<PAGE>
[LOGO] ...................................... with investment objectives of
SAFETY o LIQUIDITY o INCOME
OCC Cash Reserves (the 'Fund') is a money market fund with five distinct
Portfolios--the Primary Portfolio, the Government Portfolio, the General
Municipal Portfolio, the California Municipal Portfolio and the New York
Municipal Portfolio (the 'Portfolios').
Safety of principal is sought by investing in securities which are selected
for their high quality, liquidity and stability of principal. A security at the
time of purchase cannot have a maturity exceeding thirteen months within the
meaning of the Investment Company Act of 1940, and the average weighted maturity
of all securities in the Portfolio cannot exceed 90 days. Such a short average
maturity enhances the ability of each Portfolio to provide both liquidity and
stability of value to you and your fellow shareholders. While each Portfolio
seeks to maintain (and has maintained) its share price at $1.00, investments in
the Portfolios are not guaranteed or insured by the U.S. Government and there is
no assurance that a Portfolio will maintain a constant price of $1.00 per share.
The California Municipal Portfolio and the New York Municipal Portfolio each may
invest a significant percentage of its assets in a single issuer and therefore
investment in those Portfolios may be riskier than an investment in other types
of money market funds.
IS OCC CASH RESERVES FOR YOU?
The Fund is designed for individuals, institutions, advisors, custodians,
charities, fiduciaries and corporations who can benefit from a fund seeking
maximum current income and who place value on an investment having safety of
principal, liquidity, stability, simplicity, and convenience. The availability
of five separate Portfolios provides you with the advantage of selecting a
combination of investment characteristics particularly suitable to your needs.
The five Portfolios described in this Prospectus compare to one another as
follows:
<TABLE>
<S> <C>
Primary Portfolio -- highest money market income; conservative investments
Government -- high money market income; very conservative investments
Portfolio
General Municipal -- highest money market tax-exempt income; conservative investments
Portfolio
California -- highest money market income exempt from Federal and California personal income
Municipal taxes; conservative investments
Portfolio
New York Municipal -- highest money market income exempt from Federal, New York State and New York
Portfolio City income taxes; conservative investments
</TABLE>
<PAGE>
EXPENSE INFORMATION
The expense summary format below was developed for use by all mutual funds
to help investors understand the various direct costs and expenses related to a
fund investment.
SHAREHOLDER TRANSACTION EXPENSES (FOR EACH PORTFOLIO)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Redemption Fees...................................................... None
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
GENERAL CALIFORNIA NEW YORK
PRIMARY GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Management fees.............................. .41% .49% .49% .50% .50%
12b-1 (Distribution Plan) expenses........... .25% .25% .25% .25% .25%
Other Expenses............................... .19% .24% .22% .21% .23%
--- --- --- --- ---
Total Operating Expenses..................... .85% .98% .96% .96% .98%
</TABLE>
During the fiscal year ended November 30, 1997, OpCap Advisors (the
'Advisor') waived part of its advisory fee with respect to the Government
Portfolio, the General Municipal Portfolio, the California Municipal Portfolio
and the New York Municipal Portfolio. After giving effect to such waivers, the
management fees for the Government Portfolio, the General Municipal Portfolio,
the California Municipal Portfolio and the New York Municipal Portfolio were
.49%, .49%, .44% and .50%, respectively. The advisory fee waivers for the
Government, General Municipal and New York Municipal Portfolio were pursuant to
an agreement by the Advisor to assume expenses (net of any expense offsets) in
excess of 1.00% of average net assets in any fiscal year. The advisory fee
waiver for the California Municipal Portfolio was voluntary to the extent of fee
waivers made to bring expenses below 1.00% of average net assets. Other Expenses
are shown gross of certain expense offsets afforded the Portfolio which
effectively lowered overall custody expenses. After giving effect to such
waivers and expense offsets, total operating expenses were .98%, .96%, .90% and
.97% respectively, for the Government Portfolio, the General Municipal
Portfolio, the California Municipal Portfolio and the New York Municipal
Portfolio.
The following table illustrates the expenses that an investor would pay on
a hypothetical $1,000 investment in each of the Portfolios assuming a 5% annual
return (cumulatively through the end of each time period). Neither the 5% return
nor the estimated expenses should be considered an indication of actual or
expected performance or expenses, both of which may vary.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Primary Portfolio............................................... $ 8.68 $ 27.13 $ 47.14 $ 104.89
Government Portfolio............................................ 10.00 31.22 54.17 120.12
General Municipal Portfolio..................................... 9.79 30.58 53.09 117.81
California Municipal Portfolio.................................. 9.79 30.58 53.09 117.81
New York Municipal Portfolio.................................... 10.00 31.22 54.17 120.12
</TABLE>
2
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The financial information presented below has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report thereon
appears in the Statement of Additional Information ('SAI'). Investors should
understand that all the following information should be read in conjunction with
the financial statements and related notes thereto appearing in the SAI.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS DIVIDENDS
INVESTMENT OPERATIONS AND DISTRIBUTIONS
------------------------------------------------- ------------------------------------------
DISTRIBUTIONS TOTAL
NET TOTAL DIVIDENDS TO TO DIVIDENDS
NET ASSET REALIZED INCOME SHAREHOLDERS SHAREHOLDERS AND
VALUE, NET GAIN/(LOSS) FROM FROM NET FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TO
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C> <C>
PRIMARY PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 $0.047 ($0.000) $0.047 ($ 0.047) -- ($ 0.047)
1996......................... 1.000 0.046 (0.000) 0.046 (0.046) ($ 0.000) (0.046)
1995......................... 1.000 0.051 0.000 0.051 (0.051) (0.000) (0.051)
1994......................... 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032)
1993......................... 1.000 0.024 0.000 0.024 (0.024) (0.000) (0.024)
1992......................... 1.000 0.033 0.000 0.033 (0.033) (0.000) (0.033)
1991......................... 1.000 0.057 (0.000) 0.057 (0.057) -- (0.057)
December 13, 1989(4) to
November 30, 1990........... 1.000 0.073 0.000 0.073 (0.073) (0.000) (0.073)
<CAPTION>
RATIOS TO
AVERAGE NET
ASSETS
-----------------------
NET ASSET NET ASSETS,
VALUE, END OF NET NET
END TOTAL PERIOD OPERATING INVESTMENT
OF PERIOD RETURN* (MILLIONS) EXPENSES INCOME
<S> <C> <C> <C> <C> <C>
PRIMARY PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 4.85% $ 2,166.6 0.85%(1,2) 4.75%(1)
1996......................... 1.000 4.69% 1,712.6 0.91%(2) 4.60%
1995......................... 1.000 5.19% 1,671.1 0.94% 5.07%
1994......................... 1.000 3.26% 1,453.8 0.91% 3.21%
1993......................... 1.000 2.44% 1,413.9 0.90% 2.41%
1992......................... 1.000 3.38% 1,168.3 0.88% 3.34%
1991......................... 1.000 5.89% 1,249.0 0.86% 5.74%
December 13, 1989(4) to
November 30, 1990........... 1.000 7.80%(3) 1,244.2 0.87%(3,5) 7.47%(3,5)
</TABLE>
(1) Average net assets for the year ended November 30, 1997 were $1,926,769,081.
(2) Gross of expenses offset (see note 1g in Notes to Financial Statements). The
net ratios of operating expenses to average net assets were 0.85% and 0.91%
for the years ended November 30, 1997 and November 30, 1996, respectively.
(3) Annualized.
(4) Commencement of operations.
(5) During the period noted above, the Adviser waived a portion of its fees. Had
such waiver not been in effect, the net operating expense and net investment
income ratios would have been 0.88% and 7.46%, respectively.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 $0.045 ($0.000) $0.045 ($ 0.045) -- ($ 0.045)
1996......................... 1.000 0.044 (0.000) 0.044 (0.044) ($ 0.000) (0.044)
1995......................... 1.000 0.049 0.000 0.049 (0.049) (0.000) (0.049)
1994......................... 1.000 0.031 0.000 0.031 (0.031) -- (0.031)
1993......................... 1.000 0.022 -- 0.022 (0.022) -- (0.022)
1992......................... 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032)
1991......................... 1.000 0.055 -- 0.055 (0.055) -- (0.055)
February 14, 1990(4) to
November 30, 1990........... 1.000 0.059 0.000 0.059 (0.059) (0.000) (0.059)
<S> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 4.60% $ 100.0 0.98%(1,2) 4.51%(1,2)
1996......................... 1.000 4.51% 101.1 1.00%(1) 4.41%(1)
1995......................... 1.000 5.02% 108.6 1.00%(1) 4.91%(1)
1994......................... 1.000 3.12% 113.2 0.95%(1) 3.08%(1)
1993......................... 1.000 2.26% 127.9 1.00% 2.24%
1992......................... 1.000 3.24% 131.7 0.93%(1) 3.23%(1)
1991......................... 1.000 5.69% 142.2 0.84%(1) 5.62%(1)
February 14, 1990(4) to
November 30, 1990........... 1.000 7.67%(3) 150.1 0.67%(1,3) 7.34%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers and assumptions not been in effect nor such
expenses offset, the ratios of net operating expenses to average net assets
would have been 0.99%, 1.00%, 1.02%, 0.97%, 0.94%, 0.92% and 1.19%,
respectively, and the ratios of net investment income to average net assets
would have been 4.50%, 4.41%, 4.89%, 3.06%, 3.22%, 5.54% and 6.82%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $98,910,547.
(3) Annualized.
(4) Commencement of operations.
* Assumes reinvestment of all dividends and distributions.
3
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS
INVESTMENT OPERATIONS AND DISTRIBUTIONS
------------------------------------- ----------------------------------------
NET TOTAL DIVIDENDS TO
NET ASSET REALIZED INCOME SHAREHOLDERS NET ASSET
VALUE, NET GAIN/(LOSS) FROM FROM NET CAPITAL VALUE,
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CONTRIBUTIONS END
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME BY ADVISOR OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
GENERAL MUNICIPAL PORTFOLIO
Year ended November 30,
1997.................................. $ 1.000 $0.027 ($0.000) $0.027 ($ 0.027) -- $ 1.000
1996.................................. 1.000 0.025 0.000 0.025 (0.025) -- 1.000
1995.................................. 1.000 0.031 0.000 0.031 (0.031) -- 1.000
1994.................................. 1.000 0.020 (0.000) 0.020 (0.020) -- 1.000
1993.................................. 1.000 0.017 (0.000) 0.017 (0.017) -- 1.000
1992.................................. 1.000 0.026 (0.000) 0.026 (0.026) -- 1.000
1991.................................. 1.000 0.042 0.000 0.042 (0.042) -- 1.000
February 14, 1990(4) to
November 30, 1990.................... 1.000 0.042 (0.000) 0.042 (0.042) -- 1.000
<CAPTION>
RATIOS TO
AVERAGE NET
ASSETS
NET ASSETS, -----------------------
END OF NET NET
TOTAL PERIOD OPERATING INVESTMENT
RETURN* (MILLIONS) EXPENSES INCOME
<S> <C> <C> <C> <C>
GENERAL MUNICIPAL PORTFOLIO
Year ended November 30,
1997.................................. 2.74% $ 137.0 0.96%(1,2) 2.70%(1,2)
1996.................................. 2.56% 122.3 0.99%(1) 2.53%(1)
1995.................................. 3.11% 116.0 0.93%(1) 3.07%(1)
1994.................................. 2.04% 108.7 0.90%(1) 2.01%(1)
1993.................................. 1.74% 109.7 0.98%(1) 1.73%(1)
1992.................................. 2.66% 112.9 0.90%(1) 2.62%(1)
1991.................................. 4.24% 100.1 0.88%(1) 4.20%(1)
February 14, 1990(4) to
November 30, 1990.................... 5.45%(3) 107.9 0.71%(1,3) 5.32%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.99%, 1.02%, 1.01%, 1.01%, 1.00%, 0.98% and 1.00%,
respectively, and the ratios of net investment income to average net assets
would have been 2.70%, 2.53%, 2.98%, 1.90%, 1.70%, 2.52%, 4.10% and 5.03%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $134,817,925.
(3) Annualized.
(4) Commencement of operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL PORTFOLIO
Year ended November 30,
1997.................................. $ 1.000 $0.026 ($0.000) $0.026 ($ 0.026) -- $ 1.000
1996.................................. 1.000 0.024 -- 0.024 (0.024) -- 1.000
1995.................................. 1.000 0.031 (0.008) 0.023 (0.031) $ 0.008 1.000
1994.................................. 1.000 0.020 (0.000) 0.020 (0.020) -- 1.000
1993.................................. 1.000 0.017 (0.000) 0.017 (0.017) -- 1.000
1992.................................. 1.000 0.025 (0.000) 0.025 (0.025) -- 1.000
March 20, 1991(5) to
November 30, 1991.................... 1.000 0.026 (0.000) 0.026 (0.026) -- 1.000
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL PORTFOLIO
Year ended November 30,
1997.................................. 2.68% $ 55.7 0.90%(1,2) 2.64%(1,2)
1996.................................. 2.42% 53.4 0.85%(1) 2.42%(1)
1995.................................. 3.10%(3) 75.9 0.82%(1) 3.05%(1)
1994.................................. 1.99% 61.3 0.85%(1) 1.99%(1)
1993.................................. 1.76% 62.3 0.85%(1) 1.75%(1)
1992.................................. 2.57% 61.2 0.60%(1) 2.51%(1)
March 20, 1991(5) to
November 30, 1991.................... 4.24%(4) 45.4 0.54%(1,4) 3.75%(1,4)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.97%, 0.95%, 0.97%, 0.98%, 1.02% and 1.08%, respectively,
and the ratios of net investment income to average net assets would have
been 2.58%, 2.30%, 2.92%, 1.87%, 1.62%, 2.09% and 3.21%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $57,449,650.
(3) Had the Adviser not made the capital contribution, the Portfolio's total
return would have been lower.
(4) Annualized.
(5) Commencement of operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK MUNICIPAL PORTFOLIO
Year ended November 30,
1997.................................. $ 1.000 $0.026 ($0.000) $0.026 ($ 0.026) -- $ 1.000
1996.................................. 1.000 0.025 -- 0.025 (0.025) -- 1.000
1995.................................. 1.000 0.030 0.000 0.030 (0.030) -- 1.000
1994.................................. 1.000 0.019 (0.000) 0.019 (0.019) -- 1.000
1993.................................. 1.000 0.016 (0.000) 0.016 (0.016) -- 1.000
1992.................................. 1.00 0.025 (0.000) 0.025 (0.025) -- 1.000
April 10, 1991(4) to
November 30, 1991.................... 1.00 0.024 (0.000) 0.024 (0.024) -- 1.000
<S> <C> <C> <C> <C>
NEW YORK MUNICIPAL PORTFOLIO
Year ended November 30,
1997.................................. 2.66% $ 73.2 0.98%(1,2) 2.63%(1,2)
1996.................................. 2.50% 60.0 0.97%(1) 2.45%(1)
1995.................................. 3.07% 52.3 0.79%(1) 3.02%(1)
1994.................................. 1.92% 48.0 0.82%(1) 1.90%(1)
1993.................................. 1.66% 42.2 0.79%(1) 1.64%(1)
1992.................................. 2.56% 32.9 0.74%(1) 2.43%(1)
April 10, 1991(4) to
November 30, 1991.................... 4.29%(3) 18.4 0.56%(1,3) 3.80%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers and assumptions not been in effect nor such
expenses offset, the ratios of net operating expenses to average net assets
would have been 0.98%, 0.98%, 1.00%, 1.01%, 1.03%, 1.19% and 1.43%,
respectively, and the ratios of net investment income to average net assets
would have been 2.62%, 2.44%, 2.81%, 1.71%, 1.40%, 1.98% and 2.93%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $64,686,712.
(3) Annualized.
(4) Commencement of operations.
* Assumes reinvestment of all dividends.
4
<PAGE>
OCC CASH RESERVES PRIMARY PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The Primary Portfolio's investment objectives are in the following order of
priority--safety of principal, liquidity, and maximum current income from money
market securities to the extent consistent with the first two objectives. As a
matter of fundamental policy, the Primary Portfolio pursues its objectives by
maintaining a diversified portfolio of high quality money market securities of
the types described in the succeeding section, all of which at the time of
investment have remaining maturities of thirteen months or less within the
meaning of the Investment Company Act of 1940 (the 'Act'). While the Portfolio
may not change this policy or the other 'fundamental investment policies'
described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Primary Portfolio's objectives will be achieved.
MONEY MARKET SECURITIES
The money market securities in which the Primary Portfolio invests are (1)
marketable obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities (collectively 'U.S. Government Securities'); (2)
U.S. dollar-denominated certificates of deposit and bankers' acceptances of
prime quality issued or guaranteed by, and interest-bearing time deposits
maintained at, (a) U.S. banks or savings and loan associations having total
assets of more than $1 billion and which are insured under the administration of
the Federal Deposit Insurance Corporation ('FDIC'), (b) foreign branches of such
U.S. institutions, and U.S. or foreign branches of foreign banks having total
assets of at least $1 billion; (3) domestic or foreign commercial paper of prime
quality and participation interests in loans of equivalent quality extended by
banks to such companies; and (4) repurchase agreements that are collateralized
in full each day by U.S. Government Securities. For the purposes of this
prospectus, prime quality shall mean the security (or the issuer for a
comparable security) is rated in one of the two highest rating categories for
short term debt obligations by any two of Standard & Poor's Corporation ('S&P'),
Moody's Investors Service, Inc. ('Moody's'), Fitch Investors Service, Inc.
('Fitch'), Duff & Phelps, Inc. ('Duff') or Thomson BankWatch, Inc., or by one of
such rating agencies if only one rating agency has issued a rating with respect
to the security, or, if not rated, judged by the Advisor pursuant to criteria
adopted by the Fund's Board of Directors to be of comparable quality.
Investments by the Primary Portfolio which do not satisfy one of the
following requirements are considered to be 'Second Tier Securities' and are
limited in the aggregate to 5% of the Portfolio's total assets in regard to
issues and to 1% of total assets (or $1 million if greater) in regard to any one
issuer of such issues: (i) issues rated in the highest category (or the issuer
is so rated for a comparable security) by at least two of the above-listed
rating agencies; or (ii) if rated only by one agency, rated in the highest
category; or (iii) if unrated, determined by the Board of Directors to be of
quality comparable to issues which qualify under (i) or (ii). Securities that
meet the above requirements are considered 'First Tier Securities.'
Certificates of deposit represent the obligation of a bank to repay funds
deposited with it for a specified period of time. Bankers' acceptances are
short-term collateralized credit instruments drawn on and evidencing the
obligation of a bank to pay the value at maturity. Commercial paper consists of
unsecured promissory notes issued by corporations to finance short-term credit
needs. Participation interests are undivided beneficial interests in loans
giving the purchaser the right to receive a pro rata share of a loan's cash
flow. Repurchase agreements are contracts under which the buyer acquires a
security subject to the obligation of the seller to repurchase at a fixed price,
usually within one week. The Fund enters into such agreements only with 'primary
dealers' (as designated by the Federal Reserve Bank of New
5
<PAGE>
York) in U.S. Government Securities and with the Fund's Custodian. The Fund
could experience a loss in the event of its failure to realize full value upon
collateral liquidation required by a dealer's default. Though investments in
obligations of foreign issuers may be higher yielding than those of domestic
issuers, they may involve certain different risks such as exchange control
regulations; limited availability of information about the issuer; differences
in accounting, auditing and financial reporting standards and government
regulation; the possibility of expropriation, nationalization or confiscatory
taxation; political or social instability or diplomatic developments; and the
differences between the economies of the United States and the applicable
foreign country, even though the Fund's investments are limited to those in
'developed countries.' Each of these factors is carefully considered when
investments are made, but the Fund does not limit the amount of its assets which
can be invested in any particular type of eligible obligation or in any
developed foreign country.
The Fund uses the amortized cost method to value its portfolio securities
pursuant to Rule 2a-7 of the Act. Certain provisions of Rule 2a-7, which become
effective on July 1, 1998, are more restrictive than certain of the fundamental
investment policies of the Portfolios. Effective July 1, 1998, the Portfolios
will comply with the more restrictive provisions of Rule 2a-7.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the
Primary Portfolio may not (1) invest more than 25% of its total assets in the
securities of issuers conducting their principal business activities in any one
industry, except that under normal circumstances at least 25% of its total
assets will be invested in bank obligations; (2) invest more than 5% of its
total assets in the securities of any issuer (loan participations are considered
obligations of both the lender and the borrower); (3) invest more than 10% of
its total assets in repurchase agreements not terminable within seven days
(whether or not illiquid) or other illiquid investments including participation
interests and other instruments described above for which no secondary markets
exist: (4) borrow money except from banks for extraordinary or emergency
purposes in aggregate amounts not exceeding 15% of its total assets (and, when
such borrowings exceed 5% of its total assets, make any further investments);
and (5) mortgage, pledge or hypothecate its assets except to secure such
borrowings. Limitations (1) and (2) do not apply to U.S. Government Securities.
OCC CASH RESERVES GOVERNMENT PORTFOLIO
INVESTMENT OBJECTIVES AND PROCEDURES
The Government Portfolio's investment objectives are in the following order
of priority--safety of principal, liquidity, and maximum current income from
money market securities to the extent consistent with the first two objectives.
As a matter of fundamental policy, the Government Portfolio pursues its
objectives by maintaining a diversified portfolio of high quality money market
securities of types described in the succeeding paragraph, all of which at the
time of investment have remaining maturities of thirteen months or less within
the meaning of the Act. While the Portfolio may not change this policy or the
'other fundamental investment policies' described below without shareholder
approval, it may, upon notice to shareholders but without such approval, change
its other investment policies. As is true with all investment companies, there
can be no assurance that the Government Portfolio's objectives will be achieved.
MONEY MARKET SECURITIES
The money market securities in which the Government Portfolio invests are
(1) marketable obligations of, or guaranteed by, the United States
6
<PAGE>
Government, its agencies or instrumentalities (collectively 'U.S. Government
Securities'), including direct obligations of the United States Treasury such as
Bills, Notes and Bonds, and issues of agencies and instrumentalities established
under the authority of an act of Congress such as the Federal Home Loan Banks,
which have the right to borrow from the U.S. Treasury, and the Federal National
Mortgage Association, the securities of which are solely dependent on the
issuing instrumentality for repayment; and (2) repurchase agreements that are
collateralized in full each day by the types of U.S. Government Securities
listed above. These agreements are entered into with 'primary dealers' (as
designated by the Federal Reserve Bank of New York) in U.S. Government
Securities and with the Fund's Custodian.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the
Government Portfolio may not (1) invest more than 5% of its total assets in
repurchase agreements with any one vendor, although with respect to 25% of its
total assets it may invest without regard to such limitation; (2) invest more
than 10% of its total assets in repurchase agreements not terminable within
seven days (whether or not illiquid) or other illiquid investments; (3) borrow
money except from banks for extraordinary or emergency purposes in aggregate
amounts not exceeding 15% of its total assets (and, when such borrowings exceed
5% of its total assets, make any further investments); and (4) mortgage, pledge
or hypothecate its assets except to secure such borrowings.
OCC CASH RESERVES GENERAL MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The General Municipal Portfolio's investment objectives are in the
following order of priority-safety of principal, liquidity, and, to the extent
consistent with these objectives, maximum current income from money market
securities that is exempt from Federal income taxes. As a matter of fundamental
policy, the General Municipal Portfolio pursues its objectives by maintaining a
diversified portfolio of high-grade municipal securities of the types described
in the succeeding section, all of which at the time of investment have remaining
maturities of thirteen months or less within the meaning of the Act and
generate, in the opinion of bond counsel to the issuer, interest that is exempt
from Federal income taxes. At least 80% of the Portfolio's total assets will be
invested in such securities (not including securities treated as tax preference
items) unless the Advisor has determined that it is in the best interest of the
Portfolio to assume a temporary defensive position involving a greater
commitment of assets to obligations generating taxable income. Normally,
substantially all of the Portfolio's income will be exempt from Federal taxes,
although it may be subject to state or local income taxes. While the Portfolio
may not change this policy or the 'other fundamental investment policies'
described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
General Municipal Portfolio's objectives will be achieved.
Under the current Internal Revenue Code (1) interest on tax-exempt
municipal securities issued after August 7, 1986 and used to finance 'private
activities' (e.g., industrial development bonds) shall be treated as an item of
tax preference for purposes of alternative minimum tax ('AMT') imposed on
individuals and corporations, though for Federal income tax purposes such
interest shall remain fully tax-exempt, and (2) interest on all tax-exempt
obligations shall be included in 'adjusted net book income' of corporations for
AMT purposes. The General Municipal Portfolio may purchase 'private activity'
municipal securities without limitation and therefore a substantial portion (and
potentially all) of any distribution from the Portfolio may be treated as a tax
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preference item (with resulting tax) for those taxpayers subject to AMT.
Investors who are already subject to AMT should consider whether an investment
in the Portfolio is suitable for them. Investors are urged to consult their own
tax advisors with respect to their own tax situations.
MUNICIPAL SECURITIES
The municipal securities in which the General Municipal Portfolio invests
are municipal notes, short-term municipal bonds, short-term discount notes, and
participation interests in any of the foregoing. Municipal notes are generally
used to provide for short-term capital needs and generally have maturities of
thirteen months or less. Examples include tax anticipation and revenue
anticipation notes which are generally issued in anticipation of various
seasonal revenues, bond anticipation notes, and tax-exempt commercial paper.
Municipal notes and short-term municipal bonds may either be secured by the
issuer's pledge of its faith, credit and taxing power for payment of principal
and interest, or paid from the revenues of a particular facility or a specific
excise or other source. Included within the revenue bonds category are
participations in lease obligations or installment purchase contracts
(hereinafter collectively called 'lease obligations') of municipalities. States
and local agencies or authorities issue lease obligations to acquire equipment
and facilities. Short-term discount notes are short-term obligations issued at a
discount to face value. Participation interests are undivided interests in loans
giving the purchaser the right to a pro-rata share of a loan's cash flow.
All of the General Municipal Portfolio's municipal securities at the time
of purchase must be of prime quality, as previously defined. Securities must
also meet credit standards applied by the Advisor.
The General Municipal Portfolio may invest in variable rate obligations
whose interest rates are adjusted either at predesignated periodic intervals or
whenever there is a change in the market rate to which the security's interest
rate is tied. Such adjustments minimize changes in the market value of the
obligation and, accordingly, enhance the ability of the Portfolio to maintain a
stable net asset value. Variable rate securities purchased may include
participation interests in industrial development bonds backed by letters of
credit of domestic or foreign banks having total assets of more than $1 billion;
the letters of credit of any single bank in respect of all variable rate
obligations will not cover more than 10% of the Portfolio's total assets.
The General Municipal Portfolio also may purchase tender option bonds. A
tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer, or other financial institution, pursuant to which such
institution grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face value thereof.
As consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities coupled
with the tender option to trade at par on the date of such determination. Thus,
after payment of the fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor, on behalf of the General Municipal Portfolio, will consider on an
ongoing basis the creditworthiness of the issuer of the underlying municipal
security, of any custodian, and of the third party provider of the tender
option. In certain instances and for certain tender option bonds, the option may
be terminable in the event of a default in payment of principal or interest on
the underlying municipal securities, and for other reasons. The Fund will
consider as illiquid securities tender option bonds as to which it cannot
exercise the tender feature on not more than seven days' notice if there is no
secondary market available for these obligations.
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Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Lease obligations and conditional sale
contracts (which may provide for title to the leased asset to pass eventually to
the issuer), have developed as a means for government issuers to acquire
property and equipment without the necessity of complying with the
constitutional and statutory requirements generally applicable for the issuance
of debt. Certain lease obligations contain 'non-appropriation' clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purposes by
the appropriate legislative body on an annual or other periodic basis.
Consequently, continued lease payments on those lease obligations containing
'non-appropriation' clauses are dependent on future legislative actions. If such
legislative actions do not occur, the holders of the lease obligation may
experience difficulty in exercising their rights, including disposition of the
property.
In addition, lease obligations may not have the depth of marketability
associated with other municipal obligations, and as a result, certain of such
lease obligations may be considered illiquid securities. To determine whether or
not the General Municipal Portfolio will consider such securities to be illiquid
(the Portfolio may not invest more than 10% of its net assets in illiquid
securities), the following guidelines have been established to determine the
liquidity of a lease obligation. The factors to be considered in making the
determination include: (1) the frequency of trades and quoted prices for the
obligation; (2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
The General Municipal Portfolio also may invest in forward commitments,
which obligate the Portfolio to purchase securities, and stand-by commitments or
puts, which give the Portfolio the right to resell securities, from or to a
dealer at a specified price. Such commitments, which may involve certain
expenses and risks, are not expected to comprise a significant portion of the
Portfolio's investments. The Portfolio may commit up to 15% of its net assets to
the purchase of when-issued securities. The underlying securities are subject to
market fluctuations and no interest accrues prior to delivery of such
securities.
The Portfolio may invest a significant percentage of its assets in
municipal obligations subject to put or demand features and similar credit and
liquidity enhancements. Because the Portfolio invests in securities backed by
banks and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Portfolio.
TAXABLE INVESTMENTS
The taxable investments in which the General Municipal Portfolio may invest
include obligations of the U.S. Government and its agencies or
instrumentalities; high quality certificates of deposit and bankers'
acceptances; prime commercial paper; and repurchase agreements collateralized at
all times by such instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain Portfolio diversification and reduce investment risk, the
General Municipal Portfolio may not (1) invest more than 25% of its total assets
in municipal securities whose issuers are located in the same state or more than
25% of its total assets in municipal securities whose interest is paid from
revenues of similar-type projects; (2) invest more than 5% of its total assets
in the securities of any one issuer (except the U.S. Government) except that up
to 25% of its total assets may be invested in the First Tier Securities of a
single issuer for a period of three business days (this exception is not
available for more than one issuer at any time); it may invest without regard to
such 5% limitation with respect to 25% of its total assets until July 1, 1998;
(3) invest more than 10% of its total assets in repurchase agreements not
terminable within seven days (whether or not illiquid) or other illiquid
investments; (4) borrow
9
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money except from banks for extraordinary or emergency purposes and in aggregate
amounts not exceeding 15% of its total assets (and, when such borrowings exceed
5% of its total assets, make any further investments); and (5) mortgage, pledge
or hypothecate its assets except to secure such borrowings.
On and after July 1, 1998, the General Municipal Portfolio will not invest
more than 5% of its total assets in the securities of any one issuer (except the
U.S. Government) except for the three day period described in (2) above, as
required by Rule 2a-7. In addition, the Portfolio may not invest more than 5% of
its total assets in private activity municipal securities that are Second Tier
Securities and the Portfolio may not invest more than the greater of 1% of its
total assets or $1 million in securities issued by an issuer of private activity
municipal securities that are Second Tier Securities.
OCC CASH RESERVES CALIFORNIA MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the California Municipal Portfolio (the
'Portfolio') are in the following order of priority-safety of principal,
liquidity and, to the extent consistent with these objectives, maximum current
income available from money market securities that is exempt from Federal and
California personal income taxes. The Portfolio pursues its objectives by
maintaining a portfolio of high-grade securities of the types described in the
succeeding section, which at the time of investment have remaining maturities of
thirteen months or less within the meaning of the Act and generate, in the
opinion of bond counsel to the issuer, interest that is exempt from Federal and
California personal income taxes ('California Municipal Securities'). As a
matter of fundamental policy, at least 80% of the Portfolio's total assets will
be invested in California Municipal Securities unless the Advisor determines
that it is in the best interest of the Portfolio to assume a temporary defensive
position involving a greater commitment of assets to obligations generating
taxable income. Normally, substantially all of the Portfolio's income will be
exempt from Federal and California personal income taxes. While the Portfolio
may not change the foregoing policies or the 'other fundamental investment
policies' described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Portfolio's objectives will be achieved.
The Portfolio may purchase 'private activity' municipal securities without
limitation and therefore a substantial portion (and potentially all) of any
distribution from the Portfolio may be treated as a tax preference item (with
resulting tax) for those taxpayers subject to AMT (as defined on page 7).
Investors already subject to AMT should consider whether an investment in the
Portfolio is suitable for them. Investors are urged to consult their own tax
advisors with respect to their own tax situations.
CALIFORNIA MUNICIPAL SECURITIES
The California Municipal Securities in which the Portfolio invests are
municipal notes, short-term municipal bonds, short-term discount notes and
participation interests in any of the foregoing as described under 'Municipal
Securities' on page 8.
All of the Portfolio's securities at the time of purchase are of prime
quality as defined previously. Securities must also meet credit standards
applied by the Advisor.
The Portfolio may invest in variable rate obligations, forward commitments
and stand-by commitments, tender option bonds and lease obligations, as
described and according to the limitations set forth under 'Municipal
Securities' on page 8. The Portfolio may invest a significant percentage of its
assets in
10
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municipal obligations subject to put or demand features and similar credit and
liquidity enhancements. Because the Portfolio invests in securities backed by
banks and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Portfolio.
Investors in the California Municipal Portfolio should consider the
possible greater risk arising from the geographic concentration and
non-diversified structure of the Portfolio's investments, as well as the current
and past financial condition of California municipal issuers which is discussed
in the Statement of Additional Information ('SAI').
TAXABLE INVESTMENTS
While it is anticipated that substantially all of the Portfolio's assets
will be invested in California Municipal Securities, the Portfolio is
authorized, under normal circumstances, to invest up to 20% of its total assets
in taxable investments. The taxable investments are limited to obligations of
the U.S. Government and its agencies or instrumentalities; prime quality
certificates of deposit and bankers acceptances of domestic banks; prime quality
commercial paper; and repurchase agreements collateralized at all times by such
instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To reduce investment risk, the Portfolio may not (1) invest more than 25%
of its total assets in securities whose interest is paid from revenues of
similar-type projects; (2) until July 1, 1998 with respect to 50% of its assets
invest more than 5% of its total assets in the securities of any one issuer
(except the U.S. Government); (3) invest any more than 25% of its assets in any
one issuer; provided that on and after July 1, 1998, the Portfolio may not
invest more than 5% of its total assets in securities of any one issuer that are
not First Tier Securities; (4) invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments; (5) borrow money except from banks for
extraordinary or emergency purposes and in aggregate amounts not exceeding 15%
of its total assets, and when such borrowings exceed 5% of its total assets,
make any further investments; and (6) mortgage, pledge or hypothecate its assets
except to secure such borrowings.
On and after July 1, 1998, the California Municipal Portfolio will not
invest more than five percent of its total assets in securities issued by any
one issuer; this restriction will apply to seventy-five percent of the total
assets of the Portfolio, as required by Rule 2a-7. In addition, the Portfolio
will not invest more than five percent of its total assets in private activity
municipal securities that are Second Tier Securities. The Portfolio will not
invest more than the greater of one percent of its total assets or one million
dollars in private activity municipal securities issued by an issuer that are
Second Tier Securities.
OCC CASH RESERVES NEW YORK MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the New York Municipal Portfolio (the
'Portfolio') are in the following order of priority-safety of principal,
liquidity and, to the extent consistent with these objectives, maximum current
income available from money market securities that is exempt from Federal, New
York State and New York City income taxes. The Portfolio pursues its objectives
by maintaining a portfolio of high-grade securities of the types described in
the succeeding section, which at the time of investment have remaining
maturities of thirteen months or less within the meaning of the Act and
generate, in the opinion of bond counsel to the issuer, interest that is exempt
from Federal, New York State and New York City income taxes ('New York Municipal
Securities'). As a matter of fundamental policy, at least 80% of the Portfolio's
total assets will be invested in New York Municipal Securities unless the
Advisor
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determines that it is in the best interest of the Portfolio to assume a
temporary defensive position involving a greater commitment of assets to
obligations generating taxable income. Normally, substantially all of the
Portfolio's income will be exempt from Federal, New York State and New York City
income taxes. While the Portfolio may not change the foregoing policies or the
'other fundamental investment policies' described below without shareholder
approval, it may, upon notice to shareholders but without such approval, change
its other investment policies. As is true with all investment companies, there
can be no assurance that the Portfolio's objectives will be achieved.
The Portfolio may purchase 'private activity' municipal securities without
limitation, and therefore a substantial portion (and potentially all) of any
distribution from the Portfolio may be treated as a tax preference item (with
resulting tax) for those taxpayers subject to AMT as defined on page 7.
Investors who are already subject to AMT should consider whether an investment
in the Portfolio is suitable for them. Investors are urged to consult their own
tax advisors with respect to their own tax situations.
NEW YORK MUNICIPAL SECURITIES
The New York Municipal Securities in which the Portfolio invests are
municipal notes, short-term municipal bonds, short-term discount notes and
participation interests in any of the foregoing as described under Municipal
Securities on page 8.
All of the Portfolio's securities at the time of purchase are of prime
quality as defined previously. Securities must also meet credit standards
applied by the Advisor.
The Portfolio may invest in variable rate obligations, forward commitments
and stand-by commitments or puts, tender option bonds and lease obligations as
described and according to the limitations set forth under 'Municipal
Securities' on page 8. The Portfolio may invest a significant percentage of its
assets in municipal obligations subject to put or demand features and similar
credit and liquidity enhancements. Because the Portfolio invests in securities
backed by banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Portfolio.
Investors in the New York Municipal Portfolio should consider the possible
greater risk arising from the geographic concentration and non-diversified
structure of the Portfolio's investments, as well as the current and past
financial condition of New York municipal issuers which is discussed in the SAI.
TAXABLE INVESTMENTS
While it is anticipated that substantially all of the Portfolio's assets
will be invested in New York Municipal Securities, the Portfolio is authorized,
under normal circumstances, to invest up to 20% of its total assets in taxable
investments. The taxable investments are limited to obligations of the U.S.
Government and its agencies or instrumentalities; prime quality certificates of
deposit and bankers acceptances of domestic banks; prime quality commercial
paper; and repurchase agreements collateralized at all times by such
instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To reduce investment risk, the Portfolio may not (1) invest more than 25%
of its total assets in securities whose interest is paid from revenues of
similar-type projects; (2) until July 1, 1998, with respect to 50% of its assets
invest more than 5% of its total assets in the securities of any one issuer
(except the U.S. Government); (3) invest any more than 25% of its assets in any
one issuer; provided that on and after July 1, 1998, the Portfolio may not
invest more than 5% of its total assets in securities of any one issuer that are
not First Tier Securities; (4) invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments; (5) borrow money except from banks for
extraordinary or emergency purposes and in aggregate amounts not exceeding 15%
of its total assets, and when such borrowings exceed 5% of its total assets,
make any further investments; and (6) mortgage, pledge or hypothecate its assets
except to secure such borrowings.
12
<PAGE>
On and after July 1, 1998, the New York Municipal Portfolio will not invest
more than five percent of its total assets in securities issued by any one
issuer; this restriction will apply to seventy-five percent of the total assets
of the Portfolio, as required by Rule 2a-7. In addition, the Portfolio will not
invest more than five percent of its total assets in private activity municipal
securities that are Second Tier Securities. The Portfolio will not invest more
than the greater of one percent of its total assets or one million dollars in
private activity municipal securities issued by an issuer that are Second Tier
Securities.
ADDITIONAL INFORMATION
ARRANGEMENTS FOR TELEPHONE REDEMPTIONS. If you wish to use the telephone
redemption procedure, indicate this on your New Account Application and
designate a bank and account number to receive the proceeds of your withdrawals.
You also may choose to have the proceeds mailed to you in the form of check to
the address of record on your account. If you decide later that you wish to use
this procedure, or to change instructions already given, send a written notice
to Unified with your signature guaranteed by an eligible guarantor, and
designate a bank and account number to receive redemption proceeds. Eligible
guarantors include member firms of a national securities exchange, banks,
savings associations, and credit unions, as defined by the Federal Deposit
Insurance Act. For joint accounts, all owners must sign and have their
signatures guaranteed.
INVESTMENTS MADE BY CHECK. Money transmitted by a check drawn on a member
of the Federal Reserve System is converted to Federal Funds in one business day
following receipt and is then invested in the Fund. Checks drawn on banks which
are not members of the Federal Reserve System may take longer to be converted
and invested. All payments must be in United States dollars.
Forwarding of proceeds from any redemption of Fund shares purchased by
check may be delayed only until the check has cleared which may normally take up
to ten days following the purchase date.
AUTOMATED CLEARING HOUSE TRANSFERS. Fund shares can be purchased and
redeemed by ACH electronic funds transfer between Unified and a bank. There are
no charges to you for ACH transactions, either by the Fund or Unified. ACH
transfers are completed approximately two business days following the placement
of transfer orders.
For your Fund account to be eligible for ACH transfers to and from your
bank, you must complete Unified's ACH Authorization Form which can be obtained
from our service representative by telephoning the number below. Direct deposits
into your Fund account by ACH transfer can be used for part or all of recurring
payments made to you by your employer (corporate, Federal, military, or other
type) or by the Social Security Administration. Instructions to the sending
parties are simple; call toll-free 800-UMC-FUND (800-862-3863) to obtain
complete information from our service representative.
TIMING OF INVESTMENTS AND REDEMPTIONS. The Fund has two transaction times
each day, at 12:00 noon and 4:00 p.m. (New York time). New investments
represented by Federal Funds or bank wire monies received by the Custodian prior
to 12:00 noon are paid the full dividend for that day; such investments received
after 12:00 noon do not begin to receive daily dividends until the next day.
Redemption orders received prior to 12:00 noon are effected at 12:00 noon; the
shares redeemed do not earn that day's dividend however the redemption proceeds
are available that day. Redemption orders received after 12:00 noon are effected
at 4:00 p.m.; the shares redeemed earn the daily dividend for that day and the
redemption proceeds are remitted the next business day.
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MINIMUMS. The Fund has minimums of $1,000 for initial investments, $100
for subsequent investments, and $500 for account balances. These minimums do not
apply to shareholder accounts maintained through brokerage firms or other
financial institutions, as such financial intermediaries may maintain their own
minimums for their customer's investments in the Fund. The Fund may impose
service charges upon financial intermediaries to reflect the relatively higher
costs of small accounts and small transactions; these intermediaries may in turn
pass on such charges to affected accounts.
