
------------
5,325,000
------------
CHEMICALS -- 3.9%
Allied-Signal,Inc. 20,000 682,500
Dow Chemical Co. 23,500 1,838,875
E.I. Du Pont De Nemours & Co. 10,900 632,200
IMC Global, Inc. 7,000 311,500
Minnesota Mining and
Manufacturing Co. 4,000 221,000
Monsanto Co. 13,000 1,044,875
P.P.G. Industries, Inc. 24,800 982,700
------------
5,713,650
------------
COMPUTER & OFFICE EQUIPMENT -- 0.8%
Computer Sciences Corp. 27,000** 1,174,500
------------
CONSTRUCTION -- 0.9%
Fluor Corp. 26,000 1,293,500
------------
CONSUMER-DURABLES -- 0.7%
Whirlpool Corp. 21,000 1,078,875
------------
DRUGS AND HEALTH CARE -- 1.5%
American Home Products Corp. 12,000 720,000
Beckman Instruments, Inc. 10,000 295,000
Bristol Myers Squibb Co. 18,300 1,049,962
Merck & Co., Inc. 1,500 53,250
------------
2,118,212
------------
</TABLE>
See accompanying notes to financial statements.
40
<PAGE> 41
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS -- 1.9%
Emerson Electric Co. 9,000 $ 536,625
Intel Corp. 25,000 1,537,500
Motorola, Inc. 12,000 633,000
------------
2,707,125
------------
ENERGY & RAW MATERIALS -- 0.6%
Elf Aquitaine ADR. 20,000 720,000
Royal Dutch Petroleum Co. 1,500** 161,063
------------
881,063
------------
ENERGY & UTILITIES -- 3.1%
Consolidated Natural Gas Co. 39,300 1,527,787
PECO Energy Co. 74,000 1,877,750
Unicom Corp. 50,000 1,112,500
------------
4,518,037
------------
FINANCE -- 2.9%
Dean Witter Discover & Co. 27,000 1,015,875
Federal National Mortgage
Association 15,000 1,181,250
First Chicago Corp. 20,000 917,500
Travelers, Inc. 33,000 1,084,875
------------
4,199,500
------------
FOOD & AGRICULTURE -- 2.1%
Sara Lee Corp. 37,400 841,500
Sysco Corp. 86,550 2,196,206
------------
3,037,706
------------
INSURANCE -- 2.2%
American International
Group, Inc. 15,250 1,355,344
Chubb Corp. 24,000 1,707,000
General Re Corp. 1,700 179,988
------------
3,242,332
------------
MEDIA -- 0.5%
McGraw Hill, Inc. 9,500 695,875
------------
MOTOR VEHICLES -- 1.2%
Chrysler Corp. 20,000 897,500
General Motors Corp. 20,000 937,500
------------
1,835,000
------------
OIL DOMESTIC -- 1.7%
Amoco Corp. 20,000 1,185,000
Tenneco, Inc. 31,000 1,367,875
------------
2,552,875
------------
OIL EQUIPMENT AND SERVICES -- 0.7%
Lubrizol Corp. 33,000 1,027,125
------------
OIL INTERNATIONAL -- 2.3%
Chevron Corp. 25,000 $ 1,040,625
Exxon Corp. 2,000 115,250
Mobil Corp. 10,000 791,250
Unocal Corp. 48,000 1,356,000
------------
3,303,125
------------
PAPER AND FOREST PRODUCTS -- 0.9%
International Paper Co. 17,700 1,389,450
------------
PRODUCER GOODS -- 2.1%
American Electric
Power Co., Inc. 5,000 156,875
General Electric Co. 43,200 2,079,000
Illinois Tool Works, Inc. 16,000 684,000
W.W. Grainger, Inc. 2,000 118,500
------------
3,038,375
------------
RAILROADS & SHIPPING -- 2.2%
Burlington Northern, Inc. 17,000 854,250
Consolidated Rail Corp. 28,000 1,386,000
Norfolk Southern Corp. 15,000 933,750
------------
3,174,000
------------
RETAIL MERCHANDISING -- 3.1%
Charming Shoppes, Inc. 84,400 685,750
Gap, Inc. 30,000 986,250
J.C. Penney Co., Inc. 31,000 1,600,375
K Mart Corp. 17,000 303,875
Sears Roebuck & Co. 20,000 960,000
------------
4,536,250
------------
TELEPHONE -- 3.5%
AT&T Corp. 29,700 1,603,800
MCI Communications Corp. 36,000 922,500
NYNEX Corp. 27,000 1,039,500
Southwestern Bell Corp. 3,400 144,500
U.S. West, Inc. 37,000 1,433,750
------------
5,144,050
------------
TOBACCO -- 0.1%
Philip Morris, Inc. 2,000 122,250
------------
TRAVEL & RECREATION -- 1.5%
Circus Circus Enterprises, Inc. 36,500** 812,125
Walt Disney Co. 36,800 1,430,600
------------
2,242,725
------------
TOTAL COMMON STOCKS
(Cost $75,427,909) $ 75,471,300
------------
</TABLE>
See accompanying notes to financial statements.
41
<PAGE> 42
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 7.4%
AEROSPACE -- 0.6%
Boeing Co.
6.35% 06/15/03 $ 1,000 $ 895,000
------------
BANKS -- 1.2%
Bank of New York, Inc.
6.625% 06/15/03 1,000 897,500
First Union Corp.
6.625% 07/15/05 1,000 877,500
------------
1,775,000
------------
CONTAINERS -- 0.6%
Weyerhaeuser Co.
7.25% 07/01/13 1,000 890,000
------------
ELECTRONICS -- 0.3%
GTE Hawaiian Telephone, Inc.
6.75% 02/15/05 500 448,125
------------
ENERGY & UTILITIES -- 1.3%
Baltimore Gas & Electric
7.25% 07/01/02 2,000 1,920,000
------------
FINANCE -- 2.0%
BHP Finance Ltd.
5.625% 11/01/00 1,000 886,250
Fleet Financial Group
7.25% 09/01/99 1,000 978,750
Household International Corp.
6.00% 03/15/99 1,000 937,500
------------
2,802,500
------------
MOTOR VEHICLES -- 0.4%
Ford Motor Credit Co.
6.25% 02/26/98 600 577,500
------------
UTILITIES (ELECTRIC) -- 1.0%
Monongahela Power Co.
5.625% 04/01/00 500 452,500
Southern California
Edison Corp.
5.875% 02/01/98 1,000 953,750
------------
1,406,250
------------
TOTAL CORPORATE BONDS
(Cost $11,541,581) 10,714,375
------------
MEDIUM TERM NOTES -- 1.4%
FINANCE
General Motors
Acceptance Corp.
7.85% 11/17/97 $ 1,100 $ 1,109,625
7.25% 04/30/99 1,000 973,750
------------
TOTAL MEDIUM TERM NOTES
(Cost $2,112,359) 2,083,375
------------
U.S. TREASURY OBLIGATIONS -- 14.9%
U.S. TREASURY BONDS -- 3.2%
7.875% 02/15/21 1,000 986,190
7.125% 02/15/23 4,000 3,638,119
------------
4,624,309
------------
U.S. TREASURY NOTES -- 11.7%
7.625% 05/31/96 500 509,600
6.00% 11/30/97 1,500 1,460,025
8.125% 02/15/98 800 826,472
5.125% 03/31/98 1,000 941,570
7.125% 10/15/98 5,250 5,256,142
6.375% 01/15/99 650 631,137
6.375% 07/15/99 1,000 965,400
8.00% 08/15/99 425 438,340
7.875% 11/15/99 1,000 1,025,340
6.375% 01/15/00 1,000 960,320
6.375% 08/13/02 500 466,125
6.25% 02/15/03 1,000 919,160
5.75% 08/15/03 3,000 2,646,330
------------
17,045,961
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $23,154,652) $ 21,670,270
------------
</TABLE>
See accompanying notes to financial statements.
42
<PAGE> 43
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS (Continued)
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(Cost $148,415,021*) 99.7% $145,506,365
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.3% 434,149
--------- ------------
NET ASSETS (Applicable to
1,469,559 Institutional shares,
5,510,049 Service shares and
5,200,179 Series A Investor
shares outstanding) 100.0% $145,940,514
======== ============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE, AND
SERIES A INVESTOR SHARE
($145,940,514 divided by 12,179,787) $11.98
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $11.98
======
MAXIMUM OFFERING PRICE PER SERIES
A INVESTOR SHARE
($11.98 divided by .955) $12.54
======
- -------------
* Also cost for Federal income tax purposes. The gross
unrealized appreciation (depreciation) on a tax basis is
as follows:
Gross unrealized appreciation $ 4,914,396
Gross unrealized depreciation (7,823,052)
-----------
$(2,908,656)
===========
** Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
43
<PAGE> 44
THE PNC(R) FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SMALL CAP
VALUE GROWTH GROWTH CORE
EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest........................................... $ 1,180,667 $ 421,145 $ 260,147 $ 267,970
Dividends.......................................... 16,692,818 1,101,071 107,364 1,849,709
----------- ------------ ----------- -----------
Total investment income.......................... 17,873,485 1,522,216 367,511 2,117,679
----------- ------------ ----------- -----------
Expenses:
Investment advisory fee............................ 3,171,674 643,001 216,145 416,858
Administration fee................................. 1,137,117 233,819 78,598 151,585
Custodian fee...................................... 99,231 42,216 39,042 28,568
Transfer agent fee................................. 37,911 42,454 26,039 24,515
Service fees....................................... 177,459 58,828 28,347 66,516
Distribution fees.................................. 31,135 16,155 3,297 921
Legal and audit.................................... 77,839 16,348 4,605 13,622
Printing........................................... 61,094 20,250 8,930 8,910
Registration fees and expenses..................... 32,504 26,041 23,905 48,036
Organization....................................... 15,374 1,803 4,420 5,405
Trustees' fees and officer's salary................ 11,904 2,476 800 1,797
Other.............................................. 30,605 12,424 3,924 6,464
----------- ------------ ----------- -----------
4,883,847 1,115,815 438,052 773,197
Less fees voluntarily waived....................... (926,910) (280,921) (218,752) (213,110)
----------- ------------ ----------- -----------
Total expenses................................... 3,956,937 834,894 219,300 560,087
----------- ------------ ----------- -----------
Net investment income................................ 13,916,548 687,322 148,211 1,557,592
----------- ------------ ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from
investment transactions.......................... 15,933,683 3,202,620 (6,571,076) 1,040,034
Change in unrealized appreciation (depreciation) of
investments...................................... (8,855,288) (16,170,202) 8,638,240 (1,385,382)
----------- ------------ ----------- -----------
Net gain (loss) on investments..................... 7,078,395 (12,967,582) 2,067,164 (345,348)
----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations........................ $20,994,943 $(12,280,260) $ 2,215,375 $ 1,212,244
========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
44
<PAGE> 45
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SMALL CAP
INDEX VALUE INTERNATIONAL
EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -------------
<S> <C> <C> <C>
Investment Income:
Interest......................................................... $ 562,522 $ 492,076 $ 343,337
Dividends........................................................ 5,255,618 1,516,676 5,872,001
Foreign taxes withheld........................................... -- -- (597,673)
----------- ----------- -------------
Total investment income........................................ 5,818,140 2,008,752 5,617,665
----------- ----------- -------------
Expenses:
Investment advisory fee.......................................... 405,326 1,088,857 1,885,786
Administration fee............................................... 405,326 395,948 502,876
Custodian fee.................................................... 67,758 47,029 232,125
Transfer agent fee............................................... 36,698 42,960 44,425
Service fees..................................................... 52,752 84,160 110,459
Distribution fees................................................ 8,190 54,045 39,012
Legal and audit.................................................. 28,795 26,974 31,914
Printing......................................................... 24,469 25,604 33,479
Registration fees and expenses................................... 16,876 35,726 58,720
Organization..................................................... 13,261 4,263 2,584
Trustees' fees and officer's salary.............................. 4,176 4,024 5,139
Other............................................................ 56,455 13,263 69,316
----------- ----------- -------------
1,120,082 1,822,853 3,015,835
Less fees voluntarily waived..................................... (755,145) (239,436) (477,733)
----------- ----------- -------------
Total expenses................................................. 364,937 1,583,417 2,538,102
----------- ----------- -------------
Net investment income.............................................. 5,453,203 425,335 3,079,563
----------- ----------- -------------
Realized and unrealized gain (loss) on investments and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions........................................ 2,765,597 8,829,796 6,940,671
Futures contracts.............................................. (1,341,128) -- --
Foreign currency related transactions.......................... -- -- 43,957
----------- ----------- -------------
1,424,469 8,829,796 6,984,628
----------- ----------- -------------
Change in unrealized appreciation (depreciation) from:
Investments.................................................... (1,846,390) 1,968,771 11,057,661
Futures contracts.............................................. 42,200 -- --
Foreign currency related transactions.......................... -- -- (1,229,194)
----------- ----------- -------------
(1,804,190) 1,968,771 9,828,467
----------- ----------- -------------
Net gain (loss) on investments and foreign currency
transactions................................................... (379,721) 10,798,567 16,813,095
----------- ----------- -------------
Net increase (decrease) in net assets resulting from
operations..................................................... $ 5,073,482 $11,223,902 $19,892,658
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE> 46
THE PNC(R) FUND
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR (OR PERIOD) ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
INTERNATIONAL
EMERGING
MARKETS BALANCED
PORTFOLIO(1) PORTFOLIO
------------- ------------
<S> <C> <C>
Investment income:
Interest....................................................................... $ 39,902 $ 2,893,951
Dividends...................................................................... 24,355 1,800,352
----------- -----------
Total investment income...................................................... 64,257 4,694,303
----------- -----------
Expenses:
Investment advisory fee........................................................ 23,723 672,745
Administration fee............................................................. 3,796 244,634
Custodian fee.................................................................. 10,822 33,978
Transfer agent fee............................................................. 6,384 74,659
Service fees................................................................... 1,620 123,661
Distribution fees.............................................................. 2,703 222,954
Legal and audit................................................................ 213 16,533
Printing....................................................................... 161 9,767
Registration fees and expenses................................................. 581 43,773
Organization................................................................... 2,767 10,369
Trustees' fees and officer's salary............................................ 46 2,557
Other.......................................................................... 3,307 8,182
----------- -----------
56,123 1,463,812
Less fees voluntarily waived................................................... (18,588) (321,688)
----------- -----------
Total expenses............................................................... 37,535 1,142,124
----------- -----------
Net investment income............................................................ 26,722 3,552,179
----------- -----------
Realized and unrealized gain (loss) on investments and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions...................................................... 46,352 1,771,608
Foreign currency related transactions........................................ (6,881) --
----------- -----------
39,471 1,771,608
----------- -----------
Change in unrealized appreciation (depreciation) from:
Investments.................................................................. 291,484 (7,289,079)
Foreign currency related transactions........................................ (880) --
----------- -----------
290,604 (7,289,079)
----------- -----------
Net gain (loss) on investments and foreign currency transactions............... 330,075 (5,517,471)
----------- -----------
Net increase (decrease) in net assets resulting from operations................ $ 356,797 $(1,965,292)
========== ==========
</TABLE>
- -------------
(1) June 17, 1994 (commencement of operations) through September 30, 1994.
See accompanying notes to financial statements.
46
<PAGE> 47
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL CAP GROWTH
EQUITY PORTFOLIO
VALUE EQUITY PORTFOLIO GROWTH EQUITY PORTFOLIO ----------------------------
--------------------------- --------------------------- FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE FOR THE 9/14/93(1)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
------------ ------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income (loss).... $ 13,916,548 $ 7,922,455 $ 687,322 $ 385,645 $ 148,211 $ (598)
Net gain (loss) on
investments................... 7,078,395 67,681,417 (12,967,582) 16,899,566 2,067,164 524,054
------------ ------------ ------------ ------------ ----------- --------------
Net increase (decrease) in net
assets resulting from
operations.................... 20,994,943 75,603,872 (12,280,260) 17,285,211 2,215,375 523,456
------------ ------------ ------------ ------------ ----------- --------------
Distributions to shareholders from
Net investment income
Institutional Class............. (12,376,684) (7,962,600) (62,388) (431,319) (10,677) --
Service Class................... (1,666,353) (94,148) (1,583) -- (2,037) --
Series A Investor Class......... (170,702) (37,532) -- (4,736) (29) --
Net realized gains
Institutional Class............. (8,108,233) -- (831,835) (2,493,189) -- --
Service Class................... (850,677) -- (158,279) -- -- --
Series A Investor Class......... (106,250) -- (28,957) (19,337) -- --
Capital
Institutional Class............. -- -- -- (94,465) -- --
Service Class................... -- -- -- -- -- --
Series A Investor Class......... -- -- -- (1,867) -- --
------------ ------------ ------------ ------------ ----------- --------------
Total distributions to
shareholders.............. (23,278,899) (8,094,280) (1,083,042) (3,044,913) (12,743) --
------------ ------------ ------------ ------------ ----------- --------------
Capital share transactions.......... 234,949,582 70,445,652 41,981,179 38,165,617 75,416,557 11,738,255
------------ ------------ ------------ ------------ ----------- --------------
Total increase (decrease) in
net assets................ 232,665,626 137,955,244 28,617,877 52,405,915 77,619,189 12,261,711
Net assets:
Beginning of period............. 460,777,077 322,821,833 111,017,306 58,611,391 12,261,711 --
------------ ------------ ------------ ------------ ----------- --------------
End of period................... $693,442,703 $460,777,077 $139,635,183 $111,017,306 $89,880,900 $ 12,261,711
============= ============= ============= ============= =========== ============
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
47
<PAGE> 48
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO SMALL CAP VALUE
---------------------------- INDEX EQUITY PORTFOLIO EQUITY PORTFOLIO
FOR THE PERIOD --------------------------- ---------------------------
FOR THE 9/13/93(1) FOR THE FOR THE FOR THE FOR THE
YEAR ENDED THROUGH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/94 9/30/93 9/30/94 9/30/93 9/30/94 9/30/93
----------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income............ $ 1,557,592 $ 77,602 $ 5,453,203 $ 4,617,991 $ 425,335 $ 325,527
Net gain (loss) on investments... (345,348) (339,610) (379,721) 17,173,648 10,798,567 26,611,516
----------- -------------- ------------ ------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from operations................ 1,212,244 (262,008) 5,073,482 21,791,639 11,223,902 26,937,043
----------- -------------- ------------ ------------ ------------ ------------
Distributions to shareholders from
Net investment income
Institutional Class.............. (1,101,493) -- (5,019,786) (4,701,238) (193,009) (311,883)
Service Class.................... (541,575) -- (575,649) (89,762) (18,404) --
Series A Investor Class.......... (5,097) -- (52,872) (15,553) (2,894) (8,505)
Net realized gains
Institutional Class.............. -- -- (1,828,819) (42,156) (2,608,236) (622,381)
Service Class.................... -- -- (163,449) -- (541,286) --
Series A Investor Class.......... -- -- (15,147) (35) (206,728) (2,021)
----------- -------------- ------------ ------------ ------------ ------------
Total distributions to
shareholders............... (1,648,165) -- (7,655,722) (4,848,744) (3,570,557) (944,790)
----------- -------------- ------------ ------------ ------------ ------------
Capital share transactions........... 28,481,078 70,234,225 (19,530,455) 6,980,209 63,383,683 58,478,502
----------- -------------- ------------ ------------ ------------ ------------
Total increase (decrease)
in net assets.............. 28,045,157 69,972,217 (22,112,695) 23,923,104 71,037,028 84,470,755
Net assets:
Beginning of period.............. 69,972,217 -- 199,866,736 175,943,632 159,578,018 75,107,263
----------- -------------- ------------ ------------ ------------ ------------
End of period.................... $98,017,374 $ 69,972,217 $177,754,041 $199,866,736 $230,615,046 $159,578,018
=========== ============ ============= ============= ============= =============
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
48
<PAGE> 49
THE PNC(R) FUND
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
INTERNATIONAL
EMERGING
MARKETS
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO -------------- BALANCED PORTFOLIO
--------------------------- FOR THE PERIOD --------------------------
FOR THE FOR THE 6/17/94(1) FOR THE FOR THE
YEAR ENDED YEAR ENDED THROUGH YEAR ENDED YEAR ENDED
9/30/94 9/30/93 9/30/94 9/30/94 9/30/93
------------ ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations
Net investment income......................... $ 3,079,563 $ 1,004,421 $ 26,722 $ 3,552,179 $ 860,548
Net gain (loss) on investments and foreign
currency related transactions............... 16,813,095 21,103,248 330,075 (5,517,471) 2,577,665
------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations................... 19,892,658 22,107,669 356,797 (1,965,292) 3,438,213
------------ ------------ ------------ ------------ -----------
Distributions to shareholders from
Net investment income
Institutional Class........................... (1,219,026) (784,648) -- (518,473) (188,490)
Service Class................................. (170,647) -- -- (1,491,022) (81,198)
Series A Investor Class....................... (42,840) (3,002) -- (1,542,512) (557,806)
Net realized gains
Institutional Class........................... (2,844,395) -- -- (74,267) (74,817)
Service Class................................. (447,150) -- -- (125,603) --
Series A Investor Class....................... (119,272) -- -- (232,282) (244,140)
------------ ------------ ------------ ------------ -----------
Total distributions to shareholders....... (4,843,330) (787,650) -- (3,984,159) (1,146,451)
------------ ------------ ------------ ------------ -----------
Capital share transactions........................ 212,755,730 64,971,354 8,516,188 83,590,431 55,025,436
------------ ------------ ------------ ------------ -----------
Total increase (decrease) in net assets... 227,805,058 86,291,373 8,872,985 77,640,980 57,317,198
Net assets:
Beginning of period........................... 146,706,857 60,415,484 -- 68,299,534 10,982,336
------------ ------------ ------------ ------------ -----------
End of period................................. $374,511,915 $146,706,857 $8,872,985 $145,940,514 $68,299,534
============= ============= ============ ============= ===========
</TABLE>
- -------------
(1) Commencement of operations.
See accompanying notes to financial statements.
49
<PAGE> 50
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
---------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
--------------------------------- ---------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/20/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................... $ 11.68 $ 9.78 $ 10.00 $ 11.68 $ 11.21
------- ------- ------- ------- -------
Income from investment operations
Net investment income................................. 0.27 0.22 0.12 0.25 0.04
Net gain (loss) on investments (both realized
and unrealized)..................................... 0.16 1.91 (0.24) 0.16 0.48
------- ------- ------- ------- -------
Total from investment operations.................. 0.43 2.13 (.12) 0.41 0.52
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income.............. (0.27) (0.23) (0.10) (0.25) (0.05)
Distributions from net realized capital gains......... (0.22) -- -- (0.22) --
------- ------ ------- ------- -------
Total distributions............................... (0.49) (0.23) (0.10) (0.47) (0.05)
------- ------ ------- ------- -------
Net asset value at end of period......................... $ 11.62 $ 11.68 $ 9.78 $ 11.62 $ 11.68
======= ======= ======= ======= =======
Total return............................................. 3.76% 21.92% (1.19)% 3.51% 4.64%
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $577,996 $432,776 $322,806 $105,035 $23,137
Ratios of expenses to average net assets
After advisory/administration fee waivers........... 0.65% 0.80% 0.85%(2) 0.90% 0.91%(2)
Before advisory/administration fee waivers.......... 0.81% 0.83% 0.85%(2) 1.06% 0.94%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........... 2.44% 2.07% 2.62%(2) 2.24% 2.44%(2)
Before advisory/administration fee waivers.......... 2.28% 2.04% 2.62%(2) 2.08% 2.41%(2)
Portfolio turnover rate.................................. 11% 11% 13% 11% 11%
<CAPTION>
SERIES A
INVESTOR CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 5/02/921
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period................... $11.69 $ 9.78 $10.00
------ ------ ------
Income from investment operations
Net investment income................................. 0.23 0.22 0.12
Net gain (loss) on investments (both realized
and unrealized)..................................... 0.15 1.91 (0.24)
------ ------ ------
Total from investment operations.................. 0.38 2.13 (0.12)
------ ------ ------
Less distributions
Distributions from net investment income.............. (0.23) (0.22) (0.10)
Distributions from net realized capital gains......... (0.22) -- --
------ ----- ------
Total distributions............................... (0.45) (0.22) (0.10)
------ ----- ------
Net asset value at end of period......................... $11.62 $11.69 $ 9.78
====== ====== ======
Total return............................................. 3.32%(3) 21.95%(3) (1.19)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............ $10,412 $4,865 $ 16
Ratios of expenses to average net assets
After advisory/administration fee waivers........... 1.05% 0.92% 0.85%(2)
Before advisory/administration fee waivers.......... 1.21% 0.95% 0.85%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........... 2.08% 1.96% 2.62%(2)
Before advisory/administration fee waivers.......... 1.92% 1.93% 2.62%(2)
Portfolio turnover rate.................................. 11% 11% 13%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
50
<PAGE> 51
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY
PORTFOLIO
--------------------
INSTITUTIONAL CLASS
--------------------
YEAR YEAR
ENDED ENDED
9/30/94 9/30/93
------- --------
<S> <C> <C>
Net asset value at beginning of period.................................................................. $11.58 $ 9.92
------- --------
Income from investment operations
Net investment income................................................................................ 0.06 0.06
Net gain (loss) on investments (both realized and unrealized)........................................ (1.34) 2.07
------- --------
Total from investment operations................................................................. (1.28) 2.13
------- --------
Less distributions
Distributions from net investment income............................................................. (0.01) (0.07)
Distributions from capital........................................................................... -- (0.01)
Distributions from net realized capital gains........................................................ (0.10) (0.39)
------- --------
Total distributions.............................................................................. (0.11) (0.47)
------- --------
Net asset value at end of period........................................................................ $10.19 $ 11.58
====== =======
Total return............................................................................................ (11.14)% 22.18%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................... $97,834 $100,049
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................................... 0.65% 0.81%
Before advisory/administration fee waivers......................................................... 0.89% 0.87%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................................... 0.62% 0.50%
Before advisory/administration fee waivers......................................................... 0.38% 0.44%
Portfolio turnover rate................................................................................. 212% 175%
<CAPTION>
YEAR YEAR
ENDED ENDED
9/30/92 9/30/91
------- -------
<S> <C> <C>
Net asset value at beginning of period.................................................................. $10.28 $ 9.98
------- -------
Income from investment operations
Net investment income................................................................................ 0.21 0.24
Net gain (loss) on investments (both realized and unrealized)........................................ 0.30 1.51
------- -------
Total from investment operations................................................................. 0.51 1.75
------- -------
Less distributions
Distributions from net investment income............................................................. (0.37) (0.32)
Distributions from capital........................................................................... -- --
Distributions from net realized capital gains........................................................ (0.50) (1.13)
------- -------
Total distributions.............................................................................. (0.87) (1.45)
------- -------
Net asset value at end of period........................................................................ $ 9.92 $10.28
====== ======
Total return............................................................................................ 4.98% 19.47%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................... $58,372 $54,912
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................................... 0.85% 0.85%
Before advisory/administration fee waivers......................................................... 0.86% 0.91%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................................... 2.07% 2.59%
Before advisory/administration fee waivers......................................................... 2.06% 2.53%
Portfolio turnover rate................................................................................. 162% 211%
<CAPTION>
FOR THE
PERIOD
11/1/89(1)
THROUGH
9/30/90
----------
<S> <C>
Net asset value at beginning of period.................................................................. $ 10.00
--------
Income from investment operations
Net investment income................................................................................ 0.31
Net gain (loss) on investments (both realized and unrealized)........................................ (0.26)
--------
Total from investment operations................................................................. 0.05
--------
Less distributions
Distributions from net investment income............................................................. (0.07)
Distributions from capital........................................................................... --
Distributions from net realized capital gains........................................................ --
--------
Total distributions.............................................................................. (0.07)
--------
Net asset value at end of period........................................................................ $ 9.98
=======
Total return............................................................................................ 0.40%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................... $39,790
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................................... 0.85%(2)
Before advisory/administration fee waivers......................................................... 0.88%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................................... 2.75%(2)
Before advisory/administration fee waivers......................................................... 2.72%(2)
Portfolio turnover rate................................................................................. 149%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
51
<PAGE> 52
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GROWTH EQUITY
PORTFOLIO
--------------------
SERVICE CLASS
--------------------
FOR THE
PERIOD
YEAR 7/28/93(1)
ENDED THROUGH
9/30/94 9/30/93
------- --------
<S> <C> <C>
Net asset value at beginning of period............................................................... $11.57 $10.54
------- --------
Income from investment operations
Net investment income............................................................................. 0.03 --
Net gain (loss) on investments (both realized and unrealized)..................................... (1.32) 1.03
------- --------
Total from investment operations.............................................................. (1.29) 1.03
------- --------
Less distributions
Distributions from net investment income.......................................................... -- --
Distributions from capital........................................................................ -- --
Distributions from net realized capital gains..................................................... (0.10) --
------- --------
Total distributions........................................................................... (0.10) --
------- --------
Net asset value at end of period..................................................................... $10.18 $11.57
====== =======
Total return......................................................................................... (11.20)% 9.77%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................ $36,752 $8,606
Ratios of expenses to average net assets
After advisory/administration fee waivers....................................................... 0.90% 0.89%(2)
Before advisory/administration fee waivers...................................................... 1.14% 0.95%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................................................... 0.51% (0.03)%(2)
Before advisory/administration fee waivers...................................................... 0.26% (0.09)%(2)
Portfolio turnover rate.............................................................................. 212% 175%
<CAPTION>
SERIES A
INVESTOR CLASS
----------------------------------
FOR THE
PERIOD
YEAR YEAR 3/14/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period.................................................... $11.57 $ 9.92 $10.09
------- ------- --------
Income from investment operations
Net investment income.................................................................. 0.02 0.02 0.08
Net gain (loss) on investments (both realized and unrealized).......................... (1.33) 2.10 (0.10)
------- ------- --------
Total from investment operations................................................... (1.31) 2.12 (0.02)
------- ------- --------
Less distributions
Distributions from net investment income............................................... -- (0.07) (0.15)
Distributions from capital............................................................. -- (0.01) --
Distributions from net realized capital gains.......................................... (0.10) (0.39) --
------- ------- --------
Total distributions................................................................ (0.10) (0.47) (0.15)
------- ------- --------
Net asset value at end of period.......................................................... $10.16 $11.57 $ 9.92
====== ====== =======
Total return.............................................................................. (11.38)%(3) 22.08%(3) (0.17)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................. $5,049 $2,362 $ 239
Ratios of expenses to average net assets
After advisory/administration fee waivers............................................ 1.05% 0.91% 0.85%(2)
Before advisory/administration fee waivers........................................... 1.29% 0.97% 0.86%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............................................ 0.29% 0.18% 2.07%(2)
Before advisory/administration fee waivers........................................... 0.05% 0.12% 2.06%(2)
Portfolio turnover rate................................................................... 212% 175% 162%
</TABLE>
-------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
52
<PAGE> 53
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-----------------------------------
SERVICE
INSTITUTIONAL CLASS CLASS
-------------------- -------
FOR THE
PERIOD
YEAR 9/14/93(1) YEAR
ENDED THROUGH ENDED
9/30/94 9/30/93 9/30/94
------- -------- -------
<S> <C> <C> <C>
Net asset value at beginning of period............................................ $10.47 $ 10.00 $10.47
------- -------- -------
Income from investment operations
Net investment income.......................................................... 0.03 -- 0.01
Net gain (loss) on investments (both realized and unrealized).................. (0.33) 0.47 (0.34)
------- -------- -------
Total from investment operations........................................... (0.30) 0.47 (0.33)
------- -------- -------
Less distributions
Distributions from net investment income....................................... (0.01) -- --
Distributions from net realized capital gains.................................. -- -- --
------- -------- -------
Total distributions........................................................ (0.01) -- --
------- -------- -------
Net asset value at end of period.................................................. $10.16 $ 10.47 $10.14
======== ======== ========
Total return...................................................................... (2.89)% 4.70% (3.12)%
Ratios/Supplemental data
Net assets at end of period (in thousands)..................................... $65,612 $11,310 $22,648
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................... 0.48% 0.73%(2) 0.71%
Before advisory/administration fee waivers................................... 1.04% 1.42%(2) 1.27%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................... 0.45% (0.11)%(2) 0.21%
Before advisory/administration fee waivers................................... (0.10)% (0.80)%(2) (0.34)%
Portfolio turnover rate........................................................... 89% 9% 89%
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-----------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
-------- --------------------
FOR THE FOR THE
PERIOD PERIOD
9/15/93(1) YEAR 9/15/93(1)
THROUGH ENDED THROUGH
9/30/93 9/30/94 9/30/93
-------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................................ $ 9.96 $10.47 $ 9.96
-------- ------- --------
Income from investment operations
Net investment income.......................................................... -- -- --
Net gain (loss) on investments (both realized and unrealized).................. 0.51 (0.35) 0.51
-------- ------- --------
Total from investment operations........................................... 0.51 (0.35) 0.51
-------- ------- --------
Less distributions
Distributions from net investment income....................................... -- -- --
Distributions from net realized capital gains.................................. -- -- --
-------- ------- --------
Total distributions........................................................ -- -- --
-------- ------- --------
Net asset value at end of period.................................................. $10.47 $10.12 $10.47
=========== =========== ===========
Total return...................................................................... 5.12% (3.33)%(3) 5.12%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)..................................... $ 911 $1,620 $ 41
Ratios of expenses to average net assets
After advisory/administration fee waivers.................................... 0.99%(2) 0.86% 1.13%(2)
Before advisory/administration fee waivers................................... 1.68%(2) 1.42% 1.82%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................................... (0.34)%(2) 0.07% (0.48)%(2)
Before advisory/administration fee waivers................................... (1.03)%(2) (0.49)% (1.17)%(2)
Portfolio turnover rate........................................................... 9% 89% 9%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
53
<PAGE> 54
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
----------------------------------
SERVICE
INSTITUTIONAL CLASS CLASS
-------------------- -------
FOR THE
PERIOD
YEAR 9/13/93(1) YEAR
ENDED THROUGH ENDED
9/30/94 9/30/93 9/30/94
------- -------- -------
<S> <C> <C> <C>
Net asset value at beginning of period...................................................... $ 9.97 $ 10.00 $ 9.97
------- -------- -------
Income from investment operations
Net investment income.................................................................... 0.22 0.01 0.19
Net gain (loss) on investments (both realized and unrealized)............................ (0.04) (0.04) (0.04)
------- -------- -------
Total from investment operations..................................................... 0.18 (0.03) 0.15
------- -------- -------
Less distributions
Distributions from net investment income................................................. (0.23) -- (0.20)
Distributions from net realized capital gains............................................ -- -- --
------- -------- -------
Total distributions.................................................................. (0.23) -- (0.20)
------- -------- -------
Net asset value at end of period............................................................ $ 9.92 $ 9.97 $ 9.92
======= ======= =======
Total return................................................................................ 1.79% (.30)% 1.55%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................... $48,123 $69,268 $49,293
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................................. 0.65% 0.65%(2) 0.90%
Before advisory/administration fee waivers............................................. 0.93% 0.87%(2) 1.18%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................................. 2.11% 2.17%(2) 1.96%
Before advisory/administration fee waivers............................................. 1.82% 1.95%(2) 1.68%
Portfolio turnover rate..................................................................... 88% 2% 88%
<CAPTION>
CORE EQUITY PORTFOLIO
-----------------------
SERIES A
SERVICE INVESTOR
CLASS CLASS
------- --------
FOR THE FOR THE
PERIOD PERIOD
9/15/93(1) 10/13/93(1)
THROUGH THROUGH
9/30/93 9/30/94
-------- ---------
<S> <C> <C>
Net asset value at beginning of period...................................................... $10.00 $ 9.96
-------- ---------
Income from investment operations
Net investment income.................................................................... -- 0.18
Net gain (loss) on investments (both realized and unrealized)............................ (0.03) (0.03)
-------- ---------
Total from investment operations..................................................... (0.03) 0.15
-------- ---------
Less distributions
Distributions from net investment income................................................. -- (0.19)
Distributions from net realized capital gains............................................ -- --
-------- ---------
Total distributions.................................................................. -- (0.19)
-------- ---------
Net asset value at end of period............................................................ $ 9.97 $ 9.92
======= =========
Total return................................................................................ (.30)% 1.54%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................... $ 704 $ 601
Ratios of expenses to average net assets
After advisory/administration fee waivers.............................................. 0.90%(2) 1.05%(2)
Before advisory/administration fee waivers............................................. 1.12%(2) 1.34%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.............................................. 1.92%(2) 1.89%(2)
Before advisory/administration fee waivers............................................. 1.70%(2) 1.60%(2)
Portfolio turnover rate..................................................................... 2% 88%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
54
<PAGE> 55
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
--------------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
---------------------------------- --------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/20/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 11.02 $ 10.06 $ 10.00 $11.02 $ 10.76
-------- -------- -------- ------- --------
Income from investment operations
Net investment income................................ 0.31 0.27 0.13 0.29 0.05
Net gain (loss) on investments (both realized and
unrealized)........................................ 0.03 0.97 0.03 0.02 0.29
-------- -------- -------- ------- --------
Total from investment operations................. 0.34 1.24 0.16 0.31 0.34
-------- -------- -------- ------- --------
Less distributions
Distributions from net investment income............. (0.32) (0.28) (0.10) (0.29) (0.08)
Distributions from net realized capital gains........ (0.11) -- -- (0.11) --
-------- -------- -------- ------- --------
Total distributions.............................. (0.43) (0.28) (0.10) (0.40) (0.08)
-------- -------- -------- ------- --------
Net asset value at end of period........................ $ 10.93 $ 11.02 $ 10.06 $10.93 $ 11.02
=========== =========== ============ ========= ============
Total return............................................ 3.07% 12.40% 1.62% 2.78% 3.16%
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $147,746 $186,163 $175,888 $27,376 $12,441
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 0.15% 0.40% 0.45%(2) 0.40% 0.41%(2)
Before advisory/administration fee waivers......... 0.52% 0.52% 0.64%(2) 0.77% 0.53%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......... 2.72% 2.46% 2.85%(2) 2.49% 3.04%(2)
Before advisory/administration fee waivers......... 2.35% 2.34% 2.66%(2) 2.12% 2.92%(2)
Portfolio turnover rate................................. 17% 8% 23% 17% 8%
<CAPTION>
INDEX EQUITY PORTFOLIO
------------------------------
SERIES A
INVESTOR CLASS
------------------------------
FOR THE
PERIOD
YEAR YEAR 6/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period.................. $11.02 $10.06 $10.07
------- ------- --------
Income from investment operations
Net investment income................................ 0.25 0.27 0.10
Net gain (loss) on investments (both realized and
unrealized)........................................ 0.04 0.96 (0.01)
------- ------- --------
Total from investment operations................. 0.29 1.23 0.09
------- ------- --------
Less distributions
Distributions from net investment income............. (0.27) (0.27) (0.10)
Distributions from net realized capital gains........ (0.11) -- --
------- ------- --------
Total distributions.............................. (0.38) (0.27) (0.10)
------- ------- --------
Net asset value at end of period........................ $10.93 $11.02 $10.06
=========== =========== ============
Total return............................................ 2.66%(3) 12.33%(3) 0.91%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........... $2,632 $1,263 $ 56
Ratios of expenses to average net assets
After advisory/administration fee waivers.......... 0.55% 0.49% 0.45%(2)
Before advisory/administration fee waivers......... 0.92% 0.61% 0.64%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......... 2.35% 2.48% 2.85%(2)
Before advisory/administration fee waivers......... 1.98% 2.36% 2.66%(2)
Portfolio turnover rate................................. 17% 8% 23%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
55
<PAGE> 56
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
---------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------------- -------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/13/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............................... $ 13.08 $ 10.14 $ 10.00 $13.08 $ 12.28
-------- -------- -------- ------- --------
Income from investment operations
Net investment income............................................. 0.04 0.04 0.02 -- --
Net gain (loss) on investments (both realized and unrealized)..... 0.77 3.02 0.13 0.77 0.80
-------- -------- -------- ------- --------
Total from investment operations.............................. 0.81 3.06 0.15 0.77 0.80
-------- -------- -------- ------- --------
Less distributions
Distributions from net investment income.......................... (0.02) (0.04) (0.01) (0.01) --
Distributions from net realized capital gains..................... (0.25) (0.08) -- (0.25) --
-------- -------- -------- ------- --------
Total distributions........................................... (0.27) (0.12) (0.01) (0.26) --
-------- -------- -------- ------- --------
Net asset value at end of period..................................... $ 13.62 $ 13.08 $ 10.14 $13.59 $ 13.08
========== ========== ============ =========== =======
Total return......................................................... 6.28% 30.36% 1.50% 5.96% 6.51%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................ $168,360 $128,805 $75,045 $45,372 $21,689
Ratios of expenses to average net assets
After advisory/administration fee waivers....................... 0.73% 0.83% 0.85%(2) 0.98% 0.99%(2)
Before advisory/administration fee waivers...................... 0.85% 0.87% 0.89%(2) 1.10% 1.03%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................... 0.28% 0.31% 0.51%(2) 0.03% 0.12%(2)
Before advisory/administration fee waivers...................... 0.16% 0.27% 0.47%(2) (0.09)% 0.08%(2)
Portfolio turnover rate.............................................. 18% 41% 17% 18% 41%
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
--------------------------------
SERIES A
INVESTOR CLASS
--------------------------------
FOR THE
PERIOD
YEAR YEAR 6/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................... $13.07 $10.14 $10.06
------ ------- -------
Income from investment operations
Net investment income............................................. (0.01) 0.03 0.02
Net gain (loss) on investments (both realized and unrealized)..... 0.77 3.02 0.07
------ ------- -------
Total from investment operations.............................. 0.76 3.05 0.09
------ ------- -------
Less distributions
Distributions from net investment income.......................... -- (0.04) (0.01)
Distributions from net realized capital gains..................... (0.25) (0.08) --
------ ------- -------
Total distributions........................................... (0.25) (0.12) (0.01)
------ ------- -------
Net asset value at end of period..................................... $13.58 $13.07 $10.14
====== ====== =======
Total return......................................................... 5.93%(3) 30.36%(3) 0.89%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................ $16,884 $9,084 $ 62
Ratios of expenses to average net assets
After advisory/administration fee waivers....................... 1.13% 0.94% 0.85%(2)
Before advisory/administration fee waivers...................... 1.25% 0.98% 0.89%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................... (0.11)% 0.19% 0.51%(2)
Before advisory/administration fee waivers...................... (0.23)% 0.15% 0.47%(2)
Portfolio turnover rate.............................................. 18% 41% 17%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
56
<PAGE> 57
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
---------------------------------------------------------
INSTITUTIONAL CLASS SERVICE CLASS
-------------------------------- -------------------
FOR THE FOR THE
PERIOD PERIOD
YEAR YEAR 4/27/92(1) YEAR 7/29/93(1)
ENDED ENDED THROUGH ENDED THROUGH
9/30/94 9/30/93 9/30/92 9/30/94 9/30/93
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............................... $ 12.48 $ 9.87 $ 10.00 $12.47 $ 11.76
-------- -------- -------- ------- --------
Income from investment operations
Net investment income............................................. 0.15 0.11 0.11 0.14 0.02
Net realized gain (loss) on investments........................... 1.17 2.61 (0.17) 1.14 0.69
-------- -------- -------- ------- --------
Total from investment operations.............................. 1.32 2.72 (0.06) 1.28 0.71
-------- -------- -------- ------- --------
Less distributions
Distributions from net investment income.......................... (0.11) (0.11) (0.07) (0.09) --
Distributions from net realized capital gains..................... (0.25) -- -- (0.25) --
-------- -------- -------- ------- --------
Total distributions........................................... (0.36) (0.11) (0.07) (0.34) --
-------- -------- -------- ------- --------
Net asset value at end of period..................................... $ 13.44 $ 12.48 $ 9.87 $13.41 $ 12.47
======== ======== ======= ======== =======
Total return......................................................... 10.71% 27.72% (0.61)% 10.36% 6.03%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................ $284,905 $131,052 $60,357 $75,174 $11,985
Ratios of expenses to average net assets
After advisory/administration fee waivers....................... 0.95% 1.10% 1.20%(2) 1.20% 1.18%(2)
Before advisory/administration fee waivers...................... 1.14% 1.16% 1.21%(2) 1.39% 1.24%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................... 1.27% 1.17% 2.59%(2) 1.09% 1.01%(2)
Before advisory/administration fee waivers...................... 1.08% 1.11% 2.58%(2) 0.90% 0.95%(2)
Portfolio turnover rate.............................................. 37% 31% 15% 37% 31%
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
------------------------------
SERIES A
INVESTOR CLASS
------------------------------
FOR THE
PERIOD
YEAR YEAR 6/02/92(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- --------
<S> <C> <C> <C>
Net asset value at beginning of period............................... $12.47 $ 9.87 $10.68
------- ------- ------
Income from investment operations
Net investment income............................................. 0.12 0.12 0.09
Net realized gain (loss) on investments........................... 1.15 2.59 (0.83)
------- ------- ------
Total from investment operations.............................. 1.27 2.71 (0.74)
------- ------- ------
Less distributions
Distributions from net investment income.......................... (0.09) (0.11) (0.07)
Distributions from net realized capital gains..................... (0.25) -- --
------- ------- ------
Total distributions........................................... (0.34) (0.11) (0.07)
------- ------- ------
Net asset value at end of period..................................... $13.40 $12.47 $ 9.87
======= ====== ==========
Total return......................................................... 10.24%(3) 27.72%(3) (6.94)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................ $14,433 $3,669 $ 58
Ratios of expenses to average net assets
After advisory/administration fee waivers....................... 1.35% 1.25% 1.20%(2)
Before advisory/administration fee waivers...................... 1.54% 1.31% 1.21%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers....................... 0.96% 1.27% 2.59%(2)
Before advisory/administration fee waivers...................... 0.77% 1.21% 2.58%(2)
Portfolio turnover rate.............................................. 37% 31% 16%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
57
<PAGE> 58
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL ENERGING MARKETS PORTFOLIO
---------------------------------------------
SERIES A
INSTITUTIONAL SERVICE INVESTOR
CLASS CLASS CLASS
------------- --------- --------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
6/17/94(1) 6/17/94(1) 6/17/94(1)
THROUGH THROUGH THROUGH
9/30/94 9/30/94 9/30/94
---------- ---------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.00 $10.00 $10.00
------- ------- ------
Income from investment operations
Net investment income.................................. 0.03 0.02 0.02
Net gain (loss) on investments (both realized
and unrealized)................................... 0.53 0.53 0.52
------- ------ ------
Total from investment operations................... 0.56 0.55 0.54
------- ------ ------
Less distributions
Distributions from net investment income............... -- -- --
Distributions from net realized capital gains.......... -- -- --
------- ------ ------
Total distributions................................ -- -- --
------- ------ ------
Net asset value at end of period.......................... $ 10.56 $10.55 $10.54
======= ====== ======
Total return.............................................. 5.60% 5.50% 5.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............. $ 2,511 $3,505 $2,857
Ratios of expenses to average net assets
After advisory/administration fee waivers............ 1.75%(2) 2.00%(2) 2.15%(2)
Before advisory/administration fee waivers........... 2.73%(2) 2.98%(2) 3.13%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers............ 1.19%(2) 1.10%(2) 0.74%(2)
Before advisory/administration fee waivers........... 0.21%(2) 0.12%(2) (0.24)%(2)
Portfolio turnover rate................................... 4% 4% 4%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
58
<PAGE> 59
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-----------------------------------
INSTITUTIONAL CLASS
-----------------------------------
FOR THE
PERIOD
YEAR YEAR 5/1/82(1)
ENDED ENDED THROUGH
9/30/94 9/30/93 9/30/92
------- ------- ---------
<S> <C> <C> <C>
Net asset value at beginning of period............................. $12.42 $11.53 $11.01
------- ------- --------
Income from investment operations
Net investment income........................................... 0.38 0.30 0.17
Net realized gain (loss) on investments......................... (0.39) 1.15 0.51
------- ------- --------
Total from investment operations............................ (0.01) 1.45 0.68
------- ------- --------
Less distributions
Distributions from net investment income........................ (0.37) (0.30) (0.16)
Distributions from net realized capital gains................... (0.06) (0.26) --
------- ------- --------
Total distributions......................................... (0.43) (0.56) (0.16)
------- ------- --------
Net asset value at end of period................................... $11.98 $12.42 $11.53
====== ====== ========
Total return....................................................... (0.11)% 12.86% 6.23%
Ratios/Supplemental data
Net assets at end of period (in thousands)...................... $17,610 $12,928 $2,501
Ratios of expenses to average net assets
After advisory/administration fee waivers..................... 0.65% 0.80% 0.95%(2)
Before advisory/administration fee waivers.................... 0.91% 0.98% 1.51%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers..................... 3.16% 2.89% 3.28%(2)
Before advisory/administration fee waivers.................... 2.89% 2.71% 2.72%(2)
Portfolio turnover rate............................................ 54% 32% 36%
<CAPTION>
BALANCED PORTFOLIO
-------------------------
SERVICE CLASS
-------------------------
FOR THE
PERIOD
YEAR 7/29/93(1)
ENDED THROUGH
9/30/94 9/30/93
-------- --------
<S> <C> <C>
Net asset value at beginning of period............................ $12.42 $ 12.05
------- --------
Income from investment operations
Net investment income.......................................... 0.34 0.06
Net realized gain (loss) on investments........................ (0.38) 0.38
------- --------
Total from investment operations........................... (0.04) 0.44
------- --------
Less distributions
Distributions from net investment income....................... (0.34) (0.07)
Distributions from net realized capital gains.................. (0.06) --
------- --------
Total distributions........................................ (0.40) (0.07)
------- --------
Net asset value at end of period.................................. $11.98 $ 12.42
======= ==========
Total return...................................................... (0.36)% 3.66%
Ratios/Supplemental data
Net assets at end of period (in thousands)..................... $66,024 $15,842
Ratios of expenses to average net assets
After advisory/administration fee waivers.................... 0.90% 0.93%(2)
Before advisory/administration fee waivers................... 1.16% 1.11%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.................... 2.96% 2.75%(2)
Before advisory/administration fee waivers................... 2.70% 2.57%(2)
Portfolio turnover rate........................................... 54% 32%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
See accompanying notes to financial statements.
59
<PAGE> 60
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
-------------------
SERIES A INVESTOR
CLASS
-------------------
YEAR YEAR
ENDED ENDED
9/30/94 9/30/93
------- -------
<S> <C> <C>
Net asset value at beginning of period.................................................................. $12.42 $11.53
------- ------
Income from investment operations
Net investment income................................................................................ 0.32 0.30
Net realized gain (loss) on investments.............................................................. (0.38) 1.14
------ ------
Total from investment operations................................................................. (0.06) 1.44
------ ------
Less distributions
Distributions from net investment income............................................................. (0.32) (0.29)
Distributions from net realized capital gains........................................................ (0.06) (0.26)
------ ------
Total distributions.............................................................................. (0.38) (0.55)
------ ------
Net asset value at end of period........................................................................ $11.98 $12.42
====== ======
Total return............................................................................................ (0.50)%(3) 12.80%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................... $62,307 $39,529
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................................... 1.05% 0.91%
Before advisory/administration fee waivers......................................................... 1.31% 1.09%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................................... 2.77% 2.79%
Before advisory/administration fee waivers......................................................... 2.51% 2.61%
Portfolio turnover rate................................................................................. 54% 32%
<CAPTION>
YEAR YEAR
ENDED ENDED
9/30/92 9/30/91
------- -------
<S> <C> <C>
Net asset value at beginning of period.................................................................. $10.82 $ 9.13
------ ------
Income from investment operations
Net investment income................................................................................ 0.34 0.38
Net realized gain (loss) on investments.............................................................. 1.22 1.77
------ ------
Total from investment operations................................................................. 1.56 2.15
------ ------
Less distributions
Distributions from net investment income............................................................. (0.39) (0.34)
Distributions from net realized capital gains........................................................ (0.46) (0.12)
------ ------
Total distributions.............................................................................. (0.85) (0.46)
------ ------
Net asset value at end of period........................................................................ $11.53 $10.82
====== ======
Total return............................................................................................ 15.17%(3) 24.04%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................... $8,481 $4,265
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................................... 0.95% 1.15%
Before advisory/administration fee waivers......................................................... 1.51% 1.86%
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................................... 3.28% 3.70%
Before advisory/administration fee waivers......................................................... 2.72% 2.99%
Portfolio turnover rate................................................................................. 36% 45%
<CAPTION>
FOR THE
PERIOD
5/14/90(1)
THROUGH
9/30/90
--------
Net asset value at beginning of period.................................................................. $10.00
--------
Income from investment operations
Net investment income................................................................................ 0.12
Net realized gain (loss) on investments.............................................................. (0.88)
-------
Total from investment operations................................................................. (0.76)
-------
Less distributions
Distributions from net investment income............................................................. (0.11)
Distributions from net realized capital gains........................................................ --
-------
Total distributions.............................................................................. (0.11)
-------
Net asset value at end of period........................................................................ $ 9.13
=======
Total return............................................................................................ (7.64)%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................................... $3,960
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................................... 1.15%(2)
Before advisory/administration fee waivers......................................................... 1.90%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................................... 3.07%(2)
Before advisory/administration fee waivers......................................................... 2.32%(2)
Portfolio turnover rate................................................................................. 37%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
See accompanying notes to financial statements.
60
<PAGE> 61
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
The PNC Fund (the "Fund") was organized on December 22, 1988, as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
consists of twenty-five separate Portfolios: Money Market Portfolio, Municipal
Money Market Portfolio, Government Money Market Portfolio, Ohio Municipal Money
Market Portfolio, Pennsylvania Municipal Money Market Portfolio, North Carolina
Municipal Money Market Portfolio, Virginia Municipal Money Market Portfolio,
Value Equity Portfolio, Growth Equity Portfolio, Small Cap Growth Equity
Portfolio, Core Equity Portfolio, Index Equity Portfolio, Small Cap Value Equity
Portfolio, International Equity Portfolio, International Emerging Markets
Portfolio, Balanced Portfolio, Managed Income Portfolio, Tax-Free Income
Portfolio, Intermediate Government Portfolio, Ohio Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio, Short-Term Bond Portfolio,
Intermediate-Term Bond Portfolio, International Fixed Income Portfolio and
Government Income Portfolio. As of September 30,1994, International Fixed Income
Portfolio and Government Income Portfolio had not commenced operations. This
report relates solely to Value Equity Portfolio, Growth Equity Portfolio, Small
Cap Growth Equity Portfolio, Core Equity Portfolio, Index Equity Portfolio,
Small Cap Value Equity Portfolio, International Equity Portfolio, International
Emerging Markets Portfolio and Balanced Portfolio (the "Portfolios").
Each Portfolio has four classes of shares, one class being referred to as
the Service shares, one class being referred to as the Institutional shares, one
class being referred to as the Series A Investor shares and one class being
referred to as the Series B Investor shares. No Series B Investor shares had
been issued for any of these Portfolios through September 30, 1994. Series A
Investor, Series B Investor, Institutional and Service shares in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Series A Investor shares bear the expense of the Distribution
and Service Plan at an annual rate not to exceed .55% of the average daily net
asset value of each Portfolio's outstanding Series A Investor shares. Series B
Investor shares bear the expense of the Distribution Plan at an annual rate not
to exceed .75% of the average daily net asset value of each Portfolio's
outstanding Series B Investor shares. Series B Investor shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of the
average daily net asset value of each Portfolio's outstanding Series B Investor
shares. Under the Fund's Service Plan, Service shares bear the expense of fees
at an annual rate not to exceed .15% of the average daily net asset value of
each Portfolio's outstanding Service shares. Service shares also bear the
expense of a service fee at an annual rate not to exceed .15% of the average
daily net asset value of each Portfolio's outstanding Service shares for other
shareholder support activities provided by service organizations. Institutional
shares do not bear the expense of the Distribution and Service Plan, the Service
Plan, the Series B Distribution Plan or the Series B Service Plan. The Series A
Investor and Service classes are currently bearing such respective expenses at
annual rates of .50% and .25% of the average daily net asset value of Series A
Investor shares and Service shares, respectively.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. If no sales are reported, as in the case of
some securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds are valued
on the basis of quotations
61
<PAGE> 62
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
provided by a pricing service which uses information with respect to
transactions on bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. Short-term obligations with maturities of 60 days or less are
valued at amortized cost which approximates market value. Discounts and premiums
on debt securities are amortized for book and tax purposes using the effective
yield-to-maturity method over the term of the instrument.
Dividends to Shareholders -- Dividends from net investment income are
declared and paid quarterly for the Portfolios. Net realized capital gains, if
any, will be distributed at least annually.
Federal Taxes -- No provision is made for Federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and excise taxes.
Foreign Currency Transactions -- With respect to the International Equity
Portfolio and International Emerging Markets Portfolio, transactions denominated
in foreign currencies are recorded in the Portfolios' records at the current
prevailing exchange rates. Asset and liability accounts that are denominated in
a foreign currency are adjusted daily to reflect current exchange rates.
Transaction gains or losses resulting from changes in exchange rates during the
reporting period or upon settlement of the foreign currency transaction are
reported in operations for the current period. It is not practical to isolate
that portion of both realized and unrealized gains and losses on investments in
the statement of operations that result from fluctuations in foreign currency
exchange rates. The Portfolio's report certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal income tax purposes. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date. Certain expenses, principally
Service fees and Distribution fees, are class specific expenses. Expenses not
directly attributable to a specific Portfolio or classes are allocated among all
of the Portfolios or classes of the Fund based on their relative net assets.
Repurchase Agreements -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller will be required on a daily basis to maintain the value
of the securities subject to the agreement at not less than the repurchase
price. The agreements are conditioned upon the collateral being deposited under
the Federal Reserve book-entry system or held in a separate account by the
Fund's custodian or an authorized securities depository.
Organization Costs -- Costs incurred by each Portfolio in connection with
its organization, registration and initial public offering have been deferred
and are being amortized using the straight-line method over a five-year period
beginning on the date on which each Portfolio commenced its investment
activities.
62
<PAGE> 63
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
Implementation of AICPA Statement of Position 93-2: -- As of October 1,
1993, the Fund implemented AICPA Statement of Position 93-2 -- Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. Adoption of this
standard results in the reclassification to paid-in capital of permanent
differences between tax and financial reporting of net investment income and net
realized gain (loss). The change has had no material effect on paid-in capital
or other components of the net assets of any of the Portfolios at October 1,
1993. Distributions to shareholders and net asset values were not affected by
this change.
Futures Transactions -- Certain portfolios may enter into futures contracts
subject to certain limitations. Upon entering into a futures contract, the
Portfolio is required to deposit cash or pledge U.S. Government securities in an
amount equal to five percent of the purchase price indicated in the futures
contract (initial margin). Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying security or securities, are made or
received by the Portfolio each day (daily variation margin) and are recorded as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contracts. Risks of entering into futures contracts
include the possibility that there will not be a perfect price correlation
between the futures contract and the underlying securities. Second, it is
possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
At September 30, 1994, the Index Equity Portfolio had outstanding 7 futures
contracts on the S&P 500 Stock Index, expiring December 16, 1994. The value of
such contracts on September 30, 1994 was $1,621,375, thereby resulting in an
unrealized loss of $20,300.
Futures transactions entered into for the year ended September 30, 1994,
are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPENING
OF CONTRACTS VALUE
------------ ------------
<S> <C> <C>
Long Futures Contracts Opened............. 208 $ 48,879,125
Long Futures Contracts Closed............. (251) (58,783,700)
------ ------------
Outstanding Long Futures at
Beginning of year....................... 50 11,546,250
------ ------------
End of year............................. 7 $ 1,641,675
========== =============
</TABLE>
63
<PAGE> 64
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
Forward Foreign Currency Contracts -- International Equity Portfolio may
enter into forward foreign currency contracts to hedge against adverse changes
in the relationship of the U.S. dollar to foreign currencies. At September 30,
1994, the Portfolio had entered into the following positions and the related
unrealized gain (loss) is reflected in the accompanying financial statements:
<TABLE>
<CAPTION>
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CONTRACT SEPTEMBER 30, EXCHANGE
DATE BOUGHT AMOUNT 1994 GAIN/(LOSS)
- ---------- -------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
12/06/94 1,278,000,000 Japanese Yen................ $ 12,849,587 $ 12,991,983 $ 142,396
7/11/95 52,800,000 French Franc................ 9,769,094 9,975,324 206,230
7/11/95 10,500,000 German Deutsche Mark........ 6,694,294 6,797,687 103,393
7/11/95 13,000,000 Netherland Guilder.......... 7,383,427 7,513,830 130,403
7/11/95 6,500,000 British Pound Sterling...... 9,894,300 10,171,220 276,920
------------- ------------- -----------
$ 46,590,702 $ 47,450,044 $ 859,342
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
VALUE AT FOREIGN
SETTLEMENT CURRENCY CONTRACT SEPTEMBER 30, EXCHANGE
DATE SOLD AMOUNT 1994 GAIN/(LOSS)
- ---------- -------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
12/06/94 2,337,075,800 Japanese Yen................ $ 21,500,000 $ 23,758,412 $(2,258,412)
7/11/95 128,137,860 French Franc................ 24,005,719 24,208,649 (202,930)
7/11/95 27,528,900 German Deutsche Mark........ 17,744,993 17,822,176 (77,183)
7/11/95 27,600,073 Netherland Guilder.......... 15,882,037 15,952,481 (70,444)
7/11/95 21,961,619 British Pound Sterling...... 33,770,416 34,365,108 (594,692)
7/11/95 1,088,358,000 Japanese Yen................ 11,400,000 11,295,736 104,264
------------- ------------- -----------
$ 124,303,165 $ 127,402,562 $(3,099,397)
============= ============= ============
</TABLE>
Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currency relative to the U.S.
dollar.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corporation ("PIMC"), a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment adviser for each of the Fund's
Portfolios. PNC Bank serves as the sub-adviser for the Growth Equity, Small Cap
Growth Equity, Core Equity, Index Equity and Balanced Portfolios. Provident
Capital Management, Inc. ("PCM") serves as the sub-adviser for the Value Equity,
Small Cap Value Equity International Equity, and International Emerging Markets
Portfolios. PNC Bank and PCM are indirect wholly-owned subsidiaries of PNC Bank
Corp.
64
<PAGE> 65
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
For its advisory services, PIMC is entitled to receive fees at the
following annual rates, computed daily and payable monthly based on each
Portfolio's average daily net assets:
Value Equity, Growth Equity, Small Cap Growth Equity, Core Equity, Small
Cap Value Equity and Balanced Portfolios -- .55% of its first $1 billion, .50%
of the next $1 billion, .475% of the next $1 billion and .45% of net assets in
excess of $3 billion.
Index Equity Portfolio -- .20% of its average daily net assets.
International Equity Portfolio -- .75% of its first $1 billion, .70% of the
next $1 billion, .675% of the next $1 billion and .65% of net assets in excess
of $3 billion.
International Emerging Markets Portfolio -- 1.25% of its first $1 billion,
1.20% of the next $1 billion, 1.155% of the next $1 billion, and 1.10% of net
assets in excess of $3 billion.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any Portfolio. For the period ended September 30, 1994,
advisory fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- -------- ----------
<S> <C> <C> <C>
Value Equity Portfolio............................ $3,171,674 $865,002 $2,306,672
Growth Equity Portfolio........................... 643,001 175,364 467,637
Small Cap Growth Equity Portfolio................. 216,145 160,320 55,825
Core Equity Portfolio............................. 416,858 113,689 303,169
Index Equity Portfolio............................ 405,326 376,934 28,392
Small Cap Value Equity Portfolio.................. 1,088,857 197,974 890,883
International Equity Portfolio.................... 1,885,786 477,733 1,408,053
International Emerging Markets Portfolio.......... 23,723 16,051 7,672
Balanced Portfolio................................ 672,745 202,166 470,579
</TABLE>
PIMC pays PNC Bank and PCM fees for their sub-advisory services.
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp.,
and Provident Distributors, Inc. ("PDI") act as co-administrators for the Fund.
The combined administration fee is computed daily and payable monthly, based on
a percentage of the average daily net assets of each Portfolio, at the following
annual rates: .20% of the first $500 million, .18% of the next $500 million,
.16% of the next $1 billion and .15% of net assets in excess of $2 billion.
65
<PAGE> 66
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
PFPC and PDI may, at their discretion, voluntarily waive all or any portion
of their administration fees for any Portfolio. For the period ended September
30, 1994, administration fees and waivers for each Portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------- --------------
<S> <C> <C> <C>
Value Equity Portfolio.......................... $1,137,117 $ 61,908 $1,075,209
Growth Equity Portfolio......................... 233,819 105,557 128,262
Small Cap Growth Equity Portfolio............... 78,598 58,432 20,166
Core Equity Portfolio........................... 151,585 99,421 52,164
Index Equity Portfolio.......................... 405,326 378,211 27,115
Small Cap Value Equity Portfolio................ 395,948 41,462 354,486
International Equity Portfolio.................. 502,876 -- 502,876
International Emerging Markets Portfolio........ 3,796 2,537 1,259
Balanced Portfolio.............................. 244,634 119,522 125,112
</TABLE>
In addition, PNC Bank serves as custodian for each of the Fund's
Portfolios. PFPC serves as transfer and dividend disbursing agent.
PIMC, PFPC and PDI have also agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation. No such reimbursements were necessary for the period ended September
30, 1994.
(C) PURCHASES AND SALES OF SECURITIES
For the period ended September 30, 1994, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
Value Equity Portfolio................................... $313,549,882 $61,037,470
Growth Equity Portfolio.................................. 258,289,885 226,164,701
Small Cap Growth Equity Portfolio........................ 96,053,000 31,005,991
Core Equity Portfolio.................................... 110,457,553 62,298,291
Index Equity Portfolio................................... 17,425,893 30,620,688
Small Cap Value Equity Portfolio......................... 102,882,661 33,195,622
International Equity Portfolio........................... 282,794,081 89,123,551
International Emerging Markets Portfolio................. 6,448,003 128,720
Balanced Portfolio....................................... 125,636,669 51,290,704
</TABLE>
66
<PAGE> 67
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
For the Period ended September 30, 1994 purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
Value Equity Portfolio................................... $ 96,387,899 $28,913,773
Growth Equity Portfolio.................................. 3,497,438 --
Small Cap Growth Equity Portfolio........................ 5,706,499 --
Core Equity Portfolio.................................... 2,079,450 --
Index Equity Portfolio................................... 23,842,728 26,096,356
Small Cap Value Equity Portfolio......................... 62,768,476 15,953,693
International Emerging Markets Portfolio................. 10,405,272 --
Balanced Portfolio....................................... 42,777,152 5,664,879
</TABLE>
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................... 12,482,545 $145,402,977 11,241,962 $122,665,111
Service Class.......................... 11,420,404 133,583,231 2,761,455 31,416,255
Series A Investor Class................ 549,692 6,421,094 430,284 4,761,082
Shares issued in acquisition:
Institutional Class.................... 6,598,466 76,359,690 -- --
Service Class.......................... -- -- -- --
Series A Investor Class................ -- -- -- --
Shares issued in reinvestment of dividends:
Institutional Class.................... 1,465,316 17,028,775 693,123 7,537,183
Service Class.......................... 170,840 1,983,734 6,782 78,128
Series A Investor Class................ 23,783 276,302 3,226 36,272
Shares redeemed:
Institutional Class.................... (7,860,051) (91,683,551) (7,909,763) (86,806,800)
Service Class.......................... (4,534,339) (53,327,116) (787,995) (9,030,796)
Series A Investor Class................ (93,980) (1,095,554) (18,859) (210,783)
---------- ------------ ----------- ------------
Net increase................................ 20,222,676 $234,949,582 6,420,215 $ 70,445,652
========== ============= ============ =============
</TABLE>
67
<PAGE> 68
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................... 5,402,429 $ 55,921,412 6,181,657 $ 63,813,006
Service Class.......................... 4,235,370 44,688,111 758,448.... 8,314,174
Series A Investor Class................ 385,847 4,122,589 200,818 2,045,783
Shares issued in reinvestment of dividends:
Institutional Class.................... 50,847 555,756 291,877 2,917,913
Service Class.......................... 10,725 117,219 -- --
Series A Investor Class................ 2,650 28,942 2,596 25,941
Shares redeemed:
Institutional Class.................... (4,497,375) (47,960,268) (3,713,992) (38,541,780)
Service Class.......................... (1,377,677) (14,500,982) (14,941) (172,040)
Series A Investor Class................ (95,762) (991,600) (23,292) (237,380)
---------- ------------ ----------- ------------
Net increase................................ 4,117,054 $ 41,981,179 3,683,171 $ 38,165,617
========== ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE PERIOD SEPTEMBER 14,
FOR THE YEAR ENDED 1993(1)
SEPTEMBER 30, 1994 THROUGH SEPTEMBER 30, 1993
------------------------- ----------------------------
SHARES VALUE SHARES VALUE
---------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................. 6,318,147 $ 61,898,992 175,378 $ 1,773,805
Service Class....................... 2,508,294 24,932,282 87,548 883,625
Series A Investor Class............. 199,989 2,012,738 3,945 40,857
Shares issued in acquisition:
Institutional Class................. -- -- 906,297 9,062,968
Service Class....................... -- -- -- --
Series A Investor Class............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class................. 289 2,896 -- --
Service Class....................... 72 716 -- --
Series A Investor Class............. 3 29 -- --
Shares redeemed:
Institutional Class................. (941,326) (9,351,176) (1,676) (17,000)
Service Class....................... (362,210) (3,636,495) (569) (6,000)
Series A Investor Class............. (43,898) (443,425) -- --
---------- ------------ -------------- -----------
Net increase............................. 7,679,360 $ 75,416,557 1,170,923 $11,738,255
========== ============= =============== ============
</TABLE>
- -------------
(1) Commencement of operations.
68
<PAGE> 69
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE PERIOD SEPTEMBER 13,
FOR THE YEAR ENDED 1993(1)
SEPTEMBER 30, 1994 THROUGH SEPTEMBER 30, 1993
------------------------- ----------------------------
SHARES VALUE SHARES VALUE
---------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class................. 3,234,844 $ 32,284,922 505,954 $ 5,105,824
Service Class....................... 4,222,406 41,703,020 70,682 703,465
Series A Investor Class............. 62,504 619,978 -- --
Shares issued in acquisition:
Institutional Class................. -- -- 7,004,919 70,049,188
Service Class....................... 2,120,797 21,441,256 -- --
Series A Investor Class............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class................. 54,106 536,408 -- --
Service Class....................... 39,095 385,556 -- --
Series A Investor Class............. 517 5,097 -- --
Shares redeemed:
Institutional Class................. (5,383,666) (53,714,044) (564,429) (5,624,252)
Service Class....................... (1,483,259) (14,757,102) -- --
Series A Investor Class............. (2,426) (24,013) -- --
---------- ------------ -------------- -----------
Net increase............................. 2,864,918 $ 28,481,078 7,017,126 $70,234,225
========== ============= =============== ============
</TABLE>
<TABLE>
<CAPTION>
INDEX EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 2,748,481 $ 30,530,750 3,854,889 $ 41,046,707
Service Class........................ 2,738,322 29,856,693 1,956,304 21,235,988
Series A Investor Class.............. 155,908 1,717,243 114,948 1,233,715
Shares issued in reinvestment of
dividends:
Institutional Class.................. 514,324 5,647,787 403,046 4,327,795
Service Class........................ 57,047 624,860 7,141 78,195
Series A Investor Class.............. 6,194 67,935 1,398 15,153
Shares redeemed:
Institutional Class.................. (6,637,885) (72,216,872) (4,848,955) (51,803,088)
Service Class........................ (1,419,801) (15,374,054) (834,564) (9,074,456)
Series A Investor Class.............. (35,869) (384,797) (7,384) (79,800)
---------- ------------ ---------- ------------
Net increase (decrease)................... (1,873,279) $(19,530,455) 646,823 $ 6,980,209
========== ============= ========== =============
</TABLE>
- -------------
(1) Commencement of operations.
69
<PAGE> 70
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SMALL CAP VALUE EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 6,053,107 $ 80,712,762 5,843,310 $ 70,798,992
Service Class........................ 2,640,878 35,259,165 2,410,496 30,040,549
Series A Investor Class.............. 652,661 8,700,548 744,417 8,983,470
Shares issued in reinvestment of
dividends:
Institutional Class.................. 136,855 1,781,855 80,595 916,261
Service Class........................ 34,742 452,345 -- --
Series A Investor Class.............. 14,918 194,087 813 9,559
Shares redeemed:
Institutional Class.................. (3,674,313) (48,788,351) (3,457,671) (42,052,037)
Service Class........................ (996,563) (13,349,689) (751,875) (9,538,601)
Series A Investor Class.............. (118,889) (1,579,039) (56,554) (679,691)
---------- ------------ ---------- ------------
Net increase.............................. 4,743,396 $ 63,383,683 4,813,531 $ 58,478,502
========== ============= ========== =============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 10,403,157 $137,086,511 5,858,911 $ 66,551,321
Service Class........................ 5,340,051 70,470,270 965,646 11,630,319
Series A Investor Class.............. 869,084 11,416,406 293,818 3,460,574
Shares issued in acquisition:
Institutional Class.................. 2,566,789 33,881,621 -- --
Service Class........................ -- -- -- --
Series A Investor Class.............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class.................. 206,166 2,655,420 74,156 754,688
Service Class........................ 27,454 353,613 -- --
Series A Investor Class.............. 12,576 161,981 284 3,002
Shares redeemed:
Institutional Class.................. (2,476,409) (32,400,362) (1,541,597) (17,307,661)
Service Class........................ (724,128) (9,567,654) (4,549) (56,788)
Series A Investor Class.............. (98,546) (1,302,076) (5,700) (64,101)
---------- ------------ ---------- ------------
Net increase.............................. 16,126,194 $212,755,730 5,640,969 $ 64,971,354
========== ============= ========== =============
</TABLE>
70
<PAGE> 71
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
INTERNATIONAL
EMERGING MARKETS
PORTFOLIO
---------------------
FOR THE PERIOD
JUNE 17, 1994(1)
THROUGH
SEPTEMBER 30, 1994
---------------------
SHARES VALUE
------- ----------
<S> <C> <C>
Shares sold:
Institutional Class..................... 238,035 $2,402,550
Service Class........................... 334,803 3,411,089
Series A Investor Class................. 294,215 2,964,354
Shares redeemed:
Institutional Class..................... (173) (1,850)
Service Class........................... (2,612) (27,034)
Series A Investor Class................. (23,182) (232,921)
------- ----------
Net increase................................. 841,086 $8,516,188
======== ==========
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
--------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class.................. 1,367,828 $ 17,190,809 2,638,689 $ 32,133,183
Service Class........................ 6,873,562 84,853,542 1,893,652 22,969,477
Series A Investor Class.............. 2,650,204 33,055,064 2,760,171 33,206,781
Shares issued in acquisition:
Institutional Class.................. -- -- -- --
Service Class........................ 1,362,909 17,268,053 -- --
Series A Investor Class.............. -- -- -- --
Shares issued in reinvestment of
dividends:
Institutional Class.................. 24,801 302,800 19,141 228,136
Service Class........................ 121,007 1,475,817 5,847 72,039
Series A Investor Class.............. 142,423 1,746,240 65,479 782,473
Shares redeemed:
Institutional Class.................. (963,835) (12,093,104) (1,833,983) (22,190,793)
Service Class........................ (4,122,713) (50,677,486) (624,216) (7,565,244)
Series A Investor Class.............. (774,539) (9,531,304) (379,349) (4,610,616)
---------- ------------ ---------- ------------
Net increase.............................. 6,681,647 $ 83,590,431 4,545,431 $ 55,025,436
========== ============= ========== =============
</TABLE>
- -------------
(1) Commencement of operations.
71
<PAGE> 72
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
(E) AT SEPTEMBER 30, 1994, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
SMALL CAP
VALUE EQUITY GROWTH EQUITY GROWTH EQUITY CORE EQUITY INDEX EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Capital paid-in............................ $635,372,409 $134,155,955 $87,154,214 $96,612,992 $162,094,925
Undistributed net investment income........ 36,283 623,351 135,469 -- 78,688
Accumulated net realized gain (loss) on
investment transactions, futures
contracts and foreign exchange
contracts................................ 14,512,591 (520,236 ) (6,672,353) 970,509 1,167,573
Net unrealized appreciation (depreciation)
on investment transactions, futures
contracts and foreign exchange
contracts................................ 43,521,420 5,376,113 9,263,570 433,873* 14,412,855
------------ ------------- ------------- ----------- ------------
$693,442,703 $139,635,183 $89,880,900 $98,017,374 $177,754,041
============= ============== ============== =========== =============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL INTERNATIONAL
VALUE EQUITY EQUITY EMERGING MARKETS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Capital paid-in....................................... $195,858,651 $ 339,077,136 $8,516,188 $147,077,123
Undistributed net investment income................... 311,799 2,105,352 26,722 32,940
Accumulated net realized gain (loss) on investment
transactions, futures contracts and foreign exchange
contracts........................................... 8,627,703 6,457,605 39,471 1,739,107
Net unrealized appreciation (depreciation) on
investment transactions, futures contracts and
foreign exchange contracts.......................... 25,816,893 26,871,822* 290,604 (2,908,656)*
------------ ------------- ---------------- ------------
$230,615,046 $ 374,511,915 $8,872,985 $145,940,514
============= ============= ================== =============
</TABLE>
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* Includes $2,089,340 and $1,491,666 of unrealized appreciation, respectively,
at time of acquisition.
(F) CAPITAL LOSS CARRYOVERS
At September 30, 1994, a capital loss carryover was available to offset
possible future realized capital gains of $6,672,353 in the Small Cap Growth
Equity Portfolio which expire in the year 2002.
At September 30, 1994, the deferred post-October capital loss was $541,673
for the Growth Equity Portfolio.
(G) ACQUISITION OF COLLECTIVE FUNDS
On September 10, 1993, The PNC Fund acquired all the assets of PNC Employee
Benefit Trust Growth Equity Fund from the participants of such fund. The
acquisition was accomplished by a taxable exchange of assets with a value of
$70,049,188 for 7,004,919 Institutional shares of the Core Equity Portfolio at
$10 per share.
On September 13, 1993, The PNC Fund acquired all the assets of the Citizens
Fidelity Institutional Special Equity Fund from the participants of such fund.
The acquisition was accomplished by a taxable exchange of assets with a value of
$9,062,968 for 906,297 Institutional shares of the Small Cap Growth Equity
Portfolio at $10 per share.
72
<PAGE> 73
THE PNC(R) FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1994
On December 28, 1993, The PNC Fund acquired all the assets of the Equity
Portfolio of the PNC Financial Common Trust for Retirement Assets from the
participants of these Trusts. The acquisition was accomplished by a tax-free
exchange of assets with a value of $21,441,256 for 2,120,797 Service shares of
the Core Equity Portfolio at $10.11 per share. The Equity Portfolio's net assets
on that date had $2,089,340 in unrealized appreciation.
On December 28, 1993, The PNC Fund acquired all the assets of the Asset
Allocation Portfolio of the PNC Financial Common Trust for Retirement Assets
from the participants of these Trusts. The acquisition was accomplished by a
tax-free exchange of assets with a value of $17,268,053 for 1,362,909 Service
shares of the Balanced Portfolio at $12.67 per share. The Asset Allocation
Portfolio's net assets on that date had $1,491,666 in unrealized appreciation.
On May 26, 1994, The PNC Fund acquired all the assets of the PNC Pension
Plan Assets Equity Portfolio from the participants of such fund. The acquisition
was accomplished by a tax-free exchange of assets with a value of $53,018,086
for 4,570,525 Institutional shares of the Value Equity Portfolio at $11.60 per
share and a value of $33,881,621 for 2,566,789 Institutional shares of the
International Equity Portfolio at $13.20 per share.
On June 21, 1994 The PNC Fund acquired all the assets of the PNC Incentive
Savings Plan Assets Equity Portfolio from the participants of such fund. The
acquisition was accomplished by a tax-free exchange of assets with a value of
$23,341,604 for 2,027,941 Institutional shares of the Value Equity Portfolio at
$11.51 per share.
73
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PNC FUND:
We have audited the accompanying statements of assets and liabilities
including the schedule of investments of the International Equity Portfolio of
The PNC Fund, and the statements of net assets of the Core Equity, Value Equity,
Growth Equity, Small Cap Growth Equity, Index Equity, Small Cap Value Equity,
International Emerging Markets, and Balanced Portfolios, of The PNC Fund as of
September 30, 1994, and the related statements of operations for the year (or
period) then ended, the statements of changes in net assets for each of the two
years (or periods) in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held by the
custodian as of September 30, 1994. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
PNC Fund (International Equity, Core Equity, Value Equity, Growth Equity, Small
Cap Growth Equity, Index Equity, Small Cap Value Equity, International Emerging
Markets, and Balanced Portfolios), as of September 30, 1994, and the results of
their operations for the year (or period) then ended, the changes in their net
assets for each of the two years (or periods) in the period then ended, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 23, 1994
<PAGE> 75
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Investment Adviser
PNC Institutional Management
Corporation
Wilmington, Delaware 19809
Sub-Adviser -- Value Equity Portfolio
Small Cap Value Equity Portfolio,
International Equity Portfolio and
International Emerging Markets Portfolio
Provident Capital Management, Inc.
Philadelphia, Pennsylvania 19103
Sub-Adviser -- Growth Equity Portfolio,
Small Cap Growth Equity Portfolio, Core
Equity Portfolio, Index Equity Portfolio
and Balanced Portfolio
and Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania 19101
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Co-Administrator and Distributor
Provident Distributors, Inc.
Radnor, Pennsylvania 19087
Counsel
Drinker Biddle & Reath
Philadelphia, Pennsylvania 19107
Independent Accountants
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania 19103
PNCI-T-01E
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[LOGO TO COME]
THE PNC(R) FUND
VALUE EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP GROWTH EQUITY PORTFOLIO
CORE EQUITY PORTFOLIO
INDEX EQUITY PORTFOLIO
SMALL CAP VALUE EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EMERGING MARKETS
PORTFOLIO
BALANCED PORTFOLIO
Annual Report to Shareholders
September 30, 1994
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