<PAGE> 1
THE MONEY MARKET PORTFOLIOS
SERVICE CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to seven classes of shares ("Service Shares" or
"Shares") representing interests in seven 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").
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 and Virginia Municipal Money
Market Portfolios are intended for residents of Ohio, Pennsylvania, North
Carolina and Virginia, 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 January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 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 January 30, 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
OHIO PENNSYLVANIA CAROLINA VIRGINIA
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory fees(1)............. .13% .13% .13% .13% .13% .13% .05%
Other operating expenses..... .45 .45 .45 .45 .45 .45 .53
--- --- --- --- --- --- ---
Administration fees(1)..... .10 .08 .10 .08 .09 .05 .02
Shareholder servicing
fee...................... .15 .15 .15 .15 .15 .15 .15
Other expenses(1)(2)....... .20 .22 .20 .22 .21 .25 .36
--- --- --- --- --- --- ---
Total fund operating
expenses................... .58% .58% .58% .58% .58% .58% .58%
=== === === === === === ===
</TABLE>
- ------------------
(1) Advisory fees are net of fee waivers of .31%, .32%, .32%, .32%, .32%, .32%
and .40% and administration fees are net of waivers of .04%, .07%, .05%,
.07%, .06%, .10% 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 and Virginia Municipal
Money Market 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.
(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
</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 and North Carolina 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 Virginia Municipal Money Market Portfolio for the current fiscal year. Total
operating expenses would have been .93%, .97%, .95%, .97%, .96%, 1.00% 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 and Virginia 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 North Carolina Municipal Money Market Portfolio and of
Service Shares and Series A Investor Shares of the Virginia Municipal Money
Market Portfolio had not commenced during the year ended September 30, 1994, the
tables below present only information pertaining to Institutional Shares and
Service Shares of the North Carolina Municipal Money Market Portfolio and to
Institutional Shares of the Virginia Municipal Money Market Portfolio. No Series
B Investor Shares of the Money Market Portfolio 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.
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
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%
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------
SERIES A
SERVICE 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.
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
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%
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------
SERIES A
SERVICE 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.
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
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%
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
---------------------------------------
SERIES A
SERVICE 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.
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
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.
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
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
CLASS 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.
8
<PAGE> 9
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY
MARKET PORTFOLIO
--------------------
INSTITUTIONAL
CLASS
--------------------
FOR THE
PERIOD
YEAR 5/4/931
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 VIRGINIA MUNICIPAL
MUNICIPAL MONEY MONEY MARKET
MARKET PORTFOLIO PORTFOLIO
-------------------- ------------------
SERVICE INSTITUTIONAL
CLASS CLASS
--------- ------------------
FOR THE FOR THE
PERIOD PERIOD
4/29/94(1) 7/25/94(1)
THROUGH THROUGH
9/30/94 9/30/94
-------- -----------
<S> <C> <C>
Net asset value at beginning of period.................................................. $ 1.00 $ 1.00
-------- -------
Income from investment operations
Net investment income................................................................ 0.0099 0.0053
Net realized gain (loss) on investments.............................................. -- --
-------- -------
Total from investment operations................................................. 0.0099 0.0053
-------- -------
Less distributions
Distributions from net investment income............................................. (0.0099) (0.0053)
Distributions from net realized capital gains........................................ -- --
-------- -------
Total distributions.............................................................. (0.0099) (0.0053)
-------- -------
Net asset value at end of period........................................................ $ 1.00 $ 1.00
======== ========
Total return............................................................................ 0.99% 0.53%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................... $ --(3) $ 13,831
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................... 0.36%(2) 0.10%(2)
Before advisory/administration fee waivers......................................... 1.02%(2) 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................... 2.54%(2) 2.89%(2)
Before advisory/administration fee waivers......................................... 1.87%(2) 1.97%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
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.
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, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
10
<PAGE> 11
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. Purchasable Municipal
Obligations are determined by the sub-adviser to present minimal credit risks
pursuant to guidelines established by the Board of Trustees and at the time of
purchase are rated in the two highest rating categories by an NRSRO or are
unrated securities determined at the time of purchase to be of comparable
quality by the
11
<PAGE> 12
sub-adviser pursuant to guidelines approved by the Board of Trustees. The
applicable Municipal Obligations ratings are described in an Appendix to the
Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
------------------------------------
GOVERNMENT MONEY MARKET PORTFOLIO
During normal market periods, not less than 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 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
12
<PAGE> 13
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 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 1991, 1992 and 1993 the State rates (6.4%, 7.2% and 6.5%) were below the
national rates (6.7%, 7.4% and 6.8%). The unemployment rate and its effects vary
among particular geographic areas of the State. There can be no assurance that
future national, regional or state-wide economic difficulties and the resulting
impact on State or local government finances will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of the respective obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "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 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 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
13
<PAGE> 14
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 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 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.
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.
14
<PAGE> 15
The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the taxing,
revenue-collecting and spending authority of Virginia issuers or otherwise
affect the ability of Virginia issuers to pay interest, repay principal, or any
premium. Certain of these developments are described herein. The rate of
economic growth in the Commonwealth of Virginia slowed in 1990 and 1991, but has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8% rate of growth in per capita personal income was slightly ahead of the
national rate of growth of 4.7%. During 1990, 1991 and 1992, Virginia's per
capita personal income grew at a slightly lower rate than the U.S. average. Per
capita income in Virginia has been consistently above national levels over the
past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment and manufacturing.
Because of Virginia's proximity to Washington, D.C. and the concentration of
military installations in the Commonwealth (the largest such concentration in
the United States), the Federal government has a greater economic impact on
Virginia relative to its size than on any of the other states except Alaska and
Hawaii. It is unclear what effect the current efforts by the Federal government
to restructure the defense budget will have on the long-term economic conditions
of the Commonwealth. According to statistics published by the U.S. Department of
Labor, the Commonwealth typically has one of the lowest unemployment rates in
the nation. This is generally attributed to the balance among the various
sectors represented in the economy. During 1993, an average of 5.9% of
Virginians were unemployed as compared with the national average of 6.8%. The
population of the Commonwealth has continued to grow over the last decade at a
rate that is substantially higher than the national average. The rate of
increase in such population growth has declined since reaching a high of 2.1%
annually in 1987 and, in 1993, was approximately 1.8%. Virginia is one of twenty
states with a right-to-work law and is generally regarded as having a favorable
business climate marked by few strikes or work stoppages. Virginia is also one
of the least unionized among the industrialized states. See "Special
Considerations Regarding Investment in Virginia Municipal Obligations" in the
Statement of Additional Information. See also "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
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 and Virginia 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.
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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. 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
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<PAGE> 17
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 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 AND VIRGINIA 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 and Virginia Municipal Money Market Portfolios will be invested in
Ohio, Pennsylvania, North Carolina and Virginia 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.
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The Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market and Virginia 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 and Virginia 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 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.
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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.
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 and Virginia 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 and Virginia Municipal
Money Market Portfolios will invest at least 80% of its net assets
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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.
PURCHASE AND REDEMPTION OF SHARES
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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
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<PAGE> 21
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 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
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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.
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
- --------------------------------------------------------------------------------
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.
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INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser for 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 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. 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 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, 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 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 of 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. 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.
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------------------------------------
ADMINISTRATORS
PFPC Inc. ("PFPC"), whose principal business address is 400 Bellevue
Parkway, Wilmington, Delaware, 19809, and Provident Distributors, Inc. ("PDI"),
whose principal business address is 259 Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (together, the "Administrators"), serve as administrators for
the Fund. PFPC is an indirect wholly-owned subsidiary of PNC Bank Corp. A
majority of the outstanding stock of PDI is owned by its officers and the
remaining outstanding stock is owned by Pennsylvania Merchant Group Ltd.
The Administrators generally assist the Fund in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and fund accounting. As compensation for their services, the
Administrators are entitled to receive a combined fee, computed daily and
payable monthly, at an annual rate of .15% of the first $500 million of 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.
------------------------------------
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
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<PAGE> 25
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.
------------------------------------
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.
25
<PAGE> 26
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.
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
26
<PAGE> 27
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 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 and Virginia 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.
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 and North Carolina 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
27
<PAGE> 28
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.
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
28
<PAGE> 29
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 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.
Shares of the North Carolina Municipal Money Market Portfolio will not be
subject to the North Carolina intangibles personal property tax so long as
certain filings are made with the North Carolina Department of Revenue and on
December 31 of each year the Portfolio is composed entirely of North Carolina
Municipal Obligations and obligations of the United States (including the
District of Columbia and U.S. possessions), and at least 80% of the fair market
value of the Portfolio's assets consists of North Carolina Municipal
Obligations. For all years in which this portfolio-composition requirement is
met, the North Carolina Municipal Money Market Portfolio will file with the
North Carolina Department of Revenue a certification in order for shareholders
to qualify for this exemption. If the portfolio-composition requirement is not
met, shareholders may reduce for North Carolina intangibles personal property
tax purposes the value of their investment in the Portfolio in direct proportion
to the percentage of the Portfolio's assets invested in exempt U.S. Government
(including U.S. possessions) or North Carolina obligations as of December 31.
Shareholders also should note that the future of the North Carolina
intangibles personal property tax is uncertain. A challenge to the
constitutionality of such tax presently is on appeal to the United States
Supreme Court. In addition, several bills were introduced in recent State
legislative sessions that would have either repealed the North Carolina
intangibles personal property tax in total or significantly amended its
provisions. The Governor of North Carolina has also proposed that the
legislature repeal this tax. Although no such legislation has yet been enacted,
further attempts may be made to repeal or modify this tax in the future.
Accordingly, no assurance can be given that an investment in the North Carolina
Municipal Money Market Portfolio while it owns exempt U.S. government
obligations or North Carolina Municipal Obligations will in future years provide
shareholders with any reductions from the North Carolina intangibles personal
property tax that they otherwise might owe.
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
29
<PAGE> 30
to the shareholders as ordinary income. The character of long-term capital gains
realized and distributed by the Portfolio will flow through to its shareholders
regardless of how long the shareholders have held their shares. Capital gains
distributed to shareholders derived from Virginia obligations issued pursuant to
special Virginia enabling legislation which provides a specific exemption for
such gains will be exempt from Virginia income tax. Generally, interest on
indebtedness incurred by shareholders to purchase or carry shares of the
Portfolio will not be deductible for Virginia income tax purposes.
As a regulated investment company, the Portfolio may distribute dividends
that are exempt from the Virginia income tax to its shareholders if the
Portfolio satisfies all requirements for conduit treatment under Federal law
and, at the close of each quarter of its taxable year, at least 50% of the value
of its total assets consists of obligations the interest on which is exempt from
taxation under Federal law. The Portfolio intends to qualify under the above
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Service Shares," "Series A Investor
Shares" and "Institutional Shares") representing interests in each of the Fund's
investment portfolios. This Prospectus describes seven Portfolios of the Fund
which, except for the Ohio, Pennsylvania, North Carolina and Virginia 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."
30
<PAGE> 31
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
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
31
<PAGE> 32
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 January 4, 1995, PNC Bank held of record approximately 80% of the Fund's
outstanding shares, and may be deemed a controlling person of the Fund under the
1940 Act. PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND'S SERVICE SHARES AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE SERVICE SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time 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
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 and Virginia 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.
32
<PAGE> 33
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................ 20
Net Asset Value.................................. 22
Management....................................... 22
Dividends and Distributions...................... 26
Taxes............................................ 26
Description of Shares............................ 30
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
- -----------------------------------------------------
JANUARY 30, 1995
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 35
THE MONEY MARKET PORTFOLIOS
INVESTOR CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to seven 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").
This Prospectus relates to Series A Investor Shares ("Series A Shares")
representing interests in each Portfolio and to Series B Investor Shares
("Series B Shares" and, collectively with Series A Shares, "Investor Shares" or
"Shares") representing interests in the Money Market Portfolio. Series A Shares
of the Portfolios are sold and redeemed at net asset value without any purchase
or redemption charge imposed by the Fund. Series A Shares of the Ohio Municipal
Money Market, Pennsylvania Municipal Money Market, North Carolina Municipal
Money Market and Virginia Municipal Money Market Portfolios are intended for
residents of Ohio, Pennsylvania, North Carolina and Virginia, respectively.
Series B Shares in the Money Market Portfolio are available only to the holders
of Series B Investor Shares in the Fund's non-money market investment portfolios
who wish to exchange their Series B Investor Shares in such portfolios for
Series B Investor Shares in the Money Market Portfolio.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800)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 January 30, 1995
<PAGE> 36
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
NORTH
OHIO PENNSYLVANIA CAROLINA VIRGINIA
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ --------- ---------- --------- ------------ --------- ---------
SERIES A SERIES B SERIES A SERIES A SERIES A SERIES A SERIES A SERIES A
-------- -------- --------- ---------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory fees(1)............... .13% .13 % .13% .13% .13% .13% .13% .05%
12b-1 fees(2).................. .50 .75 .50 .50 .50 .50 .50 .50
Other operating expenses....... .22 .47 .22 .22 .22 .22 .22 .30
-------- -------- --------- ---------- --------- ------------ --------- ---------
Administration fees(1)....... .10 .10 .08 .10 .08 .09 .05 .02
Service fees................. None .25 None None None None None None
Other expenses(1)............ .12 .12 .14 .12 .14 .13 .17 .28
-------- -------- --------- ---------- --------- ------------ --------- ---------
Total operating expenses....... .85% 1.35% .85% .85% .85% .85% .85% .85%
======== ======== ========= ========== ========= ============ ========= =========
</TABLE>
- ------------------
(1) Advisory Fees are net of waivers of .31%, .32%, .32%, .32%, .32%, .32% and
.40% and administration fees are net of waivers of .04%, .07%, .05%, .07%,
.06%, .10% 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 and Virginia Municipal Money
Market 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. Securities dealers, financial institutions
and other industry professionals may charge their clients additional fees
for account services.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE
An investor in Investor Shares would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Money Market Portfolio (Series A)............ $ 9 $27 $ 47 $ 105
Money Market Portfolio (Series B)*........... 14 43 74 136**
Municipal Money Market Portfolio............. 9 27 47 105
Government Money Market Portfolio............ 9 27 47 105
Ohio Municipal Money Market Portfolio........ 9 27 47 105
Pennsylvania Municipal Money Market
Portfolio.................................. 9 27 47 105
North Carolina Municipal Money Market
Portfolio.................................. 9 27 47 105
Virginia Municipal Money Market Portfolio.... 9 27
</TABLE>
- ------------------
* These expense figures do not reflect the imposition of the deferred sales
charge which may be deducted upon the redemption of Series B Shares of the
Money Market Portfolio received in an exchange transaction for Series B
Shares of a non-money market investment portfolio of the Fund. See
"Description of Shares."
** Based on the conversion of the Series B Shares to Series A Shares after six
years. See "How to Purchase Shares--General."
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 and North Carolina Municipal Money Market
Portfolios is based on the advisory fees, administration fees and other expenses
payable after fee waivers by the particular Portfolio for the fiscal year ended
September 30, 1994, as restated to reflect 12b-1 fees borne by Investor Shares
and service fees borne
2
<PAGE> 37
by Series B Shares and to reflect revised fee waivers. The table estimates fees,
expenses, waivers and assets for the Virginia Municipal Money Market Portfolio
for the current fiscal year. Total operating expenses would have been 1.20%,
1.24%, 1.22%, 1.24%, 1.23%, 1.27% and 1.38% for Series A Investor Shares of 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, respectively, and
1.70% for Series B Investor Shares of the Money Market Portfolio without such
fee waivers. See Footnote 1 to the Expense Table, "Financial
Highlights--Background", "Management", "Distribution of Shares" and "Description
of Shares" for a further description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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. Series
B Investor Shares in the Money Market Portfolio are available only to the
holders of Series B Investor Shares in the Fund's non-money market investment
portfolios who wish to exchange their Series B Investor Shares in such
portfolios for Series B Investor Shares in the Money Market Portfolio. See
"Investor Programs--Exchange Privilege." The shares of each class in a Portfolio
represent equal pro rata interests in such Portfolio, except that they bear
different expenses which reflect the difference in the range of services
provided to them. Under the Fund's Service Plan, Service Shares bear the expense
of fees at an annual rate not to exceed .15% of the average daily net asset
value of each Portfolio's outstanding Service Shares. Service Shares also bear
the expense of a service fee at an annual rate not to exceed .15% of the average
daily net asset value of each Portfolio's outstanding Service Shares for other
shareholder support activities provided by service organizations. See
"Description of Shares" for a description of the Service Plan and shareholder
support activities. Series A Investor Shares bear the expense of the Fund's
Distribution and Service Plan at an annual rate not to exceed .55% of the
average daily net asset value of each Portfolio's outstanding Series A Investor
Shares. 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 "Distribution of Shares" for a
description of the Distribution and Service Plan and the Series B Distribution
Plan, and see "Shareholder Servicing" for a description of 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 North Carolina Municipal Money Market Portfolio and of
Service Shares and Series A Investor Shares of the Virginia Municipal Money
Market Portfolio had not commenced during the year ended September 30, 1994, the
tables below present only information pertaining to Institutional Shares and
Service Shares of the North Carolina Municipal Money Market Portfolio and to
Institutional Shares of the Virginia Municipal Money Market Portfolio. No Series
B Investor Shares of the Money Market Portfolio 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.
3
<PAGE> 38
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%
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------
SERIES A
SERVICE 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.
4
<PAGE> 39
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL 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........................ 0.0246 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%
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------
SERIES A
SERVICE 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.
5
<PAGE> 40
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%
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
----------------------------------------
SERIES A
SERVICE 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.
6
<PAGE> 41
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.
7
<PAGE> 42
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET
PORTFOLIO
------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
--------------------- --------
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
CLASS 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.
8
<PAGE> 43
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NORTH CAROLINA
MUNICIPAL MONEY
MARKET PORTFOLIO
---------------------
INSTITUTIONAL SERVICE
CLASS 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 VIRGINIA MUNICIPAL
MUNICIPAL MONEY MONEY MARKET
MARKET PORTFOLIO PORTFOLIO
---------------- ------------------
SERVICE INSTITUTIONAL
CLASS CLASS
-------- ------------------
FOR THE FOR THE
PERIOD PERIOD
4/29/94(1) 7/25/94(1)
THROUGH THROUGH
9/30/94 9/30/94
-------- ------------------
<S> <C> <C>
Net asset value at beginning of period........................................................... $ 1.00 $ 1.00
-------- -------
Income from investment operations
Net investment income......................................................................... 0.0099 0.0053
Net realized gain (loss) on investments....................................................... -- --
-------- -------
Total from investment operations.......................................................... 0.0099 0.0053
-------- -------
Less distributions
Distributions from net investment income...................................................... (0.0099) (0.0053)
Distributions from net realized capital gains................................................. -- --
-------- -------
Total distributions....................................................................... (0.0099) (0.0053)
-------- -------
Net asset value at end of period................................................................. $ 1.00 $ 1.00
========= ==========
Total return..................................................................................... 0.99% 0.53%
Ratios/Supplemental data
Net assets at end of period (in thousands).................................................... $ --(3) $ 13,831
Ratios of expenses to average net assets
After advisory/administration fee waivers................................................... 0.36%(2) 0.10%(2)
Before advisory/administration fee waivers.................................................. 1.02%(2) 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers................................................... 2.54%(2) 2.89%(2)
Before advisory/administration fee waivers.................................................. 1.87%(2) 1.97%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
9
<PAGE> 44
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 Deposits ("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.
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, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
10
<PAGE> 45
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. Purchasable Municipal
Obligations are determined by the sub-adviser to present minimal credit risks
pursuant to guidelines established by the Board of Trustees and at the time of
purchase are rated in the two highest rating categories by an NRSRO or are
unrated securities determined at the time of purchase to be of comparable
quality by the
11
<PAGE> 46
sub-adviser pursuant to guidelines approved by the Board of Trustees. The
applicable Municipal Obligations ratings are described in an Appendix to the
Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
------------------------------------
GOVERNMENT MONEY MARKET PORTFOLIO
During normal market periods, not less than 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 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
12
<PAGE> 47
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 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 1991, 1992 and 1993 the State rates (6.4%, 7.2% and 6.5%) were below the
national rates (6.7%, 7.4% and 6.8%). The unemployment rate and its effects vary
among particular geographic areas of the State. There can be no assurance that
future national, regional or state-wide economic difficulties and the resulting
impact on State or local government finances will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of the respective obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "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 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 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
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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 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 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.
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.
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<PAGE> 49
The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the taxing,
revenue-collecting and spending authority of Virginia issuers or otherwise
affect the ability of Virginia issuers to pay interest, repay principal, or any
premium. Certain of these developments are described herein. The rate of
economic growth in the Commonwealth of Virginia slowed in 1990 and 1991, but has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8% rate of growth in per capita personal income was slightly ahead of the
national rate of growth of 4.7%. During 1990, 1991 and 1992, Virginia's per
capita personal income grew at a slightly lower rate than the U.S. average. Per
capita income in Virginia has been consistently above national levels over the
past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment and manufacturing.
Because of Virginia's proximity to Washington, D.C. and the concentration of
military installations in the Commonwealth (the largest such concentration in
the United States), the Federal government has a greater economic impact on
Virginia relative to its size than on any of the other states except Alaska and
Hawaii. It is unclear what effect the current efforts by the Federal government
to restructure the defense budget will have on the long-term economic conditions
of the Commonwealth. According to statistics published by the U.S. Department of
Labor, the Commonwealth typically has one of the lowest unemployment rates in
the nation. This is generally attributed to the balance among the various
sectors represented in the economy. During 1993, an average of 5.9% of
Virginians were unemployed as compared with the national average of 6.8%. The
population of the Commonwealth has continued to grow over the last decade at a
rate that is substantially higher than the national average. The rate of
increase in such population growth has declined since reaching a high of 2.1%
annually in 1987 and, in 1993, was approximately 1.8%. Virginia is one of twenty
states with a right-to-work law and is generally regarded as having a favorable
business climate marked by few strikes or work stoppages. Virginia is also one
of the least unionized among the industrialized states. See "Special
Consideration Regarding Investment in Virginia Municipal Obligations" in the
Statement of Additional Information. See also "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
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 and Virginia 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.
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<PAGE> 50
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. 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
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<PAGE> 51
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 of 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 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 AND VIRGINIA 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 and Virginia Municipal Money Market Portfolios will be invested in
Ohio, Pennsylvania, North Carolina and Virginia 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.
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<PAGE> 52
The Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market and Virginia 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 and Virginia 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 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.
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<PAGE> 53
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.
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 and Virginia 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 and Virginia 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.
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<PAGE> 54
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.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Series A Shares in the Portfolios may be purchased without a sales load
through PNC Bank, National Association ("PNC Bank"), PNC Bank, Ohio, National
Association ("PNC Bank Ohio"), institutional investors and registered
broker-dealers ("Authorized Dealers"), or by completing and forwarding the
application included in this Prospectus, through any one of them, to the Fund's
transfer agent. Subsequent purchases of Series A Shares may be effected through
PNC Bank, PNC Bank Ohio, institutional investors and Authorized Dealers or by
mailing a check or Federal Reserve Draft, payable to the order of "The PNC Fund"
c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. The name of the
Portfolio for which Series A Shares are being purchased must also appear on the
check or Federal Reserve Draft. Federal Reserve Drafts are available at national
banks or any state bank which is a member of the Federal Reserve System. Initial
investments in any Portfolio must be at least $500, except that such minimum
investment requirement is: (i) $100 for employees of the Fund, the Fund's
adviser, sub-adviser, distributor or transfer agent or employees of any such
service providers' affiliate; and (ii) $50 for investors purchasing Series A
Shares under the automatic investing program described in "Investor
Programs--Automatic Investing." Subsequent investments must be at least $100.
The Fund reserves the right to reject any purchase order. Certificates for
Series A Shares will be issued only upon request. No certificates will be issued
for Series B Shares.
Investor Shares may be purchased on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business.
Series A Shares are sold at the net asset value per share of the Portfolios
next computed after an order is received by PFPC Inc. ("PFPC"), the Fund's
transfer agent. It is the responsibility of Provident Distributors, Inc. ("PDI"
or "Distributor"), PNC Bank, PNC Bank Ohio, institutional investors and the
Authorized Dealers to transmit orders received by them from investors to the
Fund's transfer agent in a timely manner. Orders of less than $500 may be mailed
by PNC Bank, PNC Bank Ohio, institutional investors and Authorized Dealers to
the transfer agent.
Purchase orders for shares of each Portfolio except the Government Money
Market Portfolio that are received before noon will be executed at noon. If
payment for such orders is not received by 4:00 p.m., the order will be
cancelled and notice thereof will be given to the institution placing the order.
Orders received after 12:00 noon will not be accepted. The Fund may in its
discretion reject any order for shares.
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Purchase orders for Shares of the Government Money Market Portfolio that
are received before noon will be executed at noon; purchase orders for Shares of
the Government Money Market Portfolio that are 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.
Series B Shares in the Money Market Portfolio are available only to the
holders of Series B Investor Shares in the Fund's non-money market portfolios
who wish to exchange their Series B Investor Shares in such portfolios for
Series B Investor Shares in the Money Market Portfolio. See "Investor
Programs--Exchange Privilege." Six years after the date of purchase of the
exchanged Series B Shares, Series B Shares of the Money Market Portfolio will
automatically convert to Series A Shares. The purpose of the conversion is to
relieve the holders of Series B Shares of the higher operating expenses charged
to Series B Shares. The conversion from Series B Shares to Series A Shares will
take place at the net asset value of each class of Shares at the time of the
conversion. Upon such conversion, an investor would hold Series A Shares subject
to the operating expenses for Series A Shares discussed below. Upon each
conversion of Series B Shares that were not acquired through reinvestment of
dividends or distributions, a proportionate amount of Series B Shares that were
acquired through reinvestment of dividends or distributions will likewise
automatically convert to Series A Shares.
HOW TO REDEEM SHARES
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REDEMPTION
Shareholders may redeem for cash some or all of their Shares of the
Portfolios at any time. To do so, a written request in proper form must be sent
directly to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907. Except for the contingent deferred sales charge that may be charged
with respect to Series B Shares of the Money Market Portfolio, there is no
charge for a redemption. See "Investor Programs--Exchange Privilege."
Shareholders may also place redemption requests through an Authorized Dealer,
but the Authorized Dealer might charge a fee for this service.
WHEN REDEEMING INVESTOR SHARES IN THE MONEY MARKET PORTFOLIO, SHAREHOLDERS
SHOULD INDICATE WHETHER THEY ARE REDEEMING SERIES A SHARES OR SERIES B SHARES.
In the event a redeeming shareholder owns both Series A and Series B Shares in
the Money Market Portfolio, the Series A Shares will be redeemed first unless
the shareholder indicates otherwise.
Except as noted below, a request for redemption must be signed by all
persons in whose names the Shares are registered. Signatures must conform
exactly to the account registration. If the proceeds of the redemption would
exceed $25,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the shareholder is a corporation, partnership, trust or
fiduciary, signature(s) must be guaranteed by an eligible guarantor institution
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions generally include banks, broker/dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding Series A
Share certificates, the certificates for the Series A Shares being redeemed must
accompany the redemption request.
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Additional documentary evidence of authority is required by PFPC in the event
redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator.
REDEMPTION BY CHECK. Upon request, the Fund will provide the holders of
Series A Shares with checkwriting privileges. An investor wishing to use this
checkwriting redemption procedure must complete the checkwriting application and
signature card when completing the account application. Investors interested in
obtaining the checkwriting option on existing accounts may contact the Fund's
transfer agent at (800) 441-7762 and application forms will be provided. The
checkwriting option is not available in connection with the redemption of Series
B Shares.
Upon receipt of the checkwriting application and signature card by PFPC,
checks will be forwarded to the investor.
The minimum amount of a check is $100. Checks may be made payable to anyone
and are negotiated according to bank clearing procedures. If more than one
shareholder owns the account, each shareholder must sign each check, unless an
election has been made to permit checkwriting by a limited number of signatures
and such election is on file with PFPC.
Series A Shares represented by a check redemption will continue to earn
daily income until the check is presented for payment. The bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of Series A
Shares owned to cover the check.
When redeeming Series A Shares by check, an investor should make certain
that there is an adequate number of Series A Shares in the account to cover the
amount of the check. If an insufficient number of Series A Shares is held or if
checks are not properly endorsed, they may not be honored and a service charge
may be incurred.
Checks may not be presented for cash payments at the offices of the bank.
This limitation does not affect checks used for the payment of bills or cash at
other banks.
EXPEDITED REDEMPTIONS
If a shareholder has given authorization for expedited redemption, Shares
can be redeemed by telephone and the proceeds sent by check to the shareholder
or by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone at
(800) 441-7762 (in Delaware call collect (302) 791-1194) or other means. The
minimum amount that may be sent by check is $500, while the minimum amount that
may be wired is $10,000. The Fund reserves the right to change these minimums or
to terminate these redemption privileges. If the proceeds of a redemption would
exceed $25,000, the redemption request must be in writing and will be subject to
the signature guarantee requirement described above in "How to Redeem Shares--
Redemption." This privilege may not be used to redeem Series A Shares in
certificated form.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If a shareholder is unable to contact
the transfer agent by telephone, the shareholder may also deliver the redemption
request to the transfer agent by mail at PFPC Inc., P.O. Box 8907, Wilmington,
DE 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system
or the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. To change the name of the single designated bank account to
receive wire redemption proceeds, it is necessary to send a written request
(with a guaranteed signature as described under "How to Redeem Shares--
Redemption") to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes
it advisable to do so. Neither the Fund nor PFPC will be responsible for the
authenticity of redemption instructions received by telephone. The Fund, PFPC,
PDI (collectively with PFPC, the "Administrators") and the Distributor will not
be liable for any loss, liability, cost or
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expense for acting upon telephone instructions reasonably believed to be
genuine. See "How to Purchase Shares-- Exchange Privilege" for a description of
the Fund's policy on telephone instructions.
ACCOUNTS WITH LOW BALANCES
The Fund reserves the right to redeem a shareholder's account in any
Portfolio at any time the net asset value of the account in such Portfolio falls
below the minimum initial investment requirement amount as the result of a
redemption or an exchange request. A shareholder will be notified in writing
that the value of the shareholder's account in a Portfolio is less than the
required amount and will be allowed 30 days to make additional investments
before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS
The redemption price for Series A and Series B Shares of a Portfolio is the
net asset value per share of the Portfolio next determined after the request for
redemption is received in proper form by The PNC Fund c/o PFPC, P.O. Box 8907,
Wilmington, Delaware 19899-8907. While the Fund intends to use its best efforts
to maintain each Portfolio's net asset value per share at $1.00, the proceeds
paid upon redemption may be more or less than the amount invested depending on a
Share's net asset value at the time of redemption. The proceeds from the
redemption of Series B Shares will be reduced by the amount of any applicable
deferred sales charge. See "Description of Shares."
Payment for Shares redeemed is made by check mailed within seven days after
acceptance by PFPC of the request and any other necessary documents in proper
order. Such payment may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the Shares to be redeemed have been
recently purchased by check, the Fund's transfer agent may delay the payment of
redemption proceeds, which may be a period of up to 15 days after the purchase
date, pending a determination that the check has cleared.
INVESTOR PROGRAMS
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EXCHANGE PRIVILEGE
After appropriate authorization, a shareholder may exchange Shares of a
Portfolio for Investor Shares of any other investment portfolio of the Fund at
the net asset value per share of each class of shares next determined after the
transfer agent's receipt of a request for an exchange, plus any applicable sales
charge. Unless an exception applies, a front-end sales charge or a contingent
deferred sales charge will be charged in connection with exchanges of Shares for
Series A Investor Shares and Series B Investor Shares, respectively, of the
Fund's non-money market portfolios. Series B Investor Shares of the Money Market
Portfolio are only exchangeable for Series B Investor Shares of the Fund's
non-money market investment portfolios. Series B Shares are exchangeable without
the payment of any contingent deferred sales charge at the time the exchange is
made. In determining the holding period for calculating the contingent deferred
sales charge payable on redemption of Series B Shares, the holding period of the
Series B Shares originally held will be added to the holding period of the
Series B Shares acquired through exchange. See "Description of Shares." No
exchange fee is imposed by the Fund.
Shareholders who wish to exchange Series A Shares of a Portfolio for
Investor Shares of a non-money market investment portfolio of the Fund may
choose between Series A Investor Shares and Series B Investor Shares. Series A
Investor Shares of a portfolio are sold at the net asset value for Series A
Investor Shares of the portfolio plus the applicable front-end sales charge.
Series A Investor Shares of the Fund's non-money market portfolios bear the
expense of payments under the Distribution and Service Plan at an annual rate
not to exceed .55% of the average daily
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<PAGE> 58
net asset value of each portfolio's outstanding Series A Investor Shares. See
"Distribution of Shares." Series B Investor Shares of a portfolio are sold at
the net asset value for Series B Investor Shares of the portfolio. A deferred
sales charge is deducted if Series B Investor Shares are redeemed within six
years of purchase. The deferred sales charge deducted upon the redemption of
Series B Investor Shares decreases over time. Series B Investor Shares of the
Fund's non-money market portfolios bear the expense of payments under the Series
B Distribution Plan at an annual rate not to exceed .75% of the average daily
net asset value of each portfolio's outstanding Series B Investor Shares. Series
B Investor Shares of the Fund's non-money market portfolios also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of
each portfolio's outstanding Series B Investor Shares. See "Description of
Shares," "Shareholder Servicing" and "Description of Shares." Shareholders
should read the prospectus for the non-money market portfolios of the Fund
before exchanging Shares of a Portfolio for Series A Investor Shares or Series B
Investor Shares of a non-money market portfolio. The public offering of Series B
Investor Shares in certain investment portfolios of the Fund may not commence on
the date of this Prospectus. Prospectuses for the other portfolios of the Fund
and information on the availability of Series B Investor Shares of such
portfolios can be obtained by calling the Fund's Distributor at (800) 422-6538.
A shareholder wishing to make an exchange may do so by sending a written
request to PFPC at the address given above in "How to Purchase Shares--General".
Shareholders are automatically provided with telephone exchange privileges when
opening an account, unless they indicate on the Application that they do not
wish to use this privilege. Shareholders holding share certificates are not
eligible to exchange Series A Shares by phone because share certificates must
accompany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Exchange Authorization
Form must be filed with PFPC. This form is available from PFPC. Once this
election has been made, the shareholder may simply contact PFPC by telephone at
(800) 441-7762 (in Delaware call collect (302) 791-1194) to request the
exchange. During periods of substantial economic or market change, telephone
exchanges may be difficult to complete and shareholders may have to submit
exchange requests to PFPC in writing.
If the exchanging shareholder does not currently own shares of the
investment portfolio whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as defined above. In order to
participate in the automatic investment program or establish a systematic
withdrawal plan for the new account, however, an exchanging shareholder must
file a specific written request. The exchange privilege may be modified or
terminated at any time, or from time to time, by the Fund on 60 days' notice to
affected Portfolio shareholders. THE FUND, 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).
In establishing a new account by exchange, the dollar value of shares
acquired must equal or exceed the investment portfolio's minimum for a new
account; if making an exchange to an existing account, the dollar value must
equal or exceed the Fund's minimum for subsequent investments. If any amount
remains in the investment portfolio from which the exchange is being made, such
amount must not drop below the minimum account value required by the Fund.
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AUTOMATIC INVESTING
Investments in Series A Shares may be made automatically by authorizing the
Fund's transfer agent to withdraw funds from your bank account. An initial
minimum investment of $50 per Portfolio, and subsequent investments of
at least $50, are required. Investors desiring to participate in the automatic
investing program should call PFPC at (800) 441-7762 (in Delaware call collect
(302) 791-1194) to obtain the appropriate forms.
RETIREMENT PLANS
Portfolio Shares may be purchased in conjunction with individual retirement
accounts ("IRAs") and rollover IRAs where PNC Bank or any of its affiliates acts
as custodian. For further information as to applications and annual fees,
contact the Distributor or an Authorized Dealer. To determine whether the
benefits of an IRA are available and/or appropriate, a shareholder should
consult with a tax adviser.
SYSTEMATIC WITHDRAWAL PLAN
If your account in a Portfolio has a value of at least $10,000, you may
establish a Systematic Withdrawal Plan with respect to the Portfolio and receive
regular periodic payments. A request to establish a Systematic Withdrawal Plan
must be submitted in writing to The PNC Fund c/o PFPC, P.O. Box 8907,
Wilmington, Delaware 19899-8907. Shareholders holding Series A Share
certificates are not eligible to establish a Systematic Withdrawal Plan because
Series A Share certificates must accompany all withdrawal requests. Each
withdrawal redemption may, at the shareholder's election, be processed either
monthly, every other month, quarterly, three times a year, semi-annually or
annually on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance. The minimum amount
that you may withdraw each period is $100. (This is merely the minimum amount
allowed and should not be mistaken for a recommended amount.) THE AMOUNT OF
REGULAR PERIODIC PAYMENTS SPECIFIED BY HOLDERS OF SERIES B SHARES PURSUANT TO A
SYSTEMATIC WITHDRAWAL PLAN WILL BE REDUCED BY ANY APPLICABLE DEFERRED SALES
CHARGE. The holder of a Systematic Withdrawal Plan will have any income
dividends and any capital gains distributions reinvested in full and fractional
Shares at net asset value. To provide funds for payment, Shares of the Portfolio
involved will be redeemed in such amount as is necessary to make the payment.
Redemption of Shares may reduce or possibly exhaust the Shares in your account,
particularly in the event of a market decline. As with other redemptions, a
redemption to make a withdrawal payment is a sale for Federal income tax
purposes. Payments made pursuant to a Systematic Withdrawal Plan cannot be
considered as actual yield or income since part of such payments may be a return
of capital.
You will ordinarily not be allowed to make additional investments of less
than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the Systematic Withdrawal Plan in effect and, while a
Systematic Withdrawal Plan is in effect, you may not make periodic investments
under Automatic Investing. THE MAINTENANCE OF A SYSTEMATIC WITHDRAWAL PLAN MAY
ALSO BE DISADVANTAGEOUS FOR HOLDERS OF SERIES B SHARES DUE TO THE EFFECT OF THE
CONTINGENT DEFERRED SALES CHARGE. You will receive a confirmation of each
transaction showing the sources of the payment and the Share and cash balance
remaining in your Systematic Withdrawal Plan. The Systematic Withdrawal Plan may
be terminated on written notice by the shareholder or by the Fund with respect
to the applicable Portfolio and it will terminate automatically if all Shares
are liquidated or withdrawn from the account or upon the death or incapacity of
the shareholder. You may change the amount and schedule of withdrawal payments
or suspend such payments by giving written notice to PFPC at least seven
business days prior to the end of the month preceding a scheduled payment.
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NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Investor Share of each Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon (Eastern Time) and once as of 4:00 p.m. (Eastern Time) on
each Business Day. Each Portfolio's net asset value per share is calculated by
adding the value of all securities, cash and other assets of the Portfolio,
subtracting the liabilities and dividing the result by the number of Shares
outstanding. The net asset value per Share of each Portfolio is determined
independently of the other Portfolios.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values their
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under "Valuation of
Shares." There can be no assurance that net asset value per share will not vary.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and each Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a 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 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. 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 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, 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
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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 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 of 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. 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 for 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 the 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
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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.
------------------------------------
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio (such
as Series A 12b-1 fees for Series A Investor Shares and Series B 12b-1 fees and
service fees for Series B Investor Shares) will be borne solely by such Shares.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by any
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
underwriting securities, but such banking laws and regulations do not prohibit
such a holding company or affiliate or banks generally from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PNC Bank, PIMC and PFPC are subject to such banking laws and
regulations. In addition, state
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securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Investor Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Investor
Shares. It is not anticipated, however, that any such change would affect a
Portfolio's net asset value per share or result in a financial loss to any
investor.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Shares of each Portfolio are offered on a continuous basis by the
Distributor. The Distributor is a registered broker/dealer with principal
offices at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund's Board of Trustees has adopted a Distribution and Service Plan
("Series A Plan") for Series A Shares and a Series B Distribution Plan ("Series
B Plan" and, collectively with the Series A Plan, the "Plans") for Series B
Shares.
Under each Plan the Distributor is entitled to payments by each Portfolio
for: (i) direct out-of-pocket promotional expenses incurred in connection with
advertising and marketing Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Fund Shares. In addition,
payments under the Series B 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 Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders for whom the Service Organizations are the dealer of
record or holder of record for shareholders with whom the Service Organizations
have a servicing relationship. "Direct out-of-pocket promotional expenses"
include amounts spent by the Distributor in connection with advertising via
radio, television, newspapers, magazines and otherwise; preparing, printing and
mailing sales materials, brochures and prospectuses (except for prospectuses
used for regulatory purposes or for distribution to existing shareholders); and
other out-of-pocket expenses incurred in connection with the promotion of
Shares.
Upon proper authorization by the Fund's trustees, expenses covered by the
Plans may also include other expenses the Distributor (or any other person) may
incur in connection with the distribution of the Fund's Shares including,
without limitation, expenditures for telephone facilities and in-house
telemarketing, or, in the case of the Series A Plan, in connection with
shareholder servicing.
Payments under the Series A Plan will not exceed .55% (annualized) of the
average daily net asset value of each Portfolio's outstanding Series A Shares.
Service Organizations may charge their clients additional fees for account
services. Customers who are beneficial owners of Series A Shares should read
this Prospectus in light of the terms and fees governing their accounts with
Service Organizations.
Payments under the Series B Plan will not exceed .75% (annualized) of the
average daily net asset value of each Portfolio's outstanding Series B Shares.
Service Organizations may charge their clients additional fees for account
services. Customers who are beneficial owners of Series B Shares should read
this Prospectus in light of the terms and fees governing their accounts with
Service Organizations.
Payments under the Plans which are expenses of a Portfolio's Investor
Shares are for distribution and/or other services rendered for or on behalf of
the Investor Shares of such Portfolio. However, joint distribution financing
with
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respect to Shares of the Portfolios (which financing may also involve other
investment portfolios or companies that are affiliated persons of such a person,
or affiliated persons of the Distributor) will be permitted in accordance with
applicable regulations of the SEC if and when such regulations are adopted.
If in any month the Distributor expends more monies than are immediately
payable under the Plans because of the percentage limitations described above
(or, due to any expense limitation imposed on a Portfolio, monies otherwise
payable by a Portfolio to the Distributor under the Plans are rendered
uncollectible), the unpaid expenditure may be "carried forward" from month to
month until such time, if ever, as it may be paid. In addition, payments to
Service Organizations (which may include the adviser and sub-advisers and their
affiliates) are not tied directly to the Service Organizations' own
out-of-pocket expenses and therefore may be used as they elect (for example, to
defray their overhead expenses). See "Description of Shares".
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund intends to enter into service agreements 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 Shares. Such
services will be provided to customers who are the beneficial owners of Series B
Shares and are intended to supplement the services provided by the Fund's
Administrators and transfer agent. In consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Series B 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
"Institutional Shares"). See "Description of Shares." Customers who are
beneficial owners of Series B Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organizations.
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
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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 Investor Shares is reduced by accrued expenses
directly attributable to that Portfolio and the general expenses of the Fund
prorated to that Portfolio on the basis of its relative net assets. A
Portfolio's net investment income available for distribution to the holders of
Series A and Series B Shares will be reduced by the amount of other expenses
allocated to such respective series of that Portfolio's Investor Shares,
including: i) fees payable under the Fund's Distribution and Service Plan in the
case of the Series A Shares; and ii) fees payable under the Series B
Distribution Plan and the Series B Service Plan in the case of the Series B
Shares. See "Purchase and Redemption of Shares", "Shareholder Servicing" and
"Distribution of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
Portfolios do not expect to realize net long-term capital gains.
All dividends paid with respect to a Portfolio are reinvested in the form
of additional full and fractional Investor Shares of the same series of such
Portfolio, unless a shareholder elects to receive dividends in cash. Such
election, or any revocation thereof, must be made in writing to PFPC, and will
become effective with respect to dividends paid after its receipt by PFPC.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situations.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as a Portfolio qualifies for this tax treatment, it generally
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital), regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions paid out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
Each 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 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
31
<PAGE> 66
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 and Virginia 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.
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 and North Carolina Municipal Money Market Portfolios, the
loss will be disallowed for state tax purposes to the same extent, even though,
for state income tax purposes, some portion of such dividends actually may have
been subject to state income tax.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Portfolios
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by each Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio
personal income tax, or municipal or school district income taxes in Ohio will
not be subject to such taxes on distributions from the Ohio Municipal Money
Market Portfolio to the extent that such distributions consist of interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States) ("U.S.
Obligations"), provided that the Portfolio continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Ohio Municipal Money Market
Portfolio consists of Ohio Municipal Obligations or similar obligations of other
states or their subdivisions. (It is assumed for purposes of this discussion of
Ohio tax considerations that these requirements are satisfied.) Corporations
that are subject to the Ohio corporation franchise tax will not have to include
distributions from the Ohio Municipal Money Market Portfolio in their net income
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<PAGE> 67
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.
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 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.
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<PAGE> 68
Shares of the North Carolina Municipal Money Market Portfolio will not be
subject to the North Carolina intangibles personal property tax so long as
certain filings are made with the North Carolina Department of Revenue and on
December 31 of each year the Portfolio is composed entirely of North Carolina
Municipal Obligations and obligations of the United States (including the
District of Columbia and U.S. possessions), and at least 80% of the fair market
value of the Portfolio's assets consists of North Carolina Municipal
Obligations. For all years in which this portfolio-composition requirement is
met, the North Carolina Municipal Money Market Portfolio will file with the
North Carolina Department of Revenue a certification in order for shareholders
to qualify for this exemption. If the portfolio-composition requirement is not
met, shareholders may reduce for North Carolina intangibles personal property
tax purposes the value of their investment in the Portfolio in direct proportion
to the percentage of the Portfolio's assets invested in exempt U.S. Government
(including U.S. possessions) or North Carolina obligations as of December 31.
Shareholders also should note that the future of the North Carolina
intangibles personal property tax is uncertain. A challenge to the
constitutionality of such tax presently is on appeal to the United States
Supreme Court. In addition, several bills were introduced in recent State
legislative sessions that would have either repealed the North Carolina
intangibles personal property tax in total or significantly amended its
provisions. The Governor of North Carolina has also proposed that the
legislature repeal this tax. Although no such legislation has yet been enacted,
further attempts may be made to repeal or modify this tax in the future.
Accordingly, no assurance can be given that an investment in the North Carolina
Municipal Money Market Portfolio while it owns exempt U.S. government
obligations or North Carolina Municipal Obligations will in future years provide
shareholders with any reductions from the North Carolina intangibles personal
property tax that they otherwise might owe.
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.
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
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<PAGE> 69
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Series A Investor Shares," "Service
Shares" and "Institutional Shares") representing interests in the Fund's
investment portfolios. This Prospectus describes seven Portfolios of the Fund
which, except for the Ohio Municipal Money Market, Pennsylvania Municipal Money
Market, North Carolina Municipal Money Market and Virginia 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 authorized the issuance of additional classes of shares
representing interests in other investment portfolios of the Fund. For
information regarding these other portfolios, contact the Distributor by phone
at (800) 998-7633 or at the address listed in "Distribution of Shares."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
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<PAGE> 70
Holders of Series A Investor Shares bear the fees described under
"Distribution of Shares" that are paid to the Distributor under the Fund's
Distribution and Service Plan. Holders of Series B Investor Shares bear the fees
described under "Distribution of Shares" that are paid to the Distributor under
the Series B Distribution Plan and the fees described under "Shareholder
Servicing" relating to the Series B Service Plan. Similarly, holders of a
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that are paid under the Fund's Service Plan. Payments under the
Service Plan will cover expenses relating to the support services provided to
beneficial owners of Service Shares by certain institutions. Such services are
intended to supplement the services provided by the Fund's Administrators and
transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .15% (on an annualized basis) of the average daily net asset
value of Service Shares owned beneficially by their customers, institutions may
provide one or more of the following services to such customers: processing
purchase and redemption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with respect to Service
Shares beneficially owned by customers or the information necessary for
sub-accounting; and other similar services. In consideration for payment of a
service fee of up to a separate .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their customers,
institutions may provide one or more of these additional services to such
customers: responding to customer inquiries relating to the services performed
by the institution and to customer inquiries concerning their investments in
Service Shares; providing information periodically to customers showing their
positions in Service Shares; and other similar shareholder liaison services.
Institutional Shares bear no shareholder servicing or distribution fees. As a
result of these different fees, the net yields on the Fund's Institutional
Shares will generally be higher than those on the Fund's Service Shares, 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. Series A Investor Shares of
the Fund's non-money market portfolios are offered to the public at the net
asset value per share plus a maximum sales charge of 4.50% of the offering price
on single purchases of less than $50,000; the sales charge is reduced on a
graduated scale on single purchases of $50,000 or more and certain exemptions
from the sales charge may apply. The sales charge does not apply to exchanges of
Series A Investor Shares among the Fund's non-money market portfolios or to
exchanges of Series A Investor Shares in the Fund's money market Portfolios
offered by this Prospectus for Series A Investor Shares in another money market
Portfolio. Series B Investor Shares of the Fund's non-money market portfolios
are subject to a maximum contingent deferred sales charge of 5.0%. The deferred
sales charge decreases over time. Series B Investor Shares may be exchanged for
Series B Investor Shares of another investment portfolio of the Fund without the
payment of any deferred sales charge at the time the exchange is made. Unless an
exception applies, a deferred sales charge will be deducted upon the redemption
of Series B Shares of the Money Market Portfolio received in an exchange
transaction for Series B Shares of a non-money market portfolio of the Fund.
Unless an exception applies, a sales charge will be charged when Series A
Investor Shares of the money market Portfolios are exchanged for Series A
Investor Shares or Series B Investor Shares of the Fund's non-money market
portfolios. See "Investor Programs--Exchange Privilege."
On 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.
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THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INVESTOR SHARES AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS PERTAINING TO THE INVESTOR SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each Portfolio may advertise its "yield" and "effective
yield" for Series A and Series B Investor Shares. Both yield figures are based
on historical earnings and are not intended to indicate future performance.
"Yield" refers to the income generated by an investment in a Portfolio's
Investor Shares over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment.
"Effective yield" is calculated similarly but, when annualized, the income
earned by an investment in a Portfolio's Investor Shares is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. A Municipal
Portfolio's "tax-equivalent yield" may also be quoted from time to time for
Investor 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
Investor Shares. This is done by increasing such Portfolio's yield for Investor
Shares (calculated as above) by the amount necessary to reflect the payment of
Federal (and state and local for the Ohio, Pennsylvania, North Carolina and
Virginia Municipal Money Market Portfolios) income tax at a stated tax rate.
Performance data of Investor Shares of a Portfolio may be compared to that
of other mutual funds with similar investment objectives and to other relevant
indexes or to ratings or rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
In addition, certain indexes may be used to illustrate historic performance of
select asset classes. For example, the yield of Investor Shares of a Portfolio
may be compared to data prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc. and Weisenberger Investment Company Service.
Performance information may also include evaluations of the Portfolios published
by nationally recognized ranking services and information as reported by
financial publications such as Business Week, Fortune, Institutional Investor,
Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of Investor Shares of a Portfolio.
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Investor Shares will fluctuate and are not necessarily representative of future
results. Any fees charged by Service Organizations directly to their customers
in connection with investments in Investor Shares are not reflected in the
yields of Investor Shares, and such fees, if charged, will reduce the actual
return received by customers on their investments.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8907, Wilmington,
Delaware 19899-8907, toll-free (800) 422-6538.
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- -----------------------------------------------------
- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION FOR INVESTOR SHARES 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........................... 18
How to Purchase Shares........................... 20
How to Redeem Shares............................. 21
Investor Programs................................ 23
Net Asset Value.................................. 26
Management....................................... 26
Distribution of Shares........................... 29
Shareholder Servicing............................ 30
Dividends and Distributions...................... 30
Taxes............................................ 31
Description of Shares............................ 35
Performance Information.......................... 37
Reports and Inquiries............................ 37
</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
PNCR-P-001
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
[A R T]
THE PNC(R) FUND
THE MONEY
MARKET
PORTFOLIOS
INVESTOR 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
- -----------------------------------------------------
JANUARY 30, 1995
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 73
This is your
APPLICATION
Detach and Mail to:
PFPC
ATTN: The PNC(R) Fund
P.O. Box 8907
Wilmington, Delaware 19899-8907
FOR ASSISTANCE IN COMPLETING THIS APPLICATION, CALL
THE PNC FUND AT (800) 422-6538.
THE PNC(R) FUND--NEW ACCOUNT APPLICATION
Mail completed application to: PFPC--Attention: The PNC Fund, P.O. Box 8907,
Wilmington, Delaware 19899-8907 .
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- --------------- PLEASE PRINT / / Individual
1 ------------------------------------------------------------------------------------- / / Joint Tenant
Registration Owner Social Security Number/Tax / / Custodian
- --------------- Identification Number / / UGMA___(state)
/ / Trust
------------------------------------------------------------------------------------- / / Corporation
Co-owner*, minor, trust Social Security Number/Tax / / Other_________
Identification Number
-------------------------------------------------------------------------------------------------
Street Address
-------------------------------------------------------------------------------------------------
City State Zip
Code
-------------------------------------------------------------------------------------------------
Telephone Number (Day) (Evening)
Citizen(s) of / / USA or / / other, please specify
---------------------------------------------------------------------------------------------------------------------
*For joint registration, both must sign the application in section 5. The registration will be
as joint tenants with the right of survivorship and not as tenants in common, unless otherwise stated.
</TABLE>
<PAGE> 74
<TABLE>
<S> <C>
- ------------- ----------------------------------------------------------------------------------------------------------------------
2 Enclosed is my check for $___________ (minimum of $500 per Portfolio except the minimum is $100 per
Investments Portfolio for employees
- ------------- of the Fund, the Fund's adviser, sub-advisers, distributor or transfer agent or employees of any such
service provider's affiliate)
made payable to "The PNC Fund."
MONEY MARKET PORTFOLIO (010) $ __________ OHIO MUNICIPAL MONEY MARKET PORTFOLIO (009) $ __________
(SERIES A SHARES) (SERIES A SHARES)
MUNICIPAL MONEY MARKET PORTFOLIO (011) $ __________ PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (013) $ __________
(SERIES A SHARES) (SERIES A SHARES)
GOVERNMENT MONEY MARKET PORTFOLIO (012)$ __________ NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO (008) $ __________
(SERIES A SHARES) (SERIES A SHARES)
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO (003) $ __________
(SERIES A SHARES)
- ------------- ----------------------------------------------------------------------------------------------------------------------
3 A. DIVIDEND ELECTION
Options Unless you elect otherwise, all dividends and capital gains distributions will be automatically
- ------------- reinvested in additional shares. If you prefer to be paid in cash each month, check the appropriate box
below.
Dividends: / / pay in cash / / reinvest
Capital Gains: / / pay in cash / / reinvest
If you elect to be paid in cash, you must check one of the boxes below. If you do not check any box your
distribution will be paid by check to the address of record.
</TABLE>
/ / I request the above distributions be sent by check to the address of
record.
/ / I request the above distributions be sent by check to the special payee
whose address is specified below:
Name of Bank or Individual_________ Bank Account # (if applicable)________
Street Address______________ City_____________ State_____ Zip_____________
/ / I request the above distributions to be sent electronically to my
financial institution as specified below:
Name on Bank Account ____________________ Name of Bank____________________
Account Number:_______________________ Type: / / Checking / / Savings
Routing Number (ABA#):___________________ Bank Address___________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
B. WIRE REDEMPTIONS PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS
NOT WANTED.
The Fund or its agents are authorized to honor telephone or other
instructions from any person for the redemption of PNC Fund Shares.
Proceeds are to be wire transferred to the bank account referenced below
($10,000 minimum per redemption). Shareholders holding share certificates
are not eligible for wire redemption.
Name of Depositor ________________________________________________________
(as shown on bank records)
Name of Bank__________________ ABA #__________________ Account No.________
a savings and loan or credit union may not be able to receive wire
redemptions)
Street Address of Bank___________City__________State______Zip_____________
<PAGE> 75
C. SYSTEMATIC WITHDRAWAL
/ / Systematic Withdrawal Plan requires a minimum account balance of $10,000 in
shares at the current offering price. Minimum withdrawal $100. Each withdrawal
redemption will be processed on or about the 25th of the month and mailed as
soon as possible thereafter. Shareholders holding share certificates are not
eligible for the Systematic Withdrawal Plan because share certificates must
accompany all withdrawal requests.
Start(month)__________ $(amount)________ / / Monthly / / Every other Month
/ / Quarterly / / Semi-annually
/ / Annually
PAYMENT METHOD. Please check one of the following:
If you do not check any box your proceeds will be paid by check to the address
of record.
/ / I request the proceeds to be sent by check to my address of record.
/ / I request the proceeds to be sent by check payable to a person or
organization different than as registered.
Name of Bank or Individual:____________Bank Account # (if applicable)__________
Street Address ________________City________________ State______Zip_____________
/ / I request the proceeds to be sent electronically to my financial institution
as specified below:
Name on Bank Account:_______________________Name of Bank: _____________________
Account Number: Type: / / Checking / / Savings
Routing Number (ABA#): _________________ Bank Address:_________________________
_________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
D. TELEPHONE EXCHANGE IF YOU DO NOT WISH THIS PRIVILEGE, PLEASE CHECK THIS
BOX. / /
Your account will automatically provide for the telephone exchange of Series A
and Series B Shares of one Portfolio for Series A and Series B Shares,
respectively, of other investment portfolios offered by the Fund. Then, when you
wish to exchange shares, all you need to do is call (800) 441-7762. Shareholders
holding share certificates may not exchange shares by telephone. The same
registration and address will be used as is listed on this form under
"Registration." It is understood that neither PFPC nor the Fund will be liable
for any loss, liability, cost or expense for acting upon telephone exchange
requests reasonably believed to be genuine.
PLEASE SEE REVERSE SIDE OF APPLICATION.
PNC MONEY MARKET PORTFOLIOS SIGNATURE CARD
Complete only if check writing privilege is selected. (Series A Shares only)
Registration: _________________________________________________________________
_________________________________________________________________
Please fill out exactly as in "Registration" in Section 1 of the
New Account Application.
Authorizing signature(s) Date Signed:________________________________________
1.________________________________________2.___________________________________
/ / Check if one signature is required. / / Check if two signatures are
required.
All owners must sign. If a corporation, a corporate resolution naming the
individual(s) authorized above must accompany this signature card.
For internal use of PFPC only: Acct #__________________________________________
<PAGE> 76
CHECK WRITING CONDITIONS
I/we hereby authorize PNC Bank to honor checks drawn by me/us on this
(these) accounts. I/we fully understand that:
(1) if this card is signed by more than one person, all checks will
require all signatures unless indicated to the contrary on the reverse
of this card;
(2) if any of the shares in this (these) account(s) is (are) represented
by share certificates, this privilege does not apply;
(3) checks must be drawn for $100 or more;
(4) this privilege may be terminated at any time by PNC Bank or the Fund,
and neither shall incur any liability to me/us for honoring such
checks, for effecting redemptions to pay such checks, or for returning
checks which have not been accepted; and
(5) this privilege is subject to the terms and conditions set forth in the
prospectus of The PNC Fund Money Market Portfolios.
For assistance in completing this Application, call The PNC Fund at (800)
422-6538
E. AUTOMATIC INVESTING
This program provides for investments to be made automatically by
authorizing PFPC to withdraw funds from your bank account. An initial
minimum investment of $50 per Portfolio, and subsequent investments of at
least $50, are required. The Program requires additional information so
that PFPC may contact your bank to make sure the arrangement is properly
established. This may not be used with a Systematic Withdrawal Program.
/ / CHECK HERE AND THE PROPER FORM WILL BE SENT TO YOU.
<TABLE>
<S> <C>
- --------------- ------------------------------------------------------------------------------------------------------------------
4 Under penalty of perjury, I certify with my signature below that the number shown in this section of the
Taxpayer application is my correct taxpayer identification number and that I am not subject to backup withholding
Identification as a result of a failure to report all interest or dividends, or the Internal Revenue Service has
Certification notified me that I am no longer subject to backup withholding.
- ---------------
If you are subject to backup withholding, check the box in front of the following statement.
/ / The Internal Revenue Service has notified me that I am subject to backup withholding.
-------------------------------------------------------- --------------------------------------------------------
(Signature) (Signature)
-------------------------------------------------------- --------------------------------------------------------
(President, Trustee, General Partner or Agent) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
- --------------- ---------------------------------------------------------------------------------------------------------------
5
Signatures Citizenship: / / U.S. / / Other ___________________________ Please provide Phone Number(____)________________
- --------------- Sign below exactly as printed in Registration.
I (we) am (are) of legal age and have read the Prospectus. I (we) hereby certify that each of the persons
listed below has been duly elected, and is now legally holding the office set below his name and has the
authority to make this authorization.
Please print titles below if signing on behalf of a business or trust.
-------------------------------------------------------- --------------------------------------------------------
(Signature) (Signature)
-------------------------------------------------------- --------------------------------------------------------
(President, Trustee, General Partner or Agent) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
- --------------- ---------------------------------------------------------------------------------------------------------------
6 MUST BE COMPLETED BY DEALER
Investment ------------------------------------------- -------------------------------------------------------------
Dealer Firm Name Representative's Name (print)
- --------------- -------------------------------------------------------------
NSCC Dealer Number: Representative Number Phone Number
-------------------------------------------
Branch Street Address
------------------------------------------- -------------------------------------------------------------
Branch Number City State Zip
------------------------------------------- -------------------------------------------------------------
Representative's Signature Date
</TABLE>
FOR ASSISTANCE IN COMPLETING THIS APPLICATION CALL (800) 422-6538
<PAGE> 77
THE MONEY MARKET PORTFOLIOS
INSTITUTIONAL CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to seven classes of shares ("Institutional Shares" or
"Shares") representing interests in seven 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").
Institutional Shares of the Portfolios ("Shares") are sold by the Fund's
distributor to institutional investors ("Institutions"). Institutional Shares
are sold and redeemed at net asset value without any purchase or redemption
charge imposed by the Fund.
Shares of the Ohio Municipal Money Market, Pennsylvania Municipal Money
Market, North Carolina Municipal Money Market and Virginia Municipal Money
Market Portfolios are intended for residents of Ohio, Pennsylvania, North
Carolina and Virginia, respectively.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information currently dated January 30, 1995 has been filed with the
Securities and Exchange Commission (the "SEC"). The current Statement of
Additional Information may be obtained upon request free of charge from the Fund
by calling (800) 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 January 30, 1995
<PAGE> 78
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
NORTH
OHIO PENNSYLVANIA CAROLINA VIRGINIA
MUNICIPAL GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory fees(1)........... .13% .13% .13% .13% .13% .13% .05%
Other operating expenses... .15 .15 .15 .15 .15 .15 .23
---- ---- ----- ---- ------ ---- ----
Administration fees(1)... .10 .08 .10 .08 .09 .05 .02
Other expenses(1)........ .05 .07 .05 .07 .06 .10 .21
---- ---- ----- ---- ------ ---- ----
Total fund operating
expenses................. .28% .28% .28% .28% .28% .28% .28%
---- ---- ----- ---- ------ ---- ----
---- ---- ----- ---- ------ ---- ----
</TABLE>
- ------------------
(1) Advisory fees are net of fee waivers of .31%, .32%, .32%, .32%, .32%, .32%
and .40% and administration fees are net of waivers of .04%, .07%, .05%,
.07%, .06%, .10% 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 and Virginia Municipal
Money Market 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 Institutional Shares would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end
of each time period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Money Market Portfolio....................... $ 3 $ 9 $ 16 $36
Municipal Money Market Portfolio............. 3 9 16 36
Government Money Market Portfolio............ 3 9 16 36
Ohio Municipal Money Market Portfolio........ 3 9 16 36
Pennsylvania Municipal Money Market
Portfolio.................................. 3 9 16 36
North Carolina Municipal Money Market
Portfolio.................................. 3 9 16 36
Virginia Municipal Money Market Portfolio.... 3 9
</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 and North Carolina 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 revised fee waivers. The table
estimates fees, expenses, fee waivers and assets for the Virginia Municipal
Money Market Portfolio for the current fiscal year. Total operating expenses
would have been .63%, .67%, .65%, .67%, .66%, .70% and .81% for Institutional
Shares of 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,
respectively, without such fee waivers. See Footnote 1 to the Expense Table,
"Financial Highlights-- Background," "Management" and "Description of Shares"
for a further description of operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 79
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 "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. Because the public offering of Series
A Investor Shares of the North Carolina Municipal Money Market Portfolio and of
Service Shares and Series A Investor Shares of the Virginia Municipal Money
Market Portfolio had not commenced during the year ended September 30, 1994, the
tables below present only information pertaining to Institutional Shares and
Service Shares of the North Carolina Municipal Money Market Portfolio and to
Institutional Shares of the Virginia Municipal Money Market Portfolio. No Series
B Investor Shares of the Money Market Portfolio 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.
3
<PAGE> 80
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%
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------
SERIES A
SERVICE 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.
4
<PAGE> 81
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL 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........................ 0.0246 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%
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------------
SERIES A
SERVICE 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.
5
<PAGE> 82
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%
<CAPTION>
GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
SERIES A
SERVICE 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.
6
<PAGE> 83
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.
7
<PAGE> 84
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL MONEY MARKET
PORTFOLIO
------------------------------------
INSTITUTIONAL SERVICE
CLASS CLASS
--------------------- --------
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
CLASS 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.
8
<PAGE> 85
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 VIRGINIA MUNICIPAL
MUNICIPAL MONEY MONEY MARKET
MARKET PORTFOLIO PORTFOLIO
------------------- -------------------
SERVICE INSTITUTIONAL
CLASS CLASS
-------- ------------------
FOR THE FOR THE
PERIOD PERIOD
4/29/94(1) 7/25/94(1)
THROUGH THROUGH
9/30/94 9/30/94
-------- ------------------
<S> <C> <C>
Net asset value at beginning of period.................................................. $ 1.00 $ 1.00
-------- -------
Income from investment operations
Net investment income................................................................ 0.0099 0.0053
Net realized gain (loss) on investments.............................................. -- --
-------- -------
Total from investment operations................................................. 0.0099 0.0053
-------- -------
Less distributions
Distributions from net investment income............................................. (0.0099) (0.0053)
Distributions from net realized capital gains........................................ -- --
-------- -------
Total distributions.............................................................. (0.0099) (0.0053)
-------- -------
Net asset value at end of period........................................................ $ 1.00 $ 1.00
========= ===============
Total return............................................................................ 0.99% 0.53%
Ratios/Supplemental data
Net assets at end of period (in thousands)........................................... $ -- (3) $ 13,831
Ratios of expenses to average net assets
After advisory/administration fee waivers.......................................... 0.36%(2) 0.10%(2)
Before advisory/administration fee waivers......................................... 1.02%(2) 1.02%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers.......................................... 2.54%(2) 2.89%(2)
Before advisory/administration fee waivers......................................... 1.87%(2) 1.97%(2)
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) There were no Service Shares outstanding as of September 30, 1994.
9
<PAGE> 86
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.
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, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
10
<PAGE> 87
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. Purchasable Municipal
Obligations are determined by the sub-adviser to present minimal credit risks
pursuant to guidelines established by the Board of Trustees and at the time of
purchase are rated in the two highest rating categories by an NRSRO or are
unrated securities determined at the time of purchase to be of comparable
quality by the
11
<PAGE> 88
sub-adviser pursuant to guidelines approved by the Board of Trustees. The
applicable Municipal Obligations ratings are described in an Appendix to the
Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of moral obligation bonds is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Also included within the general category of Municipal Obligations are
participation certificates in a lease, an installment purchase contract, or a
conditional sales contract ("lease obligations") entered into by a state or
political subdivision to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that is not yet as
marketable as more conventional securities.
------------------------------------
GOVERNMENT MONEY MARKET PORTFOLIO
During normal market periods, not less than 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 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
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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 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 1991, 1992 and 1993 the State rates (6.4%, 7.2% and 6.5%) were below the
national rates (6.7%, 7.4% and 6.8%). The unemployment rate and its effects vary
among particular geographic areas of the State. There can be no assurance that
future national, regional or state-wide economic difficulties and the resulting
impact on State or local government finances will not adversely affect the
market value of Ohio Municipal Obligations held in the Portfolio or the ability
of the respective obligors to make timely payments of debt service on (or lease
payments relating to) those obligations. See the Statement of Additional
Information for further discussions of investment considerations associated with
Ohio Municipal Obligations and see "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 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 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
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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 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 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.
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.
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<PAGE> 91
The Virginia Municipal Money Market Portfolio will invest primarily in
Virginia Municipal Obligations. For this reason, the Portfolio is affected by
political, economic, regulatory or other developments that constrain the taxing,
revenue-collecting and spending authority of Virginia issuers or otherwise
affect the ability of Virginia issuers to pay interest, repay principal, or any
premium. Certain of these developments are described herein. The rate of
economic growth in the Commonwealth of Virginia slowed in 1990 and 1991, but has
increased steadily over the past decade. From 1984 to 1993, the Commonwealth's
4.8% rate of growth in per capita personal income was slightly ahead of the
national rate of growth of 4.7%. During 1990, 1991 and 1992, Virginia's per
capita personal income grew at a slightly lower rate than the U.S. average. Per
capita income in Virginia has been consistently above national levels over the
past decade and, in 1993, was $21,634 compared with the national level of
$20,817. The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment and manufacturing.
Because of Virginia's proximity to Washington, D.C. and the concentration of
military installations in the Commonwealth (the largest such concentration in
the United States), the Federal government has a greater economic impact on
Virginia relative to its size than on any of the other states except Alaska and
Hawaii. It is unclear what effect the current efforts by the Federal government
to restructure the defense budget will have on the long-term economic conditions
of the Commonwealth. According to statistics published by the U.S. Department of
Labor, the Commonwealth typically has one of the lowest unemployment rates in
the nation. This is generally attributed to the balance among the various
sectors represented in the economy. During 1993, an average of 5.9% of
Virginians were unemployed as compared with the national average of 6.8%. The
population of the Commonwealth has continued to grow over the last decade at a
rate that is substantially higher than the national average. The rate of
increase in such population growth has declined since reaching a high of 2.1%
annually in 1987 and, in 1993, was approximately 1.8%. Virginia is one of twenty
states with a right-to-work law and is generally regarded as having a favorable
business climate marked by few strikes or work stoppages. Virginia is also one
of the least unionized among the industrialized states. See "Special
Considerations Regarding Investment in Virginia Municipal Obligations" in the
Statement of Additional Information. See also "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
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 and Virginia 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.
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<PAGE> 92
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 of an agreed-upon price and date. 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
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<PAGE> 93
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 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 AND VIRGINIA 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 and Virginia Municipal Money Market Portfolios will be invested in
Ohio, Pennsylvania, North Carolina and Virginia 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.
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<PAGE> 94
The Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market and Virginia 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 and Virginia 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 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.
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<PAGE> 95
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.
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 and Virginia 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 and Virginia 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.
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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.
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 to Institutions at the net asset value per
share next determined after an order is received by PFPC Inc. ("PFPC"), the
Fund's transfer agent. Shares may be purchased on any Business Day. A "Business
Day" is any weekday that the New York Stock Exchange (the "NYSE") and the
Federal Reserve Bank of Philadelphia (the "FRB") are open for business.
Purchase orders for Shares of each Portfolio except the Government Money
Market Portfolio may be transmitted by telephoning PFPC at (800) 441-7379 not
later than 12:00 noon (Eastern Time) on any Business Day. Orders received before
noon will be executed at noon. If payment for such orders is not received by
4:00 p.m., the order will be cancelled and notice thereof will be given to the
Institution placing the order. Orders received after 12:00 noon will not be
accepted. The Fund may in its discretion reject any order for Shares.
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.
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Payment for Institutional Shares may be made only in Federal funds or other
funds immediately available to the Fund's custodian. The minimum initial
investment by an Institution is $5,000. There is no minimum subsequent
investment requirement.
REDEMPTION OF SHARES
Redemption orders may be transmitted to PFPC by telephone at (800)
441-7379. 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 Institution on the same Business Day,
provided that the Fund's custodian is also open for business. Payment for
redemption orders received between 12:00 noon (Eastern Time) and 4:00 p.m.
(Eastern Time) or on a day when the Fund's custodian is closed is normally wired
in Federal funds on the next Business Day following redemption on which the
Fund's custodian is open for business. The Fund reserves the right to wire
redemption proceeds within seven days after receiving a redemption order if, in
the judgment of the investment adviser, an earlier payment could adversely
affect 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 such shareholder's account in that Portfolio drops below $5,000 as
the result of a redemption request and the Institution does not increase the
balance to at least $5,000 upon thirty days' written notice.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
Shares) for such periods as are permitted under the 1940 Act. The Fund may also
redeem Shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. See "Purchase and Redemption Information"
in the Statement of Additional Information for examples of when such redemption
might be appropriate.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Institutional Share of 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.
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The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values their
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under "Valuation of
Shares." There can be no assurance that net asset value per share will not vary.
A Portfolio may use a pricing service, bank or broker/dealer experienced in
such matters to value the Portfolio's securities. A more detailed discussion of
net asset value and security valuation is contained in the Statement of
Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The business and affairs of the Fund and each Portfolio are managed under
the direction of the Fund's Board of Trustees. The Statement of Additional
Information contains the name of each trustee and background information
regarding the trustees.
INVESTMENT ADVISER AND SUB-ADVISER
PNC Institutional Management Corporation ("PIMC"), a 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 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. 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 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, 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 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,
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<PAGE> 99
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 of 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. 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 for 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 the 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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------------------------------------
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.
PIMC and PNC Bank expect to waive voluntarily a portion of their respective
advisory and sub-advisory fees. In addition, if the total expenses borne by any
Portfolio in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, PIMC, PNC Bank and the Administrators
will bear the amount of such excess to the extent required by such regulations
in proportion to the advisory and administration fees otherwise payable to them
for such year. Such amount, if any, will be estimated and accrued daily and paid
on a monthly basis.
------------------------------------
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. PNC Bank, PIMC and PFPC are subject to such banking
laws and regulations. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Institutional Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies. It is not anticipated, however, that any such change would affect a
Portfolio's net asset value per share or result in a financial loss to any
shareholder.
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
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<PAGE> 101
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 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. See
"Purchase and Redemption of Shares."
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within five business days after the end of the
month. Net short-term capital gains, if any, will be distributed at least
annually. The period for which dividends are payable and the time for payment of
such dividends are subject to change by the Fund's Board of Trustees. The
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 Institutional 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.
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 and
that in two circumstances such amounts, while
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<PAGE> 102
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 and Virginia 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.
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 and North Carolina Municipal Money Market Portfolios, the
loss will be disallowed for state tax purposes to the same extent, even though,
for state income tax purposes, some portion of such dividends actually may have
been subject to state income tax.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Portfolios
which may differ from the Federal income tax consequences described above. In
particular, dividends paid by each Portfolio may be taxable to investors under
state or local law as dividend income even though all or a portion of such
dividends may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. Shareholders who are
nonresident alien individuals, foreign trusts or estates, foreign corporations
or foreign partnerships may be subject to different U.S. Federal income tax
treatment and should consult their tax advisers.
OHIO TAX CONSIDERATIONS. Individuals and estates that are subject to Ohio
personal income tax or municipal or school district income taxes in Ohio will
not be subject to such taxes on distributions from the Ohio Municipal Money
Market Portfolio to the extent that such distributions consist of interest on
Ohio Municipal Obligations or obligations issued by the U.S. Government, its
agencies, instrumentalities or territories (if the interest on such obligations
is exempt from state income taxation under the laws of the United States) ("U.S.
Obligations"), provided that the Portfolio continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Ohio Municipal Money Market
Portfolio consists of Ohio Municipal Obligations or similar obligations of other
states or their subdivisions. (It is assumed for purposes of this discussion of
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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.
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 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.
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<PAGE> 104
Shares of the North Carolina Municipal Money Market Portfolio will not be
subject to the North Carolina intangibles personal property tax so long as
certain filings are made with the North Carolina Department of Revenue and on
December 31 of each year the Portfolio is composed entirely of North Carolina
Municipal Obligations and obligations of the United States (including the
District of Columbia and U.S. possessions), and at least 80% of the fair market
value of the Portfolio's assets consists of North Carolina Municipal
Obligations. For all years in which this portfolio-composition requirement is
met, the North Carolina Municipal Money Market Portfolio will file with the
North Carolina Department of Revenue a certification in order for shareholders
to qualify for this exemption. If the portfolio-composition requirement is not
met, shareholders may reduce for North Carolina intangibles personal property
tax purposes the value of their investment in the Portfolio in direct proportion
to the percentage of the Portfolio's assets invested in exempt U.S. Government
(including U.S. possessions) or North Carolina obligations as of December 31.
Shareholders also should note that the future of the North Carolina
intangibles personal property tax is uncertain. A challenge to the
constitutionality of such tax presently is on appeal to the United States
Supreme Court. In addition, several bills were introduced in recent State
legislative sessions that would have either repealed the North Carolina
intangibles personal property tax in total or significantly amended its
provisions. The Governor of North Carolina has also proposed that the
legislature repeal this tax. Although no such legislation has yet been enacted,
further attempts may be made to repeal or modify this tax in the future.
Accordingly, no assurance can be given that an investment in the North Carolina
Municipal Money Market Portfolio while it owns exempt U.S. government
obligations or North Carolina Municipal Obligations will in future years provide
shareholders with any reductions from the North Carolina intangibles personal
property tax that they otherwise might owe.
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.
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
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<PAGE> 105
requirements so that it can distribute Virginia exempt interest dividends. If
the Portfolio fails to qualify, no part of its dividends will be exempt from the
Virginia income tax.
When taxable income of a regulated investment company is commingled with
exempt income, all distributions of the income are presumed taxable to the
shareholders unless the portion of income that is exempt from Virginia income
tax can be determined with reasonable certainty and substantiated. Generally,
this determination must be made for each distribution to each shareholder. The
Virginia Department of Taxation has adopted a policy, however, of allowing
shareholders to exclude from their Virginia taxable income the exempt portion of
distributions from a regulated investment company even though the shareholders
receive distributions monthly but receive reports substantiating the exempt
portion of such distributions at less frequent intervals. Accordingly, if the
Portfolio receives taxable income, the Portfolio must determine the portion of
income that is exempt from Virginia income tax and provide such information to
the shareholders in accordance with the foregoing so that the shareholders may
exclude from Virginia taxable income the exempt portion of the distribution from
the Portfolio.
The foregoing is only a summary of some of the important Virginia income
tax considerations generally affecting the shareholders, and does not address
any Virginia taxes other than the income tax. This discussion is not intended as
a substitute for careful planning. Potential investors in the Portfolio should
consult their tax advisers with specific reference to their own tax situations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on December 22,
1988 and is registered under the 1940 Act as an open-end management investment
company. The Declaration of Trust authorizes the Board of Trustees to classify
and reclassify any unissued shares into one or more classes of shares. Pursuant
to such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of 94 classes (19 classes of "Series B
Investor Shares" and 25 classes each of "Institutional Shares", "Service Shares"
and "Series A Investor Shares") representing interests in the Fund's investment
portfolios. This Prospectus describes seven Portfolios of the Fund which, except
for the Ohio Municipal Money Market, Pennsylvania Municipal Money Market, North
Carolina Municipal Money Market and Virginia 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
authorized the issuance of additional classes of shares representing interests
in other investment portfolios of the Fund. For information regarding these
other portfolios, contact the Distributor by phone at (800) 998-7633 or at the
address listed in "Purchase and Redemption of Shares--Distributor."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
29
<PAGE> 106
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
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
30
<PAGE> 107
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 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 January 4, 1995, PNC Bank held of record approximately 80% of the Fund's
outstanding shares, and may be deemed a controlling person of the Fund under the
1940 Act. PNC Bank is a subsidiary of PNC Bank Corp., a multi-bank holding
company.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INSTITUTIONAL SHARES AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS PERTAINING TO THE INSTITUTIONAL SHARES.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each Portfolio may advertise its "yield" and "effective
yield" for Institutional Shares. Both yield figures are based on historical
earnings and are not intended to indicate future performance. "Yield" refers to
the income generated by an investment in a Portfolio's Institutional Shares over
a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. "Effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a Portfolio's Institutional Shares is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. A Municipal Portfolio's "tax equivalent
yield" may also be quoted from time to time for Institutional 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 Institutional
Shares. This is done by increasing such Portfolio's yield for Institutional
Shares (calculated as above) by the amount necessary to reflect the payment of
Federal (and state and local for the Ohio, Pennsylvania, North Carolina and
Virginia Municipal Money Market Portfolios) income tax at a stated tax rate.
Performance data of Institutional Shares of a Portfolio may be compared to
those of mutual funds with similar investment objectives and to other relevant
indexes or to ratings or rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
In addition, certain indexes may be used to illustrate historic performance of
select asset classes. For example, the yield of Institutional Shares of 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 Institutional Shares of a Portfolio.
31
<PAGE> 108
The yield of any investment is generally a function of portfolio quality
and maturities, type of investment and operating expenses. The yields on
Institutional Shares will fluctuate and are not necessarily representative of
future results.
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual financial statements and
annual financial statements audited by independent accountants. Shareholder
inquiries should be addressed to the Fund c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19885-9628, toll-free (800) 441-7764 (in Delaware call collect (302)
791-1104).
* * *
32
<PAGE> 109
- -----------------------------------------------------
- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Table.................................... 2
Financial Highlights............................. 3
Investment Policies.............................. 10
Investment Limitations........................... 19
Purchase and Redemption of Shares................ 20
Net Asset Value.................................. 21
Management....................................... 22
Dividends and Distributions...................... 24
Taxes............................................ 25
Description of Shares............................ 29
Performance Information.......................... 31
Reports and Inquiries............................ 32
</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
PNCI-P-001
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
THE MONEY
MARKET
PORTFOLIOS
INSTITUTIONAL
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
- -----------------------------------------------------
JANUARY 30, 1995
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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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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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<PAGE> 142
.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> 144
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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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
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<PAGE> 146
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
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<PAGE> 147
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> 148
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> 149
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.
40
<PAGE> 150
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
- --------------------------------------------------------------------------------
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> 151
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> 152
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> 153
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> 154
- -----------------------------------------------------
- -----------------------------------------------------
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> 155
THE FIXED INCOME PORTFOLIOS
INVESTOR CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to 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.
Shares of the Ohio Tax-Free Income and Pennsylvania Tax-Free Income
Portfolios are intended for residents of Ohio and Pennsylvania, respectively.
This Prospectus relates to two classes of shares from which investors may
choose representing interests in each respective Portfolio: Series A Investor
Shares ("Series A Shares") and Series B Investor Shares ("Series B Shares" and,
collectively with Series A Shares, "Investor Shares" or "Shares"). Series A
Shares are sold with a front-end sales charge. Series B Shares are sold with a
contingent deferred sales charge. 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> 156
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. Shares are offered by the Fund's distributor to investors generally.
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> 157
EXPENSE TABLE
<TABLE>
<CAPTION>
INTERMEDIATE
MANAGED INCOME TAX-FREE INCOME GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
SERIES A SERIES B SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge(1) (as a
percentage of offering price)...... 4.5% None 4.5% None 4.5% None
Sales Charge on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge(2) (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................ None 5.0% None 5.0% None 5.0%
ANNUAL FUND OPERATING EXPENSES FOR
INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
Advisory fees(3)..................... .38% .38% 0% 0% .23% .23%
12b-1 fees(4)........................ .45 .75 .45 .75 .25 .75
Other operating expenses............. .27 .52 .60 .85 .27 .52
-------- -------- -------- -------- -------- --------
Administration fees(3)............. .15 .15 0 0 .13 .13
Service fees....................... None .25 None .25 None .25
Other expenses(3).................. .12 .12 .60 .60 .14 .14
-------- -------- -------- -------- -------- --------
Total fund operating expenses........ 1.10% 1.65% 1.05% 1.60% .75% 1.50%
======= ======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares--Purchases of Series A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases 1.00% annually to 3.00% for redemptions made during the
third and fourth years and then decreases to 2.00% and 1.00% for redemptions
made during the fifth and sixth years, respectively. See "How to Purchase
Shares--Purchases of Series B Shares."
(3) 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.
Securities dealers, financial institutions and other industry professionals
may charge their clients additional fees for account services.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
3
<PAGE> 158
EXPENSE TABLE
<TABLE>
<CAPTION>
OHIO PENNSYLVANIA
TAX-FREE INCOME TAX-FREE INCOME SHORT-TERM BOND
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
SERIES A SERIES B SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge(1) (as a
percentage of offering price)...... 4.5% None 4.5% None 4.5% None
Sales Charge on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge(2) (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................ None 5.0% None 5.0% None 5.0%
ANNUAL FUND OPERATING EXPENSES FOR
INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
Advisory Fees(3)..................... 0% 0% .28% .28% .23% .23%
12b-1 fees(4)........................ .45 .75 .45 .75 .25 .75
Other operating expenses............. .60 .85 .32 .57 .27 .52
-------- -------- -------- -------- -------- --------
Administration fees(3)............. 0 0 .09 .09 .09 .09
Service fees....................... None .25 None .25 None .25
Other expenses(3).................. .60 .60 .23 .23 .18 .18
-------- -------- -------- -------- -------- --------
Total fund operating expenses........ 1.05% 1.60% 1.05% 1.60% .75% 1.50%
======= ======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares--Purchases of Series A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases 1.00% annually to 3.00% for redemptions made during the
third and fourth years and then decreases to 2.00% and 1.00% for redemptions
made during the fifth and sixth years, respectively. See "How to Purchase
Shares--Purchases of Series B Shares."
(3) 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.
Securities dealers, financial institutions and other industry professionals
may charge their clients additional fees for account services.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
4
<PAGE> 159
EXPENSE TABLE
<TABLE>
<CAPTION>
INTERMEDIATE-TERM INTERNATIONAL
BOND GOVERNMENT INCOME FIXED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
SERIES A SERIES B SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge(1) (as a
percentage of offering price)...... 4.5% None 4.5% None 4.5% None
Sales Charge on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge(2) (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................ None 5.0% None 5.0% None 5.0%
ANNUAL FUND OPERATING EXPENSES FOR
INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
Advisory Fees(3)..................... .28% .28% .38% .38% .43% .43%
12b-1 fees(4)........................ .25 .75 .25 .75 .45 .75
Other operating expenses............. .27 .52 .27 .52 .42 .67
-------- -------- -------- -------- -------- --------
Administration fees(3)............. .10 .10 .10 .10 .10 .10
Service fees....................... None .25 None .25 None .25
Other expenses(3).................. .17 .17 .17 .17 .32 .32
-------- -------- -------- -------- -------- --------
Total fund operating expenses........ .80% 1.55% .90% 1.65% 1.30% 1.85%
======= ======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares--Purchases of Series A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases 1.00% annually to 3.00% for redemptions made during the
third and fourth years and then decreases to 2.00% and 1.00% for redemptions
made during the fifth and sixth years, respectively. See "How to Purchase
Shares--Purchases of Series B Shares."
(3) 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.
Securities dealers, financial institutions and other industry professionals
may charge their clients additional fees for account services.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
5
<PAGE> 160
EXAMPLE
An investor in Investor 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 Portfolio
Series A Shares*....................................... $ 56 $78 $103 $ 173
Series B Shares**...................................... 67 84 113 167***
Tax-Free Income Portfolio
Series A Shares*....................................... 55 76 100 167
Series B Shares**...................................... 66 83 110 161***
Intermediate Government Portfolio
Series A Shares*....................................... 52 68 85 134
Series B Shares**...................................... 65 80 105 140***
Ohio Tax-Free Income Portfolio
Series A Shares*....................................... 55 76 100 167
Series B Shares**...................................... 66 83 110 161***
Pennsylvania Tax-Free Income Portfolio
Series A Shares*....................................... 55 76 100 167
Series B Shares**...................................... 66 83 110 161***
Short-Term Bond Portfolio
Series A Shares*....................................... 52 68 85 134
Series B Shares**...................................... 65 80 105 140***
Intermediate-Term Bond Portfolio
Series A Shares*....................................... 53 69 87 140
Series B Shares**...................................... 66 81 107 145***
Government Income Portfolio
Series A Shares*....................................... 54 72
Series B Shares**...................................... 67 84
International Fixed Income Portfolio
Series A Shares*....................................... 58 84
Series B Shares**...................................... 69 90
</TABLE>
- ------------------
* Reflects the imposition of the maximum front-end sales charge at the
beginning of the period.
** Reflects the deduction of the deferred sales charge.
*** Based on the conversion of the Series B Shares to Series A Shares after six
years.
The foregoing Expense Table and Example are intended to assist investors in
understanding the Portfolios' shareholder transaction and 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 12b-1 fees borne by
Investor Shares and service fees borne by Series B Shares and 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: i) 1.27%, 1.75%, 1.09%, 1.75%, 1.38%, 1.13%, 1.12%, 1.12% and 1.52%
for 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, Government Income and International
Fixed Income Portfolios, respectively; and ii) 1.82%, 2.30%, 1.84%, 2.30%,
1.93%, 1.88%, 1.87%,
6
<PAGE> 161
1.87% and 2.07% for Series B 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, Government Income and
International Fixed Income Portfolios, respectively, without such fee waivers
and with 12b-1 fees. See Footnote 3 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.
OFFERING PRICES
Series A Shares in the Portfolios are offered to the public at the next
determined net asset value after receipt by PFPC of a purchase order 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. See "How to Purchase Shares--Purchases of Series A Shares."
Series B Shares in the Portfolios are offered to the public at the next
determined net asset value after receipt by PFPC of a purchase order. Series B
Shares are subject to a maximum deferred sales charge of 5.0%. See "How to
Purchase Shares--Purchases of Series B Shares."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for each Portfolio is $500, except that such
minimum investment requirement is $100 for employees of the Fund, the Fund's
adviser, sub-advisers, distributor or transfer agent or employees of any such
service providers' affiliate. Subsequent investments must be $100 or more. See
"How to Purchase Shares."
EXCHANGES
Series A Shares of one Portfolio may be exchanged for Series A Shares of
any other investment portfolio offered by the Fund at their respective net asset
value next determined after receipt by PFPC of an exchange request. Series B
Shares of one Portfolio may be exchanged for Series B Shares of any other
investment portfolio offered by the Fund with a deferred sales charge at their
respective net asset value next determined after receipt by PFPC of an exchange
request. Series B 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 B Shares may be exchanged
without the payment of any deferred sales charge at the time the exchange is
made. No exchange fee is charged by the Fund. See "Investor Programs--Exchange
Privilege."
REDEMPTION PRICE
Series A Shares may be redeemed at any time at their net asset value next
determined after receipt by PFPC of a redemption request in proper form. Series
B Shares may be redeemed at any time at their net asset value next determined
after receipt by PFPC of a redemption request, minus any applicable deferred
sales charge. The Fund reserves the right, upon 30 days' written notice, to
redeem an account in any Portfolio if the net asset value of the Shares held by
a shareholder of record in that account falls below the minimum initial
investment requirement amount as a result of a redemption or an exchange and is
not increased to at least that amount within the 30 day period. See "How to
Redeem Shares."
7
<PAGE> 162
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."
SHAREHOLDER INQUIRIES
Any questions or communications regarding a shareholder account may be
directed to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907, toll-free (800) 422-6538.
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 "Distribution of Shares" for a
description of the Distribution and Service Plan and the Series B Distribution
Plan, and see "Shareholder Servicing" for a description of 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
8
<PAGE> 163
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 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.
9
<PAGE> 164
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.
10
<PAGE> 165
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.
11
<PAGE> 166
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.
12
<PAGE> 167
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.
13
<PAGE> 168
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.
14
<PAGE> 169
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.
15
<PAGE> 170
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.
16
<PAGE> 171
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 7/29/93(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.
17
<PAGE> 172
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.
18
<PAGE> 173
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.
19
<PAGE> 174
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.
20
<PAGE> 175
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.
21
<PAGE> 176
------------------------------------
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
22
<PAGE> 177
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 and 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 ("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
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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
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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.
------------------------------------
EXPENSES
Expenses are deducted from the total income of each Portfolio before
dividends and distributions are paid. These expenses include, but are not
limited to, fees paid to PIMC and the Administrators, transfer agency fees, fees
and expenses of officers and trustees who are not affiliated with PIMC or the
Distributor or any of their affiliates, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying the Portfolio and its Shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders,
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations, fidelity bond and trustees and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by PIMC or the Administrators under their
respective agreements with the Fund. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio will
be allocated among all investment portfolios by or under the direction of the
Board of Trustees in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of shares within a Portfolio (such
as Series A 12b-1 fees for Series A Investor Shares and Series B 12b-1 fees and
service fees for Series B Investor 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 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 and PFPC are subject to such
banking laws and regulations. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Investor Shares, the Fund
might be
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required to alter materially or discontinue its arrangements with such companies
and change its method of operations with respect to the Investor Shares. It is
not anticipated, however, that any 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.
------------------------------------
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.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Shares of each Portfolio are offered on a continuous basis by the
Distributor. The Distributor is a registered broker/dealer with principal
offices at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
The Fund's Board of Trustees has adopted a Distribution and Service Plan
("Series A Plan") for Series A Shares and a Series B Distribution Plan ("Series
B Plan" and, collectively with the Series A Plan, the "Plans") for Series B
Shares.
Under each Plan the Distributor is entitled to payments by each Portfolio
for: (i) direct out-of-pocket promotional expenses incurred in connection with
advertising and marketing Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Fund Shares. In addition,
payments under the Series B 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 Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders for whom the Service Organizations are the dealer of
record or holder of record for shareholders with whom the Service Organizations
have a servicing relationship. "Direct out-of-pocket promotional expenses"
include amounts spent by the Distributor in connection with advertising via
radio, television, newspapers, magazines and otherwise; preparing, printing and
mailing sales materials, brochures and prospectuses (except for prospectuses
used for regulatory purposes or for distribution to existing shareholders); and
other out-of-pocket expenses incurred in connection with the promotion of
Shares.
Upon proper authorization by the Fund's trustees, expenses covered by the
Plans may also include other expenses the Distributor (or any other person) may
incur in connection with the distribution of the Fund's Shares including,
without limitation, expenditures for telephone facilities and in-house
telemarketing, or, in the case of the Series A Plan, in connection with
shareholder servicing.
Payments under the Series A Plan will not exceed .55% (annualized) of the
average daily net asset value of each Portfolio's outstanding Series A Shares.
Service Organizations may charge their clients additional fees for account
services. Customers who are beneficial owners of Series A Shares should read
this Prospectus in light of the terms and fees governing their accounts with
Service Organizations. The NASD has adopted rules which generally limit the
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aggregate sales charges and payments under the Series A Plan with respect to
each Portfolio to 7.25% of total new gross Series A Share sales, plus interest.
The Fund would retain any deferred front-end sales charges collected and stop
accruing payments under the Series A Plan if, to the extent, and for as long as,
such limit would otherwise be exceeded. See "How to Purchase Shares--Purchases
of Series A Shares" for a description of the front-end sales charge.
Payments under the Series B Plan will not exceed .75% (annualized) of the
average daily net asset value of each Portfolio's outstanding Series B Shares.
Service Organizations may charge their clients additional fees for account
services. Customers who are beneficial owners of Series B Shares should read
this Prospectus in light of the terms and fees governing their accounts with
Service Organizations. Under applicable NASD rules, the aggregate deferred sales
charges and payments under the Series B Plan are generally limited with respect
to each Portfolio to 6.25% of total new gross Series B Share sales, plus
interest. The Fund would retain any deferred sales charges collected and stop
accruing payments under the Series B Plan if, to the extent, and for as long as,
such limit would otherwise be exceeded. See "How to Purchase Shares--Purchases
of Series B Shares" for a description of the deferred sales charge.
Payments under the Plans which are expenses of a Portfolio's Investor
Shares are for distribution and/or other services rendered for or on behalf of
the Investor Shares of such Portfolio. However, joint distribution financing
with respect to Shares of the Portfolios (which financing may also involve other
investment portfolios or companies that are affiliated persons of such a person,
or affiliated persons of the Distributor) will be permitted in accordance with
applicable regulations of the SEC if and when such regulations are adopted.
If in any month the Distributor expends more monies than are immediately
payable under the Plans because of the percentage limitations described above
(or, due to any expense limitation imposed on a Portfolio, monies otherwise
payable by a Portfolio to the Distributor under the Plans are rendered
uncollectible), the unpaid expenditure may be "carried forward" from month to
month until such time, if ever, as it may be paid. In addition, payments to
Service Organizations (which may include the adviser and sub-advisers and their
affiliates) are not tied directly to the Service Organizations' own
out-of-pocket expenses and therefore may be used as they elect (for example, to
defray their overhead expenses). See "Description of Shares."
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund intends to enter into service agreements 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 Shares. Such
services will be provided to customers who are the beneficial owners of Series B
Shares and are intended to supplement the services provided by the Fund's
Administrators and transfer agent. In consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Series B 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
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<PAGE> 195
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 "Institutional Shares"). See
"Description of Shares." Customers who are beneficial owners of Series B Shares
should read this Prospectus in light of the terms and fees governing their
accounts with Service Organizations.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares in the Portfolios may be purchased through PNC Bank, PNC Bank Ohio,
institutional investors and Authorized Dealers, or by completing and forwarding
the application included in this Prospectus, through any one of them, to the
Fund's transfer agent. Subsequent purchases of Shares may be effected through
PNC Bank, PNC Bank Ohio, institutional investors and Authorized Dealers or by
mailing a check or Federal Reserve Draft, payable to the order of "The PNC Fund"
c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. The name of the
Portfolio for which Shares are being purchased must also appear on the check or
Federal Reserve Draft. Federal Reserve Drafts are available at national banks or
any state bank which is a member of the Federal Reserve System. Initial
investments in any Portfolio must be at least $500, except that such minimum
investment requirement is: (i) $100 for employees of the Fund, the Fund's
adviser, sub-advisers, Distributor or transfer agent or employees of any such
service providers' affiliate; and (ii) $50 for investors purchasing shares under
the automatic investing program described in "Investor Programs--Automatic
Investing." Subsequent investments must be at least $100. The Fund reserves the
right to reject any purchase order. Certificates for Series A Shares will be
issued only upon request. No certificates will be issued for Series B Shares.
Investor Shares may be purchased on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open for business.
Investor Shares are sold at the applicable offering price next computed
after an order is received by the Fund's transfer agent. It is the
responsibility of the Distributor, PNC Bank, PNC Bank Ohio, institutional
investors and the Authorized Dealers to transmit orders received by them from
investors to the Fund's transfer agent in a timely manner. Orders of less than
$500 may be mailed by PNC Bank, PNC Bank Ohio, institutional investors and
Authorized Dealers to the transfer agent. Orders received by the Fund's transfer
agent after 4:00 p.m. are priced at the applicable offering price on the
following Business Day.
ALTERNATIVE PURCHASE OPTIONS
Purchases of Investor Shares of the Portfolios are subject to a sales
charge. Purchases of Series A Shares are subject to a "front-end" sales charge
deducted at the time of purchase. Series B Shares are subject to a deferred or
"back-end" sales charge which is deducted upon their redemption. The deferred
sales charge applicable to purchases of Series B Shares declines over time and
is known as a "contingent deferred sales charge." Investors may elect to have
the sales charge applicable to their purchase of Shares deducted at the time of
purchase by purchasing Series A Shares. Alternatively, investors may elect to
have the sales charge applicable to their purchase of Shares deducted upon their
redemption by purchasing Series B Shares. INVESTORS WHO PURCHASE SHARES OF THE
PORTFOLIOS MUST SPECIFY AT THE TIME OF PURCHASE WHETHER THEY ARE PURCHASING
SERIES A SHARES OR SERIES B SHARES.
41
<PAGE> 196
EXEMPTIONS FROM THE FRONT-END SALES CHARGE. The following persons
associated with the Fund, the Distributor, the Fund's investment adviser,
sub-advisers or transfer agent and affiliates of any of the above may buy Series
A Shares without paying a sales charge to the extent permitted by such firms:
(a) officers, directors and partners (and their spouses and minor children); (b)
full-time employees and retirees (and their spouses and minor children); (c)
registered representatives of Authorized Dealers and of the Distributor; (d)
spouses or children of any such persons; (e) any trust, pension, profit-sharing
or other benefit plan for any of the persons set forth in (a) through (d). The
following persons may also buy Series A Shares without paying a sales charge:
(a) persons investing through an authorized payroll deductions plan; (b) persons
investing through an authorized investment plan for organizations which operate
under Section 501(c)(3) of the Internal Revenue Code; and (c) registered
investment advisers, trust companies and bank trust departments exercising
discretionary investment authority with respect to amounts to be invested in a
Portfolio, provided that the aggregate amount invested pursuant to this
exemption equals at least $250,000. INVESTORS WHO QUALIFY FOR ANY EXEMPTION FROM
THE SALES CHARGE ORDINARILY PAYABLE WITH RESPECT TO PURCHASES OF INVESTOR SHARES
MUST PURCHASE SERIES A SHARES.
CHOOSING BETWEEN SERIES A SHARES AND SERIES B SHARES
Investors should understand the differences between Series A Shares and
Series B Shares before purchasing Shares of the Portfolios.
SERIES A SHARES. Series A Shares are sold at the net asset value for Series
A Shares of the Portfolios plus the applicable front-end sales charge. This
front-end sales charge may be reduced or waived in some cases. See "How to
Purchase Shares--Exemptions from the Sales Charge" and "How to Purchase
Shares--Purchases of Series A Shares." Series A Shares bear the expense of
payments under the Distribution and Service Plan at an annual rate not to exceed
.55% of the average daily net asset value of each Portfolio's outstanding Series
A Investor Shares. See "Distribution of Shares."
SERIES B SHARES. Series B Shares are sold at the net asset value for Series
B Shares of the Portfolios. A deferred sales charge is deducted if Series B
Shares are redeemed within six years of purchase. The deferred sales charge
deducted upon the redemption of Series B Shares decreases over time. See "How to
Purchase Shares--Purchases of Series B Shares." Series B Shares bear the expense
of payments under the Series B Distribution Plan at an annual rate not to exceed
.75% of the average daily net asset value of each Portfolio's outstanding Series
B Investor Shares. See "Distribution of Shares." Series B Shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of
each Portfolio's outstanding Series B Shares. See "Shareholder Servicing." If
payments under the Distribution and Service Plan for Series A Shares and
payments under the Series B Distribution and Series B Service Plans are made at
the maximum rates, then Series B Shares of a Portfolio will have higher
operating expenses and will pay lower dividends than Series A Shares of the same
Portfolio.
Six years after the date of purchase, Series B Shares will automatically
convert to Series A Shares. The purpose of the conversion is to relieve the
holders of Series B Shares of the higher operating expenses charged to Series B
Shares. The conversion from Series B Shares to Series A Shares will take place
at the net asset value of each class of Shares at the time of the conversion.
Upon such conversion, an investor would hold Series A Shares subject to the
operating expenses for Series A Shares discussed above. Upon each conversion of
Series B Shares that were not acquired through reinvestment of dividends or
distributions, a proportionate amount of Series B Shares that were acquired
through reinvestment of dividends or distributions will likewise automatically
convert to Series A Shares.
FACTORS TO CONSIDER IN CHOOSING BETWEEN SERIES A SHARES AND SERIES B
SHARES. Before deciding between Series A Shares and Series B Shares of a
Portfolio, an investor should carefully consider the amount and intended length
of his investment in Investor Shares. Specifically, an investor should consider
whether the accumulated distribution and servicing fees and the deferred sales
charge applicable to Series B Shares would be less than the front-
42
<PAGE> 197
end sales charge and accumulated distribution fees applicable to Series A Shares
purchased at the same time and held for the same period, and the extent to which
the difference between those amounts would be offset by the higher returns
associated with Series A Shares. Because the operating expenses of Series B
Shares are greater than those of Series A Shares in the same Portfolio, the
dividends on Series A Shares will be higher than the dividends on Series B
Shares. However, since a front-end sales charge is deducted at the time of
purchase of Series A Shares, not all of the purchase amount will purchase Series
A Shares. Consequently, the same initial investment will purchase more Series B
Shares than Series A Shares of the same Portfolio.
Because of reductions in the front-end sales charge for purchases of Series
A Shares aggregating $50,000 or more, it may be advantageous for investors
purchasing large quantities of Investor Shares to purchase Series A Shares. In
any event, the Fund will not accept any purchase order for $1 million or more of
Series B Shares. In addition, because the accumulated higher operating expenses
of Series B Shares may eventually exceed the amount of the front-end sales
charge and distribution fees associated with Series A Shares, investors who
intend to hold their Investor Shares for an extended period of time should
consider purchasing Series A Shares.
Investors who would not qualify for a reduction in the front-end sales
charge for purchases of Series A Shares may decide that it is more advantageous
to have the entire purchase amount invested immediately in Series B Shares
notwithstanding the higher operating expenses associated with Series B Shares.
These higher operating expenses may be offset by any return an investor receives
from the additional Investor Shares received as a result of not having to pay a
front-end sales charge. However, investors should understand that a Portfolio's
future return cannot be predicted, and that there is no assurance that such
return, if any, would compensate for the higher operating expenses associated
with Series B Shares.
PURCHASES OF SERIES A SHARES
Series A Investor Shares are sold at their public offering price (i.e., net
asset value of the Series A Shares plus the applicable front-end sales charge)
next computed after a purchase order is received by the Fund's transfer agent.
The following table shows sales charges at various investment levels. Sales
charges are reduced on a graduated scale on single purchases of $50,000 or more.
During special promotions, the entire sales charge may be reallowed to dealers.
In addition, certain dealers who enter into an agreement to provide extra
training and information on products, or marketing and related services, and who
increase sales of Shares may also receive additional payments from the
Distributor. Dealers who receive 90% or more of the sales charge may be deemed
to be "underwriters" under the 1933 Act.
43
<PAGE> 198
<TABLE>
<CAPTION>
REALLOWANCE
OR
SALES SALES PLACEMENT
CHARGE AS CHARGE AS FEES
PERCENTAGE PERCENTAGE TO DEALERS
OF OF (AS % OF
AMOUNT OF TRANSACTION OFFERING NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE)
- ----------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Less than $50,000................................................ 4.50% 4.71% 4.00%
$50,000 but less than $75,000.................................... 3.50 3.63 3.00
$75,000 but less than $100,000................................... 3.00 3.09 2.50
$100,000 but less than $250,000.................................. 2.50 2.56 2.00
$250,000 but less than $500,000.................................. 1.50 1.52 1.25
$500,000 but less than $1,000,000................................ 1.00 1.01 0.75
$1,000,000 but less than $2,000,000.............................. 0.00 0.00 0.50*
$2,000,000 and over.............................................. 0.00 0.00 0.25*
</TABLE>
- ------------------
* Placement fees the Distributor may pay to dealers, provided the aggregate of
such fees (including placement fees described below payable to dealers in
connection with investments of redemption proceeds from other investment
companies) does not exceed the aggregate amount of front-end sales charges,
net of dealer reallowances, on Fund shares subject to a front-end sales
charge. Dealers must refund a pro-rata portion of such fee if the Series A
Shares are redeemed within six months.
The foregoing schedule of sales charges applies to purchases made at any
one time by the following: (a) any individual; (b) any individual, his or her
spouse, and their children under the age of 21; (c) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (d) any organized group
which has been in existence for more than six months, provided that it is not
organized for the purpose of buying redeemable securities of a registered
investment company, and provided that the purchase is made through a central
administrator, or through a single dealer, or by other means which result in
economy of sales effort or expense. An organized group does not include a group
of individuals whose sole organizational connection is participation as credit
card holders of a company, policyholders of an insurance company, customers of
either a bank or broker/dealer or clients of an investment adviser. Purchases
made by an organized group may include, for example, a trustee or other
fiduciary purchasing for a single fiduciary account or other employee benefit
plan purchases made through a payroll deduction plan.
The sales charge (as a percentage of the offering price) payable by
qualified employee benefit plans ("Qualified Plans") having at least 20
employees eligible to participate on purchases of Series A Investor Shares of
the Portfolios aggregating less than $500,000 will be 1.00%. The above schedule
will apply to purchases by those Qualified Plans of Series A Investor Shares of
the Portfolios aggregating $500,000 and above. The effect of this policy is to
make the sales load 1.00% for purchases by such Qualified Plans of Series A
Investor Shares of the Portfolios aggregating less than $1,000,000, while no
sales charge applies to purchases aggregating $1,000,000 and above. The sales
charge payable by Qualified Plans having less than 20 employees eligible to
participate on purchases of Series A Investor Shares of the Portfolios
aggregating less than $100,000 will be 2.50%. The above schedule will apply to
purchases by such Qualified Plans of Series A Investor Shares aggregating
$100,000 and above. The effect of this policy is to make the maximum sales load
2.50% for purchases of Series A Investor Shares of the Portfolios by Qualified
Plans with less than 20 employees eligible to participate. Such Qualified Plans
may take advantage of the lower sales charges set forth in the above schedule by
purchasing Series A Investor Shares of the Portfolios aggregating $250,000 and
above.
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<PAGE> 199
REDUCING THE FRONT-END SALES CHARGE
The foregoing schedule applies to single purchases, concurrent purchases of
shares of two or more of the Fund's portfolios offered with a front-end sales
charge, and to purchases made pursuant to the Right of Accumulation or under a
Letter of Intent, which are described below.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value
of an investor's existing Series A Shares in any of the Fund's portfolios
subject to a front-end sales charge may be combined with the amount of the
investor's current purchase in determining the front-end sales charge. IN ORDER
TO RECEIVE THE CUMULATIVE QUANTITY REDUCTION, PREVIOUS PURCHASES OF SERIES A
SHARES MUST BE CALLED TO THE ATTENTION OF THE FUND'S TRANSFER AGENT BY THE
INVESTOR AT THE TIME OF THE CURRENT PURCHASE.
REINVESTMENT PRIVILEGE. An investor may also purchase Series A Shares of a
Portfolio at net asset value, without a sales charge, if the investor has
redeemed his Series A Shares in that Portfolio within the previous 45 days. The
amount which may be so reinvested is limited to the amount of the redemption
proceeds. If the investor has realized a gain on the redemption, the transaction
is taxable and reinvestment will not alter any taxes payable. If there has been
a loss on the redemption and a subsequent reinvestment pursuant to this
privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although amounts disallowed are, for tax
purposes, added to the cost of the Series A Shares acquired upon the
reinvestment. The reinvestment privilege may be exercised only once.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Series A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of any other investment
company which were sold with a sales charge or commission. (This does not
include shares of an affiliated mutual fund which were or would be subject to a
contingent deferred sales charge upon redemption.) Such purchases must be made
within 60 days of the redemption, and the Fund must be notified by the investor
in writing, or by his financial institution, at the time the purchase of Series
A Shares is made. The Distributor will offer to pay dealers a placement fee of
.25% of the net asset value of Series A Shares purchased by their clients or
customers in this manner, provided the aggregate of such fees (including
placement fees described above payable to dealers in connection with purchases
of Series A Shares aggregating $1 million or more) does not exceed the
aggregate amount of sales charges, net of dealer reallowances, on Series A
Shares subject to a sales charge. Dealers must refund a pro-rata portion of
such fee if the Series A Shares are redeemed within six months.
LETTER OF INTENT. An investor may qualify for a reduced sales charge
immediately by signing a nonbinding Letter of Intent stating the investor's
intention to invest during the next 13 months a specified amount in Series A
Shares which, if made at one time, would qualify for a reduced sales charge. The
Letter of Intent may be signed at any time within 90 days after the first
investment to be included in the Letter of Intent. The initial investment must
meet the minimum initial investment requirement and represent at least 5% of the
total intended investment. THE INVESTOR MUST INSTRUCT THE TRANSFER AGENT UPON
MAKING SUBSEQUENT PURCHASES THAT SUCH PURCHASES ARE SUBJECT TO A LETTER OF
INTENT. All dividends and capital gains of a Portfolio that are invested in
additional Series A Shares of the same Portfolio are applied to the Letter of
Intent.
During the term of a Letter of Intent, the Fund's transfer agent will hold
Series A Shares representing 5% of the indicated amount in escrow for payment of
a higher sales load if the full amount indicated in the Letter of Intent is not
purchased. These Series A Shares held in escrow will be registered in the
shareholder's name and will continue to earn any dividends and capital gains
paid by a Portfolio. The escrowed Series A Shares will be released when the full
amount indicated has been purchased. Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed.
45
<PAGE> 200
If the full amount indicated is not purchased within the 13-month period,
the investor will be required to pay an amount equal to the difference between
the sales charge actually paid and the sales charge the investor would have had
to pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the
expiration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Series A
Shares held in escrow to realize the difference.
PURCHASES OF SERIES B SHARES
Series B Investor Shares are sold at their net asset value next computed
after a purchase order is received by the Fund's transfer agent. Although
investors pay no front-end sales charge on purchases of Series B Shares, Series
B Shares are subject to a deferred sales charge at the rates set forth in the
chart below if they are redeemed within six years of purchase. Service
Organizations will receive commissions from the Distributor in connection with
sales of Series B Shares. These commissions may be different than the
reallowances or placement fees paid to dealers in connection with sales of
Series A Shares. The deferred sales charge on Series B Shares is based on the
lesser of the net asset value of the Series B Shares on the redemption date or
the original cost of the Series B Shares being redeemed. As a result, no sales
charge is charged on any increase in the principal value of an investor's Series
B Shares.
The amount of any contingent deferred sales charge an investor must pay on
Series B Shares depends on the number of years that elapse between the purchase
date and the date such Series B Shares are redeemed.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ------------------------------------------------------------------------- ---------------------------
<S> <C>
Less than one............................................................ 5.0%
More than one, but less than two......................................... 4.0%
More than two, but less than three....................................... 3.0%
More than three, but less than four...................................... 3.0%
More than four, but less than five....................................... 2.0%
More than five, but less than six........................................ 1.0%
After six years.......................................................... None
</TABLE>
When an investor redeems his Series B Shares, the redemption order is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. Series B Shares are redeemed first from those Series B Shares
that are not subject to the deferred sales load (i.e., Series B Shares that were
acquired through reinvestment of dividends or distributions) and after that from
the Series B Shares that have been held the longest.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent
deferred sales charge on Series B Shares is not charged in connection with: (1)
exchanges described in "Investor Programs--Exchange Privilege;" (2) redemptions
made in connection with minimum required distributions from IRA, 403(b)(7) and
Qualified Plan accounts due to the shareholder reaching age 70 1/2; (3)
redemptions in connection with a shareholder's death or disability (as defined
in the Internal Revenue Code) subsequent to the purchase of Series B Shares; and
(4) involuntary redemptions of Series B Shares in accounts with low balances as
described in "How to Redeem Shares--Accounts With Low Balances." In addition, no
contingent deferred sales charge is charged on Series B Shares acquired through
the reinvestment of dividends or distributions.
46
<PAGE> 201
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
REDEMPTION
Shareholders may redeem for cash some or all of their Shares of the
Portfolios at any time. To do so, a written request in proper form must be sent
directly to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907. Except for the contingent deferred sales charge that may be charged
with respect to Series B Shares, there is no charge for a redemption.
Shareholders may also place redemption requests through an Authorized Dealer,
but the Authorized Dealer might charge a fee for this service.
WHEN REDEEMING INVESTOR SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD
INDICATE WHETHER THEY ARE REDEEMING SERIES A SHARES OR SERIES B SHARES. In the
event a redeeming shareholder owns both Series A Shares and Series B Shares in
the same Portfolio, the Series A Shares will be redeemed first unless the
shareholder indicates otherwise.
Except as noted below, a request for redemption must be signed by all
persons in whose names the Shares are registered. Signatures must conform
exactly to the account registration. If the proceeds of the redemption would
exceed $25,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the shareholder is a corporation, partnership, trust or
fiduciary, signature(s) must be guaranteed by any eligible guarantor institution
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions generally include banks, broker/dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding Series A
Share certificates, the certificates for the Series A Shares being redeemed must
accompany the redemption request. Additional documentary evidence of authority
is required by PFPC in the event redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator.
EXPEDITED REDEMPTIONS
If a shareholder has given authorization for expedited redemption, Shares
can be redeemed by telephone and the proceeds sent by check to the shareholder
or by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone at
(800) 441-7762 (in Delaware call collect (302) 791-1194) or other means. The
minimum amount that may be sent by check is $500, while the minimum amount that
may be wired is $10,000. The Fund reserves the right to change these minimums or
to terminate these redemption privileges. If the proceeds of a redemption would
exceed $25,000, the redemption request must be in writing and will be subject to
the signature guarantee requirement described above in "How to Redeem Shares--
Redemption." This privilege may not be used to redeem Series A Shares in
certificated form.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If a shareholder is unable to contact
the transfer agent by telephone, the shareholder may also deliver the redemption
request to the transfer agent by mail at PFPC Inc., P.O. Box 8907, Wilmington,
DE 19899-8907.
The Fund is not responsible for the efficiency of the Federal wire system
or the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. To change the name of the single designated bank account to
receive wire redemption proceeds, it is necessary to send a written request
(with a guaranteed signature as described under "How to Redeem
Shares--Redemption") to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington,
Delaware 19899-8907.
47
<PAGE> 202
The Fund reserves the right to refuse a telephone redemption if it believes
it advisable to do so. The Fund, the Administrators and the Distributor will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions reasonably believed to be genuine. See "Investor Programs--Exchange
Privilege" for a description of the Fund's policy on telephone instructions. For
further information, see "How to Redeem Shares--Payment of Redemption Proceeds."
ACCOUNTS WITH LOW BALANCES
The Fund reserves the right to redeem a shareholder's account in any
Portfolio at any time the net asset value of the account in such Portfolio falls
below the minimum initial investment requirement amount as the result of a
redemption or an exchange request. A shareholder will be notified in writing
that the value of the shareholder's account in a Portfolio is less than the
required amount and will be allowed 30 days to make additional investments
before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS
The redemption price for Series A and Series B Shares of a Portfolio is the
net asset value per share of the Series A and Series B Shares, respectively, of
the Portfolio next determined after the request for redemption is received in
proper form by The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907. Proceeds from the redemption of Series B Shares will be reduced by
the amount of any applicable contingent deferred sales charge. Payment for
Shares redeemed is made by check mailed within seven days after acceptance by
PFPC of the request and any other necessary documents in proper order. Such
payment may be postponed or the right of redemption suspended as provided by the
rules of the SEC. If the Shares to be redeemed have been recently purchased by
check, the Fund's transfer agent may delay the payment of redemption proceeds,
which may be a period of up to 15 days after the purchase date, pending a
determination that the check has cleared.
INVESTOR PROGRAMS
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
After appropriate authorization, a shareholder may exchange, without a
sales charge, Series A Investor Shares and Series B Investor Shares of a
Portfolio for Series A Investor Shares and Series B Investor Shares,
respectively, of any other investment portfolio of the Fund at the net asset
value of each class of shares next determined after the transfer agent's receipt
of a request for an exchange. Series B Shares are exchangeable without the
payment of any contingent deferred sales charge at the time the exchange is
made. In determining the holding period for calculating the contingent deferred
sales charge payable on redemptions of Series B Shares, the holding period of
the Series B Shares originally held will be added to the holding period of the
Series B Shares acquired through the exchange. Series B 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.
No exchange fee is imposed by the Fund. The public offering of Series B Investor
Shares in certain investment portfolios of the Fund may not commence on the date
of this Prospectus. Prospectuses for the other portfolios of the Fund and
information on the availability of Series B Investor Shares of such portfolios
can be obtained by calling the Fund's Distributor at (800) 422-6538.
A shareholder wishing to make an exchange may do so by sending a written
request to PFPC at the address given above in "How to Purchase Shares--General."
Shareholders are automatically provided with telephone exchange privileges when
opening an account, unless they indicate on the Application that they do not
wish to use this privilege.
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Shareholders holding share certificates are not eligible to exchange Series A
Shares by phone because share certificates must accompany all exchange requests.
To add this feature to an existing account that previously did not provide for
this option, a Telephone Exchange Authorization Form must be filed with PFPC.
This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone at (800) 441-7762 (in Delaware
call collect (302) 791-1194) to request the exchange. During periods of
substantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to PFPC in
writing.
If the exchanging shareholder does not currently own shares of the
investment portfolio whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as defined above. In order to
participate in the automatic investment program or establish a systematic
withdrawal plan for the new account, however, an exchanging shareholder must
file a specific written request. The exchange privilege may be modified or
terminated at any time, or from time to time, by the Fund on 60 days' notice to
affected Portfolio shareholders. THE FUND, 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).
In establishing a new account by exchange, the dollar value of shares
acquired must equal or exceed the investment portfolio's minimum for a new
account; if making an exchange to an existing account, the dollar value must
equal or exceed the Fund's minimum for subsequent investments. If any amount
remains in the investment portfolio from which the exchange is being made, such
amount must not drop below the minimum account value required by the Fund.
AUTOMATIC INVESTING
Investments in Shares may be made automatically by authorizing the Fund's
transfer agent to withdraw funds from your bank account. An initial minimum
investment of $50 per Portfolio, and subsequent investments of at least $50, are
required. Investors desiring to participate in the automatic investing program
should call PFPC at (800) 441-7762 (in Delaware call collect (302) 791-1194) to
obtain the appropriate forms.
RETIREMENT PLANS
Portfolio Shares may be purchased in conjunction with individual retirement
accounts ("IRAs") and rollover IRAs where PNC Bank or any of its affiliates acts
as custodian. For further information as to applications and annual fees,
contact the Distributor or an Authorized Dealer. To determine whether the
benefits of an IRA are available and/or appropriate, a shareholder should
consult with a tax adviser.
SYSTEMATIC WITHDRAWAL PLAN
If your account in a Portfolio has a value of at least $10,000, you may
establish a Systematic Withdrawal Plan with respect to the Portfolio and receive
regular periodic payments. A request to establish a Systematic Withdrawal Plan
must be submitted in writing to The PNC Fund c/o PFPC, P.O. Box 8907,
Wilmington, Delaware 19899-8907. Shareholders holding Series A Share
certificates are not eligible to establish a Systematic Withdrawal Plan because
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Series A Share certificates must accompany all withdrawal requests. Each
withdrawal redemption may, at the shareholder's election, be processed either
monthly, every other month, quarterly, three times a year, semi-annually or
annually on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance; the minimum amount
that you may withdraw each period is $100. (This is merely the minimum amount
allowed and should not be mistaken for a recommended amount.) THE AMOUNT OF
REGULAR PERIODIC PAYMENTS SPECIFIED BY HOLDERS OF SERIES B SHARES PURSUANT TO A
SYSTEMATIC WITHDRAWAL PLAN WILL BE REDUCED BY ANY APPLICABLE DEFERRED SALES
CHARGE. The holder of a Systematic Withdrawal Plan will have any income
dividends and any capital gains distributions reinvested in full and fractional
Shares at net asset value. To provide funds for payment, Shares of the Portfolio
involved will be redeemed in such amount as is necessary to make the payment.
Redemption of Shares may reduce or possibly exhaust the Shares in your account,
particularly in the event of a market decline. As with other redemptions, a
redemption to make a withdrawal payment is a sale for Federal income tax
purposes. Payments made pursuant to a Systematic Withdrawal Plan cannot be
considered as actual yield or income since part of such payments may be a return
of capital.
The maintenance of a Systematic Withdrawal Plan for a Portfolio
concurrently with purchases of additional Shares of that Portfolio may be
disadvantageous because of the sales commission involved in the additional
purchases. You will ordinarily not be allowed to make additional investments of
less than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the Systematic Withdrawal Plan in effect and, while a
Systematic Withdrawal Plan is in effect, you may not make periodic investments
under Automatic Investing. THE MAINTENANCE OF A SYSTEMATIC WITHDRAWAL PLAN MAY
ALSO BE DISADVANTAGEOUS FOR HOLDERS OF SERIES B SHARES DUE TO THE EFFECT OF THE
CONTINGENT DEFERRED SALES CHARGE. You will receive a confirmation of each
transaction showing the sources of the payment and the Share and cash balance
remaining in your Systematic Withdrawal Plan. The Systematic Withdrawal Plan may
be terminated on written notice by the shareholder or by the Fund with respect
to the applicable Portfolio and it will terminate automatically if all Shares
are liquidated or withdrawn from the account or upon the death or incapacity of
the shareholder. You may change the amount and schedule of withdrawal payments
or suspend such payments by giving written notice to PFPC at least seven
business days prior to the end of the month preceding a scheduled payment.
NET ASSET VALUE
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The net asset value for each Series A Share and each Series B 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 Series A and Series B Shares,
respectively, subtracting the liabilities allocable to its Series A and Series B
Shares, respectively, and dividing by the respective total number of Series A
and Series B Shares outstanding. The net asset values per Series A Share and per
Series B Share of each Portfolio are determined independently of the Portfolio's
other classes and independently of the Fund's other portfolios. Because the
operating expenses of Series B Shares are higher than those associated with
Series A Shares, the net asset value per Series A Share of a Portfolio will
generally be higher than the net asset value per Series B Share of the same
Portfolio.
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
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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
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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 Series A Shares and Series B Shares will be
reduced by the amount of other expenses allocated to such respective series of
that Portfolio's Investor Shares, including: i) fees payable under the Fund's
Distribution and Service Plan in the case of the Series A Shares; and ii) fees
payable under the Series B Distribution Plan and the Series B Service Plan in
the case of the Series B Shares. 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-Term Bond Portfolios, within
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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
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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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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. Generally, a shareholder may include sales charges incurred upon the
purchase of Portfolio Shares in his tax basis for such Shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such Shares.
However, if the shareholder effects an exchange of such Shares for Shares of
another Portfolio within 90 days of the purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the Fund's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged Shares but may be included (subject to the
same limitation) in the tax basis of the new Shares.
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, municipal 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
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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.
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 "Series A Investor Shares," "Service
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
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to all investors until the subsequent establishment of multiple classes in the
Portfolio. In addition, the Board of Trustees has authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Fund. For information regarding these other portfolios,
contact the Distributor by phone at (800) 998-7633 or at the address listed in
"Distribution of Shares."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Holders of Series A Investor Shares bear the fees described under
"Distribution of Shares" that are paid to the Distributor under the Fund's
Distribution and Service Plan. Holders of Series B Investor Shares bear the fees
described under "Distribution of Shares" that are paid to the Distributor under
the Series B Distribution Plan and the fees described under "Shareholder
Servicing" relating to the Series B Service Plan. Similarly, holders of a
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that are paid under the Fund's Service Plan. Payments under the
Service Plan will cover expenses relating to the support services provided to
beneficial owners of Service Shares by certain institutions. Such services are
intended to supplement the services provided by the Fund's Administrators and
transfer agent to the Fund's shareholders of record. In consideration for
payment of up to .15% (on an annualized basis) of the average daily net asset
value of Service Shares owned beneficially by their customers, institutions may
provide one or more of the following services to such customers: processing
purchase and redemption requests from customers and placing orders with the
Fund's transfer agent or the Distributor; processing dividend payments from the
Fund on behalf of customers; providing sub-accounting with respect to Service
Shares beneficially owned by customers or the information necessary for
sub-accounting; and other similar services. In consideration for payment of a
service fee of up to a separate .15% (on an annualized basis) of the average
daily net asset value of Service Shares owned beneficially by their customers,
institutions may provide one or more of these additional services to such
customers: responding to customer inquiries relating to the services performed
by the institution and to customer inquiries concerning their investments in
Service Shares; providing information periodically to customers showing their
positions in Service Shares; and other similar shareholder liaison services.
Institutional Shares bear no shareholder servicing or distribution fees. As a
result of these different fees, the net 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
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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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INVESTOR SHARES AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS PERTAINING TO THE INVESTOR SHARES.
OTHER INFORMATION
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REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports and annual
financial statements audited by independent accountants. Shareholder inquiries
should be addressed to the Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907, toll-free (800) 422-6538.
PERFORMANCE INFORMATION
From time to time, total return and yield data for Series A Shares and
Series B 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 of the
same series, and also reflects the maximum sales load charged by the Portfolio.
When, however, a Portfolio compares the total return of Shares to that of other
funds or relevant indexes, such total return may also be computed without
reflecting the sales load so long as the sales load is stated separately in
connection with the comparison.
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 maximum offering price 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 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
56
<PAGE> 211
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 Series A Shares and Series B 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 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.
57
<PAGE> 212
- -----------------------------------------------------
- -----------------------------------------------------
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............................. 8
Investment Policies.............................. 20
Investment Limitations........................... 34
Management....................................... 35
Distribution of Shares........................... 39
Shareholder Servicing............................ 40
How to Purchase Shares........................... 41
How to Redeem Shares............................. 47
Investor Programs................................ 48
Net Asset Value.................................. 50
Dividends and Distributions...................... 51
Taxes............................................ 52
Description of Shares............................ 54
Other Information................................ 56
</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 TAX-FREE INCOME, MANAGED INCOME,
INTERMEDIATE GOVERNMENT, 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
PNCR-P-002
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
[A R T]
THE PNC(R) FUND
THE FIXED INCOME
PORTFOLIOS
INVESTOR 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> 213
This is your
APPLICATION
Detach and Mail to:
PFPC
ATTN: The PNC(R) Fund
P.O. Box 8907
Wilmington, Delaware 19899-8907
FOR ASSISTANCE IN COMPLETING THIS APPLICATION, CALL
THE PNC FUND AT (800) 422-6538.
THE PNC(R) FUND--NEW ACCOUNT APPLICATION
Mail completed application to: PFPC--Attention: The PNC Fund, P.O. Box 8907,
Wilmington, Delaware 19899-8907 .
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
- --------------- PLEASE PRINT / / Individual
1 ------------------------------------------------------------------------------------- / / Joint Tenant
Registration Owner Social Security Number/Tax Identification Number / / Custodian
- --------------- / / UGMA (state)
/ / Trust
------------------------------------------------------------------------------------- / / Corporation
Co-owner*, minor, trust Social Security Number/Tax Identification Number / / Other
------------------------------------------------------------------------------------------------
Street Address
------------------------------------------------------------------------------------------------
City State Zip Code
------------------------------------------------------------------------------------------------
Telephone Number (Day) (Evening)
Citizen(s) of / / USA or / / other, please specify
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
*For joint registration, both must sign the application in section 5. The registration will be
as joint tenants with the right of survivorship and not as tenants in common, unless
otherwise stated.
</TABLE>
<PAGE> 214
<TABLE>
<S> <C>
- ------------ --------------------------------------------------------------------------------------------------------
2 Enclosed is my check for $___________ (minimum of $500 per Portfolio except the minimum is $100 per
Investments Portfolio for employees
- ------------ of the Fund, the Fund's adviser, sub-advisers, distributor or transfer agent or employees of any such
service provider's affiliate)
made payable to "The PNC Fund."
MANAGED INCOME PORTFOLIO (022) $ ____________ NAGED INCOME PORTFOLIO (047) $ _________
(SERIES A SHARES) (SERIES B SHARES)
TAX-FREE INCOME PORTFOLIO (024) $ ____________ TAX-FREE INCOME PORTFOLIO (048) $ _________
(SERIES A SHARES) (SERIES B SHARES)
INTERMEDIATE GOVERNMENT PORTFOLIO (028) $ ____________ INTERMEDIATE GOVERNMENT PORTFOLIO (049) $ _________
(SERIES A SHARES) (SERIES B SHARES)
OHIO TAX-FREE INCOME PORTFOLIO (014) $ ____________ OHIO TAX-FREE INCOME PORTFOLIO (040) $ _________
(SERIES A SHARES) (SERIES B SHARES)
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (015)$ ____________ PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (041) $ _________
(SERIES A SHARES) (SERIES B SHARES)
SHORT-TERM BOND PORTFOLIO (016) $ ____________ SHORT-TERM BOND PORTFOLIO (042) $ _________
(SERIES A SHARES) (SERIES B SHARES)
INTERMEDIATE-TERM BOND PORTFOLIO (017) $ ____________ INTERMEDIATE-TERM BOND PORTFOLIO (043) $ _________
(SERIES A SHARES) (SERIES B SHARES)
INTERNATIONAL FIXED INCOME PORTFOLIO (001) $ ____________ INTERNATIONAL FIXED INCOME PORTFOLIO (045) $ _________
(SERIES A SHARES) (SERIES B SHARES)
GOVERNMENT INCOME PORTFOLIO (018) $ ____________ GOVERNMENT INCOME PORTFOLIO (044) $ _________
(SERIES A SHARES) (SERIES B SHARES)
SERIES A INVESTOR SHARES ARE SUBJECT TO A FRONT-END SALES CHARGE AND SERIES B INVESTOR SHARES ARE
SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE.
- ------------ --------------------------------------------------------------------------------------------------------
3 A. DIVIDEND ELECTION
Options Unless you elect otherwise, all dividends and capital gains distributions will be automatically
- ------------ reinvested in additional shares. If you prefer to be paid in cash each month, check the appropriate box
below.
Dividends: / / pay in cash / / reinvest
Capital Gains: / / pay in cash / / reinvest
If you elect to be paid in cash, you must check one of the boxes below. If you do not check any box your
distribution will be paid by check to the address of record.
</TABLE>
/ / I request the above distributions be sent by check to the address of
record.
/ / I request the above distributions be sent by check to the special payee
whose address is specified below:
Name of Bank or Individual__________Bank Account # (if applicable)________
Street Address______________ City_____________ State_____ Zip_____________
/ / I request the above distributions to be sent electronically to my
financial institution as specified below:
Name on Bank Account______________________Name of Bank____________________
Account Number:________________________Type: / / Checking / / Savings
Routing Number (ABA#):__________________Bank Address _____________________
_____________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
<PAGE> 215
B. WIRE REDEMPTIONS PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT
WANTED.
The Fund or its agents are authorized to honor telephone or other instructions
from any person for the redemption of PNC Fund Shares. Proceeds are to be wire
transferred to the bank account referenced below ($10,000 minimum per
redemption). Shareholders holding share certificates are not eligible for wire
redemption.
Name of Depositor______________________________________________________________
(as shown on bank records)
Name of Bank______________ABA # _______________________Account No._____________
(a savings and loan or credit union may not be able to receive wire
redemptions)
Street Address of Bank_____________________City_____________State_____Zip______
C. SYSTEMATIC WITHDRAWAL
/ / Systematic Withdrawal Plan requires a minimum account balance of $10,000 in
shares at the current offering price. Minimum withdrawal $100. Each withdrawal
redemption will be processed on or about the 25th of the month and mailed as
soon as possible thereafter. Shareholders holding share certificates are not
eligible for the Systematic Withdrawal Plan because share certificates must
accompany all withdrawal requests.
Start(month)_______ $(amount)________ / / Monthly / / Every other Month / /
/ / Quarterly / / Semi-annually
/ / Annually
PAYMENT METHOD. Please check one of the following:
If you do not check any box your proceeds will be paid by check to the address
of record.
/ / I request the proceeds to be sent by check to my address of record.
/ / I request the proceeds to be sent by check payable to a person or
organization different than as registered.
Name of Bank or Individual:___________ Bank Account # (if applicable)__________
Street Address _______________City________________ State______Zip______________
/ / I request the proceeds to be sent electronically to my financial institution
as specified below:
Name on Bank Account:______________________ Name of Bank:______________________
Account Number:_____________________________Type: / / Checking / / Savings
Routing Number (ABA#):___________________Bank Address:_________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
D. TELEPHONE EXCHANGE IF YOU DO NOT WISH THIS PRIVILEGE, PLEASE CHECK THIS
BOX. / /
Your account will automatically provide for the telephone exchange of Series A
and Series B Shares of one Portfolio for Series A and Series B Shares,
respectively, of other investment portfolios offered by the Fund. Then, when you
wish to exchange shares, all you need to do is call (800) 441-7762. Shareholders
holding share certificates may not exchange shares by telephone. The same
registration and address will be used as is listed on this form under
"Registration." It is understood that neither PFPC nor the Fund will be liable
for any loss, liability, cost or expense for acting upon telephone exchange
requests reasonably believed to be genuine.
E. AUTOMATIC INVESTING
This program provides for investments to be made automatically by authorizing
PFPC to withdraw funds from your bank account. An initial minimum investment of
$50 per Portfolio, and subsequent investments of at least $50, are required. The
Program requires additional information so that PFPC may contact your bank to
make sure the arrangement is properly established. This may not be used with a
Systematic Withdrawal Program.
/ / CHECK HERE AND THE PROPER FORM WILL BE SENT TO YOU.
F. RIGHTS OF ACCUMULATION (SERIES A SHARES ONLY)
I apply for Rights of Accumulation reduced sales charges subject to Agent's
confirmation of the following holdings of Series A Shares in eligible load
Portfolios of The PNC Fund:
<TABLE>
<S> <C> <C>
Portfolio Shareholder Account Number
- ------------------------------------- ----------------------------------------- -----------------------------------------
- ------------------------------------- ----------------------------------------- -----------------------------------------
</TABLE>
PLEASE SEE REVERSE SIDE OF APPLICATION.
<PAGE> 216
G. LETTER OF INTENT (SERIES A SHARES ONLY)
/ / I agree to the Letter of Intent provisions of the Prospectus. Although
I am not obligated to purchase, and the Fund is not obligated to sell, I
intend to invest, over a 13 month period beginning on _____________, 19___,
an aggregate amount in The PNC Fund at least equal to (check appropriate box):
/ / $50,000 / / $75,000 / / $100,000 / / $250,000
/ / $500,000 / / $1,000,000
H. INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES
(SERIES A SHARES ONLY)
/ / I am purchasing shares of The PNC Fund with the proceeds from the
redemption of shares of another investment company which were sold with a
sales charge or commission.
To qualify for this exemption from the sales charge, purchases of shares of
The PNC Fund must be made within 60 days of the redemption. This exemption
does not apply to purchases of shares with the proceeds from the redemption
of shares of other mutual funds which were or would be subject to a
contingent deferred sales charge upon redemption.
<TABLE>
<S> <C>
- --------------- --------------------------------------------------------------------------------------------------------
4 Under penalty of perjury, I certify with my signature below that the number shown in this section of the
Taxpayer application is my correct taxpayer identification number and that I am not subject to backup withholding
Identification as a result of a failure to report all interest or dividends, or the Internal Revenue Service has
Certification notified me that I am no longer subject to backup withholding.
- ---------------
If you are subject to backup withholding, check the box in front of the following statement.
/ / The Internal Revenue Service has notified me that I am subject to backup withholding.
-------------------------------------------------------- --------------------------------------------------------
(Signature) (Signature)
-------------------------------------------------------- --------------------------------------------------------
(President, Trustee, General Partner or Agent) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
- --------------- ---------------------------------------------------------------------------------------------------------------
5
Signatures Citizenship: / / U.S. / / Other___________________________ Please provide Phone Number( ___ )_______________
- --------------- Sign below exactly as printed in Registration.
I (we) am (are) of legal age and have read the Prospectus. I (we) hereby certify that each of the persons
listed below has been duly elected, and is now legally holding the office set below his name and has the
authority to make this authorization.
Please print titles below if signing on behalf of a business or trust.
-------------------------------------------------------- --------------------------------------------------------
(Signature) (Signature)
-------------------------------------------------------- --------------------------------------------------------
(President, Trustee, General Partner or Agent) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
- --------------- ---------------------------------------------------------------------------------------------------------------
6 MUST BE COMPLETED BY DEALER
Investment ------------------------------------------- -------------------------------------------------------------
Dealer Firm Name Representative's Name (print)
- --------------- -------------------------------------------------------------
NSCC Dealer Number: Representative Number Phone Number
-------------------------------------------
Branch Street Address -------------------------------------------------------------
------------------------------------------- City State Zip
Branch Number -------------------------------------------------------------
------------------------------------------- Date
Representative's Signature
</TABLE>
FOR ASSISTANCE IN COMPLETING THIS APPLICATION CALL (800) 422-6538
<PAGE> 217
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> 218
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> 219
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> 220
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> 221
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> 222
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> 223
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> 224
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> 225
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> 226
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> 227
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> 228
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> 229
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> 230
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> 231
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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<PAGE> 232
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> 233
------------------------------------
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> 234
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> 235
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> 236
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> 237
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.
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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
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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. 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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.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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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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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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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
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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> 255
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> 256
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> 257
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> 258
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> 259
================================================================================
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> 260
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> 261
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> 262
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> 263
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> 264
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> 265
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> 266
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> 267
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> 268
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> 269
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> 270
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> 271
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> 272
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> 273
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> 274
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> 275
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.
16
<PAGE> 276
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,
17
<PAGE> 277
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."
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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
- --------------------------------------------------------------------------------
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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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
- --------------------------------------------------------------------------------
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; 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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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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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
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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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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> 290
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> 291
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.
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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> 294
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> 295
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> 296
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> 297
- -----------------------------------------------------
- -----------------------------------------------------
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> 298
THE EQUITY PORTFOLIOS
INVESTOR CLASS
The PNC(R) Fund (the "Fund") consists of twenty-five investment portfolios.
This Prospectus relates to 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.
This Prospectus relates to two classes of shares from which investors may
choose representing interests in each respective Portfolio: Series A Investor
Shares ("Series A Shares") and Series B Investor Shares ("Series B Shares" and,
collectively with Series A Shares, "Investor Shares" or "Shares"). Series A
Shares are sold with a front-end sales charge. Series B Shares are sold with a
contingent deferred sales charge. 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> 299
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. Shares are offered by the Fund's distributor to investors generally.
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> 300
EXPENSE TABLE
<TABLE>
<CAPTION>
SMALL CAP
VALUE EQUITY GROWTH EQUITY GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
SERIES A SERIES B SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge(1)
(as a percentage of offering
price)............................. 4.5% None 4.5% None 4.5% None
Sales Charge on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge(2)
(as a percentage of original
purchase price
or redemption proceeds, whichever
is lower).......................... None 5.0% None 5.0% None 5.0%
ANNUAL FUND OPERATING EXPENSES FOR
INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
Advisory fees(3)..................... .43% .43% .43% .43% .48% .48%
12b-1 fees(4)........................ .40 .75 .40 .75 .40 .75
Other operating expenses............. .32 .57 .32 .57 .32 .57
-------- -------- -------- -------- -------- --------
Administration fees(3)............. .19 .19 .16 .16 .16 .16
Service fees....................... None .25 None .25 None .25
Other expenses(3).................. .13 .13 .16 .16 .16 .16
-------- -------- -------- -------- -------- --------
Total fund operating expenses........ 1.15% 1.75% 1.15% 1.75% 1.20% 1.80%
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares--Purchases of Series A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases 1.00% annually to 3.00% for redemptions made during the
third and fourth years and then decreases to 2.00% and 1.00% for redemptions
made during the fifth and sixth years, respectively. See "How to Purchase
Shares--Purchases of Series B Shares."
(3) 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. Securities dealers, financial institutions
and other industry professionals may charge their clients additional fees
for account services.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
3
<PAGE> 301
EXPENSE TABLE
<TABLE>
<CAPTION>
SMALL CAP
CORE EQUITY INDEX EQUITY VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
SERIES A SERIES B SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge(1)
(as a percentage of offering
price)............................. 4.5% None 4.5% None 4.5% None
Sales Charge on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge(2)
(as a percentage of original
purchase price
or redemption proceeds, whichever
is lower).......................... None 5.0% None 5.0% None 5.0%
ANNUAL FUND OPERATING EXPENSES FOR
INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
Advisory fees(3)..................... .43% .43% .05% .05% .53% .53%
12b-1 fees(4)........................ .40 .75 .40 .75 .40 .75
Other operating expenses............. .32 .57 .20 .45 .30 .55
-------- -------- -------- -------- -------- --------
Administration fees(3)............. .16 .16 .02 .02 .15 .15
Service fees....................... None .25 None .25 None .25
Other expenses(3).................. .16 .16 .18 .18 .15 .15
-------- -------- -------- -------- -------- --------
Total fund operating expenses........ 1.15% 1.75% .65% 1.25% 1.23% 1.83%
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares--Purchases of Series A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases 1.00% annually to 3.00% for redemptions made during the
third and fourth years and then decreases to 2.00% and 1.00% for redemptions
made during the fifth and sixth years, respectively. See "How to Purchase
Shares--Purchases of Series B Shares."
(3) 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. Securities dealers, financial institutions
and other industry professionals may charge their clients additional fees
for account services.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
4
<PAGE> 302
EXPENSE TABLE
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL EMERGING MARKETS BALANCED
EQUITY PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
SERIES A SERIES B SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Charge(1)
(as a percentage of offering
price)............................. 4.5% None 4.5% None 4.5% None
Sales Charge on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge(2)
(as a percentage of original
purchase price
or redemption proceeds, whichever
is lower).......................... None 5.0% None 5.0% None 5.0%
ANNUAL FUND OPERATING EXPENSES FOR
INVESTOR SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
Advisory fees(3)..................... .63% .63% 1.00% 1.00% .43% .43%
12b-1 fees(4)........................ .40 .75 .40 .75 .40 .75
Other operating expenses............. .42 .67 .85 1.10 .32 .57
-------- -------- -------- -------- -------- --------
Administration fees(3)............. .18 .18 .05 .05 .11 .11
Service fees....................... None .25 None .25 None .25
Other expenses(3).................. .24 .24 .80 .80 .21 .21
-------- -------- -------- -------- -------- --------
Total fund operating expenses........ 1.45% 2.05% 2.25% 2.85% 1.15% 1.75%
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) Reduced front-end sales charges may be available. See "How to Purchase
Shares--Purchases of Series A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases 1.00% annually to 3.00% for redemptions made during the
third and fourth years and then decreases to 2.00% and 1.00% for redemptions
made during the fifth and sixth years, respectively. See "How to Purchase
Shares--Purchases of Series B Shares."
(3) 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. Securities dealers, financial institutions
and other industry professionals may charge their clients additional fees
for account services.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD").
5
<PAGE> 303
EXAMPLE
An investor in Investor 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 Portfolio
Series A Shares*....................................... $ 56 $ 80 $105 $ 178
Series B Shares**...................................... 68 87 118 175***
Growth Equity Portfolio
Series A Shares*....................................... 56 80 105 178
Series B Shares**...................................... 68 87 118 175***
Small Cap Growth Equity Portfolio
Series A Shares*....................................... 57 82 110 187
Series B Shares**...................................... 69 89 122 184***
Core Equity Portfolio
Series A Shares*....................................... 56 80 105 178
Series B Shares**...................................... 68 87 118 175***
Index Equity Portfolio
Series A Shares*....................................... 51 65 80 122
Series B Shares**...................................... 63 72 92 119***
Small Cap Value Equity Portfolio
Series A Shares*....................................... 57 82 110 187
Series B Shares**...................................... 69 89 112 184***
International Equity Portfolio
Series A Shares*....................................... 59 89 121 211
Series B Shares**...................................... 71 96 133 208***
International Emerging Markets Portfolio
Series A Shares*....................................... 67 112
Series B Shares**...................................... 79 120
Balanced Portfolio
Series A Shares*....................................... 56 80 105 178
Series B Shares**...................................... 68 87 118 175***
</TABLE>
- ------------------
* Reflects the imposition of the maximum front-end sales charge at the
beginning of the period.
** Reflects the deduction of the deferred sales charge.
*** Based on the conversion of the Series B Shares to Series A Shares after six
years.
The foregoing Expense Table and Example are intended to assist investors in
understanding the Portfolios' shareholder transaction and 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
12b-1 fees borne by Investor Shares and service fees borne by Series B 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: i) 1.28%, 1.31%,
1.31%, 1.31%, .98%, 1.30%, 1.59%, 2.65% and 1.36% for Series A Investor 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; and ii) 1.88%, 1.91%, 1.91%,
1.91%, 1.58%, 1.90%, 2.19%, 3.25% and 1.96% for Series B Investor 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
6
<PAGE> 304
fee waivers and with 12b-1 fees. See Footnote 3 to the Expense Table,
"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.
OFFERING PRICES
Series A Shares in the Portfolios are offered to the public at the next
determined net asset value after receipt by PFPC of a purchase order 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. See "How to Purchase Shares--Purchases of Series A Shares."
Series B Shares in the Portfolios are offered to the public at the next
determined net asset value after receipt by PFPC of a purchase order. Series B
Shares are subject to a maximum deferred sales charge of 5.0%. See "How to
Purchase Shares--Purchases of Series B Shares."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for each Portfolio is $500, except that such
minimum investment requirement is $100 for employees of the Fund, the Fund's
adviser, sub-advisers, distributor or transfer agent or employees of any such
service providers' affiliate. Subsequent investments must be $100 or more. See
"How to Purchase Shares."
EXCHANGES
Series A Shares of one Portfolio may be exchanged for Series A Shares of
any other investment portfolio offered by the Fund at their respective net asset
value next determined after receipt by PFPC of an exchange request. Series B
Shares of one Portfolio may be exchanged for Series B Shares of any other
investment portfolio offered by the Fund with a deferred sales charge at their
respective net asset value next determined after receipt by PFPC of an exchange
request. Series B 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 B Shares may be exchanged
without the payment of any deferred sales charge at the time the exchange is
made. No exchange fee is charged by the Fund. See "Investor Programs--Exchange
Privilege."
REDEMPTION PRICE
Series A Shares may be redeemed at any time at their net asset value next
determined after receipt by PFPC of a redemption request in proper form. Series
B Shares may be redeemed at any time at their net asset value next determined
after receipt by PFPC of a redemption request, minus any applicable deferred
sales charge. The Fund reserves the right, upon 30 days' written notice, to
redeem an account in any Portfolio if the net asset value of the Shares held by
a shareholder of record in that account falls below the minimum initial
investment requirement amount as a result of a redemption or an exchange and is
not increased to at least that amount within the 30 day period. See "How to
Redeem Shares."
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
7
<PAGE> 305
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."
SHAREHOLDER INQUIRIES
Any questions or communications regarding a shareholder account may be
directed to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907, toll-free (800) 422-6538.
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 "Distribution of Shares" for a
description of the Distribution and Service Plan and the Series B Distribution
Plan, and see "Shareholder Servicing" for a description of 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.
8
<PAGE> 306
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.
9
<PAGE> 307
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
PERIOD
YEAR YEAR YEAR YEAR 11/1/89(1) YEAR
ENDED ENDED ENDED ENDED THROUGH ENDED
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/94
------- -------- ------- ------- -------- -------
<S> <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
------- -------- ------- ------- -------- -------
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)
------- -------- ------- ------- ------- -------
Total from investment operations...... (1.28) 2.13 0.51 1.75 0.05 (1.29)
------- -------- ------- ------- ------- -------
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
======== ========= ======== ======== ======= ========
Total return................................. (11.14)% 22.18% 4.98% 19.47% 0.40% (11.20)%
Ratios/Supplemental data
Net assets at end of period (in
thousands).............................. $97,834 $100,049 $58,372 $54,912 $39,790 $36,752
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%
Before advisory/administration fee
waivers............................... 0.89% 0.87% 0.86% 0.91% 0.88%(2) 1.14%
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%
Before advisory/administration fee
waivers............................... 0.38% 0.44% 2.06% 2.53% 2.72%(2) 0.26%
Portfolio turnover rate...................... 212% 175% 162% 211% 149% 212%
<CAPTION>
GROWTH EQUITY PORTFOLIO
--------------------------------------------------
SERVICE
CLASS SERIES A INVESTOR CLASS
------- ------------------------------------
FOR THE FOR THE
PERIOD PERIOD
7/28/93(1) YEAR YEAR 3/14/92(1)
THROUGH ENDED ENDED THROUGH
9/30/93 9/30/94 9/30/93 9/30/92
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value at beginning of period....... $10.54 $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)................ 1.03 (1.33) 2.10 (0.10)
-------- ------- ------- --------
Total from investment operations...... 1.03 (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............. $11.57 $10.16 $11.57 $ 9.92
======== ======= ======= ========
Total return................................. 9.77% (11.38)%(3) 22.08%(3) (0.17)%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands).............................. $8,606 $5,049 $2,362 $ 239
Ratios of expenses to average net assets
After advisory/administration fee
waivers............................... 0.89%(2) 1.05% 0.91% 0.85%(2)
Before advisory/administration fee
waivers............................... 0.95%(2) 1.29% 0.97% 0.86%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers............................... (0.03)%(2) 0.29% 0.18% 2.07%(2)
Before advisory/administration fee
waivers............................... (0.09)%(2) 0.05% 0.12% 2.06%(2)
Portfolio turnover rate...................... 175% 212% 175% 162%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
10
<PAGE> 308
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
CLASS SERIES A INVESTOR CLASS
--------------- --------------------------
FOR THE PERIOD FOR THE 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.
11
<PAGE> 309
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
-----------------------------------
SERVICE SERIES A
CLASS INVESTOR CLASS
-------------- --------------
FOR THE PERIOD FOR THE 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.
12
<PAGE> 310
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.
13
<PAGE> 311
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.
14
<PAGE> 312
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.
15
<PAGE> 313
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING MARKETS PORTFOLIO
--------------------------------------------------------
SERIES A
INSTITUTIONAL CLASS SERVICE CLASS 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.
16
<PAGE> 314
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.
17
<PAGE> 315
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
18
<PAGE> 316
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,
19
<PAGE> 317
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-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 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.
20
<PAGE> 318
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 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
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 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.
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
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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 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
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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
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.
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, Growth 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
- --------------------------------------------------------------------------------
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 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.
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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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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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 the 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 the 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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------------------------------------
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.
------------------------------------
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
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particular class of shares within a Portfolio (such as Series A 12b-1 fees for
Series A Investor Shares and Series B 12b-1 fees and service fees for Series B
Investor 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 and PFPC are subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Fund and the holders of Investor Shares, the Fund
might be required to alter materially or discontinue its arrangements with such
companies and change its method of operations with respect to the Investor
Shares. It is not anticipated, however, that any 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.
------------------------------------
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.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Shares of each Portfolio are offered on a continuous basis by the
Distributor. The Distributor is a registered broker/dealer with principal
offices at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087.
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The Fund's Board of Trustees has adopted a Distribution and Service Plan
("Series A Plan") for Series A Shares and a Series B Distribution Plan ("Series
B Plan" and, collectively with the Series A Plan, the "Plans") for Series B
Shares.
Under each Plan the Distributor is entitled to payments by each Portfolio
for: (i) direct out-of-pocket promotional expenses incurred in connection with
advertising and marketing Shares; and (ii) payments to broker/dealers that are
not affiliated with the Distributor ("Service Organizations") for distribution
assistance such as advertising and marketing of Fund Shares. In addition,
payments under the Series B 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 Shares. Service Organizations may also provide
support services such as establishing and maintaining accounts and records
relating to shareholders for whom the Service Organizations are the dealer of
record or holder of record for shareholders with whom the Service Organizations
have a servicing relationship. "Direct out-of-pocket promotional expenses"
include amounts spent by the Distributor in connection with advertising via
radio, television, newspapers, magazines and otherwise; preparing, printing and
mailing sales materials, brochures and prospectuses (except for prospectuses
used for regulatory purposes or for distribution to existing shareholders); and
other out-of-pocket expenses incurred in connection with the promotion of
Shares.
Upon proper authorization by the Fund's trustees, expenses covered by the
Plans may also include other expenses the Distributor (or any other person) may
incur in connection with the distribution of the Fund's Shares including,
without limitation, expenditures for telephone facilities and in-house
telemarketing, or, in the case of the Series A Plan, in connection with
shareholder servicing.
Payments under the Series A Plan will not exceed .55% (annualized) of the
average daily net asset value of each Portfolio's outstanding Series A Shares.
Service Organizations may charge their clients additional fees for account
services. Customers who are beneficial owners of Series A Shares should read
this Prospectus in light of the terms and fees governing their accounts with
Service Organizations. The NASD has adopted rules which generally limit the
aggregate sales charges and payments under the Series A Plan with respect to
each Portfolio to 7.25% of total new gross Series A Share sales, plus interest.
The Fund would retain any deferred front-end sales charges collected and stop
accruing payments under the Series A Plan if, to the extent, and for as long as,
such limit would otherwise be exceeded. See "How to Purchase Shares--Purchases
of Series A Shares" for a description of the front-end sales charge.
Payments under the Series B Plan will not exceed .75% (annualized) of the
average daily net asset value of each Portfolio's outstanding Series B Shares.
Service Organizations may charge their clients additional fees for account
services. Customers who are beneficial owners of Series B Shares should read
this Prospectus in light of the terms and fees governing their accounts with
Service Organizations. Under applicable NASD rules, the aggregate deferred sales
charges and payments under the Series B Plan are generally limited with respect
to each Portfolio to 6.25% of total new gross Series B Share sales, plus
interest. The Fund would retain any deferred sales charges collected and stop
accruing payments under the Series B Plan if, to the extent, and for as long as,
such limit would otherwise be exceeded. See "How to Purchase Shares--Purchases
of Series B Shares" for a description of the deferred sales charge.
Payments under the Plans which are expenses of a Portfolio's Investor
Shares are for distribution and/or other services rendered for or on behalf of
the Investor Shares of such Portfolio. However, joint distribution financing
with respect to Shares of the Portfolios (which financing may also involve other
investment portfolios or companies that are affiliated persons of such a person,
or affiliated persons of the Distributor) will be permitted in accordance with
applicable regulations of the SEC if and when such regulations are adopted.
If in any month the Distributor expends more monies than are immediately
payable under the Plans because of the percentage limitations described above
(or, due to any expense limitation imposed on a Portfolio, monies otherwise
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payable by a Portfolio to the Distributor under the Plans are rendered
uncollectible), the unpaid expenditure may be "carried forward" from month to
month until such time, if ever, as it may be paid. In addition, payments to
Service Organizations (which may include the adviser and sub-advisers and their
affiliates) are not tied directly to the Service Organizations' own
out-of-pocket expenses and therefore may be used as they elect (for example, to
defray their overhead expenses). See "Description of Shares."
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund intends to enter into service agreements 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 Shares. Such
services will be provided to customers who are the beneficial owners of Series B
Shares and are intended to supplement the services provided by the Fund's
Administrators and transfer agent. In consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Series B 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
"Institutional Shares"). See "Description of Shares." Customers who are
beneficial owners of Series B Shares should read this Prospectus in light of the
terms and fees governing their accounts with Service Organizations.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares in the Portfolios may be purchased through PNC Bank, PNC Bank Ohio,
institutional investors and Authorized Dealers, or by completing and forwarding
the application included in this Prospectus, through any one of them, to the
Fund's transfer agent. Subsequent purchases of Shares may be effected through
PNC Bank, PNC Bank Ohio, institutional investors and Authorized Dealers or by
mailing a check or Federal Reserve Draft, payable to the order of "The PNC Fund"
c/o PFPC, P.O. Box 8907, Wilmington, Delaware 19899-8907. The name of the
Portfolio for which Shares are being purchased must also appear on the check or
Federal Reserve Draft. Federal Reserve Drafts are available at national banks or
any state bank which is a member of the Federal Reserve System. Initial
investments in any Portfolio must be at least $500, except that such minimum
investment requirement is: (i) $100 for employees of the Fund, the Fund's
adviser, sub-advisers, Distributor or transfer agent or employees of any such
service providers'
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<PAGE> 333
affiliate; and (ii) $50 for investors purchasing Shares under the automatic
investing program described in "Investor Programs--Automatic Investing."
Subsequent investments must be at least $100. The Fund reserves the right to
reject any purchase order. Certificates for Series A Shares will be issued only
upon request. No certificates will be issued for Series B Shares.
Investor Shares may be purchased on any Business Day. A "Business Day" is
any weekday that the New York Stock Exchange (the "NYSE") is open for business.
Investor Shares are sold at the applicable offering price next computed
after an order is received by the Fund's transfer agent. It is the
responsibility of the Distributor, PNC Bank, PNC Bank Ohio, institutional
investors and the Authorized Dealers to transmit orders received by them from
investors to the Fund's transfer agent in a timely manner. Orders of less than
$500 may be mailed by PNC Bank, PNC Bank Ohio, institutional investors and
Authorized Dealers to the transfer agent. Orders received by the Fund's transfer
agent after 4:00 p.m. are priced at the applicable offering price on the
following Business Day.
ALTERNATIVE PURCHASE OPTIONS
Purchases of Investor Shares of the Portfolios are subject to a sales
charge. Purchases of Series A Shares are subject to a "front-end" sales charge
deducted at the time of purchase. Series B Shares are subject to a deferred or
"back-end" sales charge which is deducted upon their redemption. The deferred
sales charge applicable to purchases of Series B Shares declines over time and
is known as a "contingent deferred sales charge." Investors may elect to have
the sales charge applicable to their purchase of Shares deducted at the time of
purchase by purchasing Series A Shares. Alternatively, investors may elect to
have the sales charge applicable to their purchase of Shares deducted upon their
redemption by purchasing Series B Shares. INVESTORS WHO PURCHASE SHARES OF THE
PORTFOLIOS MUST SPECIFY AT THE TIME OF PURCHASE WHETHER THEY ARE PURCHASING
SERIES A SHARES OR SERIES B SHARES.
EXEMPTIONS FROM THE FRONT-END SALES CHARGE. The following persons
associated with the Fund, the Distributor, the Fund's investment adviser,
sub-advisers or transfer agent and affiliates of any of the above may buy Series
A Shares without paying a sales charge to the extent permitted by such firms:
(a) officers, directors and partners (and their spouses and minor children); (b)
full-time employees and retirees (and their spouses and minor children); (c)
registered representatives of Authorized Dealers and of the Distributor; (d)
spouses or children of any such persons; and (e) any trust, pension,
profit-sharing or other benefit plan for any of the persons set forth in (a)
through (d). The following persons may also buy Series A Shares without paying a
sales charge: (a) persons investing through an authorized payroll deductions
plan; (b) persons investing through an authorized investment plan for
organizations which operate under Section 501(c)(3) of the Internal Revenue
Code; and (c) registered investment advisers, trust companies and bank trust
departments exercising discretionary investment authority with respect to
amounts to be invested in a Portfolio, provided that the aggregate amount
invested pursuant to this exemption equals at least $250,000. INVESTORS WHO
QUALIFY FOR ANY EXEMPTION FROM THE SALES CHARGE ORDINARILY PAYABLE WITH RESPECT
TO PURCHASES OF INVESTOR SHARES MUST PURCHASE SERIES A SHARES.
CHOOSING BETWEEN SERIES A SHARES AND SERIES B SHARES
Investors should understand the differences between Series A Shares and
Series B Shares before purchasing Shares of the Portfolios.
SERIES A SHARES. Series A Shares are sold at the net asset value for Series
A Shares of the Portfolios plus the applicable front-end sales charge. This
front-end sales charge may be reduced or waived in some cases. See "How to
Purchase Shares--Exemptions from the Sales Charge" and "How to Purchase
Shares--Purchases of Series A Shares." Series A Shares bear the expense of
payments under the Distribution and Service Plan at an annual rate not to
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exceed .55% of the average daily net asset value of each Portfolio's outstanding
Series A Investor Shares. See "Distribution of Shares."
SERIES B SHARES. Series B Shares are sold at the net asset value for Series
B Shares of the Portfolios. A deferred sales charge is deducted if Series B
Shares are redeemed within six years of purchase. The deferred sales charge
deducted upon the redemption of Series B Shares decreases over time. See "How to
Purchase Shares--Purchases of Series B Shares." Series B Shares bear the expense
of payments under the Series B Distribution Plan at an annual rate not to exceed
.75% of the average daily net asset value of each Portfolio's outstanding Series
B Investor Shares. See "Distribution of Shares." Series B Shares also bear the
expense of the Series B Service Plan at an annual rate not to exceed .25% of
each Portfolio's outstanding Series B Shares. See "Shareholder Servicing." If
payments under the Distribution and Service Plan for Series A Shares and
payments under the Series B Distribution and Series B Service Plans are made at
the maximum rates, then Series B Shares of a Portfolio will have higher
operating expenses and will pay lower dividends than Series A Shares of the same
Portfolio.
Six years after the date of purchase, Series B Shares will automatically
convert to Series A Shares. The purpose of the conversion is to relieve the
holders of Series B Shares of the higher operating expenses charged to Series B
Shares. The conversion from Series B Shares to Series A Shares will take place
at the net asset value of each class of Shares at the time of the conversion.
Upon such conversion, an investor would hold Series A Shares subject to the
operating expenses for Series A Shares discussed above. Upon each conversion of
Series B Shares that were not acquired through reinvestment of dividends or
distributions, a proportionate amount of Series B Shares that were acquired
through reinvestment of dividends or distributions will likewise automatically
convert to Series A Shares.
FACTORS TO CONSIDER IN CHOOSING BETWEEN SERIES A SHARES AND SERIES B
SHARES. Before deciding between Series A Shares and Series B Shares of a
Portfolio, an investor should carefully consider the amount and intended length
of his investment in Investor Shares. Specifically, an investor should consider
whether the accumulated distribution and servicing fees and the deferred sales
charge applicable to Series B Shares would be less than the front-end sales
charge and accumulated distribution fees applicable to Series A Shares purchased
at the same time and held for the same period, and the extent to which the
difference between those amounts would be offset by the higher returns
associated with Series A Shares. Because the operating expenses of Series B
Shares are greater than those of Series A Shares in the same Portfolio, the
dividends on Series A Shares will be higher than the dividends on Series B
Shares. However, since a front-end sales charge is deducted at the time of
purchase of Series A Shares, not all of the purchase amount will purchase Series
A Shares. Consequently, the same initial investment will purchase more Series B
Shares than Series A Shares of the same Portfolio.
Because of reductions in the front-end sales charge for purchases of Series
A Shares aggregating $50,000 or more, it may be advantageous for investors
purchasing large quantities of Investor Shares to purchase Series A Shares. In
any event, the Fund will not accept any purchase order for $1 million or more of
Series B Shares. In addition, because the accumulated higher operating expenses
of Series B Shares may eventually exceed the amount of the front-end sales
charge and distribution fees associated with Series A Shares, investors who
intend to hold their Investor Shares for an extended period of time should
consider purchasing Series A Shares.
Investors who would not qualify for a reduction in the front-end sales
charge for purchases of Series A Shares may decide that it is more advantageous
to have the entire purchase amount invested immediately in Series B Shares
notwithstanding the higher operating expenses associated with Series B Shares.
These higher operating expenses may be offset by any return an investor receives
from the additional Investor Shares received as a result of not having to pay a
front-end sales charge. However, investors should understand that a Portfolio's
future return cannot be predicted, and that there is no assurance that such
return, if any, would compensate for the higher operating expenses associated
with Series B Shares.
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PURCHASES OF SERIES A SHARES
Series A Investor Shares are sold at their public offering price (i.e., net
asset value of the Series A Shares plus the applicable front-end sales charge)
next computed after a purchase order is received by the Fund's transfer agent.
The following table shows sales charges at various investment levels. Sales
charges are reduced on a graduated scale on single purchases of $50,000 or more.
During special promotions, the entire sales charge may be reallowed to dealers.
In addition, certain dealers who enter into an agreement to provide extra
training and information on products, or marketing and related services, and who
increase sales of Shares may also receive additional payments from the
Distributor. Dealers who receive 90% or more of the sales charge may be deemed
to be "underwriters" under the 1933 Act.
<TABLE>
<CAPTION>
REALLOWANCE OR
PLACEMENT FEES
TO DEALERS
SALES CHARGE SALES CHARGE (AS % OF
AMOUNT OF TRANSACTION AS PERCENTAGE OF AS PERCENTAGE OF OFFERING
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE PRICE)
- --------------------------------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Less than $50,000.................................. 4.50% 4.71% 4.00%
$50,000 but less than $75,000...................... 3.50 3.63 3.00
$75,000 but less than $100,000..................... 3.00 3.09 2.50
$100,000 but less than $250,000.................... 2.50 2.56 2.00
$250,000 but less than $500,000.................... 1.50 1.52 1.25
$500,000 but less than $1,000,000.................. 1.00 1.01 0.75
$1,000,000 but less than $2,000,000................ 0.00 0.00 0.50*
$2,000,000 and over................................ 0.00 0.00 0.25*
</TABLE>
- ---------------
* Placement fees the Distributor may pay to dealers, provided the aggregate of
such fees (including placement fees described below payable to dealers in
connection with investments of redemption proceeds from other investment
companies) does not exceed the aggregate amount of front-end sales charges,
net of dealer reallowances, on Fund shares subject to a front-end sales
charge. Dealers must refund a pro-rata portion of such fee if the Series A
Shares are redeemed within six months.
The foregoing schedule of sales charges applies to purchases made at any
one time by the following: (a) any individual; (b) any individual, his or her
spouse, and their children under the age of 21; (c) a trustee or fiduciary of a
single trust estate or single fiduciary account; or (d) any organized group
which has been in existence for more than six months, provided that it is not
organized for the purpose of buying redeemable securities of a registered
investment company, and provided that the purchase is made through a central
administrator, or through a single dealer, or by other means which result in
economy of sales effort or expense. An organized group does not include a group
of individuals whose sole organizational connection is participation as credit
card holders of a company, policyholders of an insurance company, customers of
either a bank or broker/dealer or clients of an investment adviser. Purchases
made by an organized group may include, for example, a trustee or other
fiduciary purchasing for a single fiduciary account or other employee benefit
plan purchases made through a payroll deduction plan.
The sales charge (as a percentage of the offering price) payable by
qualified employee benefit plans ("Qualified Plans") having at least 20
employees eligible to participate on purchases of Series A Investor Shares of
the Portfolios aggregating less than $500,000 will be 1.00%. The above schedule
will apply to purchases by those Qualified Plans of Series A Investor Shares of
the Portfolios aggregating $500,000 and above. The effect of this policy is to
make the sales load 1.00% for purchases by such Qualified Plans of Series A
Investor Shares of the Portfolios aggregating less than $1,000,000, while no
sales charge applies to purchases aggregating $1,000,000 and above. The sales
charge
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<PAGE> 336
payable by Qualified Plans having less than 20 employees eligible to participate
on purchases of Series A Investor Shares of the Portfolios aggregating less than
$100,000 will be 2.50%. The above schedule will apply to purchases by such
Qualified Plans of Series A Investor Shares aggregating $100,000 and above. The
effect of this policy is to make the maximum sales load 2.50% for purchases of
Series A Investor Shares of the Portfolios by Qualified Plans with less than 20
employees eligible to participate. Such Qualified Plans may take advantage of
the lower sales charges set forth in the above schedule by purchasing Series A
Investor Shares of the Portfolios aggregating $250,000 and above.
REDUCING THE FRONT-END SALES CHARGE
The foregoing schedule applies to single purchases, concurrent purchases of
shares of two or more of the Fund's portfolios offered with a front-end sales
charge, and to purchases made pursuant to the Right of Accumulation or under a
Letter of Intent, which are described below.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value
of an investor's existing Series A Shares in any of the Fund's portfolios
subject to a front-end sales charge may be combined with the amount of the
investor's current purchase in determining the front-end sales charge. IN ORDER
TO RECEIVE THE CUMULATIVE QUANTITY REDUCTION, PREVIOUS PURCHASES OF SERIES A
SHARES MUST BE CALLED TO THE ATTENTION OF THE FUND'S TRANSFER AGENT BY THE
INVESTOR AT THE TIME OF THE CURRENT PURCHASE.
REINVESTMENT PRIVILEGE. An investor may also purchase Series A Shares of a
Portfolio at net asset value, without a sales charge, if the investor has
redeemed his Series A Shares in that Portfolio within the previous 45 days. The
amount which may be so reinvested is limited to the amount of the redemption
proceeds. If the investor has realized a gain on the redemption, the transaction
is taxable and reinvestment will not alter any taxes payable. If there has been
a loss on the redemption and a subsequent reinvestment pursuant to this
privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although amounts disallowed are, for tax
purposes, added to the cost of the Series A Shares acquired upon the
reinvestment. The reinvestment privilege may be exercised only once.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Series A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of any other investment
company which were sold with a sales charge or commission. (This does not
include shares of an affiliated mutual fund which were or would be subject to a
contingent deferred sales charge upon redemption.) Such purchases must be made
within 60 days of the redemption, and the Fund must be notified by the investor
in writing, or by his financial institution, at the time the purchase of Series
A Shares is made. The Distributor will offer to pay dealers a placement fee of
.25% of the net asset value of Series A Shares purchased by their clients or
customers in this manner, provided the aggregate of such fees (including
placement fees described above payable to dealers in connection with purchases
of Series A Shares aggregating $1 million or more) does not exceed the
aggregate amount of sales charges, net of dealer reallowances, on Series A
Shares subject to a sales charge. Dealers must refund a pro-rata portion of
such fee if the Series A Shares are redeemed within six months.
LETTER OF INTENT. An investor may qualify for a reduced sales charge
immediately by signing a nonbinding Letter of Intent stating the investor's
intention to invest during the next 13 months a specified amount in Series A
Shares which, if made at one time, would qualify for a reduced sales charge. The
Letter of Intent may be signed at any time within 90 days after the first
investment to be included in the Letter of Intent. The initial investment must
meet the minimum initial investment requirement and represent at least 5% of the
total intended investment. THE INVESTOR MUST INSTRUCT THE TRANSFER AGENT UPON
MAKING SUBSEQUENT PURCHASES THAT SUCH PURCHASES ARE SUBJECT TO A LETTER OF
INTENT. All dividends and capital gains of a Portfolio that are invested in
additional Series A Shares of the same Portfolio are applied to the Letter of
Intent.
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<PAGE> 337
During the term of a Letter of Intent, the Fund's transfer agent will hold
Series A Shares representing 5% of the indicated amount in escrow for payment of
a higher sales load if the full amount indicated in the Letter of Intent is not
purchased. These Series A Shares held in escrow will be registered in the
shareholder's name and will continue to earn any dividends and capital gains
paid by a Portfolio. The escrowed Series A Shares will be released when the full
amount indicated has been purchased. Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed.
If the full amount indicated is not purchased within the 13-month period,
the investor will be required to pay an amount equal to the difference between
the sales charge actually paid and the sales charge the investor would have had
to pay on his or her aggregate purchases if the total of such purchases had been
made at a single time. If remittance is not received within 20 days of the
expiration of the 13-month period, PFPC, as attorney-in-fact, pursuant to the
terms of the Letter of Intent, will redeem an appropriate number of Series A
Shares held in escrow to realize the difference.
PURCHASES OF SERIES B SHARES
Series B Investor Shares are sold at their net asset value next computed
after a purchase order is received by the Fund's transfer agent. Although
investors pay no front-end sales charge on purchases of Series B Shares, Series
B Shares are subject to a deferred sales charge at the rates set forth in the
chart below if they are redeemed within six years of purchase. Service
Organizations and other broker/dealers will receive commissions from the
Distributor in connection with sales of Series B Shares. These commissions may
be different than the reallowances or placement fees paid to dealers in
connection with sales of Series A Shares. The deferred sales charge on Series B
Shares is based on the lesser of the net asset value of the Series B Shares on
the redemption date or the original cost of the Series B Shares being redeemed.
As a result, no sales charge is charged on any increase in the principal value
of an investor's Series B Shares.
The amount of any contingent deferred sales charge an investor must pay on
Series B Shares depends on the number of years that elapse between the purchase
date and the date such Series B Shares are redeemed.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ------------------------------------------------------------------------- ---------------------------
<S> <C>
Less than one............................................................ 5.0%
More than one, but less than two......................................... 4.0%
More than two, but less than three....................................... 3.0%
More than three, but less than four...................................... 3.0%
More than four, but less than five....................................... 2.0%
More than five, but less than six........................................ 1.0%
After six years.......................................................... None
</TABLE>
When an investor redeems his Series B Shares, the redemption order is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. Series B Shares are redeemed first from those Series B Shares
that are not subject to the deferred sales load (i.e., Series B Shares that were
acquired through reinvestment of dividends or distributions) and after that from
the Series B Shares that have been held the longest.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The contingent
deferred sales charge on Series B Shares is not charged in connection with: (1)
exchanges described in "Investor Programs--Exchange Privilege;" (2) redemptions
made in connection with minimum required distributions from IRA, 403(b)(7) and
Qualified Plan accounts due to the shareholder reaching age 70 1/2; (3)
redemptions in connection with a shareholder's death or disability (as defined
in
40
<PAGE> 338
the Internal Revenue Code) subsequent to the purchase of Series B Shares; and
(4) involuntary redemptions of Series B Shares in accounts with low balances as
described in "How to Redeem Shares--Accounts With Low Balances." In addition, no
contingent deferred sales charge is charged on Series B Shares acquired through
the reinvestment of dividends or distributions.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
REDEMPTION
Shareholders may redeem for cash some or all of their Shares of the
Portfolios at any time. To do so, a written request in proper form must be sent
directly to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907. Except for the contingent deferred sales charge that may be charged
with respect to Series B Shares, there is no charge for a redemption.
Shareholders may also place redemption requests through an Authorized Dealer,
but the Authorized Dealer might charge a fee for this service.
WHEN REDEEMING INVESTOR SHARES IN THE PORTFOLIOS, SHAREHOLDERS SHOULD
INDICATE WHETHER THEY ARE REDEEMING SERIES A SHARES OR SERIES B SHARES. In the
event a redeeming shareholder owns both Series A Shares and Series B Shares in
the same Portfolio, the Series A Shares will be redeemed first unless the
shareholder indicates otherwise.
Except as noted below, a request for redemption must be signed by all
persons in whose names the Shares are registered. Signatures must conform
exactly to the account registration. If the proceeds of the redemption would
exceed $25,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the shareholder is a corporation, partnership, trust or
fiduciary, signature(s) must be guaranteed by any eligible guarantor institution
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions generally include banks, broker/dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding Series A
Share certificates, the certificates for the Series A Shares being redeemed must
accompany the redemption request. Additional documentary evidence of authority
is required by PFPC in the event redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator.
EXPEDITED REDEMPTIONS
If a shareholder has given authorization for expedited redemption, Shares
can be redeemed by telephone and the proceeds sent by check to the shareholder
or by Federal wire transfer to a single previously designated bank account. Once
authorization is on file, PFPC will honor requests by any person by telephone at
(800) 441-7762 (in Delaware call collect (302) 791-1194) or other means. The
minimum amount that may be sent by check is $500, while the minimum amount that
may be wired is $10,000. The Fund reserves the right to change these minimums or
to terminate these redemption privileges. If the proceeds of a redemption would
exceed $25,000, the redemption request must be in writing and will be subject to
the signature guarantee requirement described above in "How to Redeem Shares--
Redemption." This privilege may not be used to redeem Series A Shares in
certificated form.
During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If a shareholder is unable to contact
the transfer agent by telephone, the shareholder may also deliver the redemption
request to the transfer agent by mail at PFPC Inc., P.O. Box 8907, Wilmington,
DE 19899-8907.
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<PAGE> 339
The Fund is not responsible for the efficiency of the Federal wire system
or the shareholder's firm or bank. The Fund does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. To change the name of the single designated bank account to
receive wire redemption proceeds, it is necessary to send a written request
(with a guaranteed signature as described under "How to Redeem Shares--
Redemption") to The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907.
The Fund reserves the right to refuse a telephone redemption if it believes
it advisable to do so. The Fund, the Administrators and the Distributor will not
be liable for any loss, liability, cost or expense for acting upon telephone
instructions reasonably believed to be genuine. See "Investor Programs--Exchange
Privilege" for a description of the Fund's policy on telephone instructions. For
further information, see "How to Redeem Shares--Payment of Redemption Proceeds."
ACCOUNTS WITH LOW BALANCES
The Fund reserves the right to redeem a shareholder's account in any
Portfolio at any time the net asset value of the account in such Portfolio falls
below the minimum initial investment requirement amount as the result of a
redemption or an exchange request. A shareholder will be notified in writing
that the value of the shareholder's account in a Portfolio is less than the
required amount and will be allowed 30 days to make additional investments
before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS
The redemption price for Series A and Series B Shares of a Portfolio is the
net asset value per share of the Series A and Series B Shares, respectively, of
the Portfolio next determined after the request for redemption is received in
proper form by The PNC Fund c/o PFPC, P.O. Box 8907, Wilmington, Delaware
19899-8907. Proceeds from the redemption of Series B Shares will be reduced by
the amount of any applicable contingent deferred sales charge. Payment for
Shares redeemed is made by check mailed within seven days after acceptance by
PFPC of the request and any other necessary documents in proper order. Such
payment may be postponed or the right of redemption suspended as provided by the
rules of the SEC. If the Shares to be redeemed have been recently purchased by
check, the Fund's transfer agent may delay the payment of redemption proceeds,
which may be a period of up to 15 days after the purchase date, pending a
determination that the check has cleared.
INVESTOR PROGRAMS
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
After appropriate authorization, a shareholder may exchange, without a
sales charge, Series A Investor Shares and Series B Investor Shares of a
Portfolio for Series A Investor Shares and Series B Investor Shares,
respectively, of any other investment portfolio of the Fund at the net asset
value of each class of shares next determined after the transfer agent's receipt
of a request for an exchange. Series B Shares are exchangeable without the
payment of any contingent deferred sales charge at the time the exchange is
made. In determining the holding period for calculating the contingent deferred
sales charge payable on redemptions of Series B Shares, the holding period of
the Series B Shares originally held will be added to the holding period of the
Series B Shares acquired through the exchange. Series B 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.
No exchange fee is imposed by the Fund. The public offering of Series B Investor
Shares in certain investment portfolios of the Fund may not commence on the date
of this
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<PAGE> 340
Prospectus. Prospectuses for the other portfolios of the Fund and information on
the availability of Series B Investor Shares of such portfolios can be obtained
by calling the Fund's Distributor at (800) 422-6538.
A shareholder wishing to make an exchange may do so by sending a written
request to PFPC at the address given above in "How to Purchase Shares--General."
Shareholders are automatically provided with telephone exchange privileges when
opening an account, unless they indicate on the Application that they do not
wish to use this privilege. Shareholders holding share certificates are not
eligible to exchange Series A Shares by phone because share certificates must
accompany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Exchange Authorization
Form must be filed with PFPC. This form is available from PFPC. Once this
election has been made, the shareholder may simply contact PFPC by telephone at
(800) 441-7762 (in Delaware call collect (302) 791-1194) to request the
exchange. During periods of substantial economic or market change, telephone
exchanges may be difficult to complete and shareholders may have to submit
exchange requests to PFPC in writing.
If the exchanging shareholder does not currently own shares of the
investment portfolio whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options and
Authorized Dealer of record as the account from which shares are exchanged,
unless otherwise specified in writing by the shareholder with all signatures
guaranteed by an eligible guarantor institution as defined above. In order to
participate in the automatic investment program or establish a systematic
withdrawal plan for the new account, however, an exchanging shareholder must
file a specific written request. The exchange privilege may be modified or
terminated at any time, or from time to time, by the Fund on 60 days' notice to
affected Portfolio shareholders. THE FUND, 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).
In establishing a new account by exchange, the dollar value of shares
acquired must equal or exceed the investment portfolio's minimum for a new
account; if making an exchange to an existing account, the dollar value must
equal or exceed the Fund's minimum for subsequent investments. If any amount
remains in the investment portfolio from which the exchange is being made, such
amount must not drop below the minimum account value required by the Fund.
AUTOMATIC INVESTING
Investments in Shares may be made automatically by authorizing the Fund's
transfer agent to withdraw funds from your bank account. An initial minimum
investment of $50 per Portfolio, and subsequent investments of at least $50, are
required. Investors desiring to participate in the automatic investing program
should call PFPC at (800) 441-7762 (in Delaware call collect (302) 791-1194) to
obtain the appropriate forms.
RETIREMENT PLANS
Portfolio Shares may be purchased in conjunction with individual retirement
accounts ("IRAs") and rollover IRAs where PNC Bank or any of its affiliates acts
as custodian. For further information as to applications and annual fees,
contact the Distributor or an Authorized Dealer. To determine whether the
benefits of an IRA are available and/or appropriate, a shareholder should
consult with a tax adviser.
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<PAGE> 341
SYSTEMATIC WITHDRAWAL PLAN
If your account in a Portfolio has a value of at least $10,000, you may
establish a Systematic Withdrawal Plan with respect to the Portfolio and receive
regular periodic payments. A request to establish a Systematic Withdrawal Plan
must be submitted in writing to The PNC Fund c/o PFPC, P.O. Box 8907,
Wilmington, Delaware 19899-8907. Shareholders holding Series A Share
certificates are not eligible to establish a Systematic Withdrawal Plan because
Series A Share certificates must accompany all withdrawal requests. Each
withdrawal redemption may, at the shareholder's election, be processed either
monthly, every other month, quarterly, three times a year, semi-annually or
annually on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance; the minimum amount
that you may withdraw each period is $100. (This is merely the minimum amount
allowed and should not be mistaken for a recommended amount.) THE AMOUNT OF
REGULAR PERIODIC PAYMENTS SPECIFIED BY HOLDERS OF SERIES B SHARES PURSUANT TO A
SYSTEMATIC WITHDRAWAL PLAN WILL BE REDUCED BY ANY APPLICABLE DEFERRED SALES
CHARGE. The holder of a Systematic Withdrawal Plan will have any income
dividends and any capital gains distributions reinvested in full and fractional
Shares at net asset value. To provide funds for payment, Shares of the Portfolio
involved will be redeemed in such amount as is necessary to make the payment.
Redemption of Shares may reduce or possibly exhaust the Shares in your account,
particularly in the event of a market decline. As with other redemptions, a
redemption to make a withdrawal payment is a sale for Federal income tax
purposes. Payments made pursuant to a Systematic Withdrawal Plan cannot be
considered as actual yield or income since part of such payments may be a return
of capital.
The maintenance of a Systematic Withdrawal Plan for a Portfolio
concurrently with purchases of additional Shares of that Portfolio may be
disadvantageous because of the sales commission involved in the additional
purchases. You will ordinarily not be allowed to make additional investments of
less than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the Systematic Withdrawal Plan in effect and, while a
Systematic Withdrawal Plan is in effect, you may not make periodic investments
under Automatic Investing. THE MAINTENANCE OF A SYSTEMATIC WITHDRAWAL PLAN MAY
ALSO BE DISADVANTAGEOUS FOR HOLDERS OF SERIES B SHARES DUE TO THE EFFECT OF THE
CONTINGENT DEFERRED SALES CHARGE. You will receive a confirmation of each
transaction showing the sources of the payment and the Share and cash balance
remaining in your Systematic Withdrawal Plan. The Systematic Withdrawal Plan may
be terminated on written notice by the shareholder or by the Fund with respect
to the applicable Portfolio and it will terminate automatically if all Shares
are liquidated or withdrawn from the account or upon the death or incapacity of
the shareholder. You may change the amount and schedule of withdrawal payments
or suspend such payments by giving written notice to PFPC at least seven
business days prior to the end of the month preceding a scheduled payment.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Series A Share and each Series B 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 Series A and
Series B Shares, respectively, subtracting the liabilities allocable to its
Series A and Series B Shares, respectively, and dividing by the respective total
number of Series A and Series B Shares outstanding. The net asset values per
Share of each Portfolio are determined independently of the Portfolio's other
classes and independently of the Fund's other portfolios. Because the operating
expenses of Series B Shares are higher than those associated with Series A
Shares, the net asset value per Series A Share of a Portfolio will generally be
higher than the net asset value per Series B Share of the same Portfolio.
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
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<PAGE> 342
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.
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 Series A Shares and Series B Shares will be
reduced by the amount of other expenses allocated to such respective series of
that Portfolio's Investor Shares, including: i) fees payable under the Fund's
Distribution and Service Plan in the case of the Series A Shares; and ii) fees
payable under the Series B Distribution Plan and the Series B Service Plan in
the case of the Series B Shares. All distributions are reinvested at net asset
value in the form of additional full and fractional Investor Shares of the same
series 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
45
<PAGE> 343
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.
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. Generally, a shareholder may include sales charges incurred upon the
purchase of Portfolio Shares in his tax basis for such Shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such Shares.
However, if the shareholder effects an exchange of such Shares for Shares of
another Portfolio within 90 days of the purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the Fund's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged Shares but may be included (subject to the
same limitation) in the tax basis of the new Shares.
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
46
<PAGE> 344
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 "Series A Investor Shares", "Service
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 authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Fund. For information regarding these other portfolios,
contact the Distributor by phone at (800) 998-7633 or at the address listed in
"Distribution of Shares."
Each share of an investment portfolio has a par value of $.001, represents
an equal proportionate interest in the particular portfolio and is entitled to
such dividends and distributions earned on such portfolio's assets as are
declared in the discretion of the Board of Trustees. The Fund's shareholders are
entitled to one vote for each full share held and proportionate fractional votes
for fractional shares held, and will vote in the aggregate and not by class,
except where otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular class or investment portfolio. Under the law of Massachusetts,
the Fund's state of organization, and the Fund's Declaration of Trust and Code
of Regulations, the Fund is not required and does not currently intend to hold
annual meetings of shareholders for the election of trustees (except as required
under the 1940 Act). For a further discussion of the voting rights of
shareholders, see "Additional Information Concerning Shares" in the Statement of
Additional Information.
Holders of Series A Investor Shares bear the fees described under
"Distribution of Shares" that are paid to the Distributor under the Fund's
Distribution and Service Plan. Holders of Series B Investor Shares bear the fees
described under "Distribution of Shares" that are paid to the Distributor under
the Series B Distribution Plan and the fees described under "Shareholder
Servicing" relating to the Series B Service Plan. Similarly, holders of a
Portfolio's Service Shares bear the expense of fees described in the prospectus
for such shares that are paid under the Fund's Service Plan. Payments under the
Service Plan will cover expenses relating to the support services provided to
beneficial owners of Service 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
47
<PAGE> 345
.15% (on an annualized basis) of the average daily net asset value of Service
Shares owned beneficially by their customers, institutions may provide one or
more of the following services to such customers: processing purchase and
redemption requests from customers and placing orders with the Fund's transfer
agent or the Distributor; processing dividend payments from the Fund on behalf
of customers; providing sub-accounting with respect to Service Shares
beneficially owned by customers or the information necessary for sub-accounting;
and other similar services. In consideration for payment of a service fee of up
to a separate .15% (on an annualized basis) of the average daily net asset value
of Service Shares owned beneficially by their customers, institutions may
provide one or more of these additional services to such customers: responding
to customer inquiries relating to the services performed by the institution and
to customer inquiries concerning their investments in Service Shares; providing
information periodically to customers showing their positions in Service Shares;
and other similar shareholder liaison services. Institutional Shares bear no
shareholder servicing or distribution fees. As a result of these different fees,
the net 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 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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE RELATE PRIMARILY TO THE FUND'S INVESTOR SHARES AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVES, POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS PERTAINING TO THE INVESTOR SHARES.
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 8907, Wilmington,
Delaware 19899-8907, toll-free (800) 422-6538.
48
<PAGE> 346
PERFORMANCE INFORMATION
From time to time, total return and yield data for Series A Shares and
Series B Shares of the Balanced Portfolio and total return data for Series A
Shares and Series B 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 of the same series, and also reflects the maximum sales load charged by
the Portfolio. When, however, a Portfolio compares the total return of Shares to
that of other funds or relevant indexes, such total return may also be computed
without reflecting the sales load so long as the sales load is stated separately
in connection with the comparison.
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 maximum offering price 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 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 Series A and Series B 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 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.
* * *
49
<PAGE> 347
- -----------------------------------------------------
- -----------------------------------------------------
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............................. 8
Investment Policies.............................. 18
Investment Limitations........................... 28
Management....................................... 29
Distribution of Shares........................... 33
Shareholder Servicing............................ 35
How to Purchase Shares........................... 35
How to Redeem Shares............................. 41
Investor Programs................................ 42
Net Asset Value.................................. 44
Dividends and Distributions...................... 45
Taxes............................................ 46
Description of Shares............................ 47
Other Information................................ 48
</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
PNCR-P-003
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
[A R T]
THE PNC(R) FUND
THE EQUITY
PORTFOLIOS
INVESTOR 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> 348
This is your
APPLICATION
Detach and Mail to:
PFPC
ATTN: The PNC(R) Fund
P.O. Box 8907
Wilmington, Delaware 19899-8907
FOR ASSISTANCE IN COMPLETING THIS APPLICATION, CALL
THE PNC FUND AT (800) 422-6538.
THE PNC(R) FUND--NEW ACCOUNT APPLICATION
Mail completed application to: PFPC--Attention: The PNC Fund, P.O. Box 8907,
Wilmington, Delaware 19899-8907 .
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
- --------------- PLEASE PRINT / / Individual
1 ------------------------------------------------------------------------------------- / / Joint Tenant
Registration Owner Social Security Number/Tax Identification Number / / Custodian
- --------------- / / UGMA___(state)
/ / Trust
------------------------------------------------------------------------------------- / / Corporation
Co-owner*, minor, trust Social Security Number/Tax Identification Number / / Other_______
------------------------------------------------------------------------------------------------
Street Address
------------------------------------------------------------------------------------------------
City State Zip Code
------------------------------------------------------------------------------------------------
Telephone Number (Day) (Evening)
Citizen(s) of / / USA or / / other, please specify
---------------------------------------------------------------------------------------------------------------------
*For joint registration, both must sign the application in section 5. The registration will be as joint tenants with
the right of survivorship and not as tenants in common, unless otherwise stated.
</TABLE>
<PAGE> 349
<TABLE>
<S> <C>
- --------------- ---------------------------------------------------------------------------------------------------------------
2 Enclosed is my check for $ ___________(minimum of $500 per Portfolio except the minimum is $100 per
Investments Portfolio for employees of the Fund, the Fund's adviser, sub-advisers, distributor or transfer agent or
- --------------- employees of any such service provider's affiliate) made payable to "The PNC Fund."
VALUE EQUITY PORTFOLIO (025) $ _____ VALUE EQUITY PORTFOLIO (031) $ ______
(SERIES A SHARES) (SERIES B SHARES)
GROWTH EQUITY PORTFOLIO (020) $ _____ GROWTH EQUITY PORTFOLIO (032) $ ______
(SERIES A SHARES) (SERIES B SHARES)
INDEX EQUITY PORTFOLIO (026) $ _____ INDEX EQUITY PORTFOLIO (035) $ ______
(SERIES A SHARES) (SERIES B SHARES)
CORE EQUITY PORTFOLIO (030) $ _____ CORE EQUITY PORTFOLIO (034) $ ______
(SERIES A SHARES) (SERIES B SHARES)
SMALL CAP VALUE EQUITY PORTFOLIO (027) $ _____ SMALL CAP VALUE EQUITY PORTFOLIO (036) $ ______
(SERIES A SHARES) (SERIES B SHARES)
INTERNATIONAL EQUITY PORTFOLIO (023) $ _____ INTERNATIONAL EQUITY PORTFOLIO (037) $ ______
(SERIES A SHARES) (SERIES B SHARES)
SMALL CAP GROWTH EQUITY PORTFOLIO (029) $ _____ SMALL CAP GROWTH EQUITY PORTFOLIO (033) $ ______
(SERIES A SHARES) (SERIES B SHARES)
INTERNATIONAL EMERGING MARKETS PORTFOLIO (002) $ _____ INTERNATIONAL EMERGING MARKETS PORTFOLIO (038) $ ______
(SERIES A SHARES) (SERIES B SHARES)
BALANCED PORTFOLIO (021) $ _____ BALANCED PORTFOLIO (039) $ ______
(SERIES A SHARES) (SERIES B SHARES)
SERIES A INVESTOR SHARES ARE SUBJECT TO A FRONT-END SALES CHARGE AND SERIES B INVESTOR SHARES ARE
SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
- --------------- ---------------------------------------------------------------------------------------------------------------
3 A. DIVIDEND ELECTION
Options Unless you elect otherwise, all dividends and capital gains distributions will be automatically
- --------------- reinvested in additional shares. If you prefer to be paid in cash each month, check the appropriate box
below.
Dividends: / / pay in cash / / reinvest
Capital Gains: / / pay in cash / / reinvest
If you elect to be paid in cash, you must check one of the boxes below. If you do not check any box your
distribution will be paid by check to the address of record.
</TABLE>
/ / I request the above distributions be sent by check to the address of
record.
/ / I request the above distributions be sent by check to the special payee
whose address is specified below:
Name of Bank or Individual______Bank Account # (if applicable)____________
Street Address _____________ City_____________ State_____ Zip_____________
/ / I request the above distributions to be sent electronically to my
financial institution as specified below:
Name on Bank Account_____________________ Name of Bank ____________________
Account Number:_______________________ Type: / / Checking / / Savings
Routing Number (ABA#):______________Bank Address___________________________
___________________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
<PAGE> 350
B. WIRE REDEMPTIONS PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT
WANTED.
The Fund or its agents are authorized to honor telephone or other instructions
from any person for the redemption of PNC Fund Shares. Proceeds are to be wire
transferred to the bank account referenced below ($10,000 minimum per
redemption). Shareholders holding share certificates are not eligible for wire
redemption.
Name of Depositor______________________________________________________________
(as shown on bank records)
Name of Bank____________ ABA # ________________________Account No. ____________
(a savings and loan or credit union may not be able to receive wire
redemptions)
Street Address of Bank____________ City____________ State_____ Zip_____________
C. SYSTEMATIC WITHDRAWAL
/ / Systematic Withdrawal Plan requires a minimum account balance of $10,000 in
shares at the current offering price. Minimum withdrawal $100. Each withdrawal
redemption will be processed on or about the 25th of the month and mailed as
soon as possible thereafter. Shareholders holding share certificates are not
eligible for the Systematic Withdrawal Plan because share certificates must
accompany all withdrawal requests.
Start(month)_____________ $(amount)_________/ / Monthly / / Every other Month
/ / Quarterly/ / Semi-annually
/ / Annually
PAYMENT METHOD. Please check one of the following:
If you do not check any box your proceeds will be paid by check to the address
of record.
/ / I request the proceeds to be sent by check to my address of record.
/ / I request the proceeds to be sent by check payable to a person or
organization different than as registered.
Name of Bank or Individual:_____________ Bank Account # (if applicable)________
Street Address_________________City_________________State______Zip_____________
/ / I request the proceeds to be sent electronically to my financial institution
as specified below:
Name on Bank Account:______________________ Name of Bank:______________________
Account Number:____________________________ Type: / / Checking / / Savings
Routing Number (ABA#): ___________________ Bank Address:______________________
PLEASE ATTACH A VOIDED CHECK OR SAVINGS DEPOSIT SLIP.
D. TELEPHONE EXCHANGE IF YOU DO NOT WISH THIS PRIVILEGE, PLEASE CHECK THIS
BOX. / /
Your account will automatically provide for the telephone exchange of Series A
and Series B Shares of one Portfolio for Series A and Series B Shares,
respectively, of other investment portfolios offered by the Fund. Then, when you
wish to exchange shares, all you need to do is call (800) 441-7762. Shareholders
holding share certificates may not exchange shares by telephone. The same
registration and address will be used as is listed on this form under
"Registration." It is understood that neither PFPC nor the Fund will be liable
for any loss, liability, cost or expense for acting upon telephone exchange
requests reasonably believed to be genuine.
E. AUTOMATIC INVESTING
This program provides for investments to be made automatically by authorizing
PFPC to withdraw funds from your bank account. An initial minimum investment of
$50 per Portfolio, and subsequent investments of at least $50, are required. The
Program requires additional information so that PFPC may contact your bank to
make sure the arrangement is properly established. This may not be used with a
Systematic Withdrawal Program.
/ / CHECK HERE AND THE PROPER FORM WILL BE SENT TO YOU.
F. RIGHTS OF ACCUMULATION (SERIES A SHARES ONLY)
I apply for Rights of Accumulation reduced sales charges subject to Agent's
confirmation of the following holdings of Series A Shares in eligible load
Portfolios of The PNC Fund:
<TABLE>
<S> <C> <C>
Portfolio Shareholder Account Number
- ----------------------------------------- ----------------------------------------- -----------------------------------------
- ----------------------------------------- ---------------------------------------- -----------------------------------------
</TABLE>
PLEASE SEE REVERSE SIDE OF APPLICATION.
<PAGE> 351
G. LETTER OF INTENT (SERIES A SHARES ONLY)
/ / I agree to the Letter of Intent provisions of the Prospectus. Although
I am not obligated to purchase, and the Fund is not obligated to sell, I
intend to invest, over a 13 month period beginning on
_____________________, 19______, an aggregate amount in The PNC Fund at
least equal to (check appropriate box):
/ / $50,000 / / $75,000 / / $100,000 / / $250,000
/ / $500,000 / / $1,000,000
H. INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES
(SERIES A SHARES ONLY)
/ / I am purchasing shares of The PNC Fund with the proceeds from the
redemption of shares of another investment company which were sold with a
sales charge or commission.
To qualify for this exemption from the sales charge, purchases of shares of
The PNC Fund must be made within 60 days of the redemption. This exemption
does not apply to purchases of shares with the proceeds from the redemption
of shares of other mutual funds which were or would be subject to a
contingent deferred sales charge upon redemption.
<TABLE>
<S> <C>
- --------------- -----------------------------------------------------------------------------------------------------------------
4 Under penalty of perjury, I certify with my signature below that the number shown in this section of the
Taxpayer application is my correct taxpayer identification number and that I am not subject to backup withholding
Identification as a result of a failure to report all interest or dividends, or the Internal Revenue Service has
Certification notified me that I am no longer subject to backup withholding.
- ---------------
If you are subject to backup withholding, check the box in front of the following statement.
/ / The Internal Revenue Service has notified me that I am subject to backup withholding.
-------------------------------------------------------- -------------------------------------------------------
(Signature) (Signature)
-------------------------------------------------------- --------------------------------------------------------
(President, Trustee, General Partner or Agent) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
- --------------- ---------------------------------------------------------------------------------------------------------------
5
Signatures Citizenship: / / U.S. / / Other_____________________________ Please provide Phone Number(_____)_______________
- --------------- Sign below exactly as printed in Registration.
I (we) am (are) of legal age and have read the Prospectus. I (we) hereby certify that each of the persons
listed below has been duly elected, and is now legally holding the office set below his name and has the
authority to make this authorization.
Please print titles below if signing on behalf of a business or trust.
-------------------------------------------------------- --------------------------------------------------------
(Signature) (Signature)
-------------------------------------------------------- --------------------------------------------------------
(President, Trustee, General Partner or Agent) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
</TABLE>
<TABLE>
<S> <C>
- --------------- ---------------------------------------------------------------------------------------------------------------
6 MUST BE COMPLETED BY DEALER
Investment ------------------------------------------- -------------------------------------------------------------
Dealer Firm Name Representative's Name (print)
- ---------------
NSCC Dealer Number: -------------------------------------------------------------
------------------------------------------- Representative Number Phone Number
Branch Street Address
------------------------------------------- -------------------------------------------------------------
Branch Number City State Zip
------------------------------------------- -------------------------------------------------------------
Representative's Signature Date
</TABLE>
FOR ASSISTANCE IN COMPLETING THIS APPLICATION CALL (800) 422-6538
<PAGE> 352
THE EQUITY 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 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.
Institutional Shares of the Portfolios ("Shares") are sold at net asset
value to institutional investors ("Institutions").
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> 353
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> 354
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES FOR INSTITUTIONAL SHARES AFTER FEE WAIVERS
AS A PERCENTAGE OF DAILY NET ASSETS
<TABLE>
<CAPTION>
SMALL
CAP
VALUE GROWTH GROWTH CORE INDEX
EQUITY EQUITY EQUITY EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Advisory fees(1)............... .43% .43% .48% .43% .05%
Other operating expenses....... .25 .25 .25 .25 .13
--- --- --- --- ---
Administration fees(1)....... .19 .16 .16 .16 .02
Other expenses(1)............ .06 .09 .09 .09 .11
--- --- --- --- ---
Total fund operating expenses.. .68% .68% .73% .68% .18%
=== === === === ===
</TABLE>
<TABLE>
<CAPTION>
SMALL INTER-
CAP INTER- NATIONAL
VALUE NATIONAL EMERGING
EQUITY EQUITY MARKETS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Advisory fees(1)............... .53% .63% 1.00% .43%
Other operating expenses....... .23 .35 .78 .25
--- --- ---- ---
Administration fees(1)....... .15 .18 .05 .11
Other expenses(1)............ .08 .17 .73 .14
--- --- --- ---
Total fund operating expenses.. .76% .98% 1.78% .68%
- ------------------ === === ==== ===
</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 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>
Value Equity................................. $ 7 $22 $38 $ 85
Growth Equity................................ 7 22 38 85
Small Cap Growth Equity...................... 8 24 42 94
Core Equity.................................. 7 22 38 85
Index Equity................................. 2 6 10 23
Small Cap Value Equity....................... 8 24 42 94
International Equity......................... 10 31 54 120
International Emerging Markets............... 18 56
Balanced..................................... 7 22 38 85
</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 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 .81%, .84%, .84%, .84%, .51%, .83%, 1.12%, 2.18% and .89% for
Institutional Shares in 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. 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> 355
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
"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. 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
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> 356
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
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%
</TABLE>
<TABLE>
<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> 357
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
PERIOD
YEAR YEAR YEAR YEAR 11/1/89(1) YEAR
ENDED ENDED ENDED ENDED THROUGH ENDED
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/94
------- -------- ------- ------- ---------- -------
<S> <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
------- -------- ------- ------- ------- -------
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)
------- -------- ------- ------- ------- -------
Total from investment operations...... (1.28) 2.13 0.51 1.75 0.05 (1.29)
------- -------- ------- ------- ------- -------
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
======= ======== ======= ======= ======= =======
Total return................................. (11.14)% 22.18% 4.98% 19.47% 0.40% (11.20)%
Ratios/Supplemental data
Net assets at end of period (in
thousands).............................. $97,834 $100,049 $58,372 $54,912 $39,790 $36,752
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%
Before advisory/administration fee
waivers............................... 0.89% 0.87% 0.86% 0.91% 0.88%(2) 1.14%
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%
Before advisory/administration fee
waivers............................... 0.38% 0.44% 2.06% 2.53% 2.72%(2) 0.26%
Portfolio turnover rate...................... 212% 175% 162% 211% 149% 212%
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------------------------------------
SERVICE
CLASS SERIES A INVESTOR CLASS
---------- --------------------------------------
FOR THE FOR THE
PERIOD PERIOD
7/28/93(1) YEAR YEAR 3/14/92(1)
THROUGH ENDED ENDED THROUGH
9/30/93 9/30/94 9/30/93 9/30/92
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period....... $10.54 $ 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)................ 1.03 (1.33) 2.10 (0.10)
------ ------- ------ ------
Total from investment operations...... 1.03 (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............. $11.57 $ 10.16 $11.57 $ 9.92
====== ======= ====== ======
Total return................................. 9.77% (11.38)%(3) 22.08%(3) (0.17)%(3)
Ratios/Supplemental data
Net assets at end of period (in
thousands).............................. $8,606 $ 5,049 $2,362 $ 239
Ratios of expenses to average net assets
After advisory/administration fee
waivers............................... 0.89%(2) 1.05% 0.91% 0.85%(2)
Before advisory/administration fee
waivers............................... 0.95%(2) 1.29% 0.97% 0.86%(2)
Ratios of net investment income to average
net assets
After advisory/administration fee
waivers............................... (0.03)%(2) 0.29% 0.18% 2.07%(2)
Before advisory/administration fee
waivers............................... (0.09)%(2) 0.05% 0.12% 2.06%(2)
Portfolio turnover rate...................... 175% 212% 175% 162%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
6
<PAGE> 358
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%
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH EQUITY PORTFOLIO
-----------------------------------------------
SERVICE CLASS SERIES A INVESTOR CLASS
-------------- --------------------------
FOR THE PERIOD FOR THE 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.
7
<PAGE> 359
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%
</TABLE>
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
-----------------------------------
SERIES A
SERVICE CLASS INVESTOR CLASS
-------------- ---------------
FOR THE PERIOD FOR THE 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.
8
<PAGE> 360
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%
</TABLE>
<TABLE>
<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> 361
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%
</TABLE>
<TABLE>
<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> 362
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%
</TABLE>
<TABLE>
<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> 363
THE PNC(R) FUND
FINANCIAL HIGHLIGHTS (Continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL
EMERGING MARKETS
PORTFOLIO
-------------------
INSTITUTIONAL CLASS
-------------------
FOR THE PERIOD
6/17/941
THROUGH
9/30/94
-------------------
<S> <C>
Net asset value at beginning of period................................................... $10.00
------
Income from investment operations
Net investment income................................................................. 0.03
Net gain (loss) on investments (both realized and unrealized)......................... 0.53
------
Total from investment operations.................................................. 0.56
------
Less distributions
Distributions from net investment income.............................................. --
Distributions from net realized capital gains......................................... --
------
Total distributions............................................................... --
------
Net asset value at end of period......................................................... $10.56
======
Total return............................................................................. 5.60%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................ $2,511
Ratios of expenses to average net assets
After advisory/administration fee waivers........................................... 1.75%(2)
Before advisory/administration fee waivers.......................................... 2.73%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................................... 1.19%(2)
Before advisory/administration fee waivers.......................................... 0.21%(2)
Portfolio turnover rate.................................................................. 4%
</TABLE>
<TABLE>
<CAPTION>
SERVICE CLASS
--------------
FOR THE PERIOD
6/17/941
THROUGH
9/30/94
--------------
<S> <C>
Net asset value at beginning of period................................................... $10.00
------
Income from investment operations
Net investment income................................................................. 0.02
Net gain (loss) on investments (both realized and unrealized)......................... 0.53
------
Total from investment operations.................................................. 0.55
------
Less distributions
Distributions from net investment income.............................................. --
Distributions from net realized capital gains......................................... --
------
Total distributions............................................................... --
------
Net asset value at end of period......................................................... $10.55
======
Total return............................................................................. 5.50%
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................ $3,505
Ratios of expenses to average net assets
After advisory/administration fee waivers........................................... 2.00%(2)
Before advisory/administration fee waivers.......................................... 2.98%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................................... 1.10%(2)
Before advisory/administration fee waivers.......................................... 0.12%(2)
Portfolio turnover rate.................................................................. 4%
</TABLE>
<TABLE>
<CAPTION>
SERIES A INVESTOR CLASS
-----------------------
FOR THE PERIOD
6/17/941
THROUGH
9/30/94
-----------------------
<S> <C>
Net asset value at beginning of period................................................... $10.00
------
Income from investment operations
Net investment income................................................................. 0.02
Net gain (loss) on investments (both realized and unrealized)......................... 0.52
------
Total from investment operations.................................................. 0.54
------
Less distributions
Distributions from net investment income.............................................. --
Distributions from net realized capital gains......................................... --
------
Total distributions............................................................... --
------
Net asset value at end of period......................................................... $10.54
======
Total return............................................................................. 5.40%(3)
Ratios/Supplemental data
Net assets at end of period (in thousands)............................................ $2,857
Ratios of expenses to average net assets
After advisory/administration fee waivers........................................... 2.15%(2)
Before advisory/administration fee waivers.......................................... 3.13%(2)
Ratios of net investment income to average net assets
After advisory/administration fee waivers........................................... 0.74%(2)
Before advisory/administration fee waivers.......................................... (0.24)%(2)
Portfolio turnover rate.................................................................. 4%
</TABLE>
- -------------
(1) Commencement of operations.
(2) Annualized.
(3) Sales load not reflected in total return.
12
<PAGE> 364
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%
</TABLE>
<TABLE>
<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> 365
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
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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,
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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-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 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 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
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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<PAGE> 375
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
24
<PAGE> 376
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> 377
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.
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<PAGE> 378
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, 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 the 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> 379
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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 the 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.
------------------------------------
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.
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<PAGE> 380
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.
------------------------------------
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.
------------------------------------
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 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
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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.
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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 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.
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NET ASSET VALUE
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The net asset value for each Institutional 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.
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
31
<PAGE> 383
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 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.
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 stocks or securities of
foreign corporations, a Portfolio may elect, for U.S. Federal income tax
purposes, to
32
<PAGE> 384
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 "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 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 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.
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
33
<PAGE> 385
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 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. 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
34
<PAGE> 386
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 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
35
<PAGE> 387
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 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 Service Organizations directly to their customer accounts in
connection with investments in Shares will not be included in the calculations
of yield and total return.
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<PAGE> 388
================================================================================
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................ 29
Net Asset Value.................................. 31
Dividends and Distributions...................... 31
Taxes............................................ 32
Description of Shares............................ 33
Other Information................................ 35
</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
PNCI-P-003M
================================================================================
THE EQUITY
PORTFOLIOS
INSTITUTIONAL
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
================================================================================