A shareholder subject to the minimum account balance requirement must
increase his or her account balance to at least $500 within sixty days after
notice of a deficient balance has been mailed by the Fund, or the Fund may close
the account and mail a check for the proceeds to the shareholder. The Fund
intends at least once each six months to review its shareholder balances in
regard to the $500 minimum and to send appropriate notices to shareholders with
deficient accounts. The Fund imposes no minimums for redemptions by mail or for
redemptions made on an account's behalf by brokerage firms or other financial
institutions. However, such firms may have internal procedures that include
minimums.
SHARE PRICE. Shares are sold and redeemed on a continuing basis without
sales or redemption charges at their net asset value which is expected to be
constant at $1.00, although this share price is not guaranteed. The net asset
value is determined each business day at 12:00 noon and 4:00 p.m. (New York
time). The net asset value per share is calculated by taking the sum of the
value of investments (amortized cost value is used for this purpose) and any
cash or other assets, subtracting liabilities, and dividing by the total number
of shares outstanding. All expenses, including the fees payable to the Advisor,
are accrued daily.
DAILY DIVIDENDS, OTHER DISTRIBUTIONS, TAXES. All net income of each
Portfolio is determined each business day and is declared payable pro rata to
shareholders of record as of 12:00 noon. Declared dividends are accrued and are
automatically paid into shareholders' accounts on a monthly basis. As such
additional reinvested shares earn subsequent dividends, a compounding growth of
income occurs.
Net income of the Portfolios consists of all accrued interest income on
portfolio assets less the expenses applicable to that dividend period. All
realized gains and losses are reflected in the net asset value and are not
included in net investment income.
Distributions to your account of tax-exempt interest income are not subject
to Federal income tax (other than the alternative minimum tax and market
discount, if any, on securities purchased by the Portfolio), but may be subject
to state or local income taxes. Distributions of income earned by the California
General Municipal Portfolio from California tax-exempt securities are not
subject to Federal income tax (other than the alternative minimum tax described
above) or to California personal income taxes. Distributions of income earned by
the New York Municipal Portfolio from New York Municipal Securities are not
subject to Federal income tax (other than the alternative minimum tax described
above) or to New York State and New York City income taxes. Distributions of
taxable interest income, other investment income, and net short-term capital
gains are taxed to you as ordinary income; state and local taxation of such
distributions, if any, may be reduced in proportion to the percentage of income
that derives from U.S. Government obligations. Distributions of net long-term
capital gains would be taxable as long-term capital gains irrespective of the
length of time you may have held your shares. Distributions of net short-term
and long-term capital gains, if any, would be made at least annually. Each
January, each Portfolio will send you tax information for the calendar year just
ended stating the amounts and types of all its distributions, including the
percentage of income derived from U.S. Government obligations, for the calendar
year just ended.
PERIODIC WITHDRAWALS. Without affecting your right to use any of the
methods of redemption described on page 18, by checking the appropriate boxes on
the Application Form you may elect to participate additionally in the following
plans without
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any separate charges. Under the Income Distribution Plan you receive monthly
payments of all the income earned in your Fund account. Under the Systematic
Withdrawal Plan, you may request checks in any specified amount of $50 or more
each month or in any intermittent pattern of months. If desired, you can order,
via a signature-guaranteed letter to the Fund, such periodic payments to be sent
to another person.
THE ADVISOR. The Fund retains OpCap Advisors (the 'Advisor'), One World
Financial Center, New York, New York, 10281, under an Advisory Agreement to
provide investment advice and, in general, to supervise the Fund's business
affairs and investment program, subject to the general control of the Directors
of the Fund. The Advisor is a subsidiary of Oppenheimer Capital, a registered
investment adviser with approximately $61.4 billion in assets under management
on December 31, 1997. All investment management services performed under the
Advisory Agreement are performed by employees of Oppenheimer Capital. On
November 4, 1997, PIMCO Advisors L.P. ('PIMCO Advisors'), a registered
investment adviser with $125 billion in assets under management through various
subsidiaries, and its affiliates acquired control of Oppenheimer Capital and its
subsidiary OpCap Advisors, the Manager of the Fund. A new Advisory Agreement (on
identical terms as the previous Advisory Agreement) between the Fund and OpCap
Advisors became effective November 5, 1997. The new Advisory Agreement was
approved by the shareholders of each Portfolio of the Fund at a Special Meeting
of Shareholders held on October 14, 1997. On November 30, 1997, Oppenheimer
Capital merged with a subsidiary of PIMCO Advisors and, as a result, Oppenheimer
Capital and OpCap Advisors became indirect wholly-owned subsidiaries of PIMCO
Advisors. PIMCO Advisors has two general partners: PIMCO Partners, G.P. ('PIMCO
G.P.') a California general partnership, and PIMCO Advisors Holdings L.P.
(formerly Oppenheimer Capital, L.P.), a NYSE-listed Delaware limited partnership
of which PIMCO G.P. is the sole general partner. PIMCO GP beneficially owns or
controls (through its general partner interest in PIMCO Advisors Holdings, L.P.
formerly Oppenheimer Capital, L.P.) greater than 80% of the units of limited
partnership ('Units') of PIMCO Advisors. PIMCO GP has two general partners. The
first of these is Pacific Investment Management Company, a wholly-owned
subsidiary of Pacific Financial Asset Management Company, which is a direct
subsidiary of Pacific Life Insurance Company ('Pacific Life'). The managing
general partner of PIMCO GP is PIMCO Partners L.L.C. ('PPLLC'), a California
limited liability company. PPLLC's members are the Managing Directors (the
'PIMCO Managers') of Pacific Investment Management Company, a subsidiary of
PIMCO Advisors (the 'PIMCO Subpartnership'). The PIMCO Managers are: William H.
Gross, Dean S. Meiling, James F. Muzzy, William F. Podlich, III, Brent R.
Harris, John L. Hague, William S. Thompson Jr., William S. Powers, David H.
Edington, Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO
Advisors is governed by a Management Board, which consists of sixteen members,
pursuant to a delegation by its general partners. PIMCO GP has the power to
designate up to nine members of the Management Board and the PIMCO
Subpartnership, of which the PIMCO Managers are the Managing Directors, has the
power to designate up to two members. In addition, PIMCO GP, as the controlling
general partner of PIMCO Advisors, has the power to revoke the delegation to the
Management Board and exercise control of PIMCO Advisors. As a result, Pacific
Life and/or the PIMCO Managers may be deemed to control PIMCO Advisors. Pacific
Life and the PIMCO Managers disclaim such control. Because of direct or indirect
power to appoint 25% of the members of the Equity Board, (i) Pacific Life and
(ii) the PIMCO Managers and/or the PIMCO Subpartnership may each be deemed,
under applicable provisions of the Investment Company Act, to control PIMCO
Advisors. Pacific Life, the PIMCO Subpartnership and the PIMCO Managers disclaim
such control. The management fee rate for each Portfolio is at an annual rate of
.50% on the first $100 million of average daily net assets, .45% on the next
$200 million of average
15
<PAGE>
daily net assets, and .40% of average daily net assets in excess of $300
million, payable monthly.
DISTRIBUTION PLAN. Under a Distribution Assistance and Administrative
Services Plan (the 'Plan') adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, each Portfolio pays the Advisor monthly at an
annual rate of .25 of 1% of the Portfolio's average daily net assets.
Substantially all such monies are paid by the Advisor to broker-dealers, banks
and other depository institutions, and other financial intermediaries for
distribution assistance and administrative services provided to the Portfolio,
with any remaining amounts being used to partially defray other expenses
incurred by the Advisor in distributing shares. The Plan has been approved by
the Board of Directors and by the Fund's shareholders. The Statement of
Additional Information contains additional information about the Advisory
Agreement and the Plan.
ADMINISTRATIVE SERVICES. The Fund also may pay certain broker-dealers
including CIBC Oppenheimer Corp. for performing certain administrative services
for accounts in the Fund including providing beneficial owners with statements
showing their positions in the Fund, posting dividend payments to beneficial
owners' accounts, and providing shareholder information to enable the Fund to
mail prospectuses, annual and semi-annual reports to beneficial owners. Such
payments are capped at 5 basis points of average daily net assets.
EXPENSES-EXPENSE LIMITATION. Principal operating expenses of the Fund
consist of the Advisor's fee, costs of the Plan, legal and accounting expenses,
custodian fees, and transfer agent and other shareholder servicing costs.
Shareholders pay no direct charges or fees for investment services. Each
Portfolio's expenses are paid out of its gross investment income. The Advisor
reimburses each Portfolio to the extent that the combined aggregate operating
expenses of the Portfolio exceed 1% (net of any expense offsets) of its average
daily net assets for any fiscal year.
FUND ORGANIZATION. The Fund, which is an open-end investment company
registered under the Investment Company Act of 1940, was organized as a Maryland
corporation in series form in April 1989. The Fund's activities are supervised
by its Board of Directors. Each share of a Portfolio is entitled to one vote;
shares vote as a single series on matters that affect all Portfolios in
substantially the same manner. The Fund does not intend to hold regular annual
shareholder meetings. Directors are required to call a special meeting of a
Portfolio's shareholders if owners of at least 10% of the Portfolio's
outstanding shares so request in writing. The Fund may establish additional
Portfolios which may have different investment objectives from those stated in
this prospectus. The Fund issues shares only for full monetary consideration,
and it does not issue share certificates.
REPORTS. You will receive semi-annual and annual reports of the Portfolio
in which you are invested. To reduce expenses, only one copy of financial
reports will be mailed to your household, even if you have more than one
account. If you wish to receive additional copies of financial reports, please
call 1-800-401-6672. You can arrange for a copy of each of your account
statements to be sent to other parties.
YIELD DEFINITIONS. From time to time we may advertise yield, effective
yield, and tax equivalent yield. Yield refers to income generated by an
investment in a Portfolio over a seven day or other stated period, expressed as
an annual percentage rate. Effective yield of a Portfolio results from the
compounding of periodically reinvested dividends. Tax-equivalent yield
represents the amount of income subject to a particular tax rate which would
have to be earned to give an investor an amount of income equal to tax-exempt
income. In addition, reference in advertisements may be made to ratings and
ratings among similar funds by independent evaluators, such as Lipper's
Analytical Services, Inc. The performance of the Portfolios may be compared to
recognized indices of market performance.
16
<PAGE>
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets, transfer agent
and shareholder servicing agent for the Fund is State Street Bank and Trust
Company. CIBC Oppenheimer Corp. maintains an omnibus account for its customers
who are shareholders of the Fund and provides certain recordkeeping for those
shareholders. Cash balances of the Fund with the Custodian in excess of $100,000
are unprotected by Federal deposit insurance. Such uninsured balances may at
times be substantial.
SHAREHOLDER SERVICING AGENT FOR CERTAIN SHAREHOLDERS. Unified Management
Corporation (800-UMC-FUND(862-3863)) is the shareholder servicing agent for
former shareholders of the AMA Family of Funds and clients of 225 Liberty
Advisers, L.P. and for former shareholders of the Unified Funds and Liquid Green
Trust, accounts which participated or participate in a retirement plan for which
Unified Investment Advisers, L.P. or an affiliate acts as custodian or trustee,
accounts which have a brokerage account, and other accounts for which Unified
Management Corporation is the dealer of record.
YEAR 2000 ISSUES. The management services provided to the Fund by the
Advisor, and the services provided by the Transfer Agent to shareholders, depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other incorrect date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Advisor and Transfer Agent
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 and expect that their systems will be adapted before
that date, but there can be assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time.
PURCHASE AND REDEMPTION OF SHARES
OPENING ACCOUNTS--NEW INVESTMENTS
A. WHEN FUNDS ARE SENT BY WIRE (the wire method permits immediate credit)
1) Telephone Unified toll-free at 800-UMC-FUND (800-862-3863). A service
representative will ask you for (a) the name of the account as you wish
it to be registered, (b) the address of the account, (c) your taxpayer
identification number (social security number for an individual) and (d)
the name of the Portfolio in which you wish to invest. You will then be
provided with a control number.
2) Instruct your bank to wire Federal Funds (see minimums below) exactly as
follows and precisely in the order presented:
RECEIVING BANK INFORMATION:
Fifth Third Bank (Cincinnati, OH)
ABA#042000314
BENEFICIARY INFORMATION:
BNF=OCC Cash Reserves
(specify Primary, Government, General Municipal, California Municipal or New
York Municipal Portfolio)
AC-71575485
OTHER BENEFICIARY INFORMATION:
OBI=OCC Cash Reserves
Your account name } as registered
Your account number } with the Fund
There is a $1,000 minimum to open a new account, except that there is no
minimum for opening Individual Retirement Accounts or other retirement plans.
17
<PAGE>
3) Mail a completed Application Form to:
Unified Management Corp.
P.O. Box 6110
Indianapolis, IN 46206-6110
for other than U.S. Postal Service mail:
Unified Management Corp.
431 North Pennsylvania Street
Indianapolis, IN 46204-1806
B. WHEN FUNDS ARE SENT BY CHECK
1) Complete the New Account Application
2) Mail the completed Application along with your check, money order or
Federal Reserve bank draft (see minimums under A(2) above) payable to
the OCC Cash Reserves Portfolio you have selected, to the address in
A(3) above.
C. BY EXCHANGE
1) By Mail-Send a written request to the address in A(3) above. Sign the
request exactly as your name appears on the account registration. (For
joint accounts, all owners must sign.) Be certain your request meets the
minimum for a new account and that the amount remaining in the Fund from
which you are exchanging also exceeds its minimum. (For more information
see page 13.)
2) By Telephone-Call Unified at 800-UMC-FUND (800-862-3863).
SUBSEQUENT INVESTMENTS (Purchases)
A. INVESTMENTS BY WIRE (to obtain immediate credit)
Instruct your bank to wire Federal Funds (minimum $1000) as in A(2)
above.
B. INVESTMENTS BY CHECK
Mail your check, money order or Federal Reserve bank draft (minimum $100),
payable to the appropriate OCC Portfolio, to the address in A(3) above, along
with the remittance portion of your last account statement or letter of
instruction. Include your account name, account number and Portfolio name on the
front of your check, money order or draft.
C. BY EXCHANGE
Follow instructions under C, above. There is no minimum for systematic
exchanges established for dollar cost averaging purposes.
WITHDRAWALS (Redemptions)
A. WITHDRAWALS BY TELEPHONE (requires pre-arrangement; call 800-UMC-FUND
(800-862-3863) for information)
Telephone Unified toll-free at 800-UMC-FUND (800-862-3863) or at
317-634-3300 (not toll-free) and place your redemption request with the service
representative. You may request that your redemption proceeds be sent via wire
or ACH to your previously-designated bank account or that a check be mailed to
you. Wires will be sent to your bank and checks will be mailed to you on the
next Indiana business day following receipt of your request. Unified may charge
a fee for wire redemptions. Monies sent via ACH take approximately two business
days to reach your bank. You may be required to have your signature guaranteed.
(See page 13.)
B. WITHDRAWALS BY CHECKWRITING
Under the Fund's Regular Checkwriting Service, you may write checks made
payable to any payee in any amount of $250 or more. The checkwriting service
enables you to receive the daily dividends declared on the shares to be redeemed
until the day that your check is presented for payment.
Please do not use the checkwriting service to close out your OCC account,
as the balance of your account will continue to increase via daily dividends
until the check is presented for payment. Unified reserves the right to impose a
charge for certain check services such as checks returned unpaid for
insufficient funds or for checks on which you have placed a stop order.
18
<PAGE>
C. WITHDRAWALS BY MAIL
Submit a written request for any amount to Unified at the address in A(3)
above. Include your account name as registered and your account number. Sign the
request exactly as your name appears on the registration. (For joint accounts,
all owners must sign.) You may be required to have your signature guaranteed.
(See page 13.)
OBTAINING AN APPLICATION FORM--ASSISTANCE
If you wish to obtain an Application Form, or if you have any questions
about the Form, purchasing shares, or other Fund procedures, please
telephone the Fund toll-free at 800-UMC-FUND (800-862-3863).
If your account with the Fund is to be maintained through a brokerage firm
or other institution, do not fill out the Application Form or the Signature
Card. Instead, contact your account representative at such institution.
Institutions may charge a fee for providing such assistance.
19
<PAGE>
OCC Cash Reserves (the 'Fund') is an open-end money market fund investment
company with five separate Portfolios. Though the Portfolios have the same
investment objectives of safety of principal, liquidity and maximum current
income, they may in the pursuit of these objectives invest in different types of
money market securities or in different proportions of the same types of
securities. This prospectus sets forth information about the Fund and its
Primary, Government, General Municipal, California Municipal and New York
Municipal Portfolios that a prospective investor should know before investing.
Please retain this prospectus for future reference.
A Statement of Additional Information dated March 31, 1998 provides further
discussion of certain areas in this prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A free copy may be obtained
by writing the Fund.
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.
CONTENTS
- ------------------------------------------------------
PAGE
Introduction.........................................1
Expense Information..................................2
Financial Highlights.................................3
Primary Portfolio....................................5
Government Portfolio.................................6
General Municipal Portfolio..........................7
California Municipal Portfolio......................10
New York Municipal Portfolio........................11
Additional Information..............................13
Purchase and Redemption of Shares...................17
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
o Primary Portfolio
o Government Portfolio
o General Municipal Portfolio
o California Municipal Portfolio
o New York Municipal Portfolio
Offered through
Unified Management Corporation
431 N. Pennsylvania St.
Indianapolis, IN 46204-1806
PROSPECTUS
March 31, 1998
- -------------------------------------------------------------------------------
<PAGE>
[LOGO] ................................. with investment objectives of
SAFETY o LIQUIDITY o INCOME
OCC Cash Reserves (the 'Fund') is a money market fund with five distinct
Portfolios--the Primary Portfolio, the Government Portfolio, the General
Municipal Portfolio, the California Municipal Portfolio and the New York
Municipal Portfolio (the 'Portfolios').
Safety of principal is sought by investing in securities which are selected
for their high quality, liquidity and stability of principal. A security at the
time of purchase cannot have a maturity exceeding thirteen months within the
meaning of the Investment Company Act of 1940, and the average weighted maturity
of all securities in the Portfolio cannot exceed 90 days. Such a short average
maturity enhances the ability of each Portfolio to provide both liquidity and
stability of value to you and your fellow shareholders. While each Portfolio
seeks to maintain (and has maintained) its share price at $1.00, investments in
the Portfolios are not guaranteed or insured by the U.S. Government and there is
no assurance that a Portfolio will maintain a constant price of $1.00 per share.
The California Municipal Portfolio and the New York Municipal Portfolio each may
invest a significant percentage of its assets in a single issuer and therefore
investment in those Portfolios may be riskier than an investment in other types
of money market funds.
IS OCC CASH RESERVES FOR YOU?
The Fund is designed for individuals, institutions, advisors, custodians,
charities, fiduciaries and corporations who can benefit from a fund seeking
maximum current income and who place value on an investment having safety of
principal, liquidity, stability, simplicity, and convenience. The availability
of five separate Portfolios provides you with the advantage of selecting a
combination of investment characteristics particularly suitable to your needs.
The five Portfolios described in this Prospectus compare to one another as
follows:
<TABLE>
<S> <C> <C>
Primary Portfolio -- highest money market income; conservative investments
Government -- high money market income; very conservative investments
Portfolio
General Municipal -- highest money market tax-exempt income; conservative investments
Portfolio
California -- highest money market income exempt from Federal and California personal income
Municipal taxes; conservative investments
Portfolio
New York Municipal -- highest money market income exempt from Federal, New York State and New York
Portfolio City income taxes; conservative investments
</TABLE>
<PAGE>
EXPENSE INFORMATION
The expense summary format below was developed for use by all mutual funds
to help investors understand the various direct costs and expenses related to a
fund investment.
SHAREHOLDER TRANSACTION EXPENSES (FOR EACH PORTFOLIO)
Sales Load Imposed on Purchases...................................... None
Sales Load Imposed on Reinvested Dividends........................... None
Redemption Fees...................................................... None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
GENERAL CALIFORNIA NEW YORK
PRIMARY GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Management fees...................... .41% .49% .49% .50% .50%
12b-1 (Distribution Plan)
expenses........................... .25% .25% .25% .25% .25%
Other Expenses....................... .19% .24% .22% .21% .23%
--- --- --- --- ---
Total Operating Expenses............. .85% .98% .96% .96% .98%
</TABLE>
During the fiscal year ended November 30, 1997, OpCap Advisors (the
'Advisor') waived part of its advisory fee with respect to the Government
Portfolio, the General Municipal Portfolio, the California Municipal Portfolio
and the New York Municipal Portfolio. After giving effect to such waivers, the
management fees for the Government Portfolio, the General Municipal Portfolio,
the California Municipal Portfolio and the New York Municipal Portfolio were
.49%, .49%, .44% and .50%, respectively. The advisory fee waivers for the
Government, General Municipal and New York Municipal Portfolio were pursuant to
an agreement by the Advisor to assume expenses (net of any expense offsets) in
excess of 1.00% of average net assets in any fiscal year. The advisory fee
waiver for the California Municipal Portfolio was voluntary to the extent of fee
waivers made to bring expenses below 1.00% of average net assets. Other Expenses
are shown gross of certain expense offsets afforded the Portfolio which
effectively lowered overall custody expenses. After giving effect to such
waivers and expense offsets, total operating expenses were .98%, .96%, .90% and
.97%, respectively, for the Government Portfolio, the General Municipal
Portfolio, the California Municipal Portfolio and the New York Municipal
Portfolio.
The following table illustrates the expenses that an investor would pay on
a hypothetical $1,000 investment in each of the Portfolios assuming a 5% annual
return (cumulatively through the end of each time period). Neither the 5% return
nor the estimated expenses should be considered an indication of actual or
expected performance or expenses, both of which may vary.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Primary Portfolio....................................... $ 8.68 $ 27.13 $ 47.14 $ 104.89
Government Portfolio.................................... 10.00 31.22 54.17 120.12
General Municipal Portfolio............................. 9.79 30.58 53.09 117.81
California Municipal Portfolio.......................... 9.79 30.58 53.09 117.81
New York Municipal Portfolio............................ 10.00 31.22 54.17 120.12
</TABLE>
2
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The financial information presented below has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report thereon
appears in the Statement of Additional Information ('SAI'). Investors should
understand that all the following information should be read in conjunction with
the financial statements and related notes thereto appearing in the SAI.
<TABLE>
<CAPTION>
DIVIDENDS
INCOME FROM AND DISTRIBUTIONS
INVESTMENT OPERATIONS ------------------------------------------
------------------------------------------------- DISTRIBUTIONS TOTAL
NET TOTAL DIVIDENDS TO TO DIVIDENDS
NET ASSET REALIZED INCOME SHAREHOLDERS SHAREHOLDERS AND
VALUE, NET GAIN/(LOSS) FROM FROM NET FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TO
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C> <C>
PRIMARY PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 $0.047 ($0.000) $0.047 ($ 0.047) -- ($ 0.047)
1996......................... 1.000 0.046 (0.000) 0.046 (0.046) ($ 0.000) (0.046)
1995......................... 1.000 0.051 0.000 0.051 (0.051) (0.000) (0.051)
1994......................... 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032)
1993......................... 1.000 0.024 0.000 0.024 (0.024) (0.000) (0.024)
1992......................... 1.000 0.033 0.000 0.033 (0.033) (0.000) (0.033)
1991......................... 1.000 0.057 (0.000) 0.057 (0.057) -- (0.057)
December 13, 1989(4) to
November 30, 1990........... 1.000 0.073 0.000 0.073 (0.073) (0.000) (0.073)
<CAPTION>
RATIOS TO
AVERAGE NET
ASSETS
NET ASSET NET ASSETS, -----------------------
VALUE, END OF NET NET
END TOTAL PERIOD OPERATING INVESTMENT
OF PERIOD RETURN* (MILLIONS) EXPENSES INCOME
<S> <C> <C> <C> <C> <C>
PRIMARY PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 4.85% $ 2,166.6 0.85%(1,2) 4.75%(1)
1996......................... 1.000 4.69% 1,712.6 0.91%(2) 4.60%
1995......................... 1.000 5.19% 1,671.1 0.94% 5.07%
1994......................... 1.000 3.26% 1,453.8 0.91% 3.21%
1993......................... 1.000 2.44% 1,413.9 0.90% 2.41%
1992......................... 1.000 3.38% 1,168.3 0.88% 3.34%
1991......................... 1.000 5.89% 1,249.0 0.86% 5.74%
December 13, 1989(4) to
November 30, 1990........... 1.000 7.80%(3) 1,244.2 0.87%(3,5) 7.47%(3,5)
</TABLE>
(1) Average net assets for the year ended November 30, 1997 were $1,926,769,081.
(2) Gross of expenses offset (see note 1g in Notes to Financial Statements). The
net ratios of operating expenses to average net assets were 0.85% and 0.91%
for the years ended November 30, 1997 and November 30, 1996, respectively.
(3) Annualized.
(4) Commencement of operations.
(5) During the period noted above, the Adviser waived a portion of its fees. Had
such waiver not been in effect, the net operating expense and net investment
income ratios would have been 0.88% and 7.46%, respectively.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 $0.045 ($0.000) $0.045 ($ 0.045) -- ($ 0.045)
1996......................... 1.000 0.044 (0.000) 0.044 (0.044) ($ 0.000) (0.044)
1995......................... 1.000 0.049 0.000 0.049 (0.049) (0.000) (0.049)
1994......................... 1.000 0.031 0.000 0.031 (0.031) -- (0.031)
1993......................... 1.000 0.022 -- 0.022 (0.022) -- (0.022)
1992......................... 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032)
1991......................... 1.000 0.055 -- 0.055 (0.055) -- (0.055)
February 14, 1990(4) to
November 30, 1990........... 1.000 0.059 0.000 0.059 (0.059) (0.000) (0.059)
<S> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended November 30,
1997......................... $ 1.000 4.60% $ 100.0 0.98%(1,2) 4.51%(1,2)
1996......................... 1.000 4.51% 101.1 1.00%(1) 4.41%(1)
1995......................... 1.000 5.02% 108.6 1.00%(1) 4.91%(1)
1994......................... 1.000 3.12% 113.2 0.95%(1) 3.08%(1)
1993......................... 1.000 2.26% 127.9 1.00% 2.24%
1992......................... 1.000 3.24% 131.7 0.93%(1) 3.23%(1)
1991......................... 1.000 5.69% 142.2 0.84%(1) 5.62%(1)
February 14, 1990(4) to
November 30, 1990........... 1.000 7.67%(3) 150.1 0.67%(1,3) 7.34%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers and assumptions not been in effect nor such
expenses offset, the ratios of net operating expenses to average net assets
would have been 0.99%, 1.00%, 1.02%, 0.97%, 0.94%, 0.92% and 1.19%,
respectively, and the ratios of net investment income to average net assets
would have been 4.50%, 4.41%, 4.89%, 3.06%, 3.22%, 5.54% and 6.82%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $98,910,547.
(3) Annualized.
(4) Commencement of operations.
* Assumes reinvestment of all dividends and distributions.
3
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS
INVESTMENT OPERATIONS AND DISTRIBUTIONS
------------------------------------- ----------------------------------------
NET TOTAL DIVIDENDS TO
NET ASSET REALIZED INCOME SHAREHOLDERS NET ASSET
VALUE, NET GAIN/(LOSS) FROM FROM NET CAPITAL VALUE,
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CONTRIBUTIONS END
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME BY ADVISOR OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
GENERAL MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................... $ 1.000 $0.027 ($0.000) $0.027 ($ 0.027) -- $ 1.000
1996............................... 1.000 0.025 0.000 0.025 (0.025) -- 1.000
1995............................... 1.000 0.031 0.000 0.031 (0.031) -- 1.000
1994............................... 1.000 0.020 (0.000) 0.020 (0.020) -- 1.000
1993............................... 1.000 0.017 (0.000) 0.017 (0.017) -- 1.000
1992............................... 1.000 0.026 (0.000) 0.026 (0.026) -- 1.000
1991............................... 1.000 0.042 0.000 0.042 (0.042) -- 1.000
February 14,1990(4) to
November 30, 1990................. 1.000 0.042 (0.000) 0.042 (0.042) -- 1.000
<CAPTION>
RATIOS TO
AVERAGE NET
ASSETS
NET ASSETS, -----------------------
END OF NET NET
TOTAL PERIOD OPERATING INVESTMENT
RETURN* (MILLIONS) EXPENSES INCOME
<S> <C> <C> <C> <C>
GENERAL MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................... 2.74% $ 137.0 0.96%(1,2) 2.70%(1,2)
1996............................... 2.56% 122.3 0.99%(1) 2.53%(1)
1995............................... 3.11% 116.0 0.93%(1) 3.07%(1)
1994............................... 2.04% 108.7 0.90%(1) 2.01%(1)
1993............................... 1.74% 109.7 0.98%(1) 1.73%(1)
1992............................... 2.66% 112.9 0.90%(1) 2.62%(1)
1991............................... 4.24% 100.1 0.88%(1) 4.20%(1)
February 14,1990(4) to
November 30, 1990................. 5.45%(3) 107.9 0.71%(1,3) 5.32%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.99%, 1.02%, 1.01%, 1.01%, 1.00%, 0.98% and 1.00%,
respectively, and the ratios of net investment income to average net assets
would have been 2.70%, 2.53%, 2.98%, 1.90%, 1.70%, 2.52%, 4.10% and 5.03%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $134,817,925.
(3) Annualized.
(4) Commencement of operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................... $ 1.000 $0.026 ($0.000) $0.026 ($ 0.026) -- $ 1.000
1996............................... 1.000 0.024 -- 0.024 (0.024) -- 1.000
1995............................... 1.000 0.031 (0.008) 0.023 (0.031) $ 0.008 1.000
1994............................... 1.000 0.020 (0.000) 0.020 (0.020) -- 1.000
1993............................... 1.000 0.017 (0.000) 0.017 (0.017) -- 1.000
1992............................... 1.000 0.025 (0.000) 0.025 (0.025) -- 1.000
March 20, 1991(5) to
November 30, 1991................. 1.000 0.026 (0.000) 0.026 (0.026) -- 1.000
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................... 2.68% $ 55.7 0.90%(1,2) 2.64%(1,2)
1996............................... 2.42% 53.4 0.85%(1) 2.42%(1)
1995............................... 3.10%(3) 75.9 0.82%(1) 3.05%(1)
1994............................... 1.99% 61.3 0.85%(1) 1.99%(1)
1993............................... 1.76% 62.3 0.85%(1) 1.75%(1)
1992............................... 2.57% 61.2 0.60%(1) 2.51%(1)
March 20, 1991(5) to
November 30, 1991................. 4.24%(4) 45.4 0.54%(1,4) 3.75%(1,4)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.97%, 0.95%, 0.97%, 0.98%, 1.02% and 1.08%, respectively,
and the ratios of net investment income to average net assets would have
been 2.58%, 2.30%, 2.92%, 1.87%, 1.62%, 2.09% and 3.21%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $57,449,650.
(3) Had the Adviser not made the capital contribution, the Portfolio's total
return would have been lower.
(4) Annualized.
(5) Commencement of operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................... $ 1.000 $0.026 ($0.000) $0.026 ($ 0.026) -- $ 1.000
1996............................... 1.000 0.025 -- 0.025 (0.025) -- 1.000
1995............................... 1.000 0.030 0.000 0.030 (0.030) -- 1.000
1994............................... 1.000 0.019 (0.000) 0.019 (0.019) -- 1.000
1993............................... 1.000 0.016 (0.000) 0.016 (0.016) -- 1.000
1992............................... 1.000 0.025 (0.000) 0.025 (0.025) -- 1.000
April 10, 1991(4) to
November 30, 1991................. 1.000 0.024 (0.000) 0.024 (0.024) -- 1.000
<CAPTION>
NEW YORK MUNICIPAL PORTFOLIO
<S> <C> <C> <C> <C>
Year ended November 30,
1997............................... 2.66% $ 73.2 0.98%(1,2) 2.63%(1,2)
1996............................... 2.50% 60.0 0.97%(1) 2.45%(1)
1995............................... 3.07% 52.3 0.79%(1) 3.02%(1)
1994............................... 1.92% 48.0 0.82%(1) 1.90%(1)
1993............................... 1.66% 42.2 0.79%(1) 1.64%(1)
1992............................... 2.56% 32.9 0.74%(1) 2.43%(1)
April 10, 1991(4) to
November 30, 1991................. 4.29%(3) 18.4 0.56%(1,3) 3.80%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers and assumptions not been in effect nor such
expenses offset, the ratios of net operating expenses to average net assets
would have been 0.98%, 0.98%, 1.00%, 1.01%, 1.03%, 1.19% and 1.43%,
respectively, and the ratios of net investment income to average net assets
would have been 2.62%, 2.44%, 2.81%, 1.71%, 1.40%, 1.98% and 2.93%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $64,686,712.
(3) Annualized.
(4) Commencement of operations.
* Assumes reinvestment of all dividends.
4
<PAGE>
OCC CASH RESERVES PRIMARY PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The Primary Portfolio's investment objectives are in the following order of
priority--safety of principal, liquidity, and maximum current income from money
market securities to the extent consistent with the first two objectives. As a
matter of fundamental policy, the Primary Portfolio pursues its objectives by
maintaining a diversified portfolio of high quality money market securities of
the types described in the succeeding section, all of which at the time of
investment have remaining maturities of thirteen months or less within the
meaning of the Investment Company Act of 1940 (the 'Act'). While the Portfolio
may not change this policy or the other 'fundamental investment policies'
described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Primary Portfolio's objectives will be achieved.
MONEY MARKET SECURITIES
The money market securities in which the Primary Portfolio invests are (1)
marketable obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities (collectively 'U.S. Government Securities'); (2)
U.S. dollar-denominated certificates of deposit and bankers' acceptances of
prime quality issued or guaranteed by, and interest-bearing time deposits
maintained at, (a) U.S. banks or savings and loan associations having total
assets of more than $1 billion and which are insured under the administration of
the Federal Deposit Insurance Corporation ('FDIC'), (b) foreign branches of such
U.S. institutions, and U.S. or foreign branches of foreign banks having total
assets of at least $1 billion; (3) domestic or foreign commercial paper of prime
quality and participation interests in loans of equivalent quality extended by
banks to such companies; and (4) repurchase agreements that are collateralized
in full each day by U.S. Government Securities. For the purposes of this
prospectus, prime quality shall mean the security (or the issuer for a
comparable security) is rated in one of the two highest rating categories for
short term debt obligations by any two of Standard & Poor's Corporation ('S&P'),
Moody's Investors Service, Inc. ('Moody's'), Fitch Investors Service, Inc.
('Fitch'), Duff & Phelps, Inc. ('Duff') or Thomson BankWatch, Inc., or by one of
such rating agencies if only one rating agency has issued a rating with respect
to the security, or, if not rated, judged by the Advisor pursuant to criteria
adopted by the Fund's Board of Directors to be of comparable quality.
Investments by the Primary Portfolio which do not satisfy one of the
following requirements are considered to be 'Second Tier Securities' and are
limited in the aggregate to 5% of the Portfolio's total assets in regard to
issues and to 1% of total assets (or $1 million if greater) in regard to any one
issuer of such issues: (i) issues rated in the highest category (or the issuer
is so rated for a comparable security) by at least two of the above-listed
rating agencies; or (ii) if rated only by one agency, rated in the highest
category; or (iii) if unrated, determined by the Board of Directors to be of
quality comparable to issues which qualify under (i) or (ii). Securities that
meet the above requirements are considered 'First Tier Securities.'
Certificates of deposit represent the obligation of a bank to repay funds
deposited with it for a specified period of time. Bankers' acceptances are
short-term collateralized credit instruments drawn on and evidencing the
obligation of a bank to pay the value at maturity. Commercial paper consists of
unsecured promissory notes issued by corporations to finance short-term credit
needs. Participation interests are undivided beneficial interests in loans
giving the purchaser the right to receive a pro rata share of a loan's cash
flow. Repurchase agreements are contracts under which the buyer acquires a
security subject to the obligation of the seller to repurchase at a fixed price,
usually within one week. The Fund enters into such agreements only with 'primary
dealers' (as designated by the Federal Reserve Bank of New York) in U.S.
Government Securities and with the
5
<PAGE>
Fund's Custodian. The Fund could experience a loss in the event of its failure
to realize full value upon collateral liquidation required by a dealer's
default. Though investments in obligations of foreign issuers may be higher
yielding than those of domestic issuers, they may involve certain different
risks such as exchange control regulations; limited availability of information
about the issuer; differences in accounting, auditing and financial reporting
standards and government regulation; the possibility of expropriation,
nationalization or confiscatory taxation; political or social instability or
diplomatic developments; and the differences between the economies of the United
States and the applicable foreign country, even though the Fund's investments
are limited to those in 'developed countries.' Each of these factors is
carefully considered when investments are made, but the Fund does not limit the
amount of its assets which can be invested in any particular type of eligible
obligation or in any developed foreign country.
The Fund uses the amortized cost method to value its portfolio securities
pursuant to Rule 2a-7 of the Act. Certain provisions of Rule 2a-7, which become
effective on July 1, 1998, are more restrictive than certain of the fundamental
investment policies of the Portfolios. Effective July 1, 1998, the Portfolios
will comply with the more restrictive provisions of Rule 2a-7.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the
Primary Portfolio may not (1) invest more than 25% of its total assets in the
securities of issuers conducting their principal business activities in any one
industry, except that under normal circumstances at least 25% of its total
assets will be invested in bank obligations; (2) invest more than 5% of its
total assets in the securities of any issuer (loan participations are considered
obligations of both the lender and the borrower); (3) invest more than 10% of
its total assets in repurchase agreements not terminable within seven days
(whether or not illiquid) or other illiquid investments including participation
interests and other instruments described above for which no secondary markets
exist; (4) borrow money except from banks for extraordinary or emergency
purposes in aggregate amounts not exceeding 15% of its total assets (and, when
such borrowings exceed 5% of its total assets, make any further investments);
and (5) mortgage, pledge or hypothecate its assets except to secure such
borrowings. Limitations (1) and (2) do not apply to U.S. Government Securities.
OCC CASH RESERVES GOVERNMENT PORTFOLIO
INVESTMENT OBJECTIVES AND PROCEDURES
The Government Portfolio's investment objectives are in the following order
of priority--safety of principal, liquidity, and maximum current income from
money market securities to the extent consistent with the first two objectives.
As a matter of fundamental policy, the Government Portfolio pursues its
objectives by maintaining a diversified portfolio of high quality money market
securities of types described in the succeeding paragraph, all of which at the
time of investment have remaining maturities of thirteen months or less within
the meaning of the Act. While the Portfolio may not change this policy or the
'other fundamental investment policies' described below without shareholder
approval, it may, upon notice to shareholders but without such approval, change
its other investment policies. As is true with all investment companies, there
can be no assurance that the Government Portfolio's objectives will be achieved.
MONEY MARKET SECURITIES
The money market securities in which the Government Portfolio invests are
(1) marketable obligations of, or guaranteed by, the United States Government,
its agencies or instrumentalities (collectively 'U.S. Government Securities'),
including direct obligations of the United States Treasury such as Bills,
6
<PAGE>
Notes and Bonds, and issues of agencies and instrumentalities established under
the authority of an act of Congress such as the Federal Home Loan Banks, which
have the right to borrow from the U.S. Treasury, and the Federal National
Mortgage Association, the securities of which are solely dependent on the
issuing instrumentality for repayment; and (2) repurchase agreements that are
collateralized in full each day by the types of U.S. Government Securities
listed above. These agreements are entered into with 'primary dealers' (as
designated by the Federal Reserve Bank of New York) in U.S. Government
Securities and with the Fund's Custodian.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the
Government Portfolio may not (1) invest more than 5% of its total assets in
repurchase agreements with any one vendor, although with respect to 25% of its
total assets it may invest without regard to such limitation; (2) invest more
than 10% of its total assets in repurchase agreements not terminable within
seven days (whether or not illiquid) or other illiquid investments; (3) borrow
money except from banks for extraordinary or emergency purposes in aggregate
amounts not exceeding 15% of its total assets (and, when such borrowings exceed
5% of its total assets, make any further investments); and (4) mortgage, pledge
or hypothecate its assets except to secure such borrowings.
OCC CASH RESERVES GENERAL MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The General Municipal Portfolio's investment objectives are in the
following order of priority-- safety of principal, liquidity, and, to the extent
consistent with these objectives, maximum current income from money market
securities that is exempt from Federal income taxes. As a matter of fundamental
policy, the General Municipal Portfolio pursues its objectives by maintaining a
diversified portfolio of high-grade municipal securities of the types described
in the succeeding section, all of which at the time of investment have remaining
maturities of thirteen months or less within the meaning of the Act and
generate, in the opinion of bond counsel to the issuer, interest that is exempt
from Federal income taxes. At least 80% of the Portfolio's total assets will be
invested in such securities (not including securities treated as tax preference
items) unless the Advisor has determined that it is in the best interest of the
Portfolio to assume a temporary defensive position involving a greater
commitment of assets to obligations generating taxable income. Normally,
substantially all of the Portfolio's income will be exempt from Federal taxes,
although it may be subject to state or local income taxes. While the Portfolio
may not change this policy or the 'other fundamental investment policies'
described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
General Municipal Portfolio's objectives will be achieved.
Under the current Internal Revenue Code (1) interest on tax-exempt
municipal securities issued after August 7, 1986 and used to finance 'private
activities' (e.g., industrial development bonds) shall be treated as an item of
tax preference for purposes of alternative minimum tax ('AMT') imposed on
individuals and corporations, though for Federal income tax purposes such
interest shall remain fully tax-exempt, and (2) interest on all tax-exempt
obligations shall be included in 'adjusted net book income' of corporations for
AMT purposes. The General Municipal Portfolio may purchase 'private activity'
municipal securities without limitation and therefore a
7
<PAGE>
substantial portion (and potentially all) of any distribution from the Portfolio
may be treated as a tax preference item (with resulting tax) for those taxpayers
subject to AMT. Investors who are already subject to AMT should consider whether
an investment in the Portfolio is suitable for them. Investors are urged to
consult their own tax advisors with respect to their own tax situations.
MUNICIPAL SECURITIES
The municipal securities in which the General Municipal Portfolio invests
are municipal notes, short-term municipal bonds, short-term discount notes, and
participation interests in any of the foregoing. Municipal notes are generally
used to provide for short-term capital needs and generally have maturities of
thirteen months or less. Examples include tax anticipation and revenue
anticipation notes which are generally issued in anticipation of various
seasonal revenues, bond anticipation notes, and tax-exempt commercial paper.
Municipal notes and short-term municipal bonds may either be secured by the
issuer's pledge of its faith, credit and taxing power for payment of principal
and interest, or paid from the revenues of a particular facility or a specific
excise or other source. Included within the revenue bonds category are
participations in lease obligations or installment purchase contracts
(hereinafter collectively called 'lease obligations') of municipalities. States
and local agencies or authorities issue lease obligations to acquire equipment
and facilities. Short-term discount notes are short-term obligations issued at a
discount to face value. Participation interests are undivided interests in loans
giving the purchaser the right to a pro-rata share of a loan's cash flow.
All of the General Municipal Portfolio's municipal securities at the time
of purchase must be of prime quality, as previously defined. Securities must
also meet credit standards applied by the Advisor.
The General Municipal Portfolio may invest in variable rate obligations
whose interest rates are adjusted either at predesignated periodic intervals or
whenever there is a change in the market rate to which the security's interest
rate is tied. Such adjustments minimize changes in the market value of the
obligation and, accordingly, enhance the ability of the Portfolio to maintain a
stable net asset value. Variable rate securities purchased may include
participation interests in industrial development bonds backed by letters of
credit of domestic or foreign banks having total assets of more than $1 billion;
the letters of credit of any single bank in respect of all variable rate
obligations will not cover more than 10% of the Portfolio's total assets.
The General Municipal Portfolio also may purchase tender option bonds. A
tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer, or other financial institution, pursuant to which such
institution grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face value thereof.
As consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities coupled
with the tender option to trade at par on the date of such determination. Thus,
after payment of the fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor, on behalf of the General Municipal Portfolio, will consider on an
ongoing basis the creditworthiness of the issuer of the underlying municipal
security, of any custodian, and of the third party provider of the tender
option. In certain instances and for certain tender option bonds, the option may
be terminable in the event of a default in payment of principal or interest on
the underlying municipal securities, and for other reasons. The Fund will
consider as illiquid securities tender option bonds as to which it cannot
exercise the tender feature on not more than seven days' notice if there is no
secondary market available for these obligations.
8
<PAGE>
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Lease obligations and conditional sale
contracts (which may provide for title to the leased asset to pass eventually to
the issuer), have developed as a means for government issuers to acquire
property and equipment without the necessity of complying with the
constitutional and statutory requirements generally applicable for the issuance
of debt. Certain lease obligations contain 'non-appropriation' clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purposes by
the appropriate legislative body on an annual or other periodic basis.
Consequently, continued lease payments on those lease obligations containing
'non-appropriation' clauses are dependent on future legislative actions. If such
legislative actions do not occur, the holders of the lease obligation may
experience difficulty in exercising their rights, including disposition of the
property.
In addition, lease obligations may not have the depth of marketability
associated with other municipal obligations, and as a result, certain of such
lease obligations may be considered illiquid securities. To determine whether or
not the General Municipal Portfolio will consider such securities to be illiquid
(the Portfolio may not invest more than 10% of its net assets in illiquid
securities), the following guidelines have been established to determine the
liquidity of a lease obligation. The factors to be considered in making the
determination include: (1) the frequency of trades and quoted prices for the
obligation; (2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
The General Municipal Portfolio also may invest in forward commitments,
which obligate the Portfolio to purchase securities, and stand-by commitments or
puts, which give the Portfolio the right to resell securities, from or to a
dealer at a specified price. Such commitments, which may involve certain
expenses and risks, are not expected to comprise a significant portion of the
Portfolio's investments. The Portfolio may commit up to 15% of its net assets to
the purchase of when-issued securities. The underlying securities are subject to
market fluctuations and no interest accrues prior to delivery of such
securities.
The Portfolio may invest a significant percentage of its assets in
municipal obligations subject to put or demand features and similar credit and
liquidity enhancements. Because the Portfolio invests in securities backed by
banks and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Portfolio.
TAXABLE INVESTMENTS
The taxable investments in which the General Municipal Portfolio may invest
include obligations of the U.S. Government and its agencies or
instrumentalities; high quality certificates of deposit and bankers'
acceptances; prime commercial paper; and repurchase agreements collateralized at
all times by such instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain Portfolio diversification and reduce investment risk, the
General Municipal Portfolio may not (1) invest more than 25% of its total assets
in municipal securities whose issuers are located in the same state or more than
25% of its total assets in municipal securities whose interest is paid from
revenues of similar-type projects; (2) invest more than 5% of its total assets
in the securities of any one issuer (except the U.S. Government) except that up
to 25% of its total assets may be invested in the First Tier Securities of a
single issuer for a period of three business days (this exception is not
available for more than one issuer at any time); it may invest without regard to
such 5% limitation with respect to 25% of its total assets until July 1, 1998;
(3) invest more than 10% of its total assets in repurchase agreements not
terminable within seven days (whether or not illiquid) or other illiquid
investments; (4) borrow money except from banks for extraordinary or emergency
9
<PAGE>
purposes and in aggregate amounts not exceeding 15% of its total assets (and,
when such borrowings exceed 5% of its total assets, make any further
investments); and (5) mortgage, pledge or hypothecate its assets except to
secure such borrowings.
On and after July 1, 1998, the General Municipal Portfolio will not invest
more than 5% of its total assets in the securities of any one issuer (except the
U.S. Government) except for the three day period described in (2) above, as
required by Rule 2a-7. In addition, the Portfolio may not invest more than 5% of
its total assets in private activity municipal securities that are Second Tier
Securities and the Portfolio may not invest more than the greater of 1% of its
total assets or $1 million in securities issued by an issuer of private activity
municipal securities that are Second Tier Securities.
OCC CASH RESERVES CALIFORNIA MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the California Municipal Portfolio (the
'Portfolio') are in the following order of priority--safety of principal,
liquidity and, to the extent consistent with these objectives, maximum current
income available from money market securities that is exempt from Federal and
California personal income taxes. The Portfolio pursues its objectives by
maintaining a portfolio of high-grade securities of the types described in the
succeeding section, which at the time of investment have remaining maturities of
thirteen months or less within the meaning of the Act and generate, in the
opinion of bond counsel to the issuer, interest that is exempt from Federal and
California personal income taxes ('California Municipal Securities'). As a
matter of fundamental policy, at least 80% of the Portfolio's total assets will
be invested in California Municipal Securities unless the Advisor determines
that it is in the best interest of the Portfolio to assume a temporary defensive
position involving a greater commitment of assets to obligations generating
taxable income. Normally, substantially all of the Portfolio's income will be
exempt from Federal and California personal income taxes. While the Portfolio
may not change the foregoing policies or the 'other fundamental investment
policies' described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Portfolio's objectives will be achieved.
The Portfolio may purchase 'private activity' municipal securities without
limitation and therefore a substantial portion (and potentially all) of any
distribution from the Portfolio may be treated as a tax preference item (with
resulting tax) for those taxpayers subject to AMT (as defined on page 7).
Investors already subject to AMT should consider whether an investment in the
Portfolio is suitable for them. Investors are urged to consult their own tax
advisors with respect to their own tax situations.
CALIFORNIA MUNICIPAL SECURITIES
The California Municipal Securities in which the Portfolio invests are
municipal notes, short-term municipal bonds, short-term discount notes and
participation interests in any of the foregoing as described under 'Municipal
Securities' on page 8.
All of the Portfolio's securities at the time of purchase are of prime
quality as defined previously. Securities must also meet credit standards
applied by the Advisor.
The Portfolio may invest in variable rate obligations, forward commitments
and stand-by commitments, tender option bonds and lease obligations, as
described and according to the limitations set forth under 'Municipal
Securities' on page 8. The Portfolio may invest a significant percentage of its
assets in
10
<PAGE>
municipal obligations subject to put or demand features and similar credit and
liquidity enhancements. Because the Portfolio invests in securities backed by
banks and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Portfolio.
Investors in the California Municipal Portfolio should consider the
possible greater risk arising from the geographic concentration and
non-diversified structure of the Portfolio's investments, as well as the current
and past financial condition of California municipal issuers which is discussed
in the Statement of Additional Information ('SAI').
TAXABLE INVESTMENTS
While it is anticipated that substantially all of the Portfolio's assets
will be invested in California Municipal Securities, the Portfolio is
authorized, under normal circumstances, to invest up to 20% of its total assets
in taxable investments. The taxable investments are limited to obligations of
the U.S. Government and its agencies or instrumentalities; prime quality
certificates of deposit and bankers acceptances of domestic banks; prime quality
commercial paper; and repurchase agreements collateralized at all times by such
instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To reduce investment risk, the Portfolio may not (1) invest more than 25%
of its total assets in securities whose interest is paid from revenues of
similar-type projects; (2) until July 1, 1998 with respect to 50% of its assets
invest more than 5% of its total assets in the securities of any one issuer
(except the U.S. Government); (3) invest any more than 25% of its assets in any
one issuer; provided that on and after July 1, 1998, the Portfolio may not
invest more than 5% of its total assets in securities of any one issuer that are
not First Tier Securities; (4) invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments; (5) borrow money except from banks for
extraordinary or emergency purposes and in aggregate amounts not exceeding 15%
of its total assets, and when such borrowings exceed 5% of its total assets,
make any further investments; and (6) mortgage, pledge or hypothecate its assets
except to secure such borrowings.
On and after July 1, 1998, the California Municipal Portfolio will not
invest more than five percent of its total assets in securities issued by any
one issuer; this restriction will apply to seventy-five percent of the total
assets of the Portfolio, as required by Rule 2a-7. In addition, the Portfolio
will not invest more than five percent of its total assets in private activity
municipal securities that are Second Tier Securities. The Portfolio will not
invest more than the greater of one percent of its total assets or one million
dollars in private activity municipal securities issued by an issuer that are
Second Tier Securities.
OCC CASH RESERVES NEW YORK MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the New York Municipal Portfolio (the
'Portfolio') are in the following order of priority-safety of principal,
liquidity and, to the extent consistent with these objectives, maximum current
income available from money market securities that is exempt from Federal, New
York State and New York City income taxes. The Portfolio pursues its objectives
by maintaining a portfolio of high-grade securities of the types described in
the succeeding section, which at the time of investment have remaining
maturities of thirteen months or less within the meaning of the Act and
generate, in the opinion of bond counsel to the issuer, interest that is exempt
from Federal, New York State and New York City income taxes ('New York Municipal
Securities'). As a matter of fundamental policy, at least 80% of the Portfolio's
total assets will be invested in
11
<PAGE>
New York Municipal Securities unless the Advisor determines that it is in the
best interest of the Portfolio to assume a temporary defensive position
involving a greater commitment of assets to obligations generating taxable
income. Normally, substantially all of the Portfolio's income will be exempt
from Federal, New York State and New York City income taxes. While the Portfolio
may not change the foregoing policies or the 'other fundamental investment
policies' described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Portfolio's objectives will be achieved.
The Portfolio may purchase 'private activity' municipal securities without
limitation, and therefore a substantial portion (and potentially all) of any
distribution from the Portfolio may be treated as a tax preference item (with
resulting tax) for those taxpayers subject to AMT as defined on page 7.
Investors who are already subject to AMT should consider whether an investment
in the Portfolio is suitable for them. Investors are urged to consult their own
tax advisors with respect to their own tax situations.
NEW YORK MUNICIPAL SECURITIES
The New York Municipal Securities in which the Portfolio invests are
municipal notes, short-term municipal bonds, short-term discount notes and
participation interests in any of the foregoing as described under Municipal
Securities on page 8.
All of the Portfolio's securities at the time of purchase are of prime
quality as defined previously. Securities must also meet credit standards
applied by the Advisor.
The Portfolio may invest in variable rate obligations, forward commitments
and stand-by commitments or puts, tender option bonds and lease obligations as
described and according to the limitations set forth under 'Municipal
Securities' on page 8. The Portfolio may invest a significant percentage of its
assets in municipal obligations subject to put or demand features and similar
credit and liquidity enhancements. Because the Portfolio invests in securities
backed by banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Portfolio.
Investors in the New York Municipal Portfolio should consider the possible
greater risk arising from the geographic concentration and non-diversified
structure of the Portfolio's investments, as well as the current and past
financial condition of New York municipal issuers which is discussed in the SAI.
TAXABLE INVESTMENTS
While it is anticipated that substantially all of the Portfolio's assets
will be invested in New York Municipal Securities, the Portfolio is authorized,
under normal circumstances, to invest up to 20% of its total assets in taxable
investments. The taxable investments are limited to obligations of the U.S.
Government and its agencies or instrumentalities; prime quality certificates of
deposit and bankers acceptances of domestic banks; prime quality commercial
paper; and repurchase agreements collateralized at all times by such
instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To reduce investment risk, the Portfolio may not (1) invest more than 25%
of its total assets in securities whose interest is paid from revenues of
similar-type projects; (2) until July 1, 1998, with respect to 50% of its assets
invest more than 5% of its total assets in the securities of any one issuer
(except the U.S. Government); (3) invest any more than 25% of its assets in any
one issuer; provided that on and after July 1, 1998, the Portfolio may not
invest more than 5% of its total assets in securities of any one issuer that are
not First Tier Securities; (4) invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments; (5) borrow money except from banks for
extraordinary or emergency purposes and in aggregate amounts not exceeding 15%
of its total assets, and when such borrowings exceed 5% of its total assets,
make any further investments;
12
<PAGE>
and (6) mortgage, pledge or hypothecate its assets except to secure such
borrowings.
On and after July 1, 1998, the New York Municipal Portfolio will not invest
more than five percent of its total assets in securities issued by any one
issuer; this restriction will apply to seventy-five percent of the total assets
of the Portfolio, as required by Rule
2a-7. In addition, the Portfolio will not invest more than five percent of its
total assets in private activity municipal securities that are Second Tier
Securities. The Portfolio will not invest more than the greater of one percent
of its total assets or one million dollars in private activity municipal
securities issued by an issuer that are Second Tier Securities.
ADDITIONAL INFORMATION
INVESTMENTS MADE BY CHECK. Money transmitted by a check drawn on a member
of the Federal Reserve System is converted to Federal Funds in one business day
following receipt and is then invested in the Fund. Checks drawn on banks which
are not members of the Federal Reserve System may take longer to be converted
and invested. All payments must be in United States dollars.
Forwarding of proceeds from any redemption of Fund shares purchased by
check may be delayed only until the check has cleared which may normally take up
to ten days following the purchase date.
AUTOMATED CLEARING HOUSE TRANSFERS. Fund shares can be purchased and
redeemed by ACH electronic funds transfer between the Fund and a bank. There are
no charges to you for ACH transactions, either by the Fund or by the bank. ACH
transfers are completed approximately two business days following the placement
of transfer orders.
For your Fund account to be eligible for ACH transfers to and from your
bank, you must complete the Fund's ACH Authorization Form which can be obtained
from our service representative by telephoning the number below. Direct deposits
into your Fund account by ACH transfer can be used for part or all of recurring
payments made to you by your employer (corporate, Federal, military, or other
type) or by the Social Security Administration. Instructions to
the sending parties are simple; call toll-free 800-401-6672 during business
hours to obtain complete information from our service representative.
TIMING OF INVESTMENTS AND REDEMPTIONS. The Fund has two transaction times
each day, at 12:00 noon and 4:00 p.m. (New York time). New investments
represented by Federal Funds or bank wire monies received by the Custodian prior
to 12:00 noon are paid the full dividend for that day; such investments received
after 12:00 noon do not begin to receive daily dividends until the next day.
Redemption orders received prior to 12:00 noon are effected at 12:00 noon; the
shares redeemed do not earn that day's dividend but the redemption proceeds are
available that day. Redemption orders received after 12:00 noon are effected at
4:00 p.m.; the shares redeemed earn the daily dividend for that day and the
redemption proceeds are remitted the next business day.
MINIMUMS. The Fund has minimums of $1,000 for initial investments, $100
for subsequent investments, and $500 for account balances. These minimums do not
apply to shareholder accounts maintained through brokerage firms or other
financial institutions, as such financial intermediaries may maintain their own
minimums for their customer's investments in the Fund. The Fund may impose
service charges upon financial intermediaries to reflect the relatively higher
costs of small accounts and small transactions; these intermediaries may in turn
pass on such charges to affected accounts.
A shareholder subject to the minimum account balance requirement must
increase his or her account balance to at least $500 within sixty days after
notice of a deficient balance has been mailed by the Fund, or the Fund may close
the account and mail a check
13
<PAGE>
for the proceeds to the shareholder. The Fund intends at least once each six
months to review its shareholder balances in regard to the $500 minimum and to
send appropriate notices to shareholders with deficient accounts. The Fund
imposes no minimums for redemptions by mail or for redemptions made on an
account's behalf by brokerage firms or other financial institutions. However,
such firms may have internal procedures that include minimums.
GUARANTEED PAYMENT. A broker-dealer or other financial intermediary may
arrange for investments in shares of the Fund at the 4:00 p.m. transaction time
and guarantee that payments in Federal Funds for the shares purchased will be
made prior to 12:00 noon the next day.
SHARE PRICE. Shares are sold and redeemed on a continuing basis without
sales or redemption charges at their net asset value which is expected to be
constant at $1.00, although this share price is not guaranteed. The net asset
value is determined each business day at 12:00 noon and 4:00 p.m. (New York
time). The net asset value per share is calculated by taking the sum of the
value of investments (amortized cost value is used for this purpose) and any
cash or other assets, subtracting liabilities, and dividing by the total number
of shares outstanding. All expenses, including the fees payable to the Advisor,
are accrued daily.
DAILY DIVIDENDS, OTHER DISTRIBUTIONS, TAXES. All net income of each
Portfolio is determined each business day and is declared payable pro rata to
shareholders of record as of 12:00 noon. Declared dividends are accrued and are
automatically paid into shareholders' accounts on a monthly basis. As such
additional reinvested shares earn subsequent dividends, a compounding growth of
income occurs.
Net income of the Portfolios consists of all accrued interest income on
portfolio assets less the expenses applicable to that dividend period. All
realized gains and losses are reflected in the net asset value and are not
included in net investment income.
Distributions to your account of tax-exempt interest income are not subject
to Federal income tax (other than the alternative minimum tax and market
discount, if any, on securities purchased by the Portfolio), but may be subject
to state or local income taxes. Distributions of income earned by the California
General Municipal Portfolio from California tax-exempt securities are not
subject to Federal income tax (other than the alternative minimum tax described
above) or to California personal income taxes. Distributions of income earned by
the New York Municipal Portfolio from New York Municipal Securities are not
subject to Federal income tax (other than the alternative minimum tax described
above) or to New York State and New York City income taxes. Distributions of
taxable interest income, other investment income, and net short-term capital
gains are taxed to you as ordinary income; state and local taxation of such
distributions, if any, may be reduced in proportion to the percentage of income
that derives from U.S. Government obligations. Distributions of net long-term
capital gains would be taxable as long-term capital gains irrespective of the
length of time you may have held your shares. Distributions of net short-term
and long-term capital gains, if any, would be made at least annually. Each
January, each Portfolio will send you tax information for the calendar year just
ended stating the amounts and types of all its distributions, including the
percentage of income derived from U.S. Government obligations, for the calendar
year just ended.
PERIODIC WITHDRAWALS. Without affecting your right to use any of the
methods of redemption described on page 18, by checking the appropriate boxes on
the Application Form you may elect to participate additionally in the following
plans without any separate charges. Under the Income Distribution Plan you
receive monthly payments of all the income earned in your Fund account. Under
the Systematic Withdrawal Plan, you may request checks in any specified amount
of $50 or more each month or in any intermittent pattern of months. If desired,
you can order, via a signature-guaranteed letter to the Fund, such periodic
payments to be sent to another person.
14
<PAGE>
VALUED INVESTMENT PLAN. The Valued Investment Plan ('VIP') is a central
asset program that includes checkwriting with no minimum dollar amount and a VIP
cash card. The program is available only to individuals whose Fund shares are
held as part of a brokerage account. The fees for this program, which are being
waived currently, are $45 a year with fees for additional checks and a $1.00 fee
per transaction for use at automated teller machines. Shareholders should
contact their broker or the Fund for information about this program.
THE ADVISOR. The Fund retains OpCap Advisors (the 'Advisor'), One World
Financial Center, New York, New York, 10281, under an Advisory Agreement to
provide investment advice and, in general, to supervise the Fund's business
affairs and investment program, subject to the general control of the Directors
of the Fund. The Advisor is a subsidiary of Oppenheimer Capital, a registered
investment adviser with approximately $61.4 billion in assets under management
on December 31, 1997. All investment management services performed under the
Advisory Agreement are performed by employees of Oppenheimer Capital. On
November 4, 1997, PIMCO Advisors L.P. ('PIMCO Advisors'), a registered
investment adviser with $125 billion in assets under management through various
subsidiaries, and its affiliates acquired control of Oppenheimer Capital and its
subsidiary OpCap Advisors, the Manager of the Fund. A new Advisory Agreement (on
identical terms as the previous Advisory Agreement) between the Fund and OpCap
Advisors became effective November 5, 1997. The new Advisory Agreement was
approved by the shareholders of each Portfolio of the Fund at a Special Meeting
of Shareholders held on October 14, 1997. On November 30, 1997, Oppenheimer
Capital merged with a subsidiary of PIMCO Advisors and, as a result, Oppenheimer
Capital and OpCap Advisors became indirect wholly-owned subsidiaries of PIMCO
Advisors. PIMCO Advisors has two general partners: PIMCO Partners, G.P. ('PIMCO
G.P.') a California general partnership, and PIMCO Advisors Holdings L.P.
(formerly Oppenheimer Capital, L.P.), a NYSE-listed Delaware limited partnership
of which PIMCO G.P. is the sole general partner. PIMCO GP beneficially owns or
controls (through its general partner interest in PIMCO Advisors Holdings, L.P.
formerly Oppenheimer Capital, L.P.) greater than 80% of the units of limited
partnership ('Units') of PIMCO Advisors. PIMCO GP has two general partners. The
first of these is Pacific Investment Management Company, a wholly-owned
subsidiary of Pacific Financial Asset Management Company, which is a direct
subsidiary of Pacific Life Insurance Company ('Pacific Life'). The managing
general partner of PIMCO GP is PIMCO Partners L.L.C. ('PPLLC'), a California
limited liability company. PPLLC's members are the Managing Directors (the
'PIMCO Managers') of Pacific Investment Management Company, a subsidiary of
PIMCO Advisors (the 'PIMCO Subpartnership'). The PIMCO Managers are: William H.
Gross, Dean S. Meiling, James F. Muzzy, William F. Podlich, III, Brent R.
Harris, John L. Hague, William S. Thompson Jr., William S. Powers, David H.
Edington, Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO
Advisors is governed by a Management Board, which consists of sixteen members,
pursuant to a delegation by its general partners. PIMCO GP has the power to
designate up to nine members of the Management Board and the PIMCO
Subpartnership, of which the PIMCO Managers are the Managing Directors, has the
power to designate up to two members. In addition, PIMCO GP, as the controlling
general partner of PIMCO Advisors, has the power to revoke the delegation to the
Management Board and exercise control of PIMCO Advisors. As a result, Pacific
Life and/or the PIMCO Managers may be deemed to control PIMCO Advisors. Pacific
Life and the PIMCO Managers disclaim such control. Because of direct or indirect
power to appoint 25% of the members of the Equity Board, (i) Pacific Life and
(ii) the PIMCO Managers and/or the PIMCO Subpartnership may each be deemed,
under applicable provisions of the Investment Company Act, to control PIMCO
Advisors. Pacific Life, the PIMCO Subpartnership and the PIMCO Managers disclaim
such control. The management fee rate for each Portfolio is at an annual rate of
.50% on the first $100 million of average daily net assets, .45% on the
15
<PAGE>
next $200 million of average daily net assets, and .40% of average daily net
assets in excess of $300 million, payable monthly.
DISTRIBUTION PLAN. Under a Distribution Assistance and Administrative
Services Plan (the 'Plan') adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, each Portfolio pays the Advisor monthly at an
annual rate of .25 of 1% of the Portfolio's average daily net assets.
Substantially all such monies are paid by the Advisor to broker-dealers, banks
and other depository institutions, and other financial intermediaries for
distribution assistance and administrative services provided to the Portfolio,
with any remaining amounts being used to partially defray other expenses
incurred by the Advisor in distributing shares. The Plan has been approved by
the Board of Directors and by the Fund's shareholders. The SAI contains
additional information about the Advisory Agreement and the Plan.
ADMINISTRATIVE SERVICES. The Fund also may pay certain broker-dealers
including CIBC Oppenheimer Corp. for performing certain administrative services
for accounts in the Fund including providing beneficial owners with statements
showing their positions in the Fund, posting dividend payments to beneficial
owners' accounts and providing shareholder information to enable the Fund to
mail prospectuses, annual and semi-annual reports to beneficial owners. Such
payments are capped at 5 basis points of average daily net assets.
EXPENSES-EXPENSE LIMITATION. Principal operating expenses of the Fund
consist of the Advisor's fee, costs of the Plan, legal and accounting expenses,
custodian fees, and transfer agent and other shareholder servicing costs.
Shareholders pay no direct charges or fees for investment services. Each
Portfolio's expenses are paid out of its gross investment income. The Advisor
reimburses each Portfolio to the extent that the combined aggregate operating
expenses of the Portfolio exceed 1% (net of any expense offsets) of its average
daily net assets for any fiscal year.
FUND ORGANIZATION. The Fund, which is an open-end investment company
registered under the Investment Company Act of 1940, was organized as a Maryland
corporation in series form in April 1989. The Fund's activities are supervised
by its Board of Directors. Each share of a Portfolio is entitled to one vote;
shares vote as a single series on matters that affect all Portfolios in
substantially the same manner. The Fund does not intend to hold regular annual
shareholder meetings. Directors are required to call a special meeting of a
Portfolio's shareholders if owners of at least 10% of the Portfolio's
outstanding shares so request in writing. The Fund may establish additional
Portfolios which may have different investment objectives from those stated in
this prospectus. The Fund issues shares only for full monetary consideration,
and it does not issue share certificates.
REPORTS. You will receive semi-annual and annual reports of the Portfolio
in which you are invested. To reduce expenses, only one copy of financial
reports will be mailed to your household, even if you have more than one
account. If you wish to receive additional copies of financial reports, please
call 1-800-401-6672 during business hours. You can arrange for a copy of each of
your account statements to be sent to other parties.
YIELD DEFINITIONS. From time to time we may advertise yield, effective
yield, and tax equivalent yield. Yield refers to income generated by an
investment in a Portfolio over a seven day or other stated period, expressed as
an annual percentage rate. Effective yield of a Portfolio results from the
compounding of periodically reinvested dividends. Tax-equivalent yield
represents the amount of income subject to a particular tax rate which would
have to be earned to give an investor an amount of income equal to tax-exempt
income. In addition, reference in advertisements may be made to ratings and
ratings among similar funds by independent evaluators, such as Lipper's
Analytical Services, Inc. The performance of the Portfolios may be compared to
recognized indices of market performance.
16
<PAGE>
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets, transfer agent
and shareholder servicing agent for the Fund is State Street Bank and Trust
Company. CIBC Oppenheimer Corp. maintains an omnibus account for its customers
who are shareholders of the Fund and provides certain recordkeeping services for
those shareholders. Cash balances of the Fund with the Custodian in excess of
$100,000 are unprotected by Federal deposit insurance. Such uninsured balances
may at times be substantial.
SHAREHOLDER SERVICING AGENT FOR CERTAIN SHAREHOLDERS. Unified Management
Corporation (800-UMC-FUND(862-3863)) is the shareholder servicing agent for
former shareholders of the AMA Family of Funds and clients of 225 Liberty
Advisers, L.P., and for former shareholders of the Unified Funds and Liquid
Green Trusts, accounts which participated or participate in a retirement plan
for which Unified Investment Advisers, Inc. or an affiliate acts as custodian or
trustee, accounts which have a Money Manager brokerage account, and other
accounts for which Unified Management Corporation is the dealer of record.
YEAR 2000 ISSUES. The management services provided to the Fund by the
Advisor, and the services provided by the Transfer Agent to shareholders, depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other incorrect date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Advisor and Transfer Agent
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 and expect that their systems will be adapted before
that date, but there can be assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time.
PURCHASE AND REDEMPTION OF SHARES
OPENING ACCOUNTS--NEW INVESTMENTS
A. WHEN FUNDS ARE SENT BY WIRE (the wire method permits immediate credit)
1) Telephone the Fund toll-free at 800-401-6672 during business hours. Our
service representative will ask you for (a) the name of the account as
you wish it to be registered, (b) the address of the account, (c) your
taxpayer identification number (social security number for an
individual) and (d) the name of the Portfolio in which you wish to
invest. You will then be provided with an account number.
2) Instruct your bank to wire Federal Funds (minimum $1,000) to the Fund's
custodian and transfer agent (P.O. Box 8505, Boston, MA 02266) exactly
as follows and precisely in the order presented:
RECEIVING BANK INFORMATION:
State Street Bank and Trust Company
Attn: Custody
ABA#011000028
BENEFICIARY INFORMATION:
BNF=OCC Cash Reserves
specify Primary, Government, General Municipal, California or New York Municipal
Portfolio
AC-99043838
OTHER BENEFICIARY INFORMATION:
OBI=OCC Cash Reserves
<TABLE>
<S> <C> <C>
Shareholder account name as registered
}
Shareholder account number with the Fund
</TABLE>
17
<PAGE>
3) Mail a completed Application Form to:
OCC Cash Reserves
P.O. Box 8505
Boston, MA 02266
for other than U.S. Postal Service mail:
OCC Cash Reserves
2 Heritage Drive
North Quincy, MA 02171
B. WHEN FUNDS ARE SENT BY CHECK
1) Fill out an Application Form
2) Mail the completed Application Form along with your check or negotiable
bank draft (minimum $1,000) payable to OCC Cash Reserves--Primary,
Government, General Municipal, California Municipal or New York
Municipal Portfolio, to the address in A(3) above.
SUBSEQUENT INVESTMENTS (Purchases)
A. INVESTMENTS BY WIRE (to obtain immediate credit)
Instruct your bank to wire Federal Funds (minimum $100) as in A(2)
above.
B. INVESTMENTS BY CHECK
Mail your check or negotiable bank draft (minimum $100), payable to OCC
Cash Reserves--Primary, Government, General Municipal, California Municipal or
New York Municipal Portfolio, to the address in A(3) above. Include with the
check or draft the 'next investment' stub from one of your previous monthly or
interim account statements. For added identification, place your Fund account
number on the check or draft.
C. INVESTMENTS BY AUTOMATED CLEARING HOUSE
(requires pre-arrangement; see page 13)
You may transfer amounts of $100 and more by ACH from your bank account to
your Fund account by telephoning the Fund toll-free at 800-401-6672 and talking
with our service representative during business hours. When placing an order, be
prepared to provide your Portfolio number (Primary-55, Government-56, General
Municipal-57, California Municipal-23 and New York Municipal-24) and your
account and personal identification numbers. Allow approximately two business
days after your order for the money to be received by the Fund.
WITHDRAWALS (Redemptions)
A. WITHDRAWALS BY TELEPHONE
You may transfer any amount from your Fund account to your designated bank
account by telephoning the FUND toll-free at 800-401-6672 and talking with our
service representative during business hours. You may order such withdrawals of
$1,000 or more to be sent by wire, withdrawals of $100 or more to be sent by the
Automated Clearing House (ACH) system, or withdrawals of any amount to be sent
by check. When placing an order, be prepared to provide your Portfolio number
and your account and personal identification numbers.
For withdrawals being sent by wire: if your telephone order is received by
the Fund prior to 12:00 Noon (New York time), your bank will receive the
requested amount the same day; if your telephone order is received after 12:00
Noon, your bank will receive the requested amount the next business day; for ACH
transfers, allow approximately two business days for the amount to be received
by your bank. For transfers you order to be sent by check, the Fund will mail
the check the next business day. Withdrawals by any method are made without any
charge to you.
B. WITHDRAWALS BY CHECKWRITING
Under the Fund's Regular Checkwriting Service, you may write checks made
payable to any payee in any amount of $250 or more. Different checkwriting
services may be offered by participating broker-dealers and through Unified
Management Corporation. There are no separate charges for regular checkwriting.
The Fund's agent for all checkwriting services, State Street Bank, will impose
its normal charges for checks which are returned unpaid because of insufficient
funds or for checks upon which you have placed a stop order. To establish
check-writing, you must fill out the Signature Card
18
<PAGE>
which is with the Application Form. If you wish to establish this checkwriting
service subsequent to the opening of your Fund Account, contact the Fund by
telephone or mail. The checkwriting service enables you to receive the daily
dividends declared on the shares to be redeemed until the day that your check is
presented to State Street Bank for payment.
You cannot close out your account by checkwriting, however, because your
shares continue to earn dividends and fluctuate in value until the check is
presented for payment.
C. WITHDRAWALS BY MAIL
You may withdraw any amount from your account at any time by mail. Written
orders for withdrawals should be mailed to OCC Cash Reserves, P.O. Box 8505
Boston, MA 02266. Such orders must include the account name as registered with
the Fund and the account number. All written orders for redemption must be
signed by all owners of the account with the signatures guaranteed by an
eligible guarantor.
<TABLE>
<S> <C>
OBTAINING AN APPLICATION FORM--ASSISTANCE If your account with the Fund is to be maintained
If you wish to obtain an Application Form, or if you through a brokerage firm or other institution, do not
have any questions about the Form, purchasing shares, fill out the Application Form or the Signature Card. In-
or other Fund procedures, please telephone the Fund stead, contact your account representative at such
toll-free at 800-401-6672 during business hours. institution. Institutions may charge a fee for providing
such assistance.
</TABLE>
19
<PAGE>
OCC Cash Reserves (the 'Fund') is an open-end money market fund investment
company with five separate Portfolios. Though the Portfolios have the same
investment objectives of safety of principal, liquidity and maximum current
income, they may in the pursuit of these objectives invest in different types of
money market securities or in different proportions of the same types of
securities. This prospectus sets forth information about the Fund and its
Primary, Government, General Municipal, California Municipal and New York
Municipal Portfolios that a prospective investor should know before investing.
Please retain this prospectus for future reference.
A Statement of Additional Information dated March 31, 1998 provides further
discussion of certain areas in this prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A free copy may be obtained
by writing the Fund.
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.
CONTENTS
- ------------------------------------------------------
PAGE
Introduction.........................................1
Expense Information..................................2
Financial Highlights.................................3
Primary Portfolio....................................5
Government Portfolio.................................6
General Municipal Portfolio..........................7
California Municipal Portfolio......................10
New York Municipal Portfolio........................11
Additional Information..............................13
Purchase and Redemption of Shares...................17
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
o Primary Portfolio
o Government Portfolio
o General Municipal Portfolio
o California Municipal Portfolio
o New York Municipal Portfolio
PROSPECTUS
March 31, 1998
- --------------------------------------------------------------------------------
<PAGE>
[LOGO] ................................. with investment objectives of
SAFETY o LIQUIDITY o INCOME
OCC Cash Reserves (the 'Fund') is a money market fund with five distinct
Portfolios--the Primary Portfolio, the Government Portfolio, the General
Municipal Portfolio, the California Municipal Portfolio and the New York
Municipal Portfolio (the 'Portfolios').
Safety of principal is sought by investing in securities which are selected
for their high quality, liquidity and stability of principal. A security at the
time of purchase cannot have a maturity exceeding thirteen months within the
meaning of the Investment Company Act of 1940, and the average weighted maturity
of all securities in a Portfolio cannot exceed 90 days. Such a short average
maturity enhances the ability of each Portfolio to provide both liquidity and
stability of value to you and your fellow shareholders. While each Portfolio
seeks to maintain (and has maintained) its share price at $1.00, investments in
the Portfolios are not guaranteed or insured by the U.S. Government and there is
no assurance that a Portfolio will maintain a constant price of $1.00 per share.
The California Municipal Portfolio and the New York Municipal Portfolio each may
invest a significant percentage of its assets in a single issuer and therefore
investment in those Portfolios may be riskier than an investment in other types
of money market funds.
There are no minimums for investments in, or withdrawals from, a Portfolio
maintained through a CIBC Oppenheimer securities account, and withdrawals can be
made in any amount at any time without fee or penalty. The Portfolio's dividends
are declared daily and compounded monthly.
IS OCC CASH RESERVES FOR YOU?
The Fund is designed for individuals, institutions, advisors, custodians,
charities, fiduciaries and corporations who can benefit from a fund seeking
maximum current income and who place value on an investment having safety of
principal, liquidity, stability, simplicity, and convenience. The availability
of five separate Portfolios provides you with the advantage of selecting a
combination of investment characteristics particularly suitable to your needs.
The five Portfolios described in this Prospectus compare to one another as
follows:
<TABLE>
<S> <C> <C>
Primary Portfolio -- highest money market income; conservative investments
Government Portfolio -- high money market income; very conservative investments
General Municipal Portfolio -- highest money market tax-exempt income; conservative investments
California Municipal -- highest money market income exempt from Federal and California
Portfolio personal income taxes; conservative investments
New York Municipal -- highest money market income exempt from Federal, New York State
Portfolio and New York City income taxes; conservative investments
</TABLE>
<PAGE>
EXPENSE INFORMATION
The expense summary format below was developed for use by all mutual funds
to help investors understand the various direct costs and expenses related to a
fund investment.
SHAREHOLDER TRANSACTION EXPENSES (FOR EACH PORTFOLIO)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases.................................................. None
Sales Load Imposed on Reinvested Dividends....................................... None
Redemption Fees.................................................................. None
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
GENERAL CALIFORNIA NEW YORK
PRIMARY GOVERNMENT MUNICIPAL MUNICIPAL MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Management fees......................... .41% .49% .49% .50% .50%
12b-1 (Distribution Plan) expenses...... .25% .25% .25% .25% .25%
Other Expenses.......................... .19% .24% .22% .21% .23%
--------- ---------- --------- --------- --------
Total Operating Expenses................ .85% .98% .96% .96% .98%
</TABLE>
During the fiscal year ended November 30, 1997, OpCap Advisors (the
'Advisor') waived part of its advisory fee with respect to the Government
Portfolio, the General Municipal Portfolio, the California Municipal Portfolio
and the New York Municipal Portfolio. After giving effect to such waivers, the
management fees for the Government Portfolio, the General Municipal Portfolio,
the California Municipal Portfolio and the New York Municipal Portfolio were
.49%, .49%, .44% and .50%, respectively. The advisory fee waivers for the
Government, General Municipal and New York Municipal Portfolio were pursuant to
an agreement by the Advisor to assume expenses (net of any expense offsets) in
excess of 1.00% of average net assets in any fiscal year. The advisory fee
waiver for the California Municipal Portfolio was voluntary to the extent of fee
waivers made to bring expenses below 1.00% of average net assets. Other Expenses
are shown gross of certain expense offsets afforded the Portfolio which
effectively lowered overall custody expenses. After giving effect to such
waivers and expense offsets, total operating expenses were .98%, .96%, .90% and
.97%, respectively, for the Government Portfolio, the General Municipal
Portfolio, the California Municipal Portfolio and the New York Municipal
Portfolio.
The following table illustrates the expenses that an investor would pay on
a hypothetical $1,000 investment in each of the Portfolios assuming a 5% annual
return (cumulatively through the end of each time period). Neither the 5% return
nor the estimated expenses should be considered an indication of actual or
expected performance or expenses, both of which may vary.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Primary Portfolio.......................................... $ 8.68 $ 27.13 $ 47.14 $ 104.89
Government Portfolio....................................... 10.00 31.22 54.17 120.12
General Municipal Portfolio................................ 9.79 30.58 53.09 117.81
California Municipal Portfolio............................. 9.79 30.58 53.09 117.81
New York Municipal Portfolio............................... 10.00 31.22 54.17 120.12
</TABLE>
2
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The financial information presented below has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report thereon
appears in the Statement of Additional Information ('SAI'). Investors should
understand that all the following information should be read in conjunction with
the financial statements and related notes thereto appearing in the SAI.
<TABLE>
<CAPTION>
DIVIDENDS
INCOME FROM AND DISTRIBUTIONS
INVESTMENT OPERATIONS ------------------------------------------
----------------------------------------------- DISTRIBUTIONS TOTAL
NET TOTAL DIVIDENDS TO TO DIVIDENDS
NET ASSET REALIZED INCOME SHAREHOLDERS SHAREHOLDERS AND NET ASSET
VALUE, NET GAIN/(LOSS) FROM FROM NET FROM NET DISTRIBUTIONS VALUE,
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT REALIZED TO END
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS SHAREHOLDERS OF PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIMARY PORTFOLIO
Year ended November
30,
1997.................. $ 1.000 $0.047 ($0.000) $0.047 ($ 0.047) -- ($ 0.047) $ 1.000
1996.................. 1.000 0.046 (0.000) 0.046 (0.046) ($ 0.000) (0.046) 1.000
1995.................. 1.000 0.051 0.000 0.051 (0.051) (0.000) (0.051) 1.000
1994.................. 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032) 1.000
1993.................. 1.000 0.024 0.000 0.024 (0.024) (0.000) (0.024) 1.000
1992.................. 1.000 0.033 0.000 0.033 (0.033) (0.000) (0.033) 1.000
1991.................. 1.000 0.057 (0.000) 0.057 (0.057) -- (0.057) 1.000
December 13, 1989(4)
to November 30, 1990
.................... 1.000 0.073 0.000 0.073 (0.073) (0.000) (0.073) 1.000
<CAPTION>
RATIOS TO
AVERAGE NET
ASSETS
NET ASSETS, -----------------------
END OF NET NET
TOTAL PERIOD OPERATING INVESTMENT
RETURN* (MILLIONS) EXPENSES INCOME
<S> <C> <C> <C> <C>
PRIMARY PORTFOLIO
Year ended November 30,
1997.................. 4.85% $ 2,166.6 0.85%(1,2) 4.75%(1)
1996.................. 4.69% 1,712.6 0.91%(2) 4.60%
1995.................. 5.19% 1,671.1 0.94% 5.07%
1994.................. 3.26% 1,453.8 0.91% 3.21%
1993.................. 2.44% 1,413.9 0.90% 2.41%
1992.................. 3.38% 1,168.3 0.88% 3.34%
1991.................. 5.89% 1,249.0 0.86% 5.74%
December 13, 1989(4)
to November 30, 1990
.................... 7.80%(3) 1,244.2 0.87%(3,5) 7.47%(3,5)
</TABLE>
(1) Average net assets for the year ended November 30, 1997 were $1,926,769,081.
(2) Gross of expenses offset (see note 1g in Notes to Financial Statements). The
net ratios of operating expenses to average net assets were 0.85% and 0.91%
for the years ended November 30, 1997 and November 30, 1996, respectively.
(3) Annualized.
(4) Commencement of operations.
(5) During the period noted above, the Adviser waived a portion of its fees. Had
such waiver not been in effect, the net operating expense and net investment
income ratios would have been 0.88% and 7.46%, respectively.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended November 30,
1997.................. $ 1.000 $0.045 ($0.000) $0.045 ($ 0.045) -- ($ 0.045) $ 1.000
1996.................. 1.000 0.044 (0.000) 0.044 (0.044) ($ 0.000) (0.044) 1.000
1995.................. 1.000 0.049 0.000 0.049 (0.049) (0.000) (0.049) 1.000
1994.................. 1.000 0.031 0.000 0.031 (0.031) -- (0.031) 1.000
1993.................. 1.000 0.022 -- 0.022 (0.022) -- (0.022) 1.000
1992.................. 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032) 1.000
1991.................. 1.000 0.055 -- 0.055 (0.055) -- (0.055) 1.000
February 14, 1990(4)
to November 30, 1990. 1.000 0.059 0.000 0.059 (0.059) (0.000) (0.059) 1.000
<S> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended November 30,
1997.................. 4.60% $ 100.0 0.98%(1,2) 4.51%(1,2)
1996.................. 4.51% 101.1 1.00%(1) 4.41%(1)
1995.................. 5.02% 108.6 1.00%(1) 4.91%(1)
1994.................. 3.12% 113.2 0.95%(1) 3.08%(1)
1993.................. 2.26% 127.9 1.00% 2.24%
1992.................. 3.24% 131.7 0.93%(1) 3.23%(1)
1991.................. 5.69% 142.2 0.84%(1) 5.62%(1)
February 14, 1990(4)
to November 30, 1990. 7.67%(3) 150.1 0.67%(1,3) 7.34%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers and assumptions not been in effect nor such
expenses offset, the ratios of net operating expenses to average net assets
would have been 0.99%, 1.00%, 1.02%, 0.97%, 0.94%, 0.92% and 1.19%,
respectively, and the ratios of net investment income to average net assets
would have been 4.50%, 4.41%, 4.89%, 3.06%, 3.22%, 5.54% and 6.82%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $98,910,547.
(3) Annualized.
(4) Commencement of operations.
* Assumes reinvestment of all dividends and distributions.
3
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
-----------------------------------
NET TOTAL DIVIDENDS TO
NET ASSET REALIZED INCOME SHAREHOLDERS NET ASSET
VALUE, NET GAIN/(LOSS) FROM FROM NET CAPITAL VALUE,
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CONTRIBUTION END TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME BY ADVISOR OF PERIOD RETURN*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GENERAL MUNICIPAL PORTFOLIO
Year ended November 30,
1997.......................... $ 1.000 $0.027 ($ 0.000) $0.027 ($ 0.027) -- $ 1.000 2.74%
1996.......................... 1.000 0.025 0.000 0.025 (0.025) -- 1.000 2.56%
1995.......................... 1.000 0.031 0.000 0.031 (0.031) -- 1.000 3.11%
1994.......................... 1.000 0.020 (0.000) 0.020 (0.020) -- 1.000 2.04%
1993.......................... 1.000 0.017 (0.000) 0.017 (0.017) -- 1.000 1.74%
1992.......................... 1.000 0.026 (0.000) 0.026 (0.026) -- 1.000 2.66%
1991.......................... 1.000 0.042 0.000 0.042 (0.042) -- 1.000 4.24%
February 14,1990 (4)
to November 30, 1990 ......... 1.000 0.042 (0.000) 0.042 (0.042) -- 1.000 5.45%(3)
<CAPTION>
RATIOS TO
AVERAGE NET
ASSETS
NET ASSETS, -----------------------
END OF NET NET
PERIOD OPERATING INVESTMENT
(MILLIONS) EXPENSES INCOME
<S> <C> <C> <C>
GENERAL MUNICIPAL PORTFOLIO
Year ended November 30,
1997.......................... $ 137.0 0.96%(1,2) 2.70%(1,2)
1996.......................... 122.3 0.99%(1) 2.53% (1)
1995.......................... 116.0 0.93%(1) 3.07%(1)
1994.......................... 108.7 0.90%(1) 2.01%(1)
1993.......................... 109.7 0.98%(1) 1.73%(1)
1992.......................... 112.9 0.90%(1) 2.62%(1)
1991.......................... 100.1 0.88%(1) 4.20%(1)
February 14,1990 (4)
to November 30, 1990 ......... 107.9 0.71%(1,3) 5.32%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.99%, 1.02%, 1.01%, 1.01%, 1.00%, 0.98% and 1.00%,
respectively, and the ratios of net investment income to average net assets
would have been 2.70%, 2.53%, 2.98%, 1.90%, 1.70%, 2.52%, 4.10% and 5.03%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $134,817,925.
(3) Annualized.
(4) Commencement of operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................ $ 1.000 $0.026 ($ 0.000) $0.026 ($ 0.026) -- $ 1.000 2.68%
1996............................ 1.000 0.024 -- 0.024 (0.024) -- 1.000 2.42%
1995............................ 1.000 0.031 (0.008) 0.023 (0.031) $0.008 1.000 3.10%(3)
1994............................ 1.000 0.020 (0.000) 0.020 (0.020) -- 1.000 1.99%
1993............................ 1.000 0.017 (0.000) 0.017 (0.017) -- 1.000 1.76%
1992............................ 1.000 0.025 (0.000) 0.025 (0.025) -- 1.000 2.57%
March 20, 1991 (5)
to November 30, 1991 .......... 1.000 0.026 (0.000) 0.026 (0.026) -- 1.000 4.24%(4)
<S> <C> <C> <C>
CALIFORNIA MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................ $ 55.7 0.90%(1,2) 2.64%(1,2)
1996............................ 53.4 0.85%(1) 2.42%(1)
1995............................ 75.9 0.82%(1) 3.05%(1)
1994............................ 61.3 0.85%(1) 1.99%(1)
1993............................ 62.3 0.85%(1) 1.75%(1)
1992............................ 61.2 0.60%(1) 2.51%(1)
March 20, 1991 (5)
to November 30, 1991 .......... 45.4 0.54%(1,4) 3.75%(1,4)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.97%, 0.95%, 0.97%, 0.98%, 1.02% and 1.08%, respectively,
and the ratios of net investment income to average net assets would have
been 2.58%, 2.30%, 2.92%, 1.87%, 1.62%, 2.09% and 3.21%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $57,449,650.
(3) Had the Adviser not made the capital contribution, the Portfolio's total
return would have been lower.
(4) Annualized.
(5) Commencement of operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NEW YORK MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................ $ 1.000 $0.026 ($ 0.000) $0.026 ($ 0.026) -- $ 1.000 2.66%
1996............................ 1.000 0.025 -- 0.025 (0.025) -- 1.000 2.50%
1995............................ 1.000 0.030 0.000 0.030 (0.030) -- 1.000 3.07%
1994............................ 1.000 0.019 (0.000) 0.019 (0.019) -- 1.000 1.92%
1993............................ 1.000 0.016 (0.000) 0.016 (0.016) -- 1.000 1.66%
1992............................ 1.000 0.025 (0.000) 0.025 (0.025) -- 1.000 2.56%
April 10, 1991 (4)
to November 30, 1991 .......... 1.000 0.024 (0.000) 0.024 (0.024) -- 1.000 4.29%(3)
<S> <C> <C> <C>
NEW YORK MUNICIPAL PORTFOLIO
Year ended November 30,
1997............................ $ 73.2 0.98%(1,2) 2.63%(1,2)
1996............................ 60.0 0.97%(1) 2.45%(1)
1995............................ 52.3 0.79%(1) 3.02%(1)
1994............................ 48.0 0.82%(1) 1.90%(1)
1993............................ 42.2 0.79%(1) 1.64%(1)
1992............................ 32.9 0.74%(1) 2.43%(1)
April 10, 1991 (4)
to November 30, 1991 .......... 18.4 0.56%(1,3) 3.80%(1,3)
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers and assumptions not been in effect nor such
expenses offset, the ratios of net operating expenses to average net assets
would have been 0.98%, 0.98%, 1.00%, 1.01%, 1.03%, 1.19% and 1.43%,
respectively, and the ratios of net investment income to average net assets
would have been 2.62%, 2.44%, 2.81%, 1.71%, 1.40%, 1.98% and 2.93%,
respectively.
(2) Average net assets for the year ended November 30, 1997 were $64,686,712.
(3) Annualized.
(4) Commencement of operations.
* Assumes reinvestment of all dividends.
4
<PAGE>
OCC CASH RESERVES PRIMARY PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The Primary Portfolio's investment objectives are in the following order of
priority--safety of principal, liquidity, and maximum current income from money
market securities to the extent consistent with the first two objectives. As a
matter of fundamental policy, the Primary Portfolio pursues its objectives by
maintaining a diversified portfolio of high quality money market securities of
the types described in the succeeding section, all of which at the time of
investment have remaining maturities of thirteen months or less within the
meaning of the Investment Company Act of 1940 (the 'Act'). While the Portfolio
may not change this policy or the other 'fundamental investment policies'
described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Primary Portfolio's objectives will be achieved.
MONEY MARKET SECURITIES
The money market securities in which the Primary Portfolio invests are (1)
marketable obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities (collectively 'U.S. Government Securities'); (2)
U.S. dollar-denominated certificates of deposit and bankers' acceptances of
prime quality issued or guaranteed by, and interest-bearing time deposits
maintained at, (a) U.S. banks or savings and loan associations having total
assets of more than $1 billion and which are insured under the administration of
the Federal Deposit Insurance Corporation ('FDIC'), (b) foreign branches of such
U.S. institutions, and U.S. or foreign branches of foreign banks having total
assets of at least $1 billion; (3) domestic or foreign commercial paper of prime
quality and participation interests in loans of equivalent quality extended by
banks to such companies; and (4) repurchase agreements that are collateralized
in full each day by U.S. Government Securities. For the purposes of this
prospectus, prime quality shall mean the security (or the issuer for a
comparable security) is rated in one of the two highest rating categories for
short term debt obligations by any two of Standard & Poor's Corporation
('S&P'), Moody's Investors Service, Inc. ('Moody's'), Fitch Investors Service,
Inc. ('Fitch'), Duff & Phelps, Inc. ('Duff') or Thomson BankWatch, Inc., or by
one of such rating agencies if only one rating agency has issued a rating with
respect to the security, or, if not rated, judged by the Advisor pursuant to
criteria adopted by the Fund's Board of Directors to be of comparable quality.
Investments by the Primary Portfolio which do not satisfy one of the
following requirements are considered to be 'Second Tier Securities' and are
limited in the aggregate to 5% of the Portfolio's total assets in regard to
issues and to 1% of total assets (or $1 million if greater) in regard to any one
issuer of such issues: (i) issues rated in the highest category (or the issuer
is so rated for a comparable security) by at least two of the above-listed
rating agencies; or (ii) if rated only by one agency, rated in the highest
category; or (iii) if unrated, determined by the Board of Directors to be of
quality comparable to issues which qualify under (i) or (ii). Securities that
meet the above requirements are considered 'First Tier Securities.'
Certificates of deposit represent the obligation of a bank to repay funds
deposited with it for a specified period of time. Bankers' acceptances are
short-term collateralized credit instruments drawn on and evidencing the
obligation of a bank to pay the value at maturity. Commercial paper consists of
unsecured promissory notes issued by corporations to finance short-term credit
needs. Participation interests are undivided beneficial interests in loans
giving the purchaser the right to receive a pro rata share of a loan's cash
flow. Repurchase agreements are contracts under which the buyer acquires a
security subject to the obligation of the seller to repurchase at a fixed price,
usually within one week. The Fund enters into
5
<PAGE>
such agreements only with 'primary dealers' (as designated by the Federal
Reserve Bank of New York) in U.S. Government Securities and with the Fund's
Custodian. The Fund could experience a loss in the event of its failure to
realize full value upon collateral liquidation required by a dealer's default.
Though investments in obligations of foreign issuers may be higher yielding than
those of domestic issuers, they may involve certain different risks such as
exchange control regulations; limited availability of information about the
issuer; differences in accounting, auditing and financial reporting standards
and government regulation; the possibility of expropriation, nationalization or
confiscatory taxation; political or social instability or diplomatic
developments; and the differences between the economies of the United States and
the applicable foreign country, even though the Fund's investments are limited
to those in 'developed countries.' Each of these factors is carefully considered
when investments are made, but the Fund does not limit the amount of its assets
which can be invested in any particular type of eligible obligation or in any
developed foreign country.
The Fund uses the amortized cost method to value its portfolio securities
pursuant to Rule 2a-7 of the Act. Certain provisions of Rule 2a-7, which become
effective on July 1, 1998, are more restrictive than certain of the fundamental
investment policies of the Portfolios. Effective July 1, 1998, the Portfolios
will comply with the more restrictive provisions of Rule 2a-7.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the
Primary Portfolio may not (1) invest more than 25% of its total assets in the
securities of issuers conducting their principal business activities in any one
industry, except that under normal circumstances at least 25% of its total
assets will be invested in bank obligations; (2) invest more than 5% of its
total assets in the securities of any issuer (loan participations are considered
obligations of both the lender and the borrower); (3) invest more than 10% of
its total assets in repurchase agreements not terminable within seven days
(whether or not illiquid) or other illiquid investments including participation
interests and other instruments described above for which no secondary markets
exist: (4) borrow money except from banks for extraordinary or emergency
purposes in aggregate amounts not exceeding 15% of its total assets (and, when
such borrowings exceed 5% of its total assets, make any further investments);
and (5) mortgage, pledge or hypothecate its assets except to secure such
borrowings. Limitations (1) and (2) do not apply to U.S. Government Securities.
OCC CASH RESERVES GOVERNMENT PORTFOLIO
INVESTMENT OBJECTIVES AND PROCEDURES
The Government Portfolio's investment objectives are in the following order
of priority--safety of principal, liquidity, and maximum current income from
money market securities to the extent consistent with the first two objectives.
As a matter of fundamental policy, the Government Portfolio pursues its
objectives by maintaining a diversified portfolio of high quality money market
securities of types described in the succeeding paragraph, all of which at the
time of investment have remaining maturities of thirteen months or less within
the meaning of the Act. While the Portfolio may not change this policy or the
'other fundamental investment policies' described below without shareholder
approval, it may, upon notice to shareholders but without such approval, change
its other investment policies. As is true with all investment companies, there
can be no assurance that the Government Portfolio's objectives will be achieved.
6
<PAGE>
MONEY MARKET SECURITIES
The money market securities in which the Government Portfolio invests are
(1) marketable obligations of, or guaranteed by, the United States Government,
its agencies or instrumentalities (collectively 'U.S. Government Securities'),
including direct obligations of the United States Treasury such as Bills, Notes
and Bonds, and issues of agencies and instrumentalities established under the
authority of an act of Congress such as the Federal Home Loan Banks, which have
the right to borrow from the U.S. Treasury, and the Federal National Mortgage
Association, the securities of which are solely dependent on the issuing
instrumentality for repayment; and (2) repurchase agreements that are
collateralized in full each day by the types of U.S. Government Securities
listed above. These agreements are entered into with 'primary dealers' (as
designated by the Federal Reserve Bank of New York) in U.S. Government
Securities and with the Fund's Custodian.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain portfolio diversification and reduce investment risk, the
Government Portfolio may not (1) invest more than 5% of its total assets in
repurchase agreements with any one vendor, although with respect to 25% of its
total assets it may invest without regard to such limitation; (2) invest more
than 10% of its total assets in repurchase agreements not terminable within
seven days (whether or not illiquid) or other illiquid investments; (3) borrow
money except from banks for extraordinary or emergency purposes in aggregate
amounts not exceeding 15% of its total assets (and, when such borrowings exceed
5% of its total assets, make any further investments); and (4) mortgage, pledge
or hypothecate its assets except to secure such borrowings.
OCC CASH RESERVES GENERAL MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The General Municipal Portfolio's investment objectives are in the
following order of priority--safety of principal, liquidity, and, to the extent
consistent with these objectives, maximum current income from money market
securities that is exempt from Federal income taxes. As a matter of fundamental
policy, the General Municipal Portfolio pursues its objectives by maintaining a
diversified portfolio of high-grade municipal securities of the types described
in the succeeding section, all of which at the time of investment have remaining
maturities of thirteen months or less within the meaning of the Act and
generate, in the opinion of bond counsel to the issuer, interest that is exempt
from Federal income taxes. At least 80% of the Portfolio's total assets will be
invested in such securities (not including securities treated as tax preference
items) unless the Advisor has determined that it is in the best interest of the
Portfolio to assume a temporary defensive position involving a greater
commitment of assets to obligations generating taxable income. Normally,
substantially all of the Portfolio's income will be exempt from Federal taxes,
although it may be subject to state or local income taxes. While the Portfolio
may not change this policy or the 'other fundamental investment policies'
described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
General Municipal Portfolio's objectives will be achieved.
Under the current Internal Revenue Code (1) interest on tax-exempt
municipal securities issued after August 7, 1986 and used to finance 'private
activities' (e.g., industrial development bonds) shall be treated as an item of
tax preference for purposes of alternative minimum tax ('AMT') imposed on
individuals and corporations, though for Federal income tax purposes such
interest shall remain fully tax-exempt, and (2) interest on all tax-exempt
obligations
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shall be included in 'adjusted net book income' of corporations for AMT
purposes. The General Municipal Portfolio may purchase 'private activity'
municipal securities without limitation and therefore a substantial portion (and
potentially all) of any distribution from the Portfolio may be treated as a tax
preference item (with resulting tax) for those taxpayers subject to AMT.
Investors who are already subject to AMT should consider whether an investment
in the Portfolio is suitable for them. Investors are urged to consult their own
tax advisors with respect to their own tax situations.
MUNICIPAL SECURITIES
The municipal securities in which the General Municipal Portfolio invests
are municipal notes, short-term municipal bonds, short-term discount notes, and
participation interests in any of the foregoing. Municipal notes are generally
used to provide for short-term capital needs and generally have maturities of
thirteen months or less. Examples include tax anticipation and revenue
anticipation notes which are generally issued in anticipation of various
seasonal revenues, bond anticipation notes, and tax-exempt commercial paper.
Municipal notes and short-term municipal bonds may either be secured by the
issuer's pledge of its faith, credit and taxing power for payment of principal
and interest, or paid from the revenues of a particular facility or a specific
excise or other source. Included within the revenue bonds category are
participations in lease obligations or installment purchase contracts
(hereinafter collectively called 'lease obligations') of municipalities. States
and local agencies or authorities issue lease obligations to acquire equipment
and facilities. Short-term discount notes are short-term obligations issued at a
discount to face value. Participation interests are undivided interests in loans
giving the purchaser the right to a pro-rata share of a loan's cash flow.
All of the General Municipal Portfolio's municipal securities at the time
of purchase must be of prime quality, as previously defined. Securities must
also meet credit standards applied by the Advisor.
The General Municipal Portfolio may invest in variable rate obligations
whose interest rates are adjusted either at predesignated periodic intervals or
whenever there is a change in the market rate to which the security's interest
rate is tied. Such adjustments minimize changes in the market value of the
obligation and, accordingly, enhance the ability of the Portfolio to maintain a
stable net asset value. Variable rate securities purchased may include
participation interests in industrial development bonds backed by letters of
credit of domestic or foreign banks having total assets of more than $1 billion;
the letters of credit of any single bank in respect of all variable rate
obligations will not cover more than 10% of the Portfolio's total assets.
The General Municipal Portfolio also may purchase tender option bonds. A
tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer, or other financial institution, pursuant to which such
institution grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face value thereof.
As consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities coupled
with the tender option to trade at par on the date of such determination. Thus,
after payment of the fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor, on behalf of the General Municipal Portfolio, will consider on an
ongoing basis the creditworthiness of the issuer of the underlying municipal
security, of any custodian, and of the third party provider of the tender
option. In certain instances and for certain tender option bonds, the option may
be terminable in the event of a default in payment of principal or interest on
the underlying municipal securities, and for
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other reasons. The Fund will consider as illiquid securities tender option bonds
as to which it cannot exercise the tender feature on not more than seven days'
notice if there is no secondary market available for these obligations.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Lease obligations and conditional sale
contracts (which may provide for title to the leased asset to pass eventually to
the issuer), have developed as a means for government issuers to acquire
property and equipment without the necessity of complying with the
constitutional and statutory requirements generally applicable for the issuance
of debt. Certain lease obligations contain 'non-appropriation' clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purposes by
the appropriate legislative body on an annual or other periodic basis.
Consequently, continued lease payments on those lease obligations containing
'non-appropriation' clauses are dependent on future legislative actions. If such
legislative actions do not occur, the holders of the lease obligation may
experience difficulty in exercising their rights, including disposition of the
property.
In addition, lease obligations may not have the depth of marketability
associated with other municipal obligations, and as a result, certain of such
lease obligations may be considered illiquid securities. To determine whether or
not the General Municipal Portfolio will consider such securities to be illiquid
(the Portfolio may not invest more than 10% of its net assets in illiquid
securities), the following guidelines have been established to determine the
liquidity of a lease obligation. The factors to be considered in making the
determination include: (1) the frequency of trades and quoted prices for the
obligation; (2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
The General Municipal Portfolio also may invest in forward commitments,
which obligate the Portfolio to purchase securities, and stand-by commitments or
puts, which give the Portfolio the right to resell securities, from or to a
dealer at a specified price. Such commitments, which may involve certain
expenses and risks, are not expected to comprise a significant portion of the
Portfolio's investments. The Portfolio may commit up to 15% of its net assets to
the purchase of when-issued securities. The underlying securities are subject to
market fluctuations and no interest accrues prior to delivery of such
securities.
The Portfolio may invest a significant percentage of its assets in
municipal obligations subject to put or demand features and similar credit and
liquidity enhancements. Because the Portfolio invests in securities backed by
banks and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Portfolio.
TAXABLE INVESTMENTS
The taxable investments in which the General Municipal Portfolio may invest
include obligations of the U.S. Government and its agencies or
instrumentalities; high quality certificates of deposit and bankers'
acceptances; prime commercial paper; and repurchase agreements collateralized at
all times by such instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To maintain Portfolio diversification and reduce investment risk, the
General Municipal Portfolio may not (1) invest more than 25% of its total assets
in municipal securities whose issuers are located in the same state or more than
25% of its total assets in municipal securities whose interest is paid from
revenues of similar-type projects; (2) invest more than 5% of its total assets
in the securities of any one issuer (except the U.S. Government) except that up
to 25% of its total assets may be invested in the First Tier Securities of a
single issuer for a period of three business days (this exception is not
available for
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more than one issuer at any time); it may invest without regard to such 5%
limitation with respect to 25% of its total assets until July 1, 1998; (3)
invest more than 10% of its total assets in repurchase agreements not terminable
within seven days (whether or not illiquid) or other illiquid investments; (4)
borrow money except from banks for extraordinary or emergency purposes and in
aggregate amounts not exceeding 15% of its total assets (and, when such
borrowings exceed 5% of its total assets, make any further investments); and (5)
mortgage, pledge or hypothecate its assets except to secure such borrowings.
On and after July 1, 1998, the General Municipal Portfolio will not invest
more than 5% of its total assets in the securities of any one issuer (except the
U.S. Government) except for the three day period described in (2) above, as
required by Rule 2a-7. In addition, the Portfolio may not invest more than 5% of
its total assets in private activity municipal securities that are Second Tier
Securities and the Portfolio may not invest more than the greater of 1% of its
total assets or $1 million in securities issued by an issuer of private activity
municipal securities that are Second Tier Securities.
OCC CASH RESERVES CALIFORNIA MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the California Municipal Portfolio (the
'Portfolio') are in the following order of priority--safety of principal,
liquidity and, to the extent consistent with these objectives, maximum current
income available from money market securities that is exempt from Federal and
California personal income taxes. The Portfolio pursues its objectives by
maintaining a portfolio of high-grade securities of the types described in the
succeeding section, which at the time of investment have remaining maturities of
thirteen months or less within the meaning of the Act and generate, in the
opinion of bond counsel to the issuer, interest that is exempt from Federal and
California personal income taxes ('California Municipal Securities'). As a
matter of fundamental policy, at least 80% of the Portfolio's total assets will
be invested in California Municipal Securities unless the Advisor determines
that it is in the best interest of the Portfolio to assume a temporary defensive
position involving a greater commitment of assets to obligations generating
taxable income. Normally, substantially all of the Portfolio's income will be
exempt from Federal and California personal income taxes. While the Portfolio
may not change the foregoing policies or the 'other fundamental investment
policies' described below without shareholder approval, it may, upon notice to
shareholders but without such approval, change its other investment policies. As
is true with all investment companies, there can be no assurance that the
Portfolio's objectives will be achieved.
The Portfolio may purchase 'private activity' municipal securities without
limitation and therefore a substantial portion (and potentially all) of any
distribution from the Portfolio may be treated as a tax preference item (with
resulting tax) for those taxpayers subject to AMT (as defined on page 7).
Investors already subject to AMT should consider whether an investment in the
Portfolio is suitable for them. Investors are urged to consult their own tax
advisors with respect to their own tax situations.
CALIFORNIA MUNICIPAL SECURITIES
The California Municipal Securities in which the Portfolio invests are
municipal notes, short-term municipal bonds, short-term discount notes and
participation interests in any of the foregoing as described under 'Municipal
Securities' on page 8.
All of the Portfolio's securities at the time of purchase are of prime
quality as defined previously. Securities must also meet credit standards
applied by the Advisor.
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The Portfolio may invest in variable rate obligations, forward commitments
and stand-by commitments, tender option bonds and lease obligations, as
described and according to the limitations set forth under 'Municipal
Securities' on page 8. The Portfolio may invest a significant percentage of its
assets in municipal obligations subject to put or demand features and similar
credit and liquidity enhancements. Because the Portfolio invests in securities
backed by banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Portfolio.
The California Municipal Portfolio is concentrated in securities issued by
the State of California or entities within the State of California and therefore
investment in the Portfolio may be riskier than an investment in other types of
money market funds. Investors also should consider the current and past
financial condition of California municipal issuers which is discussed in the
Statement of Additional Information ('SAI').
TAXABLE INVESTMENTS
While it is anticipated that substantially all of the Portfolio's assets
will be invested in California Municipal Securities, the Portfolio is
authorized, under normal circumstances, to invest up to 20% of its total assets
in taxable investments. The taxable investments are limited to obligations of
the U.S. Government and its agencies or instrumentalities; prime quality
certificates of deposit and bankers acceptances of domestic banks; prime quality
commercial paper; and repurchase agreements collateralized at all times by such
instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To reduce investment risk, the Portfolio may not (1) invest more than 25%
of its total assets in securities whose interest is paid from revenues of
similar-type projects; (2) until July 1, 1998 with respect to 50% of its assets
invest more than 5% of its total assets in the securities of any one issuer
(except the U.S. Government); (3) invest any more than 25% of its assets in any
one issuer; provided that on and after July 1, 1998, the Portfolio may not
invest more than 5% of its total assets in securities of nay one issuer that are
not First Tier Securities; (4) invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
or other illiquid investments; (5) borrow money except from banks for
extraordinary or emergency purposes and in aggregate amounts not exceeding 15%
of its total assets, and when such borrowings exceed 5% of its total assets,
make any further investments; and (6) mortgage, pledge or hypothecate its assets
except to secure such borrowings.
On and after July 1, 1998, the California Municipal Portfolio will not
invest more than five percent of its total assets in securities issued by any
one issuer; this restriction will apply to seventy-five percent of the total
assets of the Portfolio, as required by Rule 2a-7. In addition, the Portfolio
will not invest more than five percent of its total assets in private activity
municipal securities that are Second Tier Securities. The Portfolio will not
invest more than the greater of one percent of its total assets or one million
dollars in private activity municipal securities issued by an issuer that are
Second Tier Securities.
OCC CASH RESERVES NEW YORK MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the New York Municipal Portfolio (the
'Portfolio') are in the following order of priority--safety of principal,
liquidity and, to the extent consistent with these objectives, maximum current
income available from money market securities that is exempt from Federal, New
York State and New York City income taxes. The Portfolio pursues its objectives
by maintaining a portfolio of high-grade securities of the types described in
the succeeding section, which at the time of investment have remaining
maturities of thirteen months or less within the meaning of the Act and
generate, in the opinion of bond counsel to the issuer, interest that is exempt
from Federal, New York State and New York
11
<PAGE>
City income taxes ('New York Municipal Securities'). As a matter of fundamental
policy, at least 80% of the Portfolio's total assets will be invested in New
York Municipal Securities unless the Advisor determines that it is in the best
interest of the Portfolio to assume a temporary defensive position involving a
greater commitment of assets to obligations generating taxable income. Normally,
substantially all of the Portfolio's income will be exempt from Federal, New
York State and New York City income taxes. While the Portfolio may not change
the foregoing policies or the 'other fundamental investment policies' described
below without shareholder approval, it may, upon notice to shareholders but
without such approval, change its other investment policies. As is true with all
investment companies, there can be no assurance that the Portfolio's objectives
will be achieved.
The Portfolio may purchase 'private activity' municipal securities without
limitation, and therefore a substantial portion (and potentially all) of any
distribution from the Portfolio may be treated as a tax preference item (with
resulting tax) for those taxpayers subject to AMT as defined on page 7.
Investors who are already subject to AMT should consider whether an investment
in the Portfolio is suitable for them. Investors are urged to consult their own
tax advisors with respect to their own tax situations.
NEW YORK MUNICIPAL SECURITIES
The New York Municipal Securities in which the Portfolio invests are
municipal notes, short-term municipal bonds, short-term discount notes and
participation interests in any of the foregoing as described under Municipal
Securities on page 8.
All of the Portfolio's securities at the time of purchase are of prime
quality as defined previously. Securities must also meet credit standards
applied by the Advisor.
The Portfolio may invest in variable rate obligations, forward commitments
and stand-by commitments or puts, tender option bonds and lease obligations as
described and according to the limitations set forth under 'Municipal
Securities' on page 8. The Portfolio may invest a significant percentage of its
assets in municipal obligations subject to put or demand features and similar
credit and liquidity enhancements. Because the Portfolio invests in securities
backed by banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Portfolio.
The New York Municipal Portfolio is concentrated in securities issued by
the State of New York or entities within the State of New York and therefore
investment in the Portfolio may be riskier than an investment in other types of
money market funds. Investors also should consider the current and past
financial condition of New York municipal issuers which is discussed in the SAI.
TAXABLE INVESTMENTS
While it is anticipated that substantially all of the Portfolio's assets
will be invested in New York Municipal Securities, the Portfolio is authorized,
under normal circumstances, to invest up to 20% of its total assets in taxable
investments. The taxable investments are limited to obligations of the U.S.
Government and its agencies or instrumentalities; prime quality certificates of
deposit and bankers acceptances of domestic banks; prime quality commercial
paper; and repurchase agreements collateralized at all times by such
instruments.
OTHER FUNDAMENTAL INVESTMENT POLICIES
To reduce investment risk, the Portfolio may not (1) invest more than 25%
of its total assets in securities whose interest is paid from revenues of
similar-type projects; (2) until July 1, 1998, with respect to 50% of its assets
invest more than 5% of its total assets in the securities of any one issue
(except the U.S. Government); (3) invest any more than 25% of its assets in any
one issuer; provided that on and after July 1, 1998, the Portfolio may not
invest more than 5% of its total assets in securities of any one issuer that are
not First Tier Securities; (4) invest more than 10% of its total assets in
repurchase agreements not terminable within seven days (whether or not illiquid)
12
<PAGE>
or other illiquid investments; (5) borrow money except from banks for
extraordinary or emergency purposes and in aggregate amounts not exceeding 15%
of its total assets, and when such borrowings exceed 5% of its total assets,
make any further investments; and (6) mortgage, pledge or hypothecate its assets
except to secure such borrowings.
On and after July 1, 1998, the New York Municipal Portfolio will not invest
more than five percent of its total assets in securities issued by any one issu-
er; this restriction will apply to seventy-five percent of the total assets of
the Portfolio, as required by Rule 2a-7. In addition, the Portfolio will not
invest more than five percent of its total assets in private activity municipal
securities that are Second Tier Securities. The Portfolio will not invest more
than the greater of one percent of its total assets or one million dollars in
private activity municipal securities issued by an issuer that are Second Tier
Securities.
ADDITIONAL INFORMATION
TIMING OF INVESTMENTS AND REDEMPTIONS. The Fund has two transaction times
each day, at 12:00 noon and 4:00 p.m. (New York time). New investments
represented by Federal Funds or bank wire monies received by the Custodian prior
to 12:00 noon are paid the full dividend for that day; such investments received
after 12:00 noon do not begin to receive daily dividends until the next day.
Redemption orders received prior to 12:00 noon are effected at 12:00 noon; the
shares redeemed do not earn that day's dividend but the redemption proceeds are
available that day. Redemption orders received after 12:00 noon are effected at
4:00 p.m.; the shares redeemed earn the daily dividend for that day and the
redemption proceeds are remitted the next business day.
GUARANTEED PAYMENT. A broker-dealer or other financial intermediary may
arrange for investments in shares of the Fund at the 4:00 p.m. transaction time
and guarantee that payments in Federal Funds for the shares purchased will be
made prior to 12:00 noon the next day.
SHARE PRICE. Shares are sold and redeemed on a continuing basis without
sales or redemption charges at their net asset value which is expected to be
constant at $1.00, although this share price is not guaranteed. The net asset
value is determined each business day at 12:00 noon and 4:00 p.m. (New York
time). The net asset value per share is calculated by taking the sum of the
value of investments (amortized cost value is used for this purpose) and any
cash or other assets, subtracting liabilities, and dividing by the total number
of shares outstanding. All expenses, including the fees payable to the Advisor,
are accrued daily.
DAILY DIVIDENDS, OTHER DISTRIBUTIONS, TAXES. All net income of each
Portfolio is determined each business day and is declared payable pro rata to
shareholders of record as of 12:00 noon. Declared dividends are accrued and are
automatically paid into shareholders' accounts on a monthly basis. As such
additional reinvested shares earn subsequent dividends, a compounding growth of
income occurs.
Net income of the Portfolios consists of all accrued interest income on
portfolio assets less the expenses applicable to that dividend period.
Distributions to your account of tax-exempt interest income are not subject
to Federal income tax (other than the alternative minimum tax and market
discount, if any, on securities purchased by the Portfolio), but may be subject
to state or local income taxes. Distributions of income earned by the California
General Municipal Portfolio from California tax-exempt securities are not
subject to Federal income tax (other than the alternative minimum tax described
above) or to California personal income taxes. Distributions of income earned by
the New York Municipal Portfolio from New York Municipal Securities
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<PAGE>
are not subject to Federal income tax (other than the alternative minimum tax
described above) or to New York State and New York City income taxes.
Distributions of taxable interest income, other investment income, and net
short-term capital gains are taxed to you as ordinary income; state and local
taxation of such distributions, if any, may be reduced in proportion to the
percentage of income that derives from U.S. Government obligations.
Distributions of net long-term capital gains would be taxable as long-term
capital gains irrespective of the length of time you may have held your shares.
Distributions of net short-term and long-term capital gains, if any, would be
made at least annually. Each January, each Portfolio will send you tax
information for the calendar year just ended stating the amounts and types of
all its distributions, including the percentage of income derived from U.S.
Government obligations, for the calendar year just ended.
THE ADVISOR. The Fund retains OpCap Advisors (the 'Advisor'), One World
Financial Center, New York, New York, 10281, under an Advisory Agreement to
provide investment advice and, in general, to supervise the Fund's business
affairs and investment program, subject to the general control of the Directors
of the Fund. The Advisor is a subsidiary of Oppenheimer Capital, a registered
investment adviser with approximately $61.4 billion in assets under management
on December 31, 1997. All investment management services performed under the
Advisory Agreement are performed by employees of Oppenheimer Capital. On
November 4, 1997, PIMCO Advisors L.P. ('PIMCO Advisors'), a registered
investment adviser with $125 billion in assets under management through various
subsidiaries, and its affiliates acquired control of Oppenheimer Capital and its
subsidiary OpCap Advisors, the Manager of the Fund. A new Advisory Agreement (on
identical terms as the previous Advisory Agreement) between the Fund and OpCap
Advisors became effective November 5, 1997. The new Advisory Agreement was
approved by the shareholders of each Portfolio of the Fund at a Special Meeting
of Shareholders held on October 14, 1997. On November 30, 1997, Oppenheimer
Capital merged with a subsidiary of PIMCO Advisors and, as a result, Oppenheimer
Capital and OpCap Advisors became indirect wholly-owned subsidiaries of PIMCO
Advisors. PIMCO Advisors has two general partners: PIMCO Partners, G.P. ('PIMCO
G.P.') a California general partnership, and PIMCO Advisors Holdings L.P.
(formerly Oppenheimer Capital, L.P.), a NYSE-listed Delaware limited partnership
of which PIMCO G.P. is the sole general partner. PIMCO GP beneficially owns or
controls (through its general partner interest in PIMCO Advisors Holdings, L.P.
formerly Oppenheimer Capital, L.P.) greater than 80% of the units of limited
partnership ('Units') of PIMCO Advisors. PIMCO GP has two general partners. The
first of these is Pacific Investment Management Company, a wholly-owned
subsidiary of Pacific Financial Asset Management Company, which is a direct
subsidiary of Pacific Life Insurance Company ('Pacific Life'). The managing
general partner of PIMCO GP is PIMCO Partners L.L.C. ('PPLLC'), a California
limited liability company. PPLLC's members are the Managing Directors (the
'PIMCO Managers') of Pacific Investment Management Company, a subsidiary of
PIMCO Advisors (the 'PIMCO Subpartnership'). The PIMCO Managers are: William H.
Gross, Dean S. Meiling, James F. Muzzy, William F. Podlich, III, Brent R.
Harris, John L. Hague, William S. Thompson Jr., William S. Powers, David H.
Edington, Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO
Advisors is governed by a Management Board, which consists of sixteen members,
pursuant to a delegation by its general partners. PIMCO GP has the power to
designate up to nine members of the Management Board and the PIMCO
Subpartnership, of which the PIMCO Managers are the Managing Directors, has the
power to designate up to two members. In addition, PIMCO GP, as the controlling
general partner of PIMCO Advisors, has the power to revoke the delegation to the
Management Board and exercise control of PIMCO Advisors. As a result, Pacific
Life and/or the PIMCO Managers may be deemed to control PIMCO Advisors. Pacific
Life and the PIMCO Managers disclaim such control. Because of direct or indirect
power to appoint 25% of the members of the Equity Board,
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<PAGE>
(i) Pacific Life and (ii) the PIMCO Managers and/or the PIMCO Subpartnership may
each be deemed, under applicable provisions of the Investment Company Act, to
control PIMCO Advisors. Pacific Life, the PIMCO Subpartnership and the PIMCO
Managers disclaim such control. The management fee rate for each Portfolio is at
an annual rate of .50% on the first $100 million of average daily net assets,
.45% on the next $200 million of average daily net assets, and .40% of average
daily net assets in excess of $300 million, payable monthly.
DISTRIBUTION PLAN. Under a Distribution Assistance and Administrative
Services Plan (the 'Plan') adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, each Portfolio pays the Advisor monthly at an
annual rate of .25 of 1% of the Portfolio's average daily net assets.
Substantially all such monies are paid by the Advisor to broker-dealers, banks
and other depository institutions, and other financial intermediaries for
distribution assistance and administrative services provided to the Portfolio,
with any remaining amounts being used to partially defray other expenses
incurred by the Advisor in distributing shares. The Plan has been approved by
the Board of Directors and by the Fund's shareholders. The SAI contains
additional information about the Advisory Agreement and the Plan.
ADMINISTRATIVE SERVICES. The Fund also may pay certain broker-dealers
including CIBC Oppenheimer Corp. for performing certain administrative services
for accounts in the Fund including providing beneficial owners with statements
showing their positions in the Fund, posting dividend payments to beneficial
owners' accounts and providing shareholder information to enable the Fund to
mail prospectuses, annual and semi-annual reports to beneficial owners. Such
payments are capped at 5 basis points of average daily net assets.
EXPENSES-EXPENSE LIMITATION. Principal operating expenses of the Fund
consist of the Advisor's fee, costs of the Plan, legal and accounting expenses,
custodian fees, and transfer agent and other shareholder servicing costs.
Shareholders pay no direct charges or fees for investment services. Each
Portfolio's expenses are paid out of its gross investment income. The Advisor
reimburses each Portfolio to the extent that the combined aggregate operating
expenses of the Portfolio exceed 1% (net of any expense offsets) of its average
daily net assets for any fiscal year.
FUND ORGANIZATION. The Fund, which is an open-end investment company
registered under the Investment Company Act of 1940, was organized as a Maryland
corporation in series form in April 1989. The Fund's activities are supervised
by its Board of Directors. Each share of a Portfolio is entitled to one vote;
shares vote as a single series on matters that affect all Portfolios in
substantially the same manner. The Fund does not intend to hold regular annual
shareholder meetings. Directors are required to call a special meeting of a
Portfolio's shareholders if owners of at least 10% of the Portfolio's
outstanding shares so request in writing. The Fund may establish additional
Portfolios which may have different investment objectives from those stated in
this prospectus. The Fund issues shares only for full monetary consideration,
and it does not issue share certificates.
REPORTS. You will receive semi-annual and annual reports of the Portfolio
in which you are invested. To reduce expenses, only one copy of financial
reports will be mailed to your household, even if you have more than one
account. If you wish to receive additional copies of financial reports, please
call 1-800-401-6672. Your portfolio transactions and balances will be reported
each month on your CIBC Oppenheimer Securities account statements.
YIELD DEFINITIONS. From time to time we may advertise yield, effective
yield, and tax equivalent yield. Yield refers to income generated by an
investment in a Portfolio over a seven day or other stated period, expressed as
an annual percentage rate. Effective yield of a Portfolio results from the
compounding of periodically reinvested dividends. Tax-equivalent yield
represents the amount of income subject to a particular tax rate which would
have to be earned to give an investor an amount of income equal to tax-exempt
income. In addition, reference in
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advertisements may be made to ratings and ratings among similar funds by
independent evaluators, such as Lipper's Analytical Services, Inc. The
performance of the Portfolios may be compared to recognized indices of market
performance.
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets, transfer agent
and shareholder servicing agent for the Fund is State Street Bank and Trust
Company. CIBC Oppenheimer Corp. maintains an omnibus account for its customers
who are shareholders of the Fund and provides certain recordkeeping services for
those shareholders. Cash balances of the Fund with the Custodian in excess of
$100,000 are unprotected by Federal deposit insurance. Such uninsured balances
may at times be substantial.
YEAR 2000 ISSUES. The management services provided to the Fund by the
Advisor, and the services provided by the Transfer Agent to shareholders, depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other incorrect date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Advisor and Transfer Agent
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 and expect that their systems will be adapted before
that date, but there can be assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time.
PURCHASE AND REDEMPTION OF SHARES
There are no minimum amounts required for either investments or withdrawals.
INITIAL INVESTMENTS (Purchases)
Contact your CIBC Oppenheimer Account Executive to arrange for an initial
investment in a Portfolio of the Fund. You may use the Portfolio
either as the money market fund tied to your CIBC Oppenheimer securities account
through CIBC Oppenheimer's sweep service or as an additional investment position
held in your securities account.
The 'sweep' means that cash is automatically invested in the Portfolio of
your choice when the cash becomes available in your CIBC Oppenheimer securities
account from any source such as proceeds from securities sales, receipt of
dividends or interest income, or a check deposit from you. Amounts of $10,000 or
more are invested on the next business day; amounts less than $10,000 are
invested once a week on the first business day of the following week. The sweep
automatically withdraws cash from your Portfolio when appropriate to cover
purchases or other activities in your securities account.
SUBSEQUENT INVESTMENTS (Purchases)
Mail or deliver your check, payable to CIBC Oppenheimer Corp., to your CIBC
Oppenheimer Account Executive. Please write your securities account number and
the Portfolio name on the check. If you wish to make an investment by sending a
wire from your bank, contact your CIBC Oppenheimer Account Executive to obtain
wiring instructions.
WITHDRAWALS (Redemptions)
For withdrawals other than those automatically activated by the sweep (see
'Initial Investments' above), please instruct your CIBC Oppenheimer Account
Executive as to the withdrawal amount and the delivery of the proceeds.
16
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OCC Cash Reserves (the 'Fund') is an open-end money market fund investment
company with five separate Portfolios. Though the Portfolios have the same
investment objectives of safety of principal, liquidity and maximum current
income, they may in the pursuit of these objectives invest in different types of
money market securities or in different proportions of the same types of
securities. This prospectus sets forth information about the Fund and its
Primary, Government, General Municipal, California Municipal and New York
Municipal Portfolios that a prospective investor should know before investing.
Please retain this prospectus for future reference.
A Statement of Additional Information dated March 31, 1998 provides further
discussion of certain areas in this prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference.
A free copy may be obtained by writing the Fund.
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.
CONTENTS
- ----------------------------------------------------
PAGE
Introduction.......................................1
Expense Information................................2
Financial Highlights...............................3
Primary Portfolio..................................5
Government Portfolio...............................6
General Municipal Portfolio........................7
California Municipal Portfolio....................10
New York Municipal Portfolio......................11
Additional Information............................13
Purchase and Redemption of Shares.................16
March 31, 1998
OCC CASH RESERVES
o Primary Portfolio
o Government Portfolio
o General Municipal Portfolio
o California Municipal Portfolio
o New York Municipal Portfolio
PROSPECTUS
[LOGO]
[LOGO]
<PAGE>
Statement of Additional Information
-----------------------------------
OCC CASH RESERVES, INC.
- Primary Portfolio
- Government Portfolio
- General Municipal Portfolio
- California Municipal Portfolio
- New York Municipal Portfolio
One World Financial Center
New York, New York 10281
(800) 401-6672/(212) 374-6187
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. Investors should understand that this Additional Statement should be
read in conjunction with the Prospectus for OCC Cash Reserves, Inc. (the "Fund")
dated March 31, 1998. Prospectuses may be obtained by contacting the Fund.
The date of this Additional Statement is March 31, 1998.
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT OF THE FUND'S ASSETS..............................................3
SPECIAL CONSIDERATIONS REGARDING NEW YORK MUNICIPAL
OBLIGATIONS...............................................................9
SPECIAL CONSIDERATIONS REGARDING CALIFORNIA MUNICIPAL
OBLIGATIONS..............................................................20
INVESTMENT RESTRICTIONS.....................................................24
DIRECTORS AND OFFICERS......................................................25
PRINCIPAL HOLDERS OF SECURITIES.............................................29
INVESTMENT MANAGEMENT AND OTHER SERVICES....................................29
DETERMINATION OF NET ASSET VALUE............................................33
TAXES.......................................................................35
PORTFOLIO YIELD.............................................................37
ADDITIONAL INFORMATION......................................................40
APPENDIX...................................................................A-1
FINANCIAL STATEMENTS.......................................................B-1
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INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of each portfolio of the Fund
(the "Portfolio(s)") are described in the applicable prospectus for the
Portfolio. A further description of the Portfolios' investments and investment
methods appears below.
U.S. Government Securities. U.S. Government Securities (i.e., obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities)
include securities issued by the U.S. Government, which in turn include Treasury
Bills (which mature within one year of the date they are issued), Treasury Notes
(which mature more than one year after the date they are issued and less than
ten years after the date they are issued) and Treasury Bonds (which mature more
than ten years after the date they are issued). All Treasury securities are
backed by the full faith and credit of the United States Government. U.S.
Government agencies and instrumentalities that issue or guarantee securities
include, but are not limited to, the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Services
Administration, Bank for Cooperatives, Federal Home Loan Banks, Federal Home
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Student Loan Marketing Association, Maritime Administration, the Tennessee
Valley Authority and the District of Columbia Advisory Board. Securities issued
or guaranteed by U.S. Government agencies and instrumentalities are not always
supported by the full faith and credit of the United States. Some, such as
securities issued by the Federal Home Loan Banks, are backed by the right of the
agency or instrumentality to borrow from the Treasury. Others, such as
securities issued by the Federal National Mortgage Association ("Fannie Mae"),
are supported only by the credit of the instrumentality and not by the Treasury.
If the securities are not backed by the full faith and credit of the United
States, the owner of the securities must look principally to the agency issuing
the obligation for repayment and may not be able to assert a claim against the
United States Government in the event that the agency or instrumentality does
not meet its commitment.
Time Deposits and Commercial Paper. The Portfolios may invest in fixed time
deposits, whether or not subject to withdrawal penalties; however, investment in
such deposits which are subject to withdrawal penalties, other than overnight
deposits, are subject to the 10% limit on illiquid investments set forth in the
Prospectus for each Portfolio.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs. The commercial paper purchased by the
Portfolios will consist only of direct obligations issued by domestic and
foreign entities which, at the time of their purchase (a) have received a
short-term rating in one of the two highest short-term rating categories by two
of the following nationally recognized statistical rating organizations
("NRSROs")(or if only one NRSRO has issued a rating at the time the Fund
purchases or rolls over the security, that NRSRO): Moody's Investors Service,
Inc. ("Moodys"), Standard & Poor's Corporation ("S&P"), Fitch Investors Service,
Inc. ("Fitch"), Duff and Phelps, Inc. ("Duff & Phelps"), Thomson BankWatch, Inc.
and with respect to debt issued by banks, bank holding companies, United Kingdom
building societies, broker-dealers and broker-dealers' parent companies, and
bank-supported debt, IBCA Limited and its affiliate, IBCA Inc.
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or (b) if unrated, determined by OpCap Advisors (the "Advisor") under guidelines
established by the Board of Directors ("Board") to be of comparable quality to
those rated obligations which may be purchased by the Portfolios. The other
corporate obligations in which the Portfolios may invest consist of high
quality, U.S. dollar denominated short-term bonds and notes (including variable
amount demand notes) issued by domestic and foreign corporations.
The commercial paper obligations which the Portfolios buy are unsecured
and include variable rate notes. The nature and terms of a variable rate note
(i.e., a "Master Note") permit a fund to invest fluctuating amounts at varying
rates of interest pursuant to a direct arrangement between a fund, as lender,
and the issuer, as borrower. It permits daily changes in the amounts borrowed.
The Fund has the right at any time to increase, up to the full amount stated in
the note agreement, or to decrease the amount outstanding under the Master Note.
The issuer may prepay at any time and without penalty any part of, or the full
amount of, the principal balance outstanding under the Master Note. The Master
Note may or may not be backed by one or more bank letters of credit. Because
these notes are direct lending arrangements between the Fund and the issuer, it
is not generally contemplated that they will be traded; moreover, there is
currently no secondary market for them. Except as specifically provided in the
Prospectus for each Portfolio, there is no limitation on the type of issuer from
whom these notes will be purchased; however, in connection with such purchase
and on an ongoing basis, the Advisor will, subject to policies established by
the Board of Directors of the Fund, consider and monitor on a continuous basis
the ratings, earning power, cash flow and other liquidity ratios of the issuer,
and its ability to pay principal and interest on demand, including a situation
in which all holders of such notes make demand simultaneously. A Portfolio will
not invest more than 5% of its total assets in such variable rate notes.
Bank Obligations. The Federal Deposit Insurance Corporation ("FDIC") insures the
deposits of federally insured banks and savings and loan associations
(collectively referred to as "banks") up to $100,000. A Portfolio may, within
the limits set forth in the Prospectus, purchase bank obligations which are
fully insured as to principal by the FDIC. Currently, to remain fully insured as
to principal, these investments must be limited to $100,000 per bank; if the
principal amount and accrued interest together exceed $100,000, the excess will
not be insured. Insured bank obligations have limited marketability and the
Portfolios will not limit investment in banks to the insured amount. Unless the
Board of Directors determines that a readily available market exists for such
obligations, a Portfolio will treat such obligations as subject to the 10% limit
for illiquid investments unless such obligations are payable at principal amount
plus accrued interest on demand or within seven days after demand.
Municipal Securities. The General Municipal Portfolio, California Municipal
Portfolio and New York Municipal Portfolio (collectively the "Municipal
Portfolios") invest primarily in tax-exempt securities. "Municipal Securities"
refers to debt obligations issued by a state and its political subdivisions (for
example, counties, cities, towns, villages, districts and authorities) and by
territories and possessions of the U.S. the interest from which is, in the
opinion of bond counsel, exempt from federal income tax and (i) California
personal income taxes in the case of the California Municipal Portfolio, or (ii)
New York State and New York City income taxes in the case of the New York
Municipal Portfolio. Such obligations are issued to obtain funds for various
public purposes, including the construction of a wide range of public
facilities, such as airports, bridges, highways, housing,
4
<PAGE>
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include the
refunding of outstanding obligations or obtaining funds for general operating
expenses. Short-term Municipal Securities are generally issued by state and
local governments and public authorities as interim financing in anticipation of
collections, revenue receipts, or bond sales to finance such public purposes. In
addition, certain types of "private activity" bonds may be issued by public
authorities to finance privately operated housing facilities, and certain local
facilities for water supply, gas, electricity, sewage or solid waste disposal,
student loans, or the obtaining of funds to lend to public or private
institutions for the construction of facilities such as educational, hospital
and housing facilities. Such obligations are considered as Municipal Securities
if the interest paid thereon is, in the opinion of bond counsel, exempt from
federal income tax and (i) California personal income taxes in the case of the
California Municipal Portfolio or (ii) New York State and New York City income
taxes in the case of the New York Municipal Portfolio. Other types of private
activity bonds, the proceeds of which are used for the construction, equipment,
repair or improvement of privately operated industrial or commercial facilities,
constitute Municipal Securities, although the current federal laws place
substantial limitations on the size of such issues. Municipal Securities also
include short-term discount notes (tax-exempt commercial paper), which are
promissory notes issued by municipalities to enhance their cash flows.
Participation Interests. The Municipal Portfolios may invest in Municipal
Securities either by purchasing them directly or by purchasing certificates of
actual or similar instruments evidencing direct ownership of interest payments
or principal payments, or both, on Municipal Securities, provided that, in the
opinion of counsel to the initial seller of each such certificate or instrument,
any discount accruing on the certificate or instrument that is purchased at a
yield not greater than the coupon rate of interest on the related Municipal
Securities will be exempt from federal income tax (and in the case of the
California and New York Municipal Portfolios applicable State and local tax) to
the same extent as interest on the Municipal Securities. The Portfolio may also
invest in Municipal Securities by purchasing from banks participation interests
in all or part of specific holdings of Municipal Securities. These
participations may be backed in whole or in part by an irrevocable letter of
credit or guarantees of the selling bank and have "put" provisions allowing the
Portfolio to compel the seller of the interest to purchase it on pre-determined
terms. The selling bank may receive a fee from the Fund in connection with the
arrangement. A Municipal Portfolio will not purchase such participation
interests unless it receives an opinion of counsel or a ruling of the Internal
Revenue Service that interest earned by it on Municipal Securities in which it
holds such participation interests is exempt from federal income tax and (i)
California personal income tax in the case of the California Municipal Portfolio
or (ii) New York State and New York City income tax in the case of the New York
Municipal Portfolio. The Municipal Portfolios do not expect to invest more than
5% of their respective total assets in participation interests.
Loan Participations. The Primary Portfolio may invest in short-term loan
participations pursuant to agreements between the Fund and commercial banks
which have been approved by the Board of Directors. Generally, these short-term
loans have maturities ranging between fourteen days and six months (the Fund
will not purchase any participation having maturities of longer than one year)
and bear interest at a fixed rate payable at maturity. Loan participations do
not provide recourse to the selling banks but are solely the obligation of the
borrower, although the bank will have continuing
5
<PAGE>
responsibility for administering the loan, collecting payment at maturity and
passing funds on to the Fund as they are received for which it receives a fee.
The Fund will only participate in loans to companies whose outstanding
securities and commercial paper are of a quality permissible for investment by
the Fund. Loan participations are evidenced by non-negotiable Participation
Certificates.
Stand-by Commitments. The Municipal Portfolios have the authority to acquire
stand-by commitments from banks and broker-dealers in connection with the
purchase of Municipal Securities. A stand-by commitment may be considered a
security independent of the Municipal Security to which it relates. The amount
payable by a bank or dealer during the time a stand-by commitment is
exercisable, absent unusual circumstances, would be substantially the same as
the market value of the underlying Municipal Security to a third party at any
time. Each Portfolio anticipates that stand-by commitments generally will be
available without the payment of direct or indirect consideration. The
Portfolios do not expect to assign any value to stand-by commitments.
Tender Option Bonds. The Municipal Portfolios may invest in long-term tax-exempt
fixed rate instruments that have been converted into short-term tax-exempt
variable rate demand instruments ("tender option bonds") by virtue of certain
third party demand features. Tender option bonds are tax-exempt bonds with
maturities of 5 to 25 years that bear interest at a fixed rate substantially
higher than prevailing short-term tax-exempt rates, that have been coupled with
the agreement of a third party such as a bank pursuant to which such institution
grants bondholders the option at periodic intervals (usually every six months
but in no event less than every twelve months) to tender (put) their bonds to
the institution and receive the face value thereof. Holders of tender option
bonds are assessed periodic variable tender fees by the institution. Such fees
are established for each tender period at a rate equal to the difference between
the bonds' fixed coupon rate and the rate as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
tender option bonds to trade at par on the date of such determination. The
purchase by the Municipal Portfolios of tender option bonds must comply with
certain conditions established by the Securities and Exchange Commission.
Forward Commitments. The Municipal Portfolios may purchase money market
securities on a forward commitment basis, which means that delivery and payment
for such securities normally take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on the securities are fixed at the time the buyer enters into the
commitment. The Portfolios will make commitments to purchase such securities
only with the intention of actually acquiring the securities, but the Portfolio
may sell these securities before the settlement date if it is deemed advisable.
The Portfolios will not accrue income in respect of a security purchased on a
forward commitment basis prior to its stated delivery date.
When-Issued Securities. The Government and Municipal Portfolios may take
advantage of offerings of eligible portfolio securities on a "when-issued"
basis, i.e., delivery of and payment for such securities take place sometime
after the transaction date on terms established on such date. Normally,
settlement on municipal securities occurs within one month of the transaction
date and settlement in U.S. Government Securities takes place within ten days. A
Portfolio will only make when-issued commitments on eligible securities with the
intention of actually acquiring the securities. If a Portfolio
6
<PAGE>
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or a loss due to market fluctuation. No when-issued
commitments will be made if, as a result, more than 15% of a Portfolio's net
assets would be so committed.
Repurchase Agreements. Each Portfolio may acquire securities subject to
repurchase agreements. Under a typical repurchase agreement, a Portfolio would
acquire a debt security for a relatively short period (usually from day to day
and seldom for more than one week) subject to an obligation of the seller to
repurchase and of the Portfolio to resell the debt security at an agreed-upon
higher price and time, thereby establishing a fixed investment return during the
Portfolio's holding period which is not subject to market fluctuations. The
Portfolios will enter into repurchase agreements with primary dealers in U.S.
Government securities as designated by the Federal Reserve Bank of New York or
their subsidiaries or with the Fund's custodian. Under each repurchase
agreement, the selling institution will be required to provide, as collateral,
securities subject to such repurchase agreement whose market value is not less
than the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the selling institution, including costs
of disposing of such securities and any loss resulting from delays or
restrictions upon a Portfolio's ability to dispose of the underlying securities.
The Advisor considers the creditworthiness of those dealers with which the Fund
enters into repurchase agreements and monitors on an ongoing basis the value of
securities subject to repurchase agreements to ensure that such value is
maintained at the required level.
The Portfolios may also enter into reverse repurchase agreements which
involve the sale of securities held by a Portfolio with an agreement to
repurchase the securities at an agreed-upon price, date and interest payment.
Under normal circumstances there should be no need to enter into reverse
repurchase agreements.
Illiquid Investments. The Advisor will not make investments as to which there
exists the possibility of limited liquidity if thereafter more than 10% of the
total assets of any Portfolio would consist of such investments. Such
investments include (i) repurchase agreements maturing in more than seven days;
(ii) fixed time deposits subject to withdrawal penalties, other than overnight
deposits; (iii) restricted securities, i.e., securities which cannot be sold
freely due to legal or contractual restrictions on resale (the Fund does not
expect to own such securities); (iv) securities and other assets for which a
bona fide market does not exist at the time of purchase or subsequent valuation;
(v) insured bank obligations, unless the Board of Directors determines that a
readily available market exists for such obligations; (vi) participation
interest in loans extended by banks; (vii) variable rate obligations for which
there is no readily available market; and (viii) securities of foreign issuers
which are not listed on a recognized domestic or foreign securities exchange,
but not including certain certificates of deposits of major foreign banks,
banker's acceptances of major foreign banks and high quality commercial paper of
major foreign issuers for which the Board of Directors determines that a readily
available market exists. Notwithstanding the foregoing, obligations payable at
principal amount plus accrued interest on or within seven days after demand are
not included with the 10% limitation.
Obligations of Foreign Banks and Foreign Branches of U.S. Banks. Each Portfolio
may invest in U.S. dollar-denominated securities of foreign banks, their
branches and foreign branches of U.S. banks
7
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which are rated in one of the two highest rating categories or which are deemed
to be of comparable quality, as determined by the Board of Directors. To the
extent a Portfolio makes such investments, it will be subject to additional
investment risks which differ from those incurred by an investment company that
invests only in debt obligations of domestic U.S. banks. Such risks include
political and economic developments of the country in which the bank or branch
is located, possible imposition of withholding taxes on interest payable on the
securities, possible seizure or nationalization of foreign deposits and the
possible establishment of exchange control regulations or the adoption of other
governmental restrictions that might affect the payment of principal and
interest on such securities. Additionally, not all of the U.S. Federal and state
banking laws and regulations applicable to domestic banks relating to
maintenance of reserves (which are often lower), loan limits and promotion of
financial soundness apply to foreign branches of domestic banks, and none of the
laws and regulations apply to foreign banks. There may be greater difficulty in
commencing legal action against foreign issuers than against U.S. issuers of
securities.
Risks. No Portfolio will make investments with the objective of capital growth.
However, the market value of the securities held by the Portfolios, including
U.S. Government Securities, may be affected by changes in general interest
rates. Because the current market value of debt securities varies inversely with
changes in prevailing interest rates, if interest rates increase after a
security is purchased, the market value of that security would normally decline.
Conversely, should interest rates decrease after a security is purchased, its
market value would rise. However, those fluctuations in market value will not
generally result in realized gains or losses to the Portfolios since the
Portfolios do not usually intend to dispose of securities prior to their
maturity. A debt security held to maturity is redeemable by its issuer at full
principal value plus accrued interest. To a limited degree, the Portfolios may
engage in short-term trading to attempt to take advantage of short-term
variations, or may dispose of a portfolio security prior to its maturity if, on
the basis of a revised credit evaluation of the issuer or other considerations,
the Portfolio believes such disposition advisable or if it needs to generate
cash to satisfy redemptions. In such cases, the Portfolios may realize a capital
gain or loss. The securities in which the Portfolios will invest may not earn as
high a level of current income as longer-term or lower-quality securities, which
generally have less liquidity, greater market risk and more fluctuation in
market value. Securities in which the Portfolios may invest are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or the state legislatures extending the time
for payment of principal or interest or both or imposing other constraints upon
enforcement of such obligations. There is also the possibility that as a result
of litigation or other conditions the power or ability of issuers to meet their
obligations for the payment of interest and principal on their securities may be
materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. Federal legislation limits the types and
amounts of tax-exempt bonds issuable for certain purposes, especially for
industrial development bonds and other types of so-called "private activity
bonds." Such limits may affect the future supply and yields of these types of
Municipal Securities. Further proposals limiting the issuance of Municipal
Securities may well be introduced in the future. If it appeared that the
availability of Municipal Securities and the value of that Portfolio could be
materially affected by
8
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such changes in law, the Board of Directors would reevaluate its investment
objective and policies and consider changes in the structure of that Portfolio
or its dissolution. Any changes in basic investment objective or fundamental
investment policies of any of the Portfolios must be approved by that
Portfolio's shareholders before being effected.
SPECIAL CONSIDERATIONS REGARDING
NEW YORK MUNICIPAL OBLIGATIONS
The economic and financial condition of the State of New York (the
"State") may be affected by various financial, social, economic and political
factors. Those factors can be very complex, may vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State and
its agencies and instrumentalities but also by entities such as the Federal
government, that are not under the control of the State.
The financial condition of the State, its authorities and public
benefit corporations (the "Authorities") and its municipalities, particularly
The City of New York (the "City"), could affect the market values and
marketability of, and therefore the net asset value per share and the interest
income of, the New York Municipal Portfolio, or result in the default of
existing obligations, including obligations which may be held by the New York
Municipal Portfolio.
The following section provides only a brief summary of the complex
factors affecting the financial situation in New York and is based on
information drawn from certain official statements relating to securities
offerings of the State, its Authorities and the City and certain other
localities, as available on the date of this Statement of Additional
Information. The information contained in such official statements and other
publicly available documents has not been independently verified.
The national economy has resumed a more robust rate of growth after a
"soft landing" in 1995, with over 11 million jobs added nationally since early
1992. The State economy has continued to expand, but growth remains somewhat
slower than in the nation. Although the State has added approximately 240,000
jobs since late 1992, employment growth in the State has been hindered during
recent years by significant cutbacks in the computer and instrument
manufacturing, utility, defense and banking industries. Government downsizing
has also moderated these job gains.
The 1996-97 New York State Financial Plan (the "State Plan" or "July
Financial Plan") is based on the State's economy showing modest expansion during
the first half of 1996, but that some slowdown is projected during the second
half of the year. Although industries that export goods and services are
expected to continue to do well, growth is expected to be slowed by government
cutbacks at all levels and by tight fiscal constraints on health and social
services. On an average annual basis, employment growth in the State is expected
to be up slightly from the 1995 rate. Personal income is expected to record
moderate gains in 1996. Bonus payments in the securities industry are expected
to increase further from last year's record level.
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The State Plan is based upon forecasts of national and State economic
activity developed through both internal analysis and review of State and
national economic forecasters prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
State economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The 1996-97 Fiscal Year. The State's General Fund (the major operating
fund of the State) was projected in the State Plan to be balanced on a cash
basis for the 1996-97 fiscal year. The State Plan projected General Fund
receipts and transfers from other funds at $33.17 billion, an increase of $365
million from the prior fiscal year, and disbursements and transfers to other
funds at $33.12 billion, an increase of $444 million from the total disbursed in
the prior fiscal year.
The State issued its first update to the State Plan ("the Mid-Year
Update") on October 25, 1996. The Mid-Year Update projects a continued balanced
1996-97 State Financial Plan, with a reserve for contingencies in the General
Fund of $300 million. This reserve will be utilized to help offset a variety of
potential risks and other unexpected contingencies that the State may face
during the balance of the 1996-97 fiscal year. The Mid-Year Update reflects
revisions made to estimates of both receipts and disbursements based on: (1)
updated economic forecasts for both the nation and the State, (2) an analysis of
actual receipts and disbursements through the first six months of the fiscal
year, and (3) an assessment of changing State program requirements.
More specifically, based on the revised economic outlook and actual
receipts for the first six months of 1996-97, projected General Fund receipts
for the 1996-97 State fiscal year have been increased by $420 million. Most of
this projected increase is in the yield of the personal income tax ($241
million), with additional increases now expected in business taxes ($124
million) and other tax receipts ($49 million). Projected collections from user
taxes and fees have been revised downward slightly ($5 million). Revisions were
also made to both miscellaneous receipts and in transfers from other funds (an
$11 million combined projected increase).
Disbursements through the first six months of the fiscal year were $415
million less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. As a result, no savings are
included in the Mid-Year Update from this slower-than-expected spending.
Projections of 1996-97 General Fund disbursements are increased by $120 million,
since increased General Fund disbursements for education are required to replace
a projected decrease in lottery receipts.
Revisions to the all governmental funds receipts and disbursements
estimates primarily reflect changes to the General Fund and transfers between
fund types. The projected closing fund balance for all governmental funds is
$623 million, unchanged from the projection in the State Plan. The annual
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increase in spending for all governmental funds remains approximately 4 percent,
the same as projected in the State Plan.
Uncertainties with regard to the economy, as well as the outcome of
certain litigation now pending against the State, could produce adverse effects
on the projections of receipts and disbursements in the Mid-Year Update. For
example, changes to current levels of interest rates or deteriorating world
economic conditions could have an adverse effect on the State economy and
produce results in the current fiscal year that are worse than predicated.
Similarly, an adverse judgment in legal proceedings against the State could
exceed amounts reserved in the 1996-97 Financial Plan for payment of such
judgments and produce additional unbudgeted costs to the State.
The State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
New York City (the "City") has also had to face greater competition as other
major cities have developed financial and business capabilities which make them
less dependent on the specialized services traditionally available almost
exclusively in the City.
State financing activities include general obligation debt of the State
and State-guaranteed debt, to which the full faith and credit of the State has
been pledged, as well as lease-purchase and contractual-obligation financings,
moral obligation financings and other financings, through public authorities and
municipalities, where the State's legal obligation to make payments to those
public authorities and municipalities for their debt service is subject to
annual appropriation by the Legislature.
General Obligation and State-Guaranteed Financing
There are a number of methods by which the State itself may incur debt.
The State may issue general obligation bonds. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State. With the exception of general obligation housing bonds
(which must be paid in equal annual installments or installments that result in
substantially level or declining debt service payments, within 50 years after
issuance, commencing no more than three years after issuance), general
obligation bonds must be paid in equal annual installments or installments that
result in substantially level or declining debt service payments, within 40
years after issuance, beginning not more than one year after issuance of such
bonds.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes ("TRANs"), and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes ("BANs"). TRANs must mature within one year
from their
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dates of issuance and may not be refunded or refinanced beyond such period. BANs
may only be issued for the purposes and within the amounts for which bonds may
be issued pursuant to voter authorizations. Such BANs must be paid from the
proceeds of the sale of bonds in anticipation of which they were issued or from
other sources within two years of the date of issuance or, in the case of BANs
for housing purposes, within five years of the date of issuance.
The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State Constitution
provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Thruway Authority, the Job Development
Authority and the Port Authority of New York and New Jersey. The State has never
been called upon to make any direct payments pursuant to such guarantees. The
constitutional provisions allowing a State-guarantee of certain Port Authority
of New York and New Jersey debt stipulates that no such guaranteed debt may be
outstanding after December 31, 1996. Payments of debt service on State general
obligation and State-guaranteed bonds and notes are legally enforceable
obligations of the State.
Lease-Purchase and Contractual-Obligation Financing
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments.
The State also participates in the issuance of certificates of
participation ("COPs") in a pool of leases entered by the State's Office of
General Services on behalf of several State departments and agencies interested
in acquiring operational equipment, or in certain cases, real property.
Legislation enacted in 1986 established restrictions upon and centralized State
control, through the State Comptroller and the Director of the Budget, over the
issuance of COPs representing the State's contractual obligation, subject to
appropriation by the Legislature and availability of money, to make installment
or lease-purchase payments for the State's acquisition of such equipment or real
property.
The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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Moral Obligation and Other Financing
Moral obligation financing generally involves the issuance of debt by a
public authority to finance a revenue-producing project or other activity. The
debt is secured by project revenues and includes statutory provisions requiring
the State, subject to appropriation by the Legislature, to make up any
deficiencies which may occur in the issuer's debt service reserve fund. There
has never been a default on any moral obligation debt of any public authority.
The State does not intend to increase statutory authorizations for moral
obligation bond programs. From 1976 through 1987, the State was called upon to
appropriate and make payments totaling $162.8 million to make up deficiencies in
the debt service reserve funds of the Housing Finance Agency pursuant to moral
obligation provisions. In the same period, the State also expended additional
funds to assist the Project Finance Agency, Urban Development Corporation and
other public authorities which had moral obligation debt outstanding. The State
has not been called upon to make any payments pursuant to any moral obligations
since the 1986-87 fiscal year and no such requirements are anticipated during
the 1995-96 fiscal year.
In addition to the moral obligation financing arrangements described
above, State law provides for State municipal assistance corporations, which are
public authorities established to aid financially troubled localities. The
Municipal Assistance Corporation For The City of New York ("MAC"), created in
1975 to provide financing assistance to New York City, is the only municipal
assistance corporation created to date. To enable MAC to pay debt service on its
obligations, MAC receives, subject to annual appropriation by the Legislature,
receipts from the 4 percent New York State sales tax for the benefit of New York
City, the State-imposed stock transfer tax and , subject to certain prior liens,
certain local assistance payments otherwise payable to New York City. The
legislation creating MAC also includes a moral obligation provision. Under its
enabling legislation, MAC's authority to issue moral obligation bonds and notes
(other than refunding bonds and notes) expired on December 31, 1984.
The State also provides for contingent contractual-obligation financing
for the Secured Hospital Program pursuant to legislation enacted in 1985. Under
this financing method, the State contracts to pay debt service, subject to
annual appropriations, on bonds issued by the New York State Medical Care
Facilities Finance Agency ("MCFFA") in the event there are shortfalls of
revenues from other sources. The State has never been required to make any
payments pursuant to this financing arrangement, nor does it anticipate being
required to do so during the 1995-96 fiscal year.
State Fiscal Reform
Local Government Assistance Corporation
In 1990, as part of a State fiscal reform program, legislation was
enacted creating the Local Government Assistance Corporation ("LGAC"), a public
benefit corporation empowered to issue long-term obligations to fund certain
payments to local governments traditionally funded through the State's annual
seasonal borrowing. The legislation authorized LGAC to issue its bonds and notes
in an amount not in excess of $4.7 billion (exclusive of certain refunding
bonds) plus certain other amounts. Over a period of years, the issuance of these
long-term obligations, which are to be amortized over no
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more than 30 years, was expected to eliminate the need for continued short-term
seasonal borrowing. The legislation also dedicated revenues equal to one-quarter
of the four cent State sales and use tax to pay debt service on these bonds. The
legislation also imposed a cap on the annual seasonal borrowing of the State at
$4.7 billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. This provision
capping the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net
proceeds of $4.7 billion completing the program. The impact of LGAC's borrowing
is that the State is able to meet its cash flow needs in the first quarter of
the fiscal year without relying on short-term seasonal borrowings. The 1995-96
State Financial Plan includes no spring borrowing nor did the 1994-95 State
Financial Plan, which was the first time in 35 years there was no short-term
seasonal borrowing. This reflects the success of the LGAC program in permitting
the State to accelerate local aid payments from the first quarter of the current
fiscal year to the fourth quarter of the previous fiscal year.
Public Authorities
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities refer to public benefit
corporations, created pursuant to State law, other than local authorities.
Public authorities are not subject to the constitutional restrictions on the
incurrence of debt which apply to the State itself and may issue bonds and notes
within the amounts, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially
adversely affected, if any of its public authorities were to default on their
respective obligations, particularly those using the financing techniques
referred to as State-supported or State-related debt.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rental charges for
housing units, and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques
for public authorities. Also, there are statutory arrangements providing for
State local assistance payments, otherwise payable to localities, to be made
under certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
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Some authorities also receive monies from State appropriations to pay
for the operating costs of certain of their programs. As described below, the
MTA receives the bulk of this money in order to carry out mass transit and
commuter services.
As of September 30, 1995, there were 17 authorities that had
outstanding debt of $100 million or more and the aggregate outstanding debt,
including refunding bonds, of these authorities was $3.45 billion.
Metropolitan Transportation Authority
The Metropolitan Transportation Authority (the "MTA") oversees the
operation of subway and bus lines in New York City by is affiliates, the New
York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively, the "TA"). The MTA operates certain commuter
rail and bus lines in the New York Metropolitan areas through MTA's
subsidiaries, the Long Island Rail Road Company, the Metro-North Commuter
Railroad Company, and the Metropolitan Suburban Bus Authority. In addition, the
Staten Island Rapid Transit Operating Authority, an MTA subsidiary, operates a
rapid transit line on Staten Island. Through its affiliated agency, the
Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates certain
intrastate toll bridges and tunnels. Because fare revenues are not sufficient to
finance the mass transit portion of these operations, the MTA has depended and
will continue to depend, for operating support upon a system of State, Local
government and TBTA support, and to the extent available, Federal operating
assistance, including loans, grants and subsidies. If current revenue
projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.
The City of New York
The fiscal health of the State may also be affected by the fiscal
health of the City, which has required and continues to require significant
financial assistance from the State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
City has achieved balanced operating results for each of its fiscal years since
1981 as reported in accordance with the then-applicable GAAP standards.
Fiscal Oversight
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation For The City of New York
("MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York
("OSDC") to assist the Control Board in exercising its powers and
responsibilities; and a "Control Period" which existed from 1975 to 1986 during
which the City was subject to certain statutorily-prescribed fiscal controls.
Although the Control Board terminated the Control Period in 1986 when certain
statutory conditions were met, thus suspending certain Control Board powers, the
Control Board, MAC and OSDC continue to exercise
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various fiscal monitoring functions over the City, and upon the occurrence or
"substantial likelihood and imminence" of the occurrence of certain events,
including, but not limited to, a City operating budget deficit of more than $100
million, the Control Board is required by law to reimpose a Control period.
Currently, the City and its Covered Organizations (i.e., those which receive or
may receive moneys from the City directly, indirectly or contingently) operate
under a four-year financial plan (the "Financial Plan") which the City prepares
annually and periodically updates. The City's Financial Plan includes its
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps.
The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies, some of which are uncertain and may not
materialize. Unforeseen developments and changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements.
General
The national economic downturn which began in July 1990 adversely
affected the local economy, which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product (GCP) fell in those two years. For the 1992 fiscal year, the City closed
a projected budget gap of $3.3 billion in order to achieve a balanced budget as
required by the laws of the State. Beginning in 1992, the improvement in the
national economy helped stabilize conditions in the City. Employment losses
moderated toward year-end and real GCP increased, boosted by strong wage gains.
After noticeable improvements in the City's economy during calendar year 1994,
economic growth slowed in 1995, and the City's current four-year financial plan
assumes that moderate economic growth will continue through the year 2000.
For each of the 1981 through 1996 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable
generally accepted accounting principles ("GAAP"). The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results.
1997-2000 New York City Financial Plan
The Mayor is responsible for preparing the City's four-year financial
plan (the "1997-2000 Financial Plan" or "City Plan"). On November 14, 1996, the
City submitted to the Control Board the Financial Plan for the 1997-2000 fiscal
years, which is a modification to a financial plan submitted to the Control
Board on 1997-2000, (the "June Financial Plan") and which relates to the City,
the Board of Education ("BOE") and the City University of New York.
The June Financial Plan set forth proposed actions to close a
previously projected gap of approximately $2.6 billion for the 1996 fiscal year,
including (i) agency actions totaling $1.2 billion; (ii) a revised tax reduction
program which would increase projected tax revenues by $369 million due to the
four year extension of the 12.5% personal income tax surcharge and other
actions; (iii) savings resulting from cost containment in entitlement programs
to reduce City expenditures and additional
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proposed State aid of $74 million; (iv) the assumed receipt of revenues relating
to rent payments for the City's airports, which are currently the subject of a
dispute with the Port Authority of New York and New Jersey (the "Port
Authority"); (v) the sale of the City's television station for $207 million; and
(vi) pension cost savings totaling $134 million resulting from a proposed
increase in the earnings assumption for pension assets from 8.5% to 8.75%.
The 1997-2000 Financial Plan published on November 14, 1996 reflects
actual receipts and expenditures and changes in forecast revenues and
expenditures since the June Financial Plan. The 1997-2000 Financial Plan
projects revenues and expenditures for 1997 fiscal year balanced in accordance
with GAAP, and projects gaps of $1.2 billion, $2.1 billion and $3.0 billion for
the 1998, 1999 and 2000 fiscal years, respectively. Changes since the June
Financial Plan include: (i) an increase in projected tax revenues of $450
million, $120 million, $50 million and $45 million in fiscal years in 1997
through 2000, respectively; (ii) a delay in the assumed receipt of $304 million
relating to projected rent payments for the City airports from the 1997 fiscal
year to the 1998 and 1999 fiscal years, and a $34 million reduction in assumed
State and Federal aid for the 1997 fiscal year; (iii) an approximate $200
million increase in projected overtime and other expenditures in each of the
fiscal years 1997 through 2000; (iv) a $70 million increase in expenditures for
the Board of Education ("BOE") in the 1997 fiscal year for school text books;
(v) a reduction in projected pension costs of $34 million, $50 million, $49
million and $47 million in fiscal years 1997 through 2000, respectively; and
(vi) additional agency actions totaling $179 million, $386 million, $473 million
and $589 million in fiscal years 1997 through 2000, respectively, including
personnel reductions through attrition and early retirement.
The City depends on the State for aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that the State budgets in future fiscal years will be
adopted by the April 1 statutory deadline and that such reductions or delays
will not have adverse effects on the City's cash flow or expenditures.
The City's projections set forth in the City Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include: the
condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the Financial Plan, employment growth, the ability to
implement proposed reductions in City personnel and other cost reduction
initiatives, which may require in certain cases the cooperation of the City's
municipal unions, the ability of the New York City Health and Hospitals
Corporations and BOE to take actions to offset reduced revenues, the ability to
complete revenue generating transactions, provision of State and Federal aid and
mandate relief and the impact on City revenues of proposals for Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the City Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1997
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through 2000 contemplates the issuance of $7.7 billion of general obligation
bonds and $4.5 billion of bonds to be issued by the proposed New York City
Infrastructure Finance Authority ("IFA") primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make other
capital requirements. The creation of the IFA is subject to the enactment of
State legislation. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes and IFA Bonds will be subject to
prevailing market conditions, and no assurance can be given that such sales will
be completed. If the City were unable to sell its general obligation bonds and
notes or bonds of the proposed IFA, it would be prevented from meeting its
planned operating and capital expenditures.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than
forecast in the City Plan. It is reasonable to expect that such reports and
statements will continue to be issued and engender public comment.
Outstanding Indebtedness
As of September 30, 1996, the City and the Municipal Assistance
Corporation for the City of New York had, respectively, $25.099 billion and
$3.889 billion of outstanding net long-term debt.
The State could be affected by the ability of the City and certain
Covered Organizations to market their securities successfully in the public
credit markets. Future developments concerning the City or certain of the
Covered Organizations, and public discussion of such developments, as well as
prevailing market conditions and securities credit ratings, may affect the
ability or cost to sell securities issued by the City or such Covered
Organizations and may also affect the market for their outstanding securities.
Monitoring Agencies
The staffs of OSDC, the Control Board and the City Comptroller issue
periodic reports on the City's Financial Plans, as modified, analyzing forecasts
of revenues and expenditures, cash flow, and debt service requirements, as well
as compliance with the Financial Plan, as modified, by the City and its Covered
Organizations. OSDC staff reports issued during the mid-1980's noted that the
City's budgets benefited from a rapid rise in the City's economy, which boosted
the City's collection of property, business and income taxes. These resources
were used to increase the City's workforce and the scope of discretionary and
mandated City services. Subsequent OSDC staff reports, including its periodic
economic reports, examined the 1987 stock market crash and the 1989-92
recession, which affected the New York City region more severely than the
nation, and these reports attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC
economic report, the City's economy was slow to recover from the recession and
is expected to experience a weak employment situation, and moderate wage and
income growth, during the 1995-96 period. Also, Financial Plan reports of OSDC,
the Control Board, and the City Comptroller have variously indicated that many
of the City's balanced budgets have been accomplished, in part, through the use
of non-recurring resources, tax and fee increases, personnel
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reductions and additional State assistance; that the City has not yet brought
its long-term expenditures in line with recurring revenues; that the City's
proposed gap-closing programs, if implemented, should narrow future budget gaps;
that these programs tend to rely heavily on actions outside the direct control
of the City; and that the City is therefore likely to continue to face future
projected budget gaps requiring the City to reduce expenditures and/or increase
revenues. According to the most recent staff reports of OSDC, the Control Board
and the City Comptroller during the four-year period covered by the current
Financial Plan, the City is relying on obtaining substantial resources from
initiatives needing approval and cooperation of its municipal labor unions,
Covered Organizations, and City Council, as well as the State and Federal
governments, among others, and there can be no assurance that such approval can
be obtained.
Other Localities
Certain localities in addition to the City could have financial
problems leading to requests for additional State assistance during the State's
1996-97 fiscal years and thereafter. The potential impact on the State of such
requests by localities is not included in the projections of the State's
receipts and disbursements for the State's 1996-97 fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1993, the total indebtedness of all
localities in the State other than New York City was approximately $17.7
billion. A small portion (approximately $105 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Fifteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1993.
Ratings. On January 13, 1992, Standard and Poor's Corporation ("S&P")
reduced its ratings on the State's general obligation bonds from A to A- and in
addition reduced its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. S&P also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
S&P revised its rating outlook assessment to stable. On February 14, 1994, S&P
raised its outlook to positive and , on August 5, 1996, confirmed its A- rating.
On January 6, 1992, Moody's Investors Service, Inc. ("Moody's") reduced its
ratings on outstanding limited-liability State lease-purchase and contractual
obligations from A to Baa1. On October 2, 1995, Moody's reconfirmed its A rating
on the State's general long-term indebtedness.
On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A - to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance
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remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by S&P in lowering
its rating on City bonds included a trend of using one-time measures, including
debt refinancing, to close projected budget gaps, dependence on unratified labor
savings to help balance the Financial Plan, optimistic projections of additional
federal and State aid or mandate relief, a history of cash flow difficulties
caused by State budget delays and continued high debt levels. Fitch Investors
Service, Inc. ("Fitch") continues to rate the City general obligation bonds A-.
On February 28, 1996, Fitch placed the City's general obligation bonds on
FitchAlert with negative implications. On November 5, 1996, Fitch removed the
City's general obligation bonds from FitchAlert, although Fitch stated that the
outlook remains negative. Moody's rating for City general obligation bonds is
Baa1.
SPECIAL CONSIDERATIONS REGARDING
CALIFORNIA MUNICIPAL OBLIGATIONS
Since the California Municipal Portfolio concentrates its investments
in California tax-exempt securities, the Portfolio will be affected by any
political, economic or regulatory developments affecting the ability of
California issuers to pay interest or repay principal. Various subsequent
developments regarding the California Constitution and State of California
("California") statutes which limit the taxing and spending authority of
California governmental entities may impair the ability of California issuers to
maintain debt service on their obligations. Of particular impact are
constitutional voter initiatives, which have become common in recent years. The
following information constitutes only a brief summary and is not intended as a
complete description.
California is the most populous state in the nation with a total
population at the 1990 census of 29,976,000. Growth has been incessant since
World War II, with population gains in each decade since 1950 of between 18% and
49%. During the last decade, the population rose 20%. The State now comprises
12.3% of the nation's population and 12.9% of its total personal income. Its
economy is broad and diversified with major concentrations in high technology
research and manufacturing, aerospace and defense-related manufacturing, trade,
real estate, and financial services. After experiencing strong growth throughout
much of the 1980s, the State was adversely affected by both the national
recession and the cutbacks in aerospace and defense spending which had a severe
impact on the economy in Southern California. Although California is still
experiencing some of the effects of the recession and its unemployment is above
the national average, the gap is narrowing and is projected to close to within
1% of the national average in 1997. California's economic recovery from the
recession is continuing at a strong pace. Recent economic reports indicate that,
while the rate of economic growth in California is expected to moderate over the
next three years, the increases in employment and income will likely exceed
those of the nation as a whole by a significant margin.
These economic difficulties have exacerbated the structural budget
imbalance which has been evident since fiscal year 1985-1986. Since that time,
budget shortfalls have become increasingly more difficult to solve and the State
has recorded in its general fund (the "General Fund") operating deficits in
several fiscal years. Many of these problems have been attributable to the fact
that the great population influx has produced increased demand for education and
social services at a far greater pace than the growth in the State's tax
revenues. Despite substantial tax increases, expenditure reductions
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and the shift of some expenditure responsibilities to local government, the
budget condition remains problematic.
In July 1996, the Governor signed into law a new $62.8 billion budget
which, among other things, significantly increases education spending from the
previous fiscal year, reduces taxes for corporations and banks and provides for
a balanced budget at the close of the fiscal year. At the same time, the budget
continues several funding reductions made in the past years, mostly to health
and welfare programs. Although the state's budget provides for a reserve of $305
million, revenue and expenditure developments have occurred which may have the
effect of reducing the reserve. The Governor's proposed budget for fiscal year
1997-1998 indicates total spending of $66.6 billion and anticipates a $553
million reserve for economic uncertainties. As in past years, California's
budget assumes savings which depend on future federal actions, both to fund
programs relating to MediCal and incarceration costs associated with
undocumented immigrants and to relieve the state from federally mandated
spending, which may not occur. Accordingly, the anticipated reserves may be
reduced unless the economy outperforms expectations or spending falls below
planned levels.
Because of California's continuing budget problems, California's
General Obligation bonds were downgraded in July 1994 from A1 to Aa by Moody's
and from A+ to A by Standard & Poor's and from AA to A by Fitch Investment
Service, Inc. All three ratings companies expressed uncertainty in the State's
ability to balance its budget by 1996. However, in 1996, citing California's
improving economy and budget situation, both Fitch and Standard & Poor's raised
their ratings from A to A+.
In 1978, Proposition 13, an amendment to the California Constitution,
was approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In Nordlinger v. Hahn, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.
If a government entity raises revenues beyond its "appropriations
limit" in any year, a portion of the excess which cannot be appropriated within
the following year's limit must be returned to the entity's taxpayers within two
subsequent fiscal years, generally by a tax credit, refund or temporary
suspension of tax rates or fee schedules. "Debt service" is excluded from these
limitations, and is
21
<PAGE>
defined as "appropriations required to pay the cost of interest and redemption
charges, including the funding of any reserve or sinking fund required in
connection therewith, on indebtedness existing or legally authorized as of
January 1, 1979 or on bonded indebtedness thereafter approved [by the voters]."
In addition, Article XIIIB requires the California Legislature to establish a
prudent state reserve, and to require the transfer of 50% of excess revenue to
the State School Fund; any amounts allocated to the State School Fund will
increase the appropriations limit.
In June 1982, the voters of California passed two initiative measures
to repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in California and
local revenues in future fiscal years as a consequence of these initiatives may
result in reductions in allocations of State revenues to California issuers or
in the ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and (viii)
permits these provisions to be amended exclusively by the voters of the State of
California.
In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by non-charter cities in California without voter
approval. It is not possible to predict the impact of the decision.
In November 1996, California voters approved Proposition 218. The
initiative applied the provisions of Proposition 62 to all entities, including
charter cities. It requires that all taxes for general purposes obtain a simple
majority popular vote and that taxes for special purposes obtain a two-thirds
majority vote. Prior to the effectiveness of Proposition 218, charter cities
could levy certain taxes such as transient occupancy taxes and utility user's
taxes without a popular vote. Proposition 218 will also limit the authority of
local governments to impose property-related assessments, fees and charges,
requiring that such assessments be limited to the special benefit conferred and
prohibiting their use for
22
<PAGE>
general governmental services. Proposition 218 also allows voters to use their
initiative power to reduce or repeal previously-authorized taxes, assessments,
fees and charges.
In 1988, California voters approved Proposition 87, which amended
Article XVI of the State Constitution to authorize the State Legislature to
prohibit redevelopment agencies from receiving any property tax revenues raised
by increased property taxes to repay bonded indebtedness of local government
which is not approved by voters on or before January 1, 1989. It is not possible
to predict whether the State Legislature will enact such a prohibition, nor is
it possible to predict the impact of Proposition 87 on redevelopment agencies
and their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Proposition 98. This
initiative requires that revenues in excess of amounts permitted to be spent and
which would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any such allocation made in the prior year. Proposition 98 also requires the
State of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.
California is a party to numerous legal proceedings, many of which
normally occur in governmental operations and if decided against California,
might require California to make significant future expenditures or impair
future revenue sources.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the County's investment pool due to investments in high risk
"derivative" securities. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August 1995 the credit rating of the county's long-term
bonds was downgraded for the third time since 1992 as a result of, among other
things, severe operating deficits for the county's health care system. Also, the
county has not yet recovered from the ongoing loss of revenue caused by state
property tax shift initiatives in 1993 through 1995. Entering the 1996-1997
fiscal year, the county faced a budgetary shortfall of approximately $516
million. The county's budgetary difficulties have continued with their effect on
the 1997-1998 budget still uncertain.
23
<PAGE>
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
INVESTMENT RESTRICTIONS
The significant investment restrictions applicable to each Portfolio
are described in the applicable Prospectus for the Portfolio. The following are
also fundamental policies and, together with the restrictions and other
fundamental policies described for each Portfolio, cannot be changed without the
vote of a majority of the outstanding voting securities of that Portfolio, as
defined in the Investment Company Act of 1940 (the "Act"). Such a majority is
defined as the lesser of (a) 67% or more of the shares of a Portfolio present at
a meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares of a Portfolio are present or represented by proxy or (b)
more than 50% of the outstanding shares of a Portfolio. For purposes of the
following restrictions and those contained in the Prospectus: (i) all percentage
limitations apply immediately after a purchase or initial investment; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total assets does not require
elimination of any security from a Portfolio.
Under these additional restrictions, each Portfolio cannot: (a) invest
in commodities or commodity contracts; (b) purchase or sell real property
(including limited partnership interests); however, each Portfolio may purchase
securities of issuers which engage in real estate operations and securities
which are secured by real estate or interests therein; (c) purchase securities
on margin (except for such short-term loans as are necessary for the clearance
of purchases of portfolio securities) or make short sales of securities except
"against the box"; (d) underwrite securities of other companies except in so far
as the Fund may be deemed to be an underwriter under the Securities Act of 1933
in disposing of a security; (e) invest in securities of other investment
companies except in connection with merger, consolidation, reorganization or
acquisition of assets; (f) invest in interests, including leases, in oil, gas or
other mineral exploration or development; (g) invest in securities of any issuer
if, to the knowledge of the Advisor, any officer or director of the Fund or any
officer or director of the Advisor owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers, directors who own more than 1/2 of
1% own in the aggregate more than 5% of the outstanding securities of such
issuer; (h) pledge its assets or assign or otherwise encumber its assets in
excess of 15% of its total assets (taken at market value at the time of
pledging) and then only to secure borrowings effected within the limitations set
forth in the Prospectus. While such borrowings exceed 5% of any Portfolio's net
assets no further portfolio investments may be made. The Fund is required under
the Act to maintain continuous asset coverage of 300% with respect to such
borrowing; (i) invest for the purpose of exercising control or management of
another company; and (j) issue senior securities as defined in the Act except
insofar as the Portfolio may be deemed to have issued a senior security by
reason of: (1) entering into any repurchase agreement; or (2) borrowing money in
accordance with restrictions described above; (k) invest in warrants. In
addition, in order to comply with a state's securities laws, the Fund has agreed
not to make loans to any person or individual except that portfolio securities
may be loaned within the limitations set forth in the Prospectus.
24
<PAGE>
DIRECTORS AND OFFICERS
The directors and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Directors who are "interested
persons," as defined in the Act, are denoted by an asterisk. The address of each
is One World Financial Center, New York, New York 10281, except as noted. As of
March 12, 1998, all of the directors and officers of the Fund as a group owned
less than 1% of the outstanding shares of each Portfolio of the Fund except for
the New York Municipal Portfolio. The officers and directors as a group owned
12,282,013 shares (15.55%) of the New York Municipal Portfolio on March 12,
1998.
Joseph M. La Motta, Chairman of the Board of Directors and President*
Chairman Emeritus of Oppenheimer Capital and Chairman of OpCap Advisors,
registered investment advisers; Chairman of OCC Distributors; Chairman of the
Board and President of OCC Accumulation Trust, an open-end investment company.
Paul Y. Clinton, Director
39 Blossom Avenue
Osterville, MA 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; formerly
President of Essex Management Corporation, a management consulting company;
Trustee of Capital Cash Management Trust, a money market fund and Director of
Narragansett Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer
Quest Value Fund, Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer
Quest Capital Value Fund, Inc., Rochester Fund Municipals, Rochester Portfolio
Series Limited Term New York Municipals and Bond Fund Series, Oppenheimer Bond
Fund for Growth, Oppenheimer Mid Cap Fund, Trustee of OCC Accumulation Trust and
Oppenheimer Quest for Value Funds, each of which is an open-end investment
company; formerly a general partner of Capital Growth Fund, a venture capital
partnership; formerly a general partner of Essex Limited Partnership, an
investment partnership; formerly President of Geneve Corp., a venture capital
fund; formerly Chairman of Woodland Capital Corp., a small business investment
company; formerly Vice President of W.R. Grace & Co.
Thomas W. Courtney, C.F.A., Director
P.O. Box 8186
Naples, Florida 33941
Principal of Courtney Associates, Inc., a venture capital business, former
General Partner of Trivest Venture Fund, a private venture capital fund; former
President of Federated Investment Counseling, Inc.; former President of Boston
Company Institutional Investors, Inc.; Trustee of Cash Assets Trust, a money
market fund; Director of Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest
Capital Value Fund, Inc., Oppenheimer Quest Global Value Fund, Inc., Rochester
Fund Municipals,
25
<PAGE>
Rochester Portfolio Series Limited Term New York Municipals and Bond Fund
Series, Oppenheimer Mid Cap Fund, Oppenheimer Bond Fund for Growth, Trustee of
Oppenheimer Quest for Value Funds and OCC Accumulation Trust, each of which is
an open-end investment company; Trustee of Hawaiian Tax-Free Trust and Tax-Free
Trust of Arizona, tax-exempt bond funds; Director of several privately owned
corporations; and former Director of Financial Analysts Federation.
Lacy B. Herrmann, Director
Suite 2300
380 Madison Avenue
New York, New York 10017
President and Chairman of the Board of Aquila Management Corporation (since
1984), the sponsoring organization and Administrator and/or Advisor or
Sub-Advisor to the following open-end investment companies, and Chairman of the
Board of Trustees and President of each: Churchill Cash Reserves Trust (since
1985), Short Term Asset Reserves (from 1984 to 1985), Pacific Capital Assets
Trust (1984), Pacific Capital U.S. Treasuries Cash Assets Trust (since 1988),
Pacific Capital Tax-Free Cash Assets Trust (since 1988), Prime Cash Fund (from
1982 to 1996), Oxford Cash Management Fund (1982-1988) and Trinity Liquid Assets
Trust (1982-1985), each of which is a money market fund, and of Churchill
Tax-Free Fund of Kentucky (since 1986), Tax-Free Fund of Colorado (since 1986),
Tax-Free Trust of Oregon (since 1985), Tax-Free Trust of Arizona (since 1985),
Tax-Free Fund for Utah (since 1992), Narragansett Insured Tax Free Income Fund
(since 1992), and Hawaiian Tax-Free Trust (since 1984), each of which is a
tax-free municipal bond fund; Vice President, Director, Secretary, and formerly
Treasurer of Aquila Distributors, Inc. (since 1981), distributor of each of the
above funds; President and Chairman of the Board of Trustees of Capital Cash
Management Trust (CCMT), a money market fund (since 1981) and an Officer and
Trustee/Director of its predecessors (since 1974); President and Director of
STCM Management Company, Inc., sponsor and Sub-Advisor to CCMT; Director of
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Capital Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Rochester Fund Municipals, Rochester
Portfolio Series Limited Term New York Municipals and Bond Fund Series,
Oppenheimer Bond Fund for Growth, Oppenheimer Mid Cap Fund, Trustee of
Oppenheimer Quest for Value Funds, and OCC Accumulation Trust, each of which is
an open-end investment company.
George Loft, Director
51 Herrick Road
Sharon, Connecticut 06069
Private Investor; Director of Oppenheimer Quest Value Fund, Inc., Oppenheimer
Quest Capital Value Fund, Inc., Rochester Fund Municipals, Rochester Portfolio
Series Limited Term New York Municipals and Bond Fund Series, Oppenheimer Bond
Fund for Growth, Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Mid Cap
Fund, Trustee of OCC Accumulation Trust, and Oppenheimer Quest for Value Funds,
all of which are open-end investment companies.
26
<PAGE>
Everett Alcenat, Vice President
Senior Vice President of OCC Cash Management Services, a Division of Oppenheimer
Capital, since 1996 and Vice President from 1993 to 1996; Assistant Vice
President-Mutual Fund Operations at Pershing from 2/93 to 10/93 and prior
thereto, Assistant Vice President-Syndicate Operations at Prudential Securities
Inc.
Robert J. Bluestone, Vice President
Managing Director, Oppenheimer Capital; Vice President of OCC Accumulation
Trust, an open-end investment company; Executive Vice President of Municipal
Advantage Fund Inc., a closed-end investment company.
Maria Camacho, Assistant Secretary
Vice President of Oppenheimer Capital since 1997. Assistant Vice President from
1994 to 1997 and Registrations Department Administrator with Oppenheimer Capital
since 1989.
Bernard H. Garil, Vice President
President and Chief Operating Officer of OpCap Advisors; Director of Oppenheimer
Capital Trust Company; Managing Director of Oppenheimer Capital since 1997;
President of 225 Liberty Advisers, L.P.; President of The Central European Value
Fund, Inc. and Municipal Advantage Fund Inc., closed-end investment companies.
John Giusio, Vice President
Vice President, Oppenheimer Capital; Vice President of OCC Accumulation Trust,
an open-end investment company; previously Vice President, Salomon Brothers.
Matthew Greenwald, Vice President & Portfolio Manager
Senior Vice President, Oppenheimer Capital since 1997; Vice President from 1992
to 1997 and Assistant Vice President from 1989-1992; Executive Vice President of
Municipal Advantage Fund Inc. , a closed-end investment company.
Benjamin Gutstein, Vice President & Portfolio Manager
Assistant Vice President, Oppenheimer Capital since 1996; joined the firm in
1993; prior thereto, associate at Lehman Brothers.
27
<PAGE>
Susan A. Murphy, Vice President
President of OCC Cash Management Services, a Division of Oppenheimer Capital,
since 1994; Senior Vice President of that division from 1989-1994; Managing
Director of Oppenheimer Capital since 1997; President of Oppenheimer Capital
Trust Company.
Deborah Kaback, Secretary
Senior Vice President and Deputy General Counsel of Oppenheimer Capital;
Secretary of OCC Accumulation Trust, an open-end investment company and
Secretary of The Central European Value Fund, Inc. and Municipal Advantage Fund
Inc., closed-end investment companies.
Thomas E. Duggan, Assistant Secretary
General Counsel and Secretary of Oppenheimer Capital and OpCap Advisors.
Sheldon M. Siegel, Treasurer
Managing Director of Oppenheimer Capital; Treasurer of OpCap Advisors; Treasurer
of OCC Accumulation Trust, an open-end investment company.
Richard L. Peteka, Assistant Treasurer
Vice President of Oppenheimer Capital; Assistant Treasurer of OCC Accumulation
Trust, an open-end investment company and Treasurer of The Central European
Value Fund, Inc. and Municipal Advantage Fund Inc., closed-end investment
companies.
Remuneration of Officers and Directors. All officers of the Fund are officers or
employees of Oppenheimer Capital and receive no salary or fee from the Fund. The
following table sets forth the aggregate compensation paid by the Fund to each
of the Directors during its fiscal year ended November 30, 1997 and the
aggregate compensation paid to each of the Directors by all of the funds in the
Advisor's Fund Complex during each such fund's 1997 fiscal year.
<TABLE>
<CAPTION>
Pension or
Name of Director of Aggregate Retirement Benefits Estimated Annual Total Compensation
the Fund Compensation from Accrued as Part of Benefits upon from the Fund and
the Fund Fund Expenses Retirement the Fund Complex
<S> <C> <C> <C> <C>
Paul Clinton $35,500 0 0 $81,255
Thomas Courtney 35,500 0 0 81,255
Lacy Herrmann 32,000 0 0 74,180
Joseph La Motta 0 0 0 0
George Loft 35,500 0 0 81,255
</TABLE>
For the purpose of the chart above, "Fund Complex" includes the Fund, other
funds advised by the Advisor and the Oppenheimer Quest Funds for which the
Advisor serves as subadviser.
28
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of March 12, 1998, the following persons owned of record or were known by the
Fund to own beneficially 5% of the outstanding shares of any Portfolio of the
Fund.
<TABLE>
<CAPTION>
Holder Portfolio Percentage
<S> <C> <C>
CIBC Oppenheimer Corp. Primary Portfolio 96.22%
Omnibus Account
for the benefit of clients
Oppenheimer Tower
World Financial Center
New York, NY 10281
CIBC Oppenheimer Corp. Government Portfolio 88.93%
Omnibus Account
for the benefit of clients
World Financial Center
New York, NY 10281
CIBC Oppenheimer Corp. General Municipal Portfolio 96.83%
Omnibus Account
for the benefit of clients
World Financial Center
New York, NY 10281
CIBC Oppenheimer Corp. New York Municipal Portfolio 77.77%
Omnibus Account
for the benefit of clients
World Financial Center
New York, NY 10281
CIBC Oppenheimer Corp. California Municipal Portfolio 99.85%
Omnibus Account
for the benefit of clients
Oppenheimer Tower
World Financial Center
New York, NY 10281
Joseph La Motta and members New York Municipal Portfolio 15.55%
of his family
Pound Ridge, NY
</TABLE>
29
<PAGE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Advisory Agreement. The Advisory Agreement pursuant to which the investments
of each Portfolio of the Fund are managed by the Advisor was first approved by
the Board of Directors and by Oppenheimer Capital as then sole shareholder of
the Fund on August 11, 1989 (the "Initial Advisory Agreement"). An amendment to
the initial Advisory Agreement was approved by the Board of Directors, including
a majority of the Directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) on January 20, 1992 and by the shareholders of each
Portfolio of the Fund on April 29, 1992. The amendment eliminated the provision
in the initial Advisory Agreement that provided for quarterly payments to be
made to the Advisor or its parent Oppenheimer Capital as reimbursement for the
costs of providing administrative services and increased the advisory fee by
approximately the same amount. On February 28, 1997, the Board of Directors,
including a majority of the Directors who are not "interested persons" of the
Fund, approved a new Advisory Agreement (the "Advisory Agreement"), on identical
terms as the initial Advisory Agreement, as amended, to take effect upon the
acquisition by PIMCO Advisors L.P. and its affiliates of a controlling interest
in Oppenheimer Capital and its subsidiary OpCap Advisors, the Advisor of the
Fund (the "Transaction"). The Advisory Agreement was approved by the
shareholders of each Portfolio of the Fund at a Special Meeting of Shareholders
held on October 14, 1997. The Transaction was consummated on November 4, 1997
and the new Advisory Agreement became effective on November 5, 1997.
Under the Advisory Agreement, the Advisor is required to: (i) regularly
provide investment advice and recommendations to each Portfolio with respect to
its investments, investment policies and the purchase and sale of securities;
(ii) supervise continuously and determine the securities to be purchased or sold
by each Portfolio and the portion, if any, of each Portfolio's assets to be held
uninvested; and (iii) arrange for the purchase of securities and other
investments by each Portfolio and the sale of securities and other investments
held in each Portfolio's assets.
The Advisory Agreement also requires the Advisor to provide for the
business management for the Fund and its Portfolios, including (1) making
arrangements for accountants, counsel and other parties to perform services for
the Portfolios, (2) preparation and filing of reports required by federal
securities and "blue sky" laws, shareholder reports and proxy materials and (3)
arranging for and supervising the continuous distribution of each Portfolio and
the provision of continuous administrative services to Portfolio shareholders.
Expenses not expressly assumed by the Advisor under the Advisory
Agreement are paid by the Portfolios. These include fees to the Advisor,
custodian, transfer agent and shareholder servicing expenses, directors' fees
and expenses, legal and audit expenses, stock issuance costs, certain printing,
postage, federal and state registration costs, annual meeting costs, and
organizational and non-recurring expenses, including litigation.
The Fund may pay certain broker-dealers, including its former affiliate
CIBC Oppenheimer Corp. ("CIBC Oppenheimer") or other financial intermediaries
whose customers are Fund shareholders
30
<PAGE>
for performing shareholder servicing functions, such as opening new shareholder
accounts, processing purchase and redemption transactions and responding to
inquiries regarding the Portfolios' current yield and the status of shareholder
accounts. The Fund may pay for the electronic communications equipment
maintained at the broker-dealers' offices that permits access to the Fund's
computer files and, in addition, reimburses the broker-dealers at cost for
personnel expenses involved in providing these services. All such payments and
reimbursements must be approved in advance by the Fund's Board of Directors.
Currently, any such payments to CIBC Oppenheimer are capped at 2 basis points of
average daily net assets of CIBC Oppenheimer's customers. The following amounts
were paid to CIBC Oppenheimer as reimbursement for shareholder services: for the
fiscal year ended November 30, 1997 -- $372,639; $18,205, $25,734, $11,463 and
$11,004, respectively; for the fiscal year ended November 30, 1996 -- $323,317,
$18,497, $24,536, $12,352 and $9,212, respectively; and for the fiscal year
ended November 30, 1995--$281,524; $18,693; $22,314; $12,642 and $9,181,
respectively; ^ with respect to the Primary, Government, General Municipal,
California Municipal and New York Municipal Portfolios.
The Fund also may pay certain broker-dealers including its former
affiliate CIBC Oppenheimer, for performing certain administrative services for
accounts in the Fund including providing beneficial owners with statements
showing their positions in the Fund, posting dividend payments to beneficial
owners' accounts, and providing shareholder information to enable the Fund to
mail prospectuses, annual and semi-annual reports to beneficial owners. Such
payments are limited to 5 basis points of average daily net assets of each
broker-dealer's customers. CIBC Oppenheimer also is paid a fee of $9.25 per
shareholder account for performing recordkeeping..
The Advisory Agreement provides that in absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Advisor is not liable for any act or omission in the course of,
or in connection with, the rendition of services thereunder. The Agreement
permits the Advisor to act as investment adviser for any other person, firm or
corporation.
The Fund's advisory fee is at the annual rate of .50% on the first
$100 million of average daily net assets, .45% on the next $200 million of
average daily net assets, and .40% of average daily net assets in excess of $300
million. The fee is accrued daily and paid monthly. Under the Advisory
Agreement, the Advisor guarantees that the total expenses of each Portfolio in
any fiscal year, exclusive of taxes, interest, and brokerage fees, shall not
exceed, and undertakes to pay or refund to the Portfolio any amount by which
such expenses do exceed, 1% (net of any expense offsets) of that Portfolio's
average annual net assets. For the fiscal year ended November 30, 1997, the
total advisory fee paid by the Primary Portfolio was $7,907,076 and the total
fees accrued or paid by the Government, General Municipal, California Municipal
and New York Municipal Portfolios were $493,349, $656,681, $287,248 and
$323,434, respectively, of which $7,876, $2,257, $31,822 and $954, respectively
was waived by the Advisor. For the fiscal year ended November 30, 1996, the
total advisory fee paid by the Primary Portfolio was $6,981,092 and the total
advisory fees accrued or paid by the Government, General Municipal, California
Municipal and New York Municipal Portfolios were $520,106, $638,004, $309,904
and $313,061 of which $258, $1,744, $71,394 and $7,866, respectively, was waived
by the Advisor. For the fiscal year ended November 30, 1995, the total advisory
fee paid by the Primary Portfolio was $6,577,551 and the total advisory fees
accrued or paid
31
<PAGE>
by the Government, General Municipal, California Municipal and New York
Municipal Portfolios were $549,734, $619,378, $319,052 and $261,993, of which
$20,074, $112,617, $83,794 and $110,219, respectively was waived by the Advisor.
The Distribution Assistance Plan. The Fund has a Distribution Assistance and
Administrative Services Plan (the "Plan") with the Advisor which was adopted in
accordance with the requirements of Rule 12b-1 under the 1940 Act and has been
approved by the Fund's Board of Directors, including a majority of the Directors
who are not "interested persons" of a Portfolio as defined in the 1940 Act and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreement related to the Plan ("Disinterested Directors") and by
Oppenheimer Capital as then sole shareholder of the Fund. Shareholders of each
Portfolio approved the Plan at the Annual Meeting of Shareholders held on April
29, 1992.
Under the Plan, the Fund may be provided with distribution assistance
and/or administrative services through broker-dealers, banks and other
depository institutions and other financial intermediaries and administrative
services. The fee payable by the Fund's portfolios under the Plan was reduced
from .30% to .25% of the average daily value of each Portfolio's net assets,
effective March 31, 1995. The services to be obtained are believed to be
permissible activities under present banking laws and regulations, and the
Directors of the Fund will take appropriate actions (which should not adversely
affect the Fund or its shareholders) in the future to maintain such legal
conformity should any changes in, or interpretations of, such laws or
regulations occur. 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. For
the fiscal year ended November 30, 1997, the total distribution fees accrued or
paid by the Primary, Government, General Municipal, California Municipal and New
York Municipal Portfolios were $4,816,923, $247,276, $337,045, $143,624 and
$161,717, respectively.
The Plan provides that, as long as the Plan remains in effect, the
selection and nomination of directors of the Fund who are not "interested
persons" shall be committed to the discretion of the directors who are not
"interested persons" of the Fund. The Plan can be terminated at any time with
regard to each Portfolio, without penalty, by the vote of a majority of the
Disinterested Directors or by the vote of the holders of a majority of the
outstanding voting securities of that Portfolio. Finally, the Plan cannot be
amended materially without shareholder approval, and all material amendments are
required to be approved by the vote of the Board of Directors of the Fund,
including a majority of the Disinterested Directors, cast in person at a meeting
called for that purpose.
32
<PAGE>
It is estimated that the Advisor spent approximately the following
amounts with respect to the Primary, Government, General Municipal, California
Municipal and New York Municipal Portfolios for the fiscal year ended November
30, 1997:
<TABLE>
<CAPTION>
Primary Government General California New York
Portfolio Portfolio Municipal Municipal Municipal
Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Sales Material and Advertising -0- -0- -0- -0- -0-
Printing and Mailing of -0- -0- -0- -0- -0-
Prospectuses to Other than
Current Shareholders
Compensation to Dealers $7,561,095 $404,782 $540,011 $236,096 $262,673
Compensation to Sales Personnel -0- -0- -0- -0- -0-
Other (1) -0- -0- -0- -0- -0-
</TABLE>
(1) Includes cost of telephone and overhead.
The Distribution Agreement. The Fund has entered into a Distribution Agreement
with OCC Distributors (the "Distributor"), an affiliated broker-dealer of the
Advisor. Under the Distribution Agreement, the Distributor acts as the Fund's
agent (underwriter) in the continuous public offering of its shares. Also under
the Agreement, the Fund makes no payment to the Distributor or any other party
and expenses normally attributable to sales, other than those paid by the
Advisor, are borne by the Distributor.
Portfolio Transactions. Portfolio decisions are based on the judgment and
actions of the Advisor. As most, if not all, purchases made by the Fund are
principal transactions at net prices, the Fund pays little brokerage commission.
Prices of portfolio securities purchased from underwriters of new issues include
a commission or concession paid by the issuer to the underwriter, and prices of
debt securities from dealers include a spread between the bid and asked prices.
The Advisor seeks to obtain prompt execution of orders at the most favorable net
price. Transactions may be directed to dealers during the course of an
underwriting in return for their execution and research services, which are
intangible and on which no dollar value can be placed. There is no formula for
such allocation. The research information may or may not be useful to one or
more of the Portfolios and/or other accounts of the Advisor; information
received in connection with directed orders of other accounts managed by the
Advisor or its affiliates may or may not be useful to one or more of the
Portfolios. Such information may be in written or oral form and includes
information on particular companies and industries as well as market, economic
or institutional activity areas. It serves to broaden the scope and supplement
the activities of the Advisor, to make available additional views for
consideration and comparison, to enable the Advisor to obtain market information
for the valuation of securities held in a Portfolio's assets.
The Advisor currently serves as investment manager to a number of
clients, including other investment companies, and in the future may act as
investment manager or adviser to others. It is the practice of the Advisor to
cause purchase or sale transactions to be allocated among the Portfolios and
33
<PAGE>
others whose assets it manages in such manner as it deems equitable. In making
such allocations among the Portfolios and other client accounts, the main
factors considered are the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of each
Portfolio and other client accounts.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined each day
the New York Stock Exchange (the "Exchange") is open, as of 12:00 noon and 4:00
p.m., New York time that day by dividing the value of a Portfolio's net assets
by the number of its shares outstanding.
The Portfolios operate under a rule (the "Rule") of the Securities and
Exchange Commission under the Act which permits them to value their portfolios
on the basis of amortized cost. The amortized cost method of valuation is
accomplished by valuing a security at its cost adjusted by straight-line
amortizating to maturity any discount with respect to the Primary and Government
Portfolios or premium with respect to all Portfolios, regardless of the impact
of fluctuating interest rates on the market value of the security. The method
does not take into account unrealized gains or losses.
There may be periods during which the value, as determined by amortized
cost, may be higher or lower than the price a Portfolio would receive if it sold
its securities on a particular day. During periods of declining interest rates,
the daily yield on a Portfolio's shares may tend to be higher (and net
investment income and daily dividends lower) than under a like computation made
by a fund with identical investments which utilizes a method of valuation based
upon market prices. The converse would apply in a period of rising interest
rates.
The Fund's Board of Directors has established procedures designed to
stabilize the Portfolios' price per share as computed for purpose of sales and
redemptions at $1.00. Under the Rule, such procedures must include review of
portfolio holdings by the Board of Directors at such intervals as it deems
appropriate, and at such intervals as are reasonable in light of current market
conditions, to determine whether the Portfolios' net asset value calculated by
using available market quotations deviates from the per share value based on
amortized cost. "Available market quotations" may include actual quotations,
estimates of market value reflecting current market conditions based on
quotations or estimates of market value for individual portfolio instruments or
values obtained from yield data relating to a directly comparable class of
securities published by reputable sources. Under the Rule, whenever the
deviation of the current net asset value per share based on available market
quotations from a Portfolio's amortized cost price per share reaches 1/2 of 1%,
the Board must promptly consider what action, if any, will be initiated.
However, the Board has adopted a policy under which it will be required to
consider what action to take whenever the deviation of the current net asset
value per share based on available market quotations from a Portfolio's
amortized cost price per share reaches .003. When the Board believes that the
extent of any deviation may result in material dilution or other unfair results
to potential investors or existing shareholders, it is to take such action as it
deems appropriate to eliminate or reduce to the extent reasonably practicable
such dilution or unfair results. Such actions
34
<PAGE>
could include the sale of portfolio securities prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity, withholding
dividends or payment of distributions from capital or capital gains, redemptions
of shares in kind, or establishing a net asset value per share using available
market quotations.
A "business day," during which purchases and redemptions of Fund shares
can become effective and the transmittal of redemption proceeds can occur, is
considered for Fund purposes as any day the Exchange is open for trading;
however, on any such day that is an official bank holiday in Massachusetts,
neither purchases nor wired redemptions can become effective because Federal
Funds cannot be received or sent by State Street Bank & Trust Company. On such
days, therefore, the Fund can only accept redemption orders for which
shareholders desire remittance by check. The right of redemption may be
suspended or the date of a redemption payment postponed for any period during
which the Exchange is closed (other than customary weekend and holiday
closings), when trading in the markets which the Fund normally utilizes is
restricted, or an emergency (as determined by the Securities and Exchange
Commission) exists, or the Commission has ordered such a suspension for the
protection of shareholders. The New York Stock Exchange's most recent annual
announcement (which is subject to change) states that it will close on New
Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day,
July 4th, Labor Day, Thanksgiving and Christmas Day. It may also close on other
days. The value of a shareholder's investment at the time of redemption may be
more or less than his cost, depending on the market value of the securities held
by the Fund at such time and the income earned.
TAXES
Each Portfolio intends to continue to qualify each year as a regulated
investment company under the Internal Revenue Code ("Code"). Provided that a
Portfolio (a) is a regulated investment company and (b) distributes at least 90%
of its taxable net investment income (including, for this purpose, net realized
short-term capital gains) and 90% of its tax-exempt interest income (reduced by
certain expenses), the Portfolio will not be liable for Federal income taxes to
the extent that its taxable net investment income and its net realized long-term
and short-term capital gains are distributed to its shareholders. Any net
short-term and long-term capital gains realized by a Portfolio will be
distributed annually as described in the Prospectus. Distributions of short-term
capital gains are taxable as ordinary income, however, distributions of
long-term capital gains will be taxable to shareholders as long-term capital
gains, regardless of how long a shareholder has held shares of the Portfolio,
and will be designated as long-term capital gain dividends in a written notice
mailed by the Portfolio to shareholders after the close of the Portfolio's
taxable year. If a shareholder receives a long-term capital gain dividend with
respect to any share and if the share has been held by the shareholder for six
months or less, then any loss (to the extent not disallowed pursuant to the
other six-month rule described below relating to exempt-interest dividends) on
the sale or exchange of such share will be treated as a long-term capital loss
to the extent of the long-term capital gain dividend. At November 30, 1997,
accumulated net realized capital loss carry forwards available as a reduction
against future net realized capital gains were: Primary -- $1,105 of which $88
will expire in 2004; and $1,017 will expire in 2005. Government -- $263 of which
$138 will expire in 2004 and $125 will expire in 2005; General -- $80,264 of
which $29,512 will expire in 1998, $1,302 will expire in 1999, $13,801 will
expire in 2000,
35
<PAGE>
$299 will expire in 2001, $33,497 will expire in 2003 and $1,853 will expire in
2005. General had $12,327 in capital loss carryforwards expire on November 30,
1997. Such amount has been reclassed to additional paid-in capital to reflect
General's federal tax cost basis of available accumulated realized capital loss
carryforwards. California Municipal Portfolio--$31,447 of which $730 will expire
in 1999, $5,856 will expire in 2000, $1,137 will expire in 2001, $13,827 will
expire in 2003, $9,304 will expire in 2004 and $593 will expire in 2005; and New
York Municipal Portfolio--$24,595, of which $3,198 will expire in 2000, $934
will expire in 2001, $19,669 will expire in 2003 and $794 will expire in 2005.
The Municipal Portfolios are designed to provide investors with current
income which is excluded from gross income for Federal income tax purposes and
with respect to the New York Municipal and California Municipal Portfolios,
exempt from New York State and New York City personal income taxes and from
California personal income tax, respectively. Investment in the Portfolios would
not be suitable for tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts since such investors would not gain any
additional tax benefit from the receipt of tax-exempt income. Although each of
the Municipal Portfolios expects to be relieved of all or substantially all
Federal and state income or franchise taxes, depending upon the extent of its
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, that portion of a Portfolio's income
which is treated as earned in any such state or locality could be subject to
state and local tax. Any such taxes paid by a Portfolio would reduce the amount
of income and gains available for distribution to shareholders.
Because the Municipal Portfolios will distribute exempt-interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry shares of a Portfolio is not deductible for Federal income and New York
State and New York City personal income tax purposes and California personal
income tax purposes. If a shareholder receives exempt-interest dividends with
respect to any share and if such share is held by the shareholder for six months
or less, then any loss on the sale or exchange of such share may, to the extent
of such exempt-interest dividends, be disallowed. In addition, the Code may
require a shareholder, if he or she receives exempt-interest dividends, to treat
as taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of any
exempt-interest dividend paid by a Portfolio which represents income derived
from private activity bonds held by the Portfolio may not retain its tax-exempt
status in the hands of a shareholder who is a "substantial user" of a facility
financed by such bonds, or a "related person" thereof. Moreover, as noted in the
applicable Prospectus for the Municipal Portfolios, some (and potentially all)
of a Portfolio's dividends may be a specific preference item or a component of
an adjustment item, for purposes of the Federal individual and corporate
alternative minimum taxes with resulting tax for individuals and corporations
subject to such alternative minimum tax ("AMT"). In addition, the receipt of
dividends and distributions from a Portfolio also may affect a foreign corporate
shareholder's Federal "branch profits" tax liability and a Subchapter S
corporate shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisors as to whether they are (a)
substantial users with respect to a facility or related to such users within the
meaning of the Code or (b) subject to a Federal alternative minimum tax, the
Federal environmental tax, the Federal branch profits tax or the Federal excess
net passive income tax.
36
<PAGE>
At the Annual Meeting of Shareholders held on April 29, 1992, the shareholders
of the Municipal Portfolios approved a change in each Portfolio's fundamental
investment policies to permit the purchase of securities treated as tax
preference items without limitation. Consequently, investors already subject to
the AMT should consider whether an investment in the Municipal Portfolios is
suitable for them.
Each shareholder will receive after the close of the calendar year an
annual statement as to the Federal income tax status of his or her dividends and
distributions from the Portfolio for the prior calendar year. These statements
also will designate the amount of exempt-interest dividends that is a specified
preference item for purposes of the Federal individual and corporate alternative
minimum taxes. Each shareholder of the General Municipal Portfolio will also
receive a report of the percentage and source on a state-by-state basis of
interest income on municipal obligations received by the Portfolio during the
preceding calendar year. Each shareholder of the New York Municipal Portfolio
will receive an annual statement as to the New York State and New York City
personal income tax status of his or her dividends and distributions from such
Portfolio for the prior calendar year and each shareholder of the California
Municipal Portfolio will receive an annual statement as to the California State
personal income tax status of his or her dividends and distributions from such
Portfolio for the prior calendar year. Shareholders should consult their tax
advisors as to any other state and local taxes that may apply to these dividends
and distributions. In the event that a Municipal Portfolio derives taxable net
investment income, it intends to designate as taxable dividends the same
percentage of each day's dividend as its actual taxable net investment income
bears to its total taxable net investment income earned on that day. Therefore,
the percentage of each day's dividend designated as taxable, if any, may vary
from day to day.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to fully report dividend or interest income or fails to certify
that he or she has provided a correct taxpayer identification number and that he
or she is not subject to backup withholding, then the shareholder may be subject
to a 31% "backup withholding tax" with respect to (a) taxable dividends and
distributions, and (b) the proceeds of any redemptions of shares of a Portfolio.
An individual's taxpayer identification number is his or her social security
number. The 31% backup withholding tax is not an additional tax and may be
credited against a taxpayer's regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting each Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Individuals are often exempt from state and
local personal income taxes on distributions of tax-exempt interest income
derived from obligations of issuers located in the state in which they reside
when these distributions are received directly from these issuers, but are
usually subject to such taxes on income derived from obligations of issuers
located in other jurisdictions. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations.
37
<PAGE>
PORTFOLIO YIELD
Yields. Yields on portfolio securities depend on a variety of factors, including
general money market conditions, effective marginal tax rates, the financial
condition of the issuer, general conditions of the fixed-income or tax-exempt
securities market, the size of particular offerings, the maturity of obligations
and the rating of an issue. The ratings of the rating organizations represent
their opinions as to the quality of the securities which they undertake to rate.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity and
interest rate with different ratings may have the same yield. Yield disparities
may occur for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates, due to such factors
as changes in the overall demand or supply of various types of securities or
changes in the investment objectives of investors. Subsequent to purchase, an
issue of Municipal Securities or other investments may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by a
Portfolio. Neither event will require the elimination of an investment by a
Portfolio, but the Advisor will consider such an event in its determination of
whether a Portfolio should continue to hold an investment.
Yield information may be useful to investors in reviewing a Portfolio's
performance. However, a number of factors should be considered before using
yield information as a basis for comparison with other investments. An
investment in any of the Portfolios of the Fund is not insured as is typically
the case with deposits in a bank or savings and loan; yield is not guaranteed
and normally will fluctuate on a daily basis. The yield for any given past
period is not an indication or representation of future yields or rates of
return. Yield is affected by portfolio quality, portfolio maturity, type of
instruments held and operating expenses. When comparing a Portfolio's yield with
that of other investments, investors should understand that certain other
investment alternatives such as money market instruments or bank accounts
provide fixed yields and also that bank accounts may be insured.
From time to time the Fund may advertise yield figures. Reference in
advertisements may be made to ratings and rankings among similar funds by
independent evaluators such as Lipper Analytical Services Inc. and Donoghue's
Money Fund Report, and the performance of the Portfolios may be compared to
recognized indices of market performance.
There are two methods by which the Portfolios' yield for a specified
period of time is calculated.
The first method, which results in an amount referred to as the
"current yield," assumes an account containing exactly one share at the
beginning of the period. The net asset value of this share will be $1.00. The
net change in the value of the account during the period is then determined by
subtracting this beginning value from the value of the account at the end of the
period; however, capital changes (i.e., realized gains and losses from the sale
of securities and unrealized appreciation and depreciation) are excluded from
the calculation. Thus, the dividends used in the yield computation may not be
the same as the dividends actually declared, as the capital changes in question
may be included in the dividends declared; see "Daily Dividends, Other
Distributions, and Taxes" in the Prospectus. Instead, the dividends used in the
yield calculation will be those which would have been declared if the
38
<PAGE>
capital changes had not affected the dividends. This net change in the account
value is then divided by the value of the account at the beginning of the period
and the resulting figure (referred to as the "period base return") is then
annualized by multiplying it by 365 and dividing it by the number of days in the
period; the result is the "current yield." Normally a seven day period will be
used in determining yields (both the current and the effective yield discussed
below) in published or mailed advertisements.
The second method results in an amount referred to as the "effective
yield." This represents an annualization of the current yield with dividends
reinvested daily. This effective yield for a seven day period would be computed
by compounding the unannualized base period return by adding one to the base
period return, raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result.
"Tax equivalent yield" is calculated by dividing the percentage of the
current yield or the effective yield which is not subject to federal income tax
by the reciprocal of the applicable federal tax rate and adding the percentage
of the current or effective yield to the quotient.
TAX EQUIVALENT CURRENT YIELD = T divided by r + R
r = reciprocal of applicable tax rate (1.00 - tax rate = r)
T = % of yield which is tax-exempt
R = % of yield taxable
The "current yield" is calculated for the indicated period according to the
following formula:
CURRENT YIELD = (Base Period Return) x 365 divided by 7
The "effective yield" is calculated for the indicated period according to the
following formula:
EFFECTIVE YIELD = [(Base Period Return + 1) 365 divided by 7 ]-1
Where: Base Period Return is the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account
having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from
shareholder accounts and dividing the difference by the value
of the account at the beginning of the base period.
39
<PAGE>
<TABLE>
<CAPTION>
Yield for Seven Day Period
Portfolio Yield for seven-day period ended 11/30/97
Current Effective
<S> <C> <C>
Primary 4.80% 4.92%
Government 4.61% 4.71%
General Municipal 2.91% 2.96%
California Municipal 2.78% 2.81%
New York Municipal 2.82% 2.86%
</TABLE>
Tax Equivalent Yield -- 30 day period for the
30-day period ended November 30, 1997
<TABLE>
<CAPTION>
Portfolio At Federal Income Tax Rate of 39.6%*
<S> <C>
General Municipal 4.78%
California Municipal 5.00%
New York Municipal 4.94%
</TABLE>
* A portion of the tax-exempt dividends paid by the Portfolios is treated
as a tax preference item for individuals subject to the alternative
minimum tax. For the fiscal year ended November 30, 1997,
approximately 32.6%, 12.0%, and 26.0%, respectively, of distributions
of the General, California and New York Municipal Portfolios were tax
preference items; for the calendar year ended December 31, 1997,
approximately 32.1%, 12.4% and 26.3%, respectively, of distributions
were tax preference items. In addition, certain corporate shareholders
which are subject to the alternative minimum tax may also have to take
remaining distributions by the Portfolios into account in computing the
alternative minimum tax. The tax equivalent yield for the California
Municipal Portfolio is based on an assumed California State tax rate of
9.3%. The tax equivalent yield for the New York Municipal Portfolio is
based on an assumed New York state tax rate of 6.85%; if a shareholder
was a New York City resident, the tax-equivalent yield would have been
5.19%, based on an assumed New York City tax rate of 4.46%.
40
<PAGE>
ADDITIONAL INFORMATION
Description of the Fund. The Fund was formed under the laws of Maryland on April
27, 1989. It is not contemplated that share certificates will be issued or
regular annual meetings of the shareholders will be held. The Fund will provide
without charge to any stockholder, upon request to the Secretary at the
Corporation's principal office, (a) a full statement of the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the shares of each class of stock which the Corporation is
authorized to issue, (b) the differences in the relative rights and preferences
between the shares of each series to the extent they have been set, and (c) the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series.
Possible Additional Portfolio Series. If additional Portfolios are created by
the Board of Directors, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Directors. Expenses not otherwise identified with a
particular Portfolio will be allocated fairly among two or more Portfolios by
the Board of Directors.
Under Rule 18f-2 of the 1940 Act, any matter to be submitted to a vote
of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of directors or the ratification of the selection of
accountants. The Rule contains special provisions for cases in which an advisory
contract is approved by one or more, but not all, series. A change in investment
policy may go into effect as to one or more series whose holders so approve the
change even though the required vote is not obtained as to the holders of other
affected series.
Independent Accountants. Price Waterhouse LLP serves as the independent
accountants of the Fund and of each Portfolio; their services include examining
the annual financial statements of each Portfolio as well as other related
services.
Telephone Redemptions and Exchanges. In the absence of negligence on the part of
the Transfer Agent or gross negligence on the part of the Fund, neither the
Fund, the Transfer Agent nor their affiliates shall be liable for any loss, cost
or expense caused by unauthorized telephone redemption and exchange
instructions.
41
<PAGE>
Appendix
DESCRIPTION OF COMMERCIAL PAPER AND MUNICIPAL BOND AND NOTE RATINGS
Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability of issuers
to repay promissory obligations when due. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1 - Superior Ability for Repayment;
Prime 2 - Strong Ability for Repayment; Prime 3 - Acceptable Ability for
Repayment.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, "A", are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation "A-1" indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. The "A+" designation is applied to those
issues rated "A-1" which possess overwhelming safety characteristics. Capacity
for timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated "A-1."
Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from F-1+ which
represents exceptionally strong credit quality to F-4 which represents weak
credit quality.
Duff & Phelps' short-term ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-term
debt. Emphasis is placed on liquidity. Ratings range from Duff 1+ for the
highest quality to Duff 5 for the lowest, issuers in default. Issues rated Duff
1+ are regarded as having the highest certainty of timely payment. Issues rated
Duff 1 are regarded as having very high certainty of timely payment.
Thomson's BankWatch, Inc. assigns only one Issuer Rating to each
company, based upon a qualitative and quantitative analysis of the consolidated
financials of an issuer and its subsidiaries. The rating incorporates TBW's
opinion of the vulnerability of the company to adverse developments which may
impact the marketability of its securities, as well as the issuer's ability to
repay principal and interest. Ratings range from A for highest quality to E for
the lowest, companies with very serious problems.
A-1
<PAGE>
Bond Ratings
A bond rated "Aaa" by Moody's is judged to be the best quality. They
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin and principal is deemed secure.
While the various protective elements may change, such foreseeable changes are
unlikely to impair the fundamentally strong position of such issues. Bonds which
are rated "Aa" are judged to be of high quality by all standards. Together with
the "Aaa" group they comprise what are generally known as high grade bonds.
Margins of protection on "Aa" bonds may not be as large as on "Aaa" securities
or fluctuations of protective elements may be of greater magnitude or there may
be other elements present which make the long-term risks appear somewhat larger
than "Aaa" securities. Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. Bonds rated "Baa" are considered medium
grade obligations whose interest payments and principal security appear adequate
for the present but lack certain protective elements or may be
characteristically unreliable over any great length of time. Moody's applies
numerical figures "1", "2" and "3" in each generic rating classification from
"Aa" through "B" in its corporate bond rating system. The modifier "1" indicates
that the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking and the modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
Debt rated "AAA" by Standard & Poor's has the highest rating assigned
by it. Capacity to pay interest and repay principal is extremely strong. Debt
rated "AA" has a strong capacity to pay interest and repay principal and differs
from "AAA" issues only in small degree. Debt rated "A" has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated "AAA", the highest rating by Fitch, is considered to be of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Debt rated "AA" is regarded as very high credit quality. The
obligor's ability to pay interest and repay principal is very strong. Debt rated
"A" is of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than debt with higher ratings.
Debt rated "BBB" is of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is adequate, however a change in economic
conditions may adversely affect timely payment. Plus (+) and minus (-) signs are
used with a rating symbol (except AAA) to indicate the relative position within
the category.
A-2
<PAGE>
Debt rated AAA, the highest rating by Duff & Phelps, is considered to
be of the highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt. Debt rated AA is regarded
as high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
Note Ratings
Moody's
MIG 1/VMIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Standard & Poor's
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
Description of Moody's four highest municipal bond ratings
Aaa. Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. They are rated lower than the Aaa bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which made
the long-term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A are judged to be upper medium grade
obligations. Security for principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future.
Baa. Bonds which are rated Baa are considered as medium grade
obligations, i.e.; they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate
A-3
<PAGE>
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Description of S&P's four highest municipal bond ratings
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The AA
rating may be modified by the addition of a plus or minus sign to show relative
standing within the AA rating category.
A. Debt rated A is regarded as safe. This rating differs from the two
higher ratings because, with respect to general obligation bonds, there is some
weakness which, under certain adverse circumstances, might impair the ability of
the issuer to meet debt obligations at some future date. With respect to revenue
bonds, debt service coverage is good but not exceptional and stability of
pledged revenues could show some variations because of increased competition or
economic influences in revenues.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in the A category.
Description of Fitch's four highest municipal bond ratings.
Debt rated "AAA", the highest rating by Fitch, is considered to be of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Debt rated "AA" is regarded as very high credit quality. The
obligor's ability to pay interest and repay principal is very strong. Debt rated
"A" is of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than debt with higher ratings.
Debt rated "BBB" is of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is adequate, however a change in economic
conditions may adversely affect timely payment. Plus (+) and minus (-) signs are
used with a rating symbol (except AAA) to indicate the relative position within
the category.
Description of Moody's highest ratings of state and municipal notes and other
short-term loans
Moody's ratings for state and municipal notes and other short-term
loans are designated "Moody's Investment Grade" ("MIG"). Such ratings recognize
the differences between short-term
A-4
<PAGE>
credit risk and long-term risk. A short-term rating designated VMIG may also be
assigned on an issue having a demand feature. Factors affecting the liquidity of
the borrower and short-term cyclical elements are critical in short-term
borrowing. Symbols used will be as follows:
MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Description of S&P's ratings of state and municipal notes and other short-term
loans
Standard & Poor's tax exempt note ratings are generally given to such
notes that mature in three years or less. The two higher rating categories are
as follows:
SP-1. Very strong or strong capacity to pay principal and interest.
These issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
A-5
<PAGE>
November 30, 1997
SCHEDULES OF INVESTMENTS
PRIMARY PORTFOLIO
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
U.S. Government Agencies--7.0%
$ 25,000 Federal Farm Credit Bank,
5.56%, 5/1/98................. $ 24,997,000
86,000 Federal Home Loan Bank,
5.73%-5.79%,
8/20/98-10/20/98.............. 86,000,000
40,700 Federal Home Loan Mortgage Corp.,
5.49%-5.63%,
12/1/97-12/31/97.............. 40,608,500
------------
Total U.S. Government Agencies
(amortized cost--$151,605,500)........... $151,605,500
------------
Certificates of Deposit--13.8%
$ 75,000 Bank of Nova Scotia,
5.60%-6.10%,
12/29/97-5/27/98.............. $ 75,000,000
25,000 Barclays Bank PLC,
5.65%, 4/16/98............... 24,995,445
75,000 Canadian Imperial Bank of Commerce,
5.58%-5.68%,
12/30/97-2/12/98.............. 75,000,000
25,000 Royal Bank of Canada,
5.58%, 12/11/97............... 24,999,869
75,000 Societe Generale Bank,
5.54%-6.10%,
12/8/97-5/18/98............... 75,000,000
25,000 Swiss Bank Corp.,
5.76%, 3/23/98................ 25,000,763
------------
Total Certificates of Deposit
(amortized cost--$299,996,077)........... $ 299,996,077
------------
Commercial Paper--79.1%
$ 75,000 Abbey National North America,
5.53%-5.55%,
1/14/98-2/25/98............... $ 74,330,597
35,000 ABN-Amro North America Finance Inc.,
5.48%, 2/5/98................. 34,648,367
41,000 Aetna Services Inc.,
5.50%-5.52%,
12/8/97-12/18/97.............. 40,910,277
80,000 American Express Credit Corp.,
5.49%-5.52%,
12/22/97-12/29/97............. 79,705,504
73,000 American Home Products Corp.,
5.51%-5.53%,
12/8/97-12/18/97.............. 72,878,569
70,000 Associates Corporation of
North America,
5.495%-5.53%,
12/8/97-12/15/97.............. 69,881,924
25,700 Banque Nationale de Paris,
5.51%, 12/5/97................ 25,684,266
44,300 British Columbia (Province of),
5.45%-5.51%,
1/6/98-6/30/98................ 43,429,444
69,000 Daimler Benz North America Corp.,
5.53%-5.65%,
2/2/98-5/13/98................ 67,801,164
15,000 Deere (John) Capital Corp.,
5.50%, 12/29/97............... 14,935,833
50,000 Deutsche Bank,
5.50%-5.52%,
12/11/97-12/23/97............. 49,877,472
66,000 Dover Corp.,
5.52%-5.55%,
12/3/97-12/18/97.............. 65,919,592
54,000 Dresdner U.S. Finance Inc.,
5.51%-5.56%,
12/15/97-12/24/97............. 53,843,416
50,000 Eksportfinans A/S,
5.49%-5.53%,
12/11/97-12/17/97............. 49,900,431
50,000 Ford Credit Europe PLC,
5.51%-5.53%,
12/31/97-1/12/98.............. 49,714,617
25,000 Ford Motor Credit Corp.,
5.49%, 12/15/97............... 24,946,625
50,000 General Electric Capital Corp.,
5.55%, 12/22/97............... 49,838,125
25,000 General Electric Capital Services Inc.,
5.50%, 4/6/98................. 24,518,750
75,000 General Motors Acceptance Corp.,
5.58%-5.705%,
2/23/98-4/20/98............... 73,804,536
40,000 Generale Bank,
5.51%, 12/22/97............... 39,871,433
45,000 Household Financial Corp.,
5.48%-5.54%,
12/1/97-12/29/97.............. 44,893,444
50,800 IBM Corp.,
5.52%, 12/2/97-12/4/97........ 50,786,077
32,000 IBM Credit Corp.,
5.52%-5.655%,
12/22/97-11/20/98............. 31,951,700
74,000 Merrill Lynch & Co. Inc.,
5.54%-5.58%,
12/10/97-12/15/97............. 73,859,142
B-1
<PAGE>
- -------------------------------------------------------------------------------
Principal
Amount
(000) Value
- -------------------------------------------------------------------------------
Commercial Paper (cont'd.)
$ 75,000 Morgan (J.P.) & Co. Inc.,
5.51%-5.55%,
12/1/97-12/30/97.............. $ 74,807,875
25,000 NationsBank Corp.,
5.50%, 12/3/97................ 24,992,361
14,000 Novartis Finance Corp.,
5.55%, 12/23/97............... 13,952,517
75,000 Oesterreichische Kontrollbank AG,
5.51%-5.53%,
1/14/98-4/16/98............... 74,141,000
39,624 Penney (J.C.) Funding Corp.,
5.49%-5.55%,
12/11/97-12/30/97............. 39,504,657
39,000 Prudential Funding Corp.,
5.52%, 12/23/97............... 38,868,440
75,000 Sears Roebuck Acceptance Corp.,
5.56%-5.59%,
12/3/97-12/17/97.............. 74,857,767
80,000 Svenska Handelsbanken Inc.,
5.50%-5.56%,
12/9/97-3/2/98................ 79,461,683
25,000 Swedish Export Credit Corp.,
5.48%, 12/16/97............... 24,942,917
25,000 Toronto-Dominion Holdings USA Inc.,
5.60%, 5/26/98................ 24,315,555
25,000 UBS Finance Inc.,
5.55%, 12/17/97.............. 24,938,333
10,000 USAA Capital Corp.,
5.59%, 1/7/98................ 9,942,547
--------------
Total Commercial Paper
(amortized cost--$1,712,656,957)......... $1,712,656,957
--------------
Total Investments
(amortized cost--$2,164,258,534+)....... 99.9% $2,164,258,534
Other Assets in Excess
of Liabilities................ 0.1 2,313,921
----- --------------
Total Net Assets................. 100.0% $2,166,572,455
----- --------------
----- --------------
GOVERNMENT PORTFOLIO
U.S. Government Agencies--99.9%
Federal Farm Credit Bank--10.4%
$ 3,000 5.34%, 12/16/97................. $ 2,993,325
788 5.39%, 12/1/97.................. 788,000
1,630 5.54%, 3/2/98................... 1,629,509
5,000 5.56%, 5/1/98................... 4,999,400
--------------
Total Federal Farm Credit Bank
(amortized cost--$10,410,234)............ $ 10,410,234
--------------
Federal Home Loan Bank--19.0%
$ 6,000 5.36%, 12/31/97................. $ 5,973,200
1,121 5.37%, 6/22/98.................. 1,087,055
2,269 5.39%, 1/14/98.................. 2,254,052
1,683 5.41%, 2/23/98.................. 1,661,755
2,000 5.42%, 4/13/98.................. 1,959,952
2,110 5.42%, 7/30/98.................. 2,033,441
1,000 5.73%, 10/20/98................. 1,000,000
1,000 5.75%, 8/20/98.................. 1,000,000
2,000 5.79%, 10/2/98.................. 2,000,000
--------------
Total Federal Home Loan Bank
(amortized cost--$18,969,455)............ $ 18,969,455
--------------
Federal Home Loan Mortgage Corporation--34.1%
$ 5,000 5.42%, 12/4/97.................. $ 4,997,742
2,000 5.46%, 12/22/97................. 1,993,630
4,000 5.47%, 12/15/97................. 3,991,491
3,600 5.495%, 12/24/97................ 3,587,362
7,099 5.50%, 12/15/97................. 7,083,816
7,000 5.53%, 2/23/98.................. 6,909,677
5,500 5.63%, 12/1/97.................. 5,500,000
--------------
Total Federal Home Loan Mortgage Corporation
(amortized cost--$34,063,718)............ $ 34,063,718
--------------
Federal National Mortgage Association--36.4%
$ 1,500 5.29%, 12/8/97.................. $ 1,498,457
4,000 5.42%, 12/30/97................. 3,982,536
5,000 5.445%, 12/11/97................ 4,992,438
4,180 5.45%, 12/16/97................. 4,170,508
4,000 5.45%, 1/6/98................... 3,978,200
2,840 5.46%, 1/5/98................... 2,824,924
3,000 5.47%, 5/20/98.................. 2,922,508
2,000 5.48%, 2/9/98................... 1,978,689
770 5.49%, 2/5/98................... 762,250
5,000 5.50%, 12/23/97................. 4,983,194
2,000 5.50%, 12/30/97................. 1,991,139
1,080 5.52%, 2/5/98................... 1,069,070
1,300 5.60%, 1/5/98................... 1,292,922
--------------
Total Federal National Mortgage Association
(amortized cost--$36,446,835)............ $ 36,446,835
--------------
Total Investments
(amortized cost--$99,890,242+). 99.9% $ 99,890,242
Other Assets in Excess
of Liabilities................ 0.1 87,977
----- --------------
Total Net Assets................. 100.0% $ 99,978,219
----- --------------
----- --------------
B-2
<PAGE>
November 30, 1997
SCHEDULES OF INVESTMENTS (continued)
GENERAL MUNICIPAL PORTFOLIO
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
Alabama--1.2%
$ 700 Birmingham Baptist Med. Ctr.,
Special Care Facs. FAR,
Senior Living Cmntys. Proj., Ser. A,
3.90%, 12/3/97................ $ 700,000
900 Columbia IDB, PCR,
Alabama Pwr. Co. Proj., Ser. D,
3.85%, 12/1/97................ 900,000
------------
1,600,000
-----------
Alaska--4.1%
3,600 Alaska St. HF Corp.,
Ser. A, VRDN*
(LC; Credit Suisse Bank),
3.95%, 12/3/97................ 3,600,000
2,000 Valdez Marine Term. Rev.,
Arco Trans. Proj., Ser. B, VRDN*
3.95%, 12/3/97................ 2,000,000
------------
5,600,000
------------
Arizona--4.2%
1,000 Arizona Edl. Ln. Mktg. Corp.,
ELR, Ser. A, VRDN*
(LC; Dresdner Bank AG),
3.85%, 12/3/97................ 1,000,000
City of Mesa Mun. Dev.,
Special Tax, Ser. 1996 A,
(LC; West Deutschelandes Bank),
500 3.80%, 12/4/97................ 500,000
1,300 3.90%, 1/2/98................. 1,300,000
2,000 Cochise Cnty. PCR, SWDR,
Arizona Elec. Pwr. Coop. Inc. Proj.,
3.80%, 3/1/98**............... 2,000,000
1,000 Salt River Proj.,
Agric. & Pwr. Dist., Ser. A,
7.875%, 1/1/98 (A)............ 1,023,367
------------
5,823,367
------------
California--2.3%
1,000 California HEL, SLR,
Sr. Lien., Ser. A-1,
VRDN* (LC; SLMA),
4.00%, 7/1/98................. 1,000,000
1,200 Los Angeles Regl. AIR,
American Airlines--LA Int'l.,
Ser. F, VRDN*
(LC; Wachovia Bank of Georgia),
3.85%, 12/1/97................ 1,200,000
1,000 Los Angeles Sch. Dist. Ctfs. Partn.,
Multiple Properties Proj., Ser. A,
(Insd.; AMBAC),
5.30%, 12/1/97................ 1,000,000
------------
3,200,000
------------
Delaware--2.6%
3,600 Delaware St. EDAR, Gas Facs.,
Delmarva Pwr. & Lt. Co. Proj., VRDN*
4.00%, 12/1/97................ 3,600,000
------------
District of Columbia--.8%
1,000 District of Columbia GO,
Ser. B, (Insd.; MBIA),
7.75%, 6/1/98 (A)............. 1,038,518
------------
Florida--1.7%
370 Dade Cnty. Sch. Dist. GO,
(Insd.; MBIA),
4.50%, 2/15/98................ 370,443
600 Florida St. Jacksonville TA,
9.00%, 1/1/98 (A)............. 614,477
1,300 Putnam Cnty. DA, PCR,
Seminole Elec. Co. Proj.,
Ser. H-1, VRDN*
4.05%, 12/3/97................ 1,300,000
------------
2,284,920
------------
Georgia--2.6%
1,000 Burke Cnty. DA, PCR,
Oglethorpe Pwr. Corp.,
Ser. B, VRDN* (Insd.; AMBAC),
3.80%, 5/28/98................ 1,000,000
2,600 Fulco HAR Anticip. Ctfs.,
St. Josephs Hosp. Proj.,
(LC; Trust Company Bank),
3.80%, 12/3/97................ 2,600,000
------------
3,600,000
------------
Hawaii--.7%
1,000 Hawaii St. Secondary Mkt. Svcs. Corp.,
SLR, Ser. II, VRDN*
(LC; National Westminster Bank PLC),
4.00%, 12/3/97................ 1,000,000
------------
Illinois--6.5%
5,200 Chicago O'Hare Int'l. Arpt.,
Ser. B, VRDN*
(LC; Societe Generale Bank),
3.85%, 12/3/97................ 5,200,000
2,000 Illinois Dev. FAR,
WMX Inc.,
(Insd.; MBIA),
4.625%, 2/1/98................ 2,002,497
B-3
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
Illinois (cont'd.)
$ 1,700 Illinois Hlth. FAR,
Hosp. Sisters Svc. Proj.,
Ser. E, VRDN*
(Insd.; MBIA),
3.85%, 12/3/97................ $ 1,700,000
------------
8,902,497
------------
Indiana--4.4%
1,000 City of Indianapolis Gas & Util. Sys.,
3.70%, 12/8/97................ 1,000,000
5,000 Jasper Cnty. PCR,
Northern Indiana Pub. Svc.
Proj., Ser. A,
3.85%, 1/20/98................ 5,000,000
------------
6,000,000
------------
Kentucky--1.6%
200 Boone Cnty. PCR,
Cincinnati Gas & Elec. Co. Proj.,
Ser. A, VRDN*
(LC; Union Bank of Switzerland),
3.75%, 12/1/97................ 200,000
2,000 Kentucky HEL, Student Loan Corp.,
SLR, Ser. E, VRDN*
(Insd.; AMBAC),
3.95%, 12/3/97................ 2,000,000
------------
2,200,000
------------
Maryland--3.4%
1,500 Anne Arundel Cnty., Ser. C,
3.90%, 12/5/97................ 1,500,000
2,500 Anne Arundel Cnty. EDR,
Baltimore Gas & Elec. Co. Proj.,
3.70%, 12/15/97............... 2,500,000
600 Washington Subn. Sanitation Dist.,
Gen. Construction,
7.40%, 12/1/97 (A)............ 612,000
------------
4,612,000
------------
Michigan--.7%
1,000 Michigan Mun. Bd. Auth. Rev., Ser. B,
4.50%, 7/2/98................. 1,003,933
------------
Missouri--.4%
600 Missouri EIERA, PCR,
Union Elec. Co. Proj., Ser. A,
(LC; Swiss Bank Corp.),
3.95%, 6/1/98................. 600,000
------------
Montana--.4%
500 Montana St. Higher Ed.,
Student Assistance Corp. SLR,
4.55%, 12/1/97................ 500,000
------------
Nebraska--2.7%
Nebraska HEL Prog.,
Student Loan Prog., (LC; SLMA),
2,100 Ser. A, VRDN*
3.95%, 12/3/97................ 2,100,000
1,600 Ser. C, VRDN*
3.95%, 12/3/97................ 1,600,000
------------
3,700,000
------------
Nevada--.6%
300 Clark Cnty. AIR,
Sub. Lien, Ser. A-2, VRDN*
(LC; Union Bank of Switzerland),
3.95%, 12/3/97................ 300,000
575 Henderson City GO,
Parks & Rec. Proj., Ser. A,
(Insd.; FGIC),
6.25%, 6/1/98................. 581,565
------------
881,565
------------
New Hampshire--.8%
1,100 New Hampshire St. BFA, PCR,
Pub. Svc. Co. of New Hampshire Proj.,
Ser. D, VRDN*
(LC; Barclays Bank PLC),
4.05%, 12/3/97................ 1,100,000
------------
New Mexico--.5%
665 Santa Fe Gross Receipts, Tax Rev.,
Ser. A, (Insd.; AMBAC),
4.25%, 6/1/98................. 666,206
------------
New York--10.8%
1,500 Babylon IDA, RRR,
Ogden Martin Sys. Babylon Inc., Ser. C,
8.50%, 7/1/98 (A)............. 1,583,461
1,000 Nassau Cnty. BAN's,
Ser. C, dtd. 9/10/97,
4.25%, 3/17/98................ 1,001,432
1,000 Nassau Cnty. RAN's,
Ser. A, dtd. 7/30/97,
4.25%, 3/10/98................ 1,001,057
New York St. DAR,
700 Montefiore Med. Ctr. Proj.,
(Insd.; AMBAC),
4.50%, 8/1/98................. 702,920
300 St. Francis Ctr. at the Knolls, VRDN*
(LC; Banque de Paribas),
4.00%, 12/1/97................ 300,000
New York St. EFC, PCR,
St. Wtr. Revolving Fd., Ser. A,
500 3.35%, 12/15/97............... 499,821
500 4.80%, 6/15/98................ 502,389
B-4
<PAGE>
November 30, 1997
SCHEDULES OF INVESTMENTS (continued)
GENERAL MUNICIPAL PORTFOLIO (cont'd.)
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
New York (cont'd.)
$ 2,000 New York St. ERDA, Gas Facs. Rev.,
Brooklyn Union Gas Proj.,
Ser. A-2, VRDN*
(Insd.; MBIA),
3.80%, 12/3/97................ $ 2,000,000
4,300 New York St. ERDA, PCR,
New York St. Elec. & Gas Proj.,
Ser. C, VRDN*
(LC; Morgan Guaranty Trust),
3.70%, 12/1/97................ 4,300,000
New York St. JDA, St. Gtd.,
1,400 Ser. A1--A13, VRDN*
4.05%, 12/1/97................ 1,400,000
200 Ser. A1--A42, VRDN*
4.05%, 12/1/97................ 200,000
205 Ser. B1--B9, VRDN*
4.05%, 12/1/97................ 205,000
500 New York St. Med. Care Facs., FAR,
Mtg. Hosp., Ser. A,
(Insd.; FHA),
8.30%, 2/15/98 (A)............ 514,235
600 Triborough Brdg. & Tunl. Auth. Spl.
Oblig., Mtg. Recording Tax., Ser. A,
8.00%, 1/1/98 (A)............. 610,993
------------
14,821,308
------------
Ohio--3.5%
1,885 Cincinnati Sch. Dist. TAN's,
Ser. B, dtd. 7/11/96,
(Insd.; AMBAC),
4.75%, 12/1/97................ 1,885,000
200 Hamilton Cnty. Health Sys. Rev.,
Franciscan Sisters Poor Health Proj.,
Ser. A, VRDN*
(LC; Sumitomo Bank Ltd.),
3.95%, 12/1/97................ 200,000
Ohio St. Air Quality DA,
1,000 JMG Fdg. Ltd. Proj.,
Ser. B, VRDN*
(LC; Societe Generale Bank),
3.95%, 12/3/97................ 1,000,000
300 Ohio Edison Proj., Ser. A,
(LC; Toronto-Dominion Bank),
3.95%, 2/1/98................. 300,000
450 Ohio St. Bldg. Auth.,
Correctional Facs., Ser. A,
7.10%, 3/1/98................. 453,642
900 Ohio St. GO,
4.40%, 5/15/98................ 902,570
------------
4,741,212
------------
Pennsylvania--15.1%
7,800 Allegheny Cnty. Arpt. Rev.,
Gtr. Pittsburgh Intl. Arpt.,
Ser. C, (Insd.; MBIA),
8.25%, 1/1/98 (A)............. 7,983,960
1,900 Allegheny Cnty., IDA, PCR,
(LC; Dresdner Bank AG),
3.70%, 12/8/97................ 1,900,000
500 Bethel Park Sch. Dist. GO,
Ser. B, (Insd.; AMBAC),
6.05%, 2/1/98................. 501,729
700 Bethlehem Area Sch. Dist. GO,
Ser. A, (Insd.; AMBAC),
6.25%, 9/1/98................. 711,696
300 Pennsylvania St. GO,
Refunding & Projects, Ser. 2nd,
4.75%, 6/15/98................ 301,088
2,000 Pennsylvania St. HEA, SLR,
Ser. A, VRDN*
(LC; SLMA),
4.00%, 12/3/97................ 2,000,000
2,235 Pennsylvania Tpk. Commission Oil
Franchise Tax Rev.,
Ser. A, (Insd.; AMBAC),
4.60%, 12/1/97................ 2,235,000
1,000 Philadelphia TRAN's,
Ser. A, dtd. 7/2/97,
4.50%, 6/30/98................ 1,002,778
2,000 Venango IDA,
Scrubgrass Proj.,
(LC; National Westminster Bank PLC),
3.80%, 1/5/98................. 2,000,000
2,000 Venango IDA, RRR,
Scrubgrass Proj., Ser. B, VRDN*
(LC; National Westminster Bank PLC),
3.80%, 1/5/98................. 2,000,000
------------
20,636,251
------------
South Carolina--1.9%
1,000 Charleston Cnty. Sch. Dist. GO,
6.15%, 2/1/98................. 1,003,927
B-5
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
South Carolina (cont'd.)
$ 1,500 Greenville HFR,
Ser. B, (Insd.; FGIC),
7.80%, 5/1/98 (A)............. $ 1,554,032
------------
2,557,959
------------
Tennessee--3.6%
2,300 Hamilton Cnty. IDR,
Seaboard Feeds Inc. Proj., VRDN*
(LC; Bank of New York),
4.10%, 12/4/97................ 2,300,000
1,660 Knoxville Wtr. Rev.,
Refunding & Impt., Ser. M,
4.50%, 3/1/98................. 1,662,880
1,000 Metropolitan Nashville Arpt.,
VRDN* (Insd.; FGIC),
3.90%, 12/3/97................ 1,000,000
------------
4,962,880
------------
Texas--13.0%
Brazos HEA,
1,000 Refunding Ser. A-1,
5.30%, 12/1/97................ 1,000,000
1,000 Ser. B-1, VRDN*
(CS; SLMA),
3.90%, 12/3/97................ 1,000,000
2,200 Brazos River Harbor Navigation,
Dist. of Brazoria Cnty.,
3.75%, 1/30/98................ 2,200,000
2,700 City of Houston GO, Ser. A,
3.70%, 12/15/97............... 2,700,000
1,000 Conroe Indpt. Sch. Dist.,
Schoolhouse & Ref. Proj.,
(Insd.; MBIA),
7.00%, 2/1/98................. 1,005,217
400 Garland Indpt. Sch. Dist. GO,
7.00%, 2/15/98................ 402,498
1,000 Gulf Coast IDA,
Marine Term. Rev.,
Amoco Oil Co. Proj.,
3.75%, 12/1/97................ 1,000,000
1,400 Harris Cnty. GO,
4.00%, 10/1/98................ 1,401,806
2,600 Harris Cnty. ID Corp.,
Marine Terminal Rev.,
Lubrizol Corp. Proj., VRDN*
3.85%, 12/3/97................ 2,600,000
Houston Wtr. Sys. Rev.,
830 7.20%, 12/1/97 (A)............ 846,600
500 7.40%, 12/1/97 (A)............ 510,000
1,400 Lower Colorado River Auth. Tex. Rev.,
Jr. Lien, Ser. 3rd Suppl., VRDN*
(Insd.; MBIA),
3.80%, 12/3/97................ 1,400,000
200 San Antonio Elec. & Gas Rev.,
Ser. 1991, (Insd.; FGIC),
6.00%, 2/1/98................. 200,743
510 Texas HEA, EEIR, Ser. B, VRDN*
(Insd.; FGIC),
4.00%, 12/3/97................ 510,000
1,000 Texas St. TRAN's, Ser. A,
dtd. 9/2/97,
4.75%, 8/31/98................ 1,006,549
------------
17,783,413
------------
Utah--2.2%
1,000 Intermountain Pwr. Agy., PSR,
Ser. E, (LC; Swiss Bank Corp.),
3.75%, 3/16/98................ 1,000,000
2,000 Utah St. Brd. Regents SLR,
Ser. L, VRDN*
(Insd.; AMBAC),
4.00%, 12/3/97................ 2,000,000
------------
3,000,000
------------
Virginia--.8%
1,000 Virginia St. Transn. Brd. Contract Rev.,
U.S. Route 58 Corridor Dev. Prog.,
6.80%, 5/15/98 (A)............ 1,032,294
------------
Washington--1.7%
1,025 Seattle City GO, Ser. B,
4.00%, 8/1/98 ................ 1,025,491
300 Tacoma Elec. Sys. Rev.,
(LC; AMBAC),
8.00%, 1/1/98 (A)............. 306,992
Washington St. GO,
500 Ser. B, 5.90%, 6/1/98......... 504,932
500 7.10%, 6/1/98................. 507,751
------------
2,345,166
------------
West Virginia--.7%
1,000 West Virginia Pub. Auth. Rev.,
Morgantown Assoc. Proj.,
(LC; Swiss Bank Corp.),
3.75%, 12/2/97................ 1,000,000
------------
Wisconsin--3.3%
500 Wisconsin HHEFAR,
Childrens Hosp. Wisconsin Proj.,
Ser. B, (Insd.; FGIC),
7.625%, 8/15/98 (A)........... 522,590
B-6
<PAGE>
November 30, 1997
SCHEDULES OF INVESTMENTS (continued)
GENERAL MUNICIPAL PORTFOLIO (cont'd.)
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
Wisconsin (cont'd.)
$ 620 Wisconsin St. GO, Ser. A,
5.00%, 5/1/98................. $ 623,116
3,400 Wisconsin St. HFFAR,
Hosp. Sisters Oblig.,
Ser. G, VRDN* (Insd.; MBIA),
3.85%, 12/3/97................ 3,400,000
--------------
4,545,706
--------------
Total Investments
(amortized cost--$135,339,195+) 98.8% $ 135,339,195
Other Assets in Excess
of Liabilities.............. 1.2 1,632,450
----- --------------
Total Net Assets................. 100.0% $ 136,971,645
----- --------------
----- --------------
CALIFORNIA MUNICIPAL PORTFOLIO
California--96.4%
$ 500 Alameda Contra Costa School FA,
Capital Impts., Ser. B, VRDN*
(LC; Canadian Imperial Bank),
3.60%, 12/4/97................ $ 500,000
320 Alameda County IDA, Indl. Rev.,
Intermountain Trading, VRDN*
(LC; California St. Tchrs. Ret. Fd.),
3.65%, 12/3/97................ 320,000
1,900 Anaheim Ctfs. Partn.,
1993 Ref. Projs., VRDN*
(LC; ABN-Amro Bank),
3.55%, 12/3/97................ 1,900,000
California HFFAR,
2,000 Kaiser Permanente Proj.,
Ser. A, VRDN*
3.65%, 12/3/97................ 2,000,000
2,000 Memorial Hlth. Svcs. Proj., VRDN*
3.65%, 12/3/97................ 2,000,000
890 St. Joseph Health Systems,
Ser. B, VRDN*
3.70%, 12/1/97................ 890,000
100 Sutter Health, Ser. B, VRDN*
(LC; Morgan Guaranty Trust),
3.70%, 12/1/97................ 100,000
California PCFA, PCR,
2,000 Homestake Mining Proj., Ser. '84A,
VRDN* (LC; Bank of Nova Scotia),
3.70%, 12/3/97................ 2,000,000
Pacific Gas & Elec.,
1,000 Ser. A, VRDN*
(LC; Swiss Bank Corp.),
3.80%, 12/3/97................ 1,000,000
1,600 Ser. C, VRDN*
(LC; Kredietbank NV),
3.80%, 12/1/97................ 1,600,000
600 Ser. D, VRDN*
3.90%, 12/3/97................ 600,000
500 Southern California Edison, Ser. C,
3.60%, 1/12/98................ 500,000
2,000 California PCFA, PCR, RRR,
Wadham Energy Proj., Ser. C,
VRDN* (LC; Banque de Paribas),
4.00%, 12/3/97................ 2,000,000
California PCFA, RRR,
100 Atlantic Richfield Co. Proj.,
Ser. A, VRDN*
3.90%, 12/1/97............... 100,000
800 Burney Forest Prods., Ser. A,
VRDN* (LC; Fleet Bank),
3.70%, 12/1/97................ 800,000
200 Ultrapower Rocklin Proj., Ser. B, VRDN*
(LC; Security Pacific National Bank),
3.65%, 12/1/97............... 200,000
500 California PCFA, SWDR,
Shell Oil Co. Martinez Proj.,
Ser. A, VRDN*
3.80%, 12/1/97............... 500,000
California SCD Auth. Rev. Ctfs. Partn.,
1,600 House Ear Institute, VRDN*
(LC; Morgan Guaranty Trust),
3.65%, 12/1/97............... 1,600,000
900 John Muir/Mt. Diablo Hlth.,
VRDN* (Insd.; AMBAC),
3.65%, 12/1/97............... 900,000
California SCD Corp. Rev., ID,
785 Florestone Prod. Proj., VRDN*
(LC; California St. Tchrs. Ret. Fd.),
3.65%, 12/3/97................ 785,000
1,950 South Bay Circuits Proj., VRDN*
(LC; California St. Tchrs. Ret. Fd.),
3.65%, 12/3/97................ 1,950,000
700 Staub Prod. Proj., Ser. A, VRDN*
(LC; California St. Tchrs. Ret. Fd.),
3.65%, 12/3/97................ 700,000
300 Upholstery Prod. Proj., VRDN*
(LC; California St. Tchrs. Ret. Fd.),
3.65%, 12/3/97................ 300,000
B-7
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
$ 1,000 California St. GO,
3.60%, 12/8/97................ $ 1,000,000
1,000 California St. RAN's,
dtd. 9/9/97,
4.50%, 6/30/98................ 1,003,754
1,250 Contra Costa Cnty. TRAN's,
Ser. A, dtd. 7/1/97,
4.50%, 7/1/98................. 1,255,008
770 Industry Urban Dev. Agy.,
Civic Rec. Proj., Ser. 1,
(Insd.; MBIA),
4.75%, 5/1/98................. 772,937
455 Irvine Pub. Facs. & Infrastructure
Auth. Lease Rev.,
Capital Impt. Proj., VRDN*
(LC; National Westminster Bank PLC),
3.55%, 12/4/97................ 455,000
100 Irvine Ranch WD, Ser. A,
VRDN* (LC; Landesbank Hessen),
3.70%, 12/1/97................ 100,000
Los Angeles Cnty. MTA,
Second Subordinate Sales Tax Rev.,
(LC; Bayerische Vereinsbank),
2,000 3.55%, 12/1/97................ 2,000,000
1,245 3.70%, 12/2/97................ 1,245,000
1,500 Los Angeles TRAN's,
dtd. 7/1/97,
4.50%, 6/30/98................ 1,505,485
1,500 Los Angeles Unified Sch. Dist. TRAN's,
dtd. 7/1/97,
4.50%, 7/1/98................. 1,505,586
1,500 Los Angeles Wastewater Sys. Rev.,
3.55%, 12/1/97................ 1,500,000
1,600 Metropolitan WD, Ser. A,
3.50%, 12/1/97................ 1,600,000
1,090 Oakland TRAN's,
dtd. 7/24/97,
4.50%, 6/30/98................ 1,094,481
464 Orange Cnty. Impt. Bd.,
Assmt. Dist. #88-1, VRDN*
(LC; Societe Generale and
Kredietbank NV),
3.70%, 12/1/97................ 464,000
1,500 Orange Cnty. WD Ctfs. Partn.,
Ser. B, VRDN*
(LC; National Westminster Bank PLC),
3.65%, 12/1/97................ 1,500,000
2,000 Riverside Cnty. TRAN's,
Ser. A, dtd. 7/1/97,
4.50%, 6/30/98................ 2,006,110
1,000 Sacramento Cnty. TRAN's,
dtd. 7/1/97,
4.50%, 9/30/98................ 1,005,660
1,000 San Diego Open Space Parking Facs.
Dist. #1 GO,
5.00%, 1/1/98................. 1,000,952
1,965 San Diego Unified Port Dist.,
Subordinate Airport Rev., Ser. A,
3.70%, 1/13/98................ 1,965,000
2,000 San Joaquin Cnty. TRAN's,
dtd. 10/15/96,
4.50%, 1/15/98................ 2,001,698
600 Santa Ana HFR,
Multi Modal-Town & Country Proj.,
VRDN* (LC; Banque Nationale de Paris),
3.65%, 12/1/97................ 600,000
1,200 Santa Clara Cnty. FAR,
VMC Fac. Replacement Proj., Ser. B,
VRDN* (LC; Union Bank of Switzerland),
3.65%, 12/3/97................ 1,200,000
872 Santa Clara Cnty. El Camino Dist. Hosp.
FAR, Lease--VY Med. Ctr. Proj.,
Ser. A, VRDN*
(LC; National Westminster Bank PLC),
3.70%, 12/2/97................ 872,000
1,000 South Coast Local Education Agencies
TRAN's, dtd. 7/1/97 (Insd.; MBIA),
4.50%, 6/30/98................ 1,003,895
300 Stockton Multifamily Housing Rev.,
Mariners Pointe Assoc., Ser. A, VRDN*
(LC; Bank of America),
3.65%, 12/3/97................ 300,000
1,500 Turlock Irrigation Dist. Rev.,
Ser. A, (Insd.; MBIA),
4.00%, 1/1/98................. 1,500,550
--------------
53,702,116
--------------
Puerto Rico--1.4%
500 Puerto Rico Commonwealth,
Aqueduct & Swr. Auth. Rev., Ser. A,
7.00%, 7/1/98 (A)............. 518,852
250 Puerto Rico Elec. PAR, Ser. M,
8.00%, 7/1/98 (A)............. 260,740
--------------
779,592
--------------
Total Investments
(amortized cost--$54,481,708+) 97.8% $ 54,481,708
Other Assets in Excess
of Liabilities................ 2.2 1,231,625
----- --------------
Total Net Assets................. 100.0% $ 55,713,333
----- --------------
----- --------------
B-8
<PAGE>
November 30, 1997
SCHEDULES OF INVESTMENTS (continued)
NEW YORK MUNICIPAL PORTFOLIO
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
New York--95.2%
Babylon IDA, RRR,
$ 100 OFS Equity Babylon Proj., VRDN*
(LC; Union Bank of Switzerland),
3.85%, 12/1/97................ $ 100,000
1,450 Ogden Martin Sys. Babylon Inc., Ser. C,
8.50%, 7/1/98 (A)............. 1,530,679
500 MTA, Svc. Contract,
Commuter Facs., Ser. K,
(Insd.; AMBAC),
7.50%, 7/1/98 (A)............. 519,919
1,000 Nassau Cnty. BAN's,
Ser. C, dtd. 9/10/97,
4.25%, 3/17/98 ............... 1,001,432
1,000 Nassau Cnty. RAN's,
Ser. B, dtd. 7/30/97,
4.50%, 4/10/98 ............... 1,002,247
New York City GO,
2,200 Ser. B-Sub. Ser. B6, VRDN*
(Insd.; MBIA),
3.85%, 12/1/97................ 2,200,000
2,000 Sub. Ser. H2,
3.70%, 12/15/97............... 2,000,000
800 New York City Housing Dev. Corp. Mtg.
Rev. Multifam. 400 West 59th St., Ser. A2,
VRDN* (LC; Bayerische Hypotheken),
3.90%, 12/3/97................ 800,000
500 New York City IDA, CFR,
Childrens Oncology Soc. Proj.,
VRDN* (LC; Barclays Bank PLC),
3.75%, 12/3/97................ 500,000
New York City IDA, IDR,
2,500 Brooklyn Navy Yard, Cogen Proj.,
Ser. A, VRDN*
(LC; Bank of America),
4.00%, 12/3/97................ 2,500,000
1,000 JFK Field Hotel Assoc. Proj.,
VRDN* (LC; Banque Indosuez),
3.80%, 12/3/97................ 1,000,000
1,000 La Guardia Arpt. Assoc. Proj.,
VRDN* (LC; Banque Indosuez),
3.80%, 12/3/97................ 1,000,000
2,000 New York City Mun. Asst. Corp., Ser. E,
4.10%, 7/1/98 ................ 2,003,041
New York City MWFA,
(LC; Canadian Imperial Bank),
2,100 3.70%, 12/5/97................ 2,100,000
2,000 3.80%, 2/8/98................. 2,000,000
1,000 New York City RAN's,
Ser. A, dtd. 10/15/97,
4.50%, 6/30/98 ............... 1,003,664
New York City Trust CRR,
2,000 Carnegie Hall Proj.,VRDN*
(LC; Westdeutsche Landesbank),
4.10%, 12/3/97................ 2,000,000
1,700 Museum of Broadcasting Proj.,
VRDN* (LC; Kredietbank NV),
3.85%, 12/3/97................ 1,700,000
New York St. DAR,
Memorial Sloan-Kettering Cancer
Center, (LC; Chemical Bank),
1,500 Ser. 1989 A,
3.70%, 12/3/97................ 1,500,000
1,000 Ser. 1989 B,
3.70%, 12/4/97................ 1,000,000
Ser. 1989 C,
1,500 3.65%, 12/8/97................ 1,500,000
2,000 3.70%, 12/1/97................ 2,000,000
3,000 Ser. 1996,
3.60%, 2/2/98................. 3,000,000
1,515 Metropolitan Museum of Art Proj.,
Ser. B, VRDN* (Insd.; MBIA),
3.80%, 12/3/97................ 1,515,000
505 Miriam Osborn Memorial Home Proj.,
Ser. A, VRDN*
(LC; Banque de Paribas),
3.80%, 12/3/97................ 505,000
3,500 St. Francis Ctr. at the Knolls,
VRDN* (LC; Banque de Paribas),
4.00%, 12/1/97................ 3,500,000
New York St. EFC,
Ser. 1987A,
1,000 3.60%, 12/1/97................ 1,000,000
1,500 3.75%, 12/3/97................ 1,500,000
New York St. EFC, PCR,
St. Wtr. Revolving Fd.,
450 Ser. B, 3.55%, 2/15/98........ 449,706
400 Ser. E, 5.90%, 6/15/98........ 404,236
1,600 New York St. ERDA, Gas Facs. Rev.,
Brooklyn Union Gas Proj.,
Ser. A2, VRDN*
3.80%, 12/3/97................ 1,600,000
New York St. ERDA, PCR,
New York St. Elec. & Gas Proj.,
(LC; Union Bank Of Switzerland),
2,000 Ser. B,
3.80%, 10/15/98**............. 2,000,000
1,300 Ser. D, VRDN*
3.70%, 12/1/97................ 1,300,000
B-9
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount
(000) Value
- --------------------------------------------------------------------------------
$ 1,300 Rochester Gas & Elec. Co. Proj.,
Ser. A, VRDN* (Insd.; MBIA),
(LC; Credit Suisse),
3.85%, 12/3/97 ............ $ 1,300,000
New York St. JDA, St. Gtd.,
800 Ser. A1-A42, VRDN*
4.05%, 12/1/97................ 800,000
100 Ser. B1-B9, VRDN*
4.05%, 12/1/97................ 100,000
1,400 Ser. B1-B21, VRDN*
4.05%, 12/1/97................ 1,400,000
2,000 New York St. LGAC,
Ser. E, VRDN*
(LC; Canadian Imperial Bank),
3.80%, 12/3/97................ 2,000,000
New York St. Med. Care Facs., FAR,
300 7.625%, 2/15/98 (A)........... 308,160
485 7.875%, 8/15/98 (A)........... 507,854
1,350 Hosp. & Nurs. Home, Mtg. Hosp.,
Ser. B, (Insd.; FHA),
8.10%, 2/15/98 (A)............ 1,388,492
1,000 New York St. PA,
Ser. V, (Insd.; MBIA),
7.875%, 1/1/98 (A)............ 1,023,358
3,000 New York St. PAR,
3.75%, 3/1/98**............... 3,000,000
511 Niagra Cnty. IDA, IDR,
Pyron Corp. Proj.,
VRDN* (LC; Chase Manhattan Bank),
3.90%, 12/3/97................ 510,500
3,075 Port Auth. of New York & New Jersey,
3.65%, 12/2/97................ 3,075,000
400 Rochester GO,
Ser. A, (Insd.; AMBAC),
4.25%, 9/15/98 ............... 401,148
1,000 St. Lawrence Cnty. IDA, EIR,
Reynolds Metals Co. Proj.,
VRDN* (LC; Royal Bank of Canada),
3.90%, 12/3/97................ 1,000,000
1,000 Sachem Central School Dist.
Holbrook TAN's, dtd. 7/10/97,
(CS.; St. Aid Withholding),
4.25%, 6/25/98 ............... 1,002,119
425 Southampton GO,
(Insd.; FGIC),
6.95%, 6/1/98................. 431,473
1,000 Suffolk Cnty. IDA, IDR,
Nissequogue Cogen Ptnrs. Proj.,
VRDN* (LC; Toronto-Dominion Bank),
3.85%, 12/3/97................ 1,000,000
1,000 Suffolk Cnty. Wtr. Auth. BAN's,
VRDN* dtd. 12/21/94,
3.80%, 12/3/97................ 1,000,000
Triborough Brdg. & Tunl. Auth. Rev.,
325 Ser. A, 5.90%, 1/1/98......... 325,519
200 Ser. M, 6.65%, 1/1/98......... 200,435
425 Wallkill GO, (Insd.; FGIC),
4.25%, 3/1/98................. 425,442
450 Wallkill IDA, PCR,
Reynolds Metals Co. Proj.,
VRDN* (LC; Dresdner Bank AG),
4.10%, 12/3/97................ 450,000
350 Yonkers GO,
Ser. C, (Insd.; FGIC),
5.50%, 8/1/98................. 353,732
-------------
69,738,156
-------------
Puerto Rico--4.1%
Puerto Rico Gov't. Dev. Bank,
2,000 3.75%, 12/2/97................ 2,000,000
1,000 3.75%, 12/3/97................ 1,000,000
-------------
3,000,000
-------------
Total Investments
(amortized cost--$72,738,156+) 99.3% $ 72,738,156
Other Assets in Excess
of Liabilities.............. 0.7 500,560
----- -------------
Total Net Assets................. 100.0% $ 73,238,716
----- -------------
----- -------------
- -------------------------------------------------------------------------------
+ Federal income tax cost basis of portfolio securities is the same as for
financial reporting purposes.
* Variable Rate Demand Notes (VRDN) are instruments whose interest rates
change on a specified date (such as a coupon date or interest payment date)
and/or whose interest rates vary with changes in a designated base rate
(such as the prime interest rate). Maturity date shown is date of next rate
change.
** These issues carry an optional put feature. Date shown is the exercise date
of the put.
(A) Pre-refunded to the date shown. Collateralized by U.S. Government
securities and cash which are held in escrow and are used to pay principal
and interest and to retire the bonds in full at the earliest refunding
date.
See page 22 for "General Abbreviations" utilized within the Schedules of
Investments.
See accompanying notes to financial statements.
B-10
<PAGE>
November 30, 1997
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
General California New York
Primary Government Municipal Municipal Municipal
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets
Investments, at value
(amortized cost--
$2,164,258,534, $99,890,242,
$135,339,195, $54,481,708 and
$72,738,156, respectively)..... $2,164,258,534 $ 99,890,242 $ 135,339,195 $ 54,481,708 $ 72,738,156
Cash............................. 214,177 168,460 152,454 705,231 516,261
Receivable for investments sold.. -- -- -- 800,000 --
Receivable for capital stock sold 45,502 7,606 175,000 -- 8,864
Interest receivable.............. 5,667,303 87,127 1,477,995 404,551 502,329
Prepaid expenses and other assets 48,498 9,029 10,274 1,710 890
-------------- ------------- -------------- ------------- -------------
Total Assets..................... 2,170,234,014 100,162,464 137,154,918 56,393,200 73,766,500
-------------- ------------- -------------- ------------- -------------
Liabilities
Payable for investments purchased -- -- -- 601,531 414,898
Payable for capital stock redeemed -- 4,482 10,726 -- 10,413
Investment advisory fee payable.. 121,771 6,899 8,979 3,832 5,166
Distribution fee payable......... 74,395 3,452 4,608 1,916 2,586
Shareholder services fee payable. 104,412 4,930 7,337 3,105 4,080
Administrative services fee
payable........................ 86,553 3,892 5,737 2,796 2,687
Dividends payable................ 2,859,350 127,695 109,306 42,997 60,558
Other payables and accrued
expenses....................... 415,078 32,895 36,580 23,690 27,396
-------------- ------------- -------------- ------------- -------------
Total Liabilities................ 3,661,559 184,245 183,273 679,867 527,784
-------------- ------------- -------------- ------------- -------------
Total Net Assets................. $2,166,572,455 $ 99,978,219 $ 136,971,645 $ 55,713,333 $ 73,238,716
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
Composition of Net Assets
Par value ($.0001 per share,
10 billion shares authorized
for each portfolio)............ $ 216,661 $ 10,000 $ 13,706 $ 5,574 $ 7,326
Paid-in-capital in excess of par. 2,166,356,899 99,968,482 137,038,203 55,739,206 73,255,985
Accumulated net realized
loss on investments............ (1,105) (263) (80,264) (31,447) (24,595)
Total Net Assets................. $2,166,572,455 $ 99,978,219 $ 136,971,645 $ 55,713,333 $ 73,238,716
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
Shares outstanding............... 2,166,612,730 100,000,675 137,064,901 55,744,781 73,263,311
-------------- ------------- -------------- ------------- -------------
Net asset value per share........ $1.00 $1.00 $1.00 $1.00 $1.00
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
B-11
<PAGE>
Year ended November 30, 1997
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
General California New York
Primary Government Municipal Municipal Municipal
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income
Interest......................... $107,789,191 $ 5,430,780 $ 4,931,229 $ 2,031,608 $ 2,329,382
-------------- ------------- -------------- ------------- -------------
Operating Expenses
Investment advisory fee (note 2a) 7,907,076 493,349 656,681 287,248 323,434
Distribution fee (note 2b)....... 4,816,923 247,276 337,045 143,624 161,717
Transfer and dividend
disbursing agent fees.......... 1,559,860 50,454 55,206 17,021 36,735
Administrative services fee
(note 2c)...................... 948,426 47,390 66,227 29,022 30,395
Shareholder services fee
(note 2d)...................... 394,086 21,989 28,458 11,515 16,198
Registration fees................ 212,077 35,096 60,298 1,843 1,425
Custodian fees (note 1g)......... 158,614 37,196 39,595 15,079 15,325
Reports and notices to
shareholders................... 138,985 3,459 4,929 1,359 1,359
Audit fees....................... 38,740 15,065 15,065 15,065 15,065
Directors' fees and expenses..... 32,758 25,563 25,590 25,537 25,541
Legal fees....................... 6,330 136 204 68 68
Miscellaneous.................... 90,492 4,433 5,470 2,068 4,422
-------------- ------------- -------------- ------------- -------------
Total operating expenses....... 16,304,367 981,406 1,294,768 549,449 631,684
Less: Investment advisory fee
waived (note 2a)............. -- (7,876) (2,257) (31,822) (954)
Less: Expenses offset
(note 1g).................... (3,782) (2,472) (3,764) (3,231) (2,482)
-------------- ------------- -------------- ------------- -------------
Net operating expenses......... 16,300,585 971,058 1,288,747 514,396 628,248
-------------- ------------- -------------- ------------- -------------
Net investment income........ 91,488,606 4,459,722 3,642,482 1,517,212 1,701,134
Net realized loss on investments. (1,017) (125) (1,853) (593) (794)
-------------- ------------- -------------- ------------- -------------
Net increase in net assets
resulting from operations........ $ 91,487,589 $ 4,459,597 $ 3,640,629 $ 1,516,619 $ 1,700,340
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
B-12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Primary Portfolio Government Portfolio
Year ended November 30, Year ended November 30,
----------------------- -----------------------
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Operations
Net investment income......... $ 91,488,606 $ 77,918,405 $ 4,459,722 $ 4,627,291
Net realized gain (loss)
on investments.............. (1,017) (88) (125) (138)
-------------- -------------- -------------- -------------
Net increase in net assets
resulting from operations 91,487,589 77,918,317 4,459,597 4,627,153
-------------- -------------- -------------- -------------
Dividends and Distributions
to Shareholders
Net investment income......... (91,488,606) (77,918,405) (4,459,722) (4,627,291)
Net realized gains............ -- (68) -- (700)
-------------- -------------- -------------- -------------
Total dividends and
distributions to shareholders (91,488,606) (77,918,473) (4,459,722) (4,627,991)
-------------- -------------- -------------- -------------
Capital Stock Transactions
Net proceeds from sales....... 13,181,820,880 9,931,873,061 654,106,085 547,203,168
Reinvestment of dividends
and distributions........... 90,685,550 75,659,105 4,444,709 4,601,454
Cost of shares redeemed....... (12,818,513,719) (9,966,080,610) (659,707,954) (559,243,310)
-------------- -------------- -------------- -------------
Net increase (decrease) in
net assets from capital
stock transactions......... 453,992,711 41,451,556 (1,157,160) (7,438,688)
-------------- -------------- -------------- -------------
Total increase (decrease) in
net assets.................. 453,991,694 41,451,400 (1,157,285) (7,439,526)
Net Assets
Beginning of year............. 1,712,580,761 1,671,129,361 101,135,504 108,575,030
-------------- -------------- -------------- -------------
End of year................... $2,166,572,455 $1,712,580,761 $ 99,978,219 $ 101,135,504
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
General Municipal California Municipal
Portfolio Portfolio
Year ended November 30, Year ended November 30,
----------------------- -----------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations
Net investment income......... $ 3,642,482 $ 3,300,025 $ 1,517,212 $ 1,498,467
Net realized gain (loss)
on investments.............. (1,853) 1,357 (593) (9,304)
-------------- -------------- -------------- --------------
Net increase in net assets
resulting from operations 3,640,629 3,301,382 1,516,619 1,489,163
-------------- -------------- -------------- --------------
Dividends and Distributions
to Shareholders
Net investment income......... (3,642,482) (3,300,025) (1,517,212) (1,498,467)
Net realized gains............ -- -- -- --
-------------- -------------- -------------- --------------
Total dividends and
distributions to shareholders (3,642,482) (3,300,025) (1,517,212) (1,498,467)
-------------- -------------- -------------- --------------
Capital Stock Transactions
Net proceeds from sales....... 910,670,497 718,878,788 389,323,623 276,344,120
Reinvestment of dividends
and distributions........... 3,612,892 3,249,617 1,513,811 1,512,475
Cost of shares redeemed....... (899,591,683) (715,812,543) (388,484,165) (300,398,721)
-------------- -------------- -------------- --------------
Net increase (decrease) in
net assets from capital
stock transactions......... 14,691,706 6,315,862 2,353,269 (22,542,126)
-------------- -------------- -------------- --------------
Total increase (decrease) in
net assets.................. 14,689,853 6,317,219 2,352,676 (22,551,430)
Net Assets
Beginning of year............. 122,281,792 115,964,573 53,360,657 75,912,087
-------------- -------------- -------------- --------------
End of year................... $ 136,971,645 $ 122,281,792 $ 55,713,333 $ 53,360,657
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
New York Muncipal Portfolio
Year ended November 30,
---------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Operations
Net investment income......... $ 1,701,134 $ 1,537,093
Net realized gain (loss)
on investments.............. (794) --
-------------- --------------
Net increase in net assets
resulting from operations 1,700,340 1,537,093
-------------- --------------
Dividends and Distributions
to Shareholders
Net investment income......... (1,701,134) (1,537,093)
Net realized gains............ -- --
-------------- --------------
Total dividends and
distributions to shareholders (1,701,134) (1,537,093)
-------------- --------------
Capital Stock Transactions
Net proceeds from sales....... 452,234,876 317,110,184
Reinvestment of dividends
and distributions........... 1,646,954 1,470,312
Cost of shares redeemed....... (440,638,442) (310,927,499)
-------------- --------------
Net increase (decrease) in
net assets from capital
stock transactions......... 13,243,388 7,652,997
-------------- -------------
Total increase (decrease) in
net assets.................. 13,242,594 7,652,997
Net Assets
Beginning of year............. 59,996,122 52,343,125
-------------- -------------
End of year................... $ 73,238,716 $ 59,996,122
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
B-14
<PAGE>
November 30, 1997
Notes to Financial Statements
1. Organization and Significant Accounting Policies
OCC Cash Reserves (the "Fund") is registered under the Investment
Company Act of 1940 as an open-end management investment company. The Fund has
five portfolios: the Primary Portfolio ("Primary"), the Government Portfolio
("Government"), the General Municipal Portfolio ("General"), the California
Municipal Portfolio ("California") and the New York Municipal Portfolio ("New
York"). Each Portfolio is considered to be a separate entity for financial
reporting and tax purposes.
On October 14, 1997, the shareholders of the Fund approved a new
investment advisory agreement with OpCap Advisors (the "Adviser"). This
agreement was substantially similar to the existing agreement and became
effective on November 5, 1997. On November 4, 1997, PIMCO Advisors L.P. and
its affiliates, acquired the one-third managing general partner interest in
Oppenheimer Capital, whose subsidiary, OpCap Advisors, serves as the Adviser
to the Fund. On December 1, 1997, PIMCO Advisors L.P., completed the
acquisition of Oppenheimer Capital by acquiring the two-thirds interest owned
by Oppenheimer Capital, L.P.
On November 3, 1997, CIBC Wood Gundy Securities Corp. acquired the business
of Oppenheimer & Co., Inc., which is now called CIBC Oppenheimer Corp.
Accordingly, CIBC Oppenheimer Corp. is no longer affiliated with OpCap Advisors
or the Fund.
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements:
(a) Valuation of Investments
Each Portfolio values its investments on the basis of amortized cost
which approximates market value. The amortized cost method involves valuing a
security at cost on the date of purchase and thereafter assuming a constant
dollar amortization to maturity of the difference between the principal amount
due at maturity and the initial cost of the security.
(b) Federal Income Taxes
Each Portfolio intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distributes
substantially all of its taxable and non-taxable income to its shareholders;
accordingly, no Federal income tax provision is required.
(c) Securities Transactions and Other Income
Securities transactions are accounted for on the trade date. Cost of
securities sold is determined on the basis of identified cost. Interest income
is accrued as earned. Premiums are amortized and discounts are accreted to
interest income over the lives of the respective securities.
(d) Dividends and Distributions
Dividends from net investment income are declared daily and paid monthly
by each Portfolio. Distributions of net realized short-term capital gains, if
any, are declared and paid at least annually by each Portfolio.
(e) Repurchase Agreements
Each Portfolio may enter into repurchase agreements as part of its
investment program. The Portfolios' custodian takes possession of the
collateral pledged by the counterparty. The collateral is marked-to-market
daily to ensure that the value, plus accrued interest, is at least equal to
the repurchase price. In the event of default of the obligor to repurchase,
the Portfolio has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the counterparty to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
(f) Expense Allocations
Expenses specifically identifiable to a particular Portfolio are borne
by that Portfolio. Other expenses are allocated to each Portfolio based on its
net assets in relation to the total net assets of all applicable Portfolios or
on another reasonable basis.
(g) Expenses Offset
The Fund benefits from an expense offset arrangement with its custodian
bank where uninvested cash balances earn credits that reduce monthly expenses.
Had these cash balances been invested in income producing securities, they
would have generated income for the Fund.
B-15
<PAGE>
2. Investment Advisory Fee, Distribution Fee, Shareholder Services Fee
and Other Transactions with Affiliates
(a) Under the Investment Advisory Agreement, each Portfolio pays the
Adviser a monthly investment advisory fee at the annual rate of .50% on the
first $100 million of average daily net assets, .45% on the next $200 million
of average daily net assets, and .40% on average daily net assets in excess of
$300 million. The Adviser has voluntarily agreed to reimburse a Portfolio to
the extent that the total operating expenses of the Portfolio exceeds 1.00% of
its average daily net assets (net of expenses offset) for any fiscal year. For
the year ended November 30, 1997, the Adviser waived $7,876, $2,257, $31,822
and $954 in investment advisory fees for Government, General, California and
New York, respectively.
(b) The Fund has adopted a Distribution Assistance Plan (the "Plan")
pursuant to which each Portfolio pays the Adviser a monthly fee at an annual
rate of .25% of its average daily net assets and the Adviser uses such amounts
in their entirety for (i) payments to broker-dealers, banks and other
financial intermediaries for their distribution assistance provided to the
Portfolio and (ii) otherwise promoting the sale of shares of the Fund. The
Fund has been informed that for the year ended November 30, 1997,
substantially all fees under the Plan were paid to CIBC Oppenheimer Corp.
(c) Each Portfolio may pay certain broker-dealers including CIBC
Oppenheimer Corp. for performing certain administrative services on
shareholder accounts. Such payments are limited to .05% of the average daily
net assets of each respective broker-dealer. For the year ended November 30,
1997, payments to CIBC Oppenheimer Corp. for such services were: Primary
$932,558; Government $45,961; General $64,518; California $28,528 and New York
$28,071.
(d) Each Portfolio reimburses CIBC Oppenheimer Corp. for a portion of
its costs in providing shareholder servicing. Such payments are limited to
.02% of the average daily net assets of CIBC Oppenheimer Corp.'s shareholder
accounts. For the year ended November 30, 1997, amounts paid and/or accrued
were: Primary $372,639; Government $18,205; General $25,734; California
$11,463 and New York $11,004.
3. Purchases and Sales of Securities
For the year ended November 30, 1997, purchases and sales/maturities of
investment securities were: Primary $18,117,276,643 and $17,748,805,033,
respectively; Government $3,337,460,684 and $3,343,004,726, respectively;
General $648,347,996 and $632,486,565, respectively; California $293,751,122
and $291,248,585, respectively; and New York $335,849,203 and $320,496,666,
respectively.
4. Financial Instruments and Associated Risks
Each Portfolio invests in issues with a remaining maturity of thirteen
months or less and are rated high quality by a nationally recognized
statistical rating organization or, if not rated, are judged by the Adviser to
be of comparable quality. Primary maintains portfolio diversification to
reduce investment risk by not investing more than 25% of its total assets in
securities of issuers conducting their principal business activities in any
one industry, except that under normal circumstances at least 25% of its total
assets will be invested in bank obligations. At November 30, 1997, major
industry concentrations were as follows: Banking--37.3%, Automotive--10.0%,
Finance--9.0%, Pharmacy--7.5% and U.S. Government Agencies--7.0%. Government's
portfolio is concentrated in issues of, or guaranteed by, the U.S. Government
and/or its agencies and is diversified with respect to its investments in
repurchase agreements. General maintains a diversified portfolio of short-term
obligations issued by states, territories and possessions of the United States
and by the District of Columbia and by their political subdivisions and duly
constituted authorities. California and New York maintain non-diversified
portfolios of short-term obligations issued by the States of California and
New York, respectively, and their political subdivisions. Issuers' abilities
to meet their obligations may be affected by economic and political
developments in a specific state, region or industry. Certain short-term debt
obligations held by the Portfolios may be entitled to the benefit of standby
letters of credit or other guarantees of banks or other financial
institutions.
(5) Capital Loss Carryforward
At November 30, 1997, accumulated net realized capital loss
carryforwards available as a reduction against future net realized capital
gains for Federal income tax purposes were: Primary--$1,105 of which $88 will
expire in 2004 and $1,017 will expire in 2005; Government--$263 of which $138
will expire in 2004 and $125 will expire in 2005; General--$80,264 of which
$29,512 will expire in 1998, $1,302 will expire in 1999, $13,801 will expire
in 2000, $299 will expire in 2001, $33,497 will expire in 2003 and $1,853 will
expire in 2005. General had $12,327 in capital loss carryforwards expire on
November 30, 1997. Such amount has been reclassed to additional paid-in
capital to reflect General's federal tax cost basis of available accumulated
realized capital loss carryforwards. California--$31,447 of which $730 will
expire in 1999, $5,856 will expire in 2000, $1,137 will expire in 2001,
$13,827 will expire 2003, $9,304 will expire in 2004 and $593 will expire in
2005 and New York--$24,595 of which $3,198 will expire in 2000, $934 will
expire in 2001, $19,669 will expire in 2003 and $794 will expire in 2005. To
the extent that these capital loss carryforwards are used to offset future net
realized capital gains, the gains offset will not be distributed to
shareholders.
B-16
<PAGE>
Financial Highlights (For a share outstanding throughout each year)
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS
INVESTMENT OPERATIONS AND DISTRIBUTIONS
-------------------------------------- ---------------------------------------------
Dividends to Distributions Total Net
Net Asset Net Total Shareholders to Shareholders Dividend and Asset
Value, Net Realized Income from from Net from Net Distributions Value,
Beginning Investment Gain/(Loss)on Investment Investment Realized to End
of Year Income Investments Operations Income Gains Shareholders of Year
--------- ---------- ------------- ----------- ------------ --------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Primary Portfolio
- -----------------
Year ended Nov. 30, 1997 $1.000 $0.047 ($0.000) 0.047 ($0.047) -- ($0.047) $1.000
Year ended Nov. 30, 1996 1.000 0.046 (0.000) 0.046 (0.046) ($0.000) (0.046) 1.000
Year ended Nov. 30, 1995 1.000 0.051 0.000 0.051 (0.051) (0.000) (0.051) 1.000
Year ended Nov. 30, 1994 1.000 0.032 0.000 0.032 (0.032) (0.000) (0.032) 1.000
Year ended Nov. 30, 1993 1.000 0.024 0.000 0.024 (0.024) (0.000) (0.024) 1.000
<CAPTION>
RATIOS TO
AVERAGE
NET ASSETS
-------------------------
Net Assets,
End of Net Net
Total Year Operating Investment
Return* (millions) Expenses Income
------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Year ended Nov. 30, 1997 4.85% $2,166.6 0.85%(1,2) 4.75%(1)
Year ended Nov. 30, 1996 4.69% 1,712.6 0.91%(2) 4.60%
Year ended Nov. 30, 1995 5.19% 1,671.1 0.94% 5.07%
Year ended Nov. 30, 1994 3.26% 1,453.8 0.91% 3.21%
Year ended Nov. 30, 1993 2.44% 1,413.9 0.90% 2.41%
</TABLE>
(1) Average net assets for the year ended November 30, 1997 were $1,926,769,081.
(2) Gross of expenses offset (see note 1g in Notes to Financial Statements).
The net ratios of operating expenses to average net assets were 0.85% and
0.91% for the years ended November 30, 1997 and November 30, 1996,
respectively.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS
INVESTMENT OPERATIONS AND DISTRIBUTIONS
-------------------------------------- ---------------------------------------------
Dividends to Distributions Total Net
Net Asset Net Total Shareholders to Shareholders Dividend and Asset
Value, Net Realized Income from from Net from Net Distributions Value,
Beginning Investment Gain/(Loss)on Investment Investment Realized to End
of Year Income Investments Operations Income Gains Shareholders of Year
--------- ---------- ------------- ----------- ------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government Portfolio
- --------------------
Year ended Nov. 30, 1997 $1.000 $0.045 ($0.000) $0.045 ($0.045) -- ($0.045) $1.000
Year ended Nov. 30, 1996 1.000 0.044 (0.000) 0.044 (0.044) ($0.000) (0.044) 1.000
Year ended Nov. 30, 1995 1.000 0.049 0.000 0.049 (0.049) (0.000) (0.049) 1.000
Year ended Nov. 30, 1994 1.000 0.031 0.000 0.031 (0.031) -- (0.031) 1.000
Year ended Nov. 30, 1993 1.000 0.022 -- 0.022 (0.022) -- (0.022) 1.000
<CAPTION>
RATIOS TO
AVERAGE
NET ASSETS
-----------------------
Net Assets,
End of Net Net
Total Year Operating Investment
Return* (millions) Expenses Income
------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Year ended Nov. 30, 1997 4.60% $100.0 0.98%(1,2) 4.51%(1,2)
Year ended Nov. 30, 1996 4.51% 101.1 1.00%(1) 4.41%(1)
Year ended Nov. 30, 1995 5.02% 108.6 1.00%(1) 4.91%(1)
Year ended Nov. 30, 1994 3.12% 113.2 0.95%(1) 3.08%(1)
Year ended Nov. 30, 1993 2.26% 127.9 1.00% 2.24%
</TABLE>
(1) During the years noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.99%, 1.00%, 1.02%, and 0.97%, respectively, and the ratios of
net investment income to average net assets would have been 4.50%, 4.41%,
4.89% and 3.06%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $98,910,547.
- ----------------------------------------------------------
* Assumes reinvestment of all dividends and distributions.
B-17
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
--------------------------------------
Dividends to
Net Asset Net Total Shareholders
Value, Net Realized Income from from Net
Beginning Investment Gain/(Loss)on Investment Investment
of Year Income Investments Operations Income
--------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
General Municipal Portfolio
- ---------------------------
Year ended Nov. 30, 1997 $1.000 $0.027 ($0.000) $0.027 ($0.027)
Year ended Nov. 30, 1996 1.000 0.025 0.000 0.025 (0.025)
Year ended Nov. 30, 1995 1.000 0.031 0.000 0.031 (0.031)
Year ended Nov. 30, 1994 1.000 0.020 (0.000) 0.020 (0.020)
Year ended Nov. 30, 1993 1.000 0.017 (0.000) 0.017 (0.017)
<CAPTION>
RATIOS TO
AVERAGE
NET ASSETS
Net Asset Net Assets, -------------------------
Capital Value, End of Net Net
Contribution End of Total Year Operating Investment
by Adviser Year Return* (millions) Expenses Income
------------ ----------- ------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended Nov. 30, 199 -- $1.000 2.74% $137.0 0.96%(1,2) 2.70%(1,2)
Year ended Nov. 30, 1996 -- 1.000 2.56% 122.3 0.99%(1) 2.53%(1)
Year ended Nov. 30, 1995 -- 1.000 3.11% 116.0 0.93%(1) 3.07%(1)
Year ended Nov. 30, 1994 -- 1.000 2.04% 108.7 0.90%(1) 2.01%(1)
Year ended Nov. 30, 1993 -- 1.000 1.74% 109.7 0.98%(1) 1.73%(1)
</TABLE>
(1) During the years noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.99%, 1.02%, 1.01% and 1.01%, respectively, and the ratios
of net investment income to average net assets would have been 2.70%, 2.53%,
2.98%, 1.90% and 1.70%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $134,817,925.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
--------------------------------------
Dividends to
Net Asset Net Total Shareholders
Value, Net Realized Income from from Net
Beginning Investment Gain/(Loss)on Investment Investment
of Year Income Investments Operations Income
--------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
California Municipal Portfolio
- ------------------------------
Year ended Nov. 30, 1997 $1.000 $0.026 ($0.000) $0.026 ($0.026)
Year ended Nov. 30, 1996 1.000 0.024 -- 0.024 (0.024)
Year ended Nov. 30, 1995 1.000 0.031 (0.008) 0.023 (0.031)
Year ended Nov. 30, 1994 1.000 0.020 (0.000) 0.020 (0.020)
Year ended Nov. 30, 1993 1.000 0.017 (0.000) 0.017 (0.017)
<CAPTION>
RATIOS TO
AVERAGE
NET ASSETS
Net Asset Net Assets, -------------------------
Capital Value, End of Net Net
Contribution End of Total Year Operating Investment
by Adviser Year Return* (millions) Expenses Income
------------ ----------- ------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended Nov. 30, 1997 -- $1.000 2.68% $55.7 0.90%(1,2) 2.64%(1,2)
Year ended Nov. 30, 1996 -- 1.000 2.42% 53.4 0.85%(1) 2.42%(1)
Year ended Nov. 30, 1995 $0.008 1.000 3.10%(3) 75.9 0.82%(1) 3.05%(1)
Year ended Nov. 30, 1994 -- 1.000 1.99% 61.3 0.85%(1) 1.99%(1)
Year ended Nov. 30, 1993 -- 1.000 1.76% 62.3 0.85%(1) 1.75%(1)
</TABLE>
(1) During the years noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.96%, 0.97%, 0.95%, 0.97% and 0.98%, respectively, and the ratios
of net investment income to average net assets would have been 2.58%, 2.30%,
2.92%, 1.87% and 1.62%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $57,449,650.
(3) Had the Adviser not made the capital contribution, the Portfolio's total
return would have been lower.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
--------------------------------------
Dividends to
Net Asset Net Total Shareholders
Value, Net Realized Income from from Net
Beginning Investment Gain/(Loss)on Investment Investment
of Year Income Investments Operations Income
--------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
New York Municipal Portfolio
- ----------------------------
Year ended Nov. 30, 1997 $1.000 $0.026 ($0.000) $0.026 ($0.026)
Year ended Nov. 30, 1996 1.000 0.025 -- 0.025 (0.025)
Year ended Nov. 30, 1995 1.000 0.030 0.000 0.030 (0.030)
Year ended Nov. 30, 1994 1.000 0.019 (0.000) 0.019 (0.019)
Year ended Nov. 30, 1993 1.000 0.016 (0.000) 0.016 (0.016)
<CAPTION>
RATIOS TO
AVERAGE
NET ASSETS
Net Asset Net Assets, -------------------------
Capital Value, End of Net Net
Contribution End of Total Year Operating Investment
by Adviser Year Return* (millions) Expenses Income
------------ ----------- ------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended Nov. 30, 1997 -- $1.000 2.66% $73.2 0.98%(1,2) 2.63%(1,2)
Year ended Nov. 30, 1996 -- 1.000 2.50% 60.0 0.97%(1) 2.45%(1)
Year ended Nov. 30, 1995 -- 1.000 3.07% 52.3 0.79%(1) 3.02%(1)
Year ended Nov. 30, 1994 -- 1.000 1.92% 48.0 0.82%(1) 1.90%(1)
Year ended Nov. 30, 1993 -- 1.000 1.66% 42.2 0.79%(1) 1.64%(1)
</TABLE>
(1) During the years noted above, the Adviser waived a portion of its fees.
Additionally, for the years ended November 30, 1997 and November 30, 1996,
the Portfolio benefited from an expense offset arrangement with its
custodian bank. Had such waivers not been in effect nor such expenses
offset, the ratios of net operating expenses to average net assets would
have been 0.98%, 0.98%, 1.00%, 1.01% and 1.03%, respectively, and the ratios
of net investment income to average net assets would have been 2.62%, 2.44%,
2.81%, 1.71% and 1.40%, respectively.
(2) Average net assets for the year ended November 30, 1997 were $64,686,712.
- -----------------------------------------
* Assumes reinvestment of all dividends.
B-18
<PAGE>
General Abbreviations:
AD Apartment Development
AIR Airport Improvement Revenue
AMBAC American Mortgage Bond Assurance Corporation
BAN Bond Anticipation Note
BFA Business Finance Authority
CDR Community Development Revenue
CFR Civic Facility Revenue
CRR Cultural Resources Revenue
CS Credit Support
DA Development Authority
DAR Dormitory Authority Revenue
DWR Department of Water Resources
EDA Economic Development Authority
EDAR Economic Development Authority Revenue
EDR Economic Development Revenue
EEIR Education Equipment & Improvement Revenue
EFC Environmental Facilities Corporation
EFR Electric Facilities Revenue
EIERA Environmental Improvement & Energy
Resource Authority
EIR Environment Improvement Revenue
ELR Educational Loan Revenue
ERDA Energy Research & Development Authority
FA Finance Authority
FAGR Finance Agency Revenue
FAR Finance Authority Revenue
FGIC Financial Guaranty Insurance Corporation
FSA Financial Security Assurance
GAR General Authority Revenue
GFR General Fund Revenue
GO General Obligation
HAR Hospital Authority Revenue
HDA Housing Development Authority
HEA Higher Education Authority
HEAA Higher Education Assistance Revenue
HEL Higher Education Loan
HF Housing Finance
HFA Housing Finance Authority
HFAMR Housing Finance Agency Mortgage Revenue
HFASFR Housing Finance Authority Single Family Revenue
HFC Housing Finance Committee
HFDCR Health Facilities Development Corporation Revenue
HFF Health Facilities Financing
HFFAR Health Facilities Financing Authority Revenue
HFR Health Facilities Revenue
<PAGE>
HHEFAR Health & Higher Educational Facilities
Authority Revenue
HR Hospital Revenue
HMFA Housing Mortgage Finance Authority
HMFC Housing Mortgage Finance Corporation
ID Industrial Development
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue
IFA Industrial Finance Agency
JDA Job Development Authority
LC Letter of Credit
LGAC Local Government Assistance Corp.
MBIA Municipal Bond Investors Assurance
MFA Municipal Finance Authority
MFHR Multiple Family Housing Revenue
MMR Multiple Family Mortgage Revenue
MTA Metropolitan Transportation Authority
MUD Municipal Utility District
MUDER Municipal Utility District Electric Revenue
MWFA Municipal Water Finance Authority
MWFSSR Municipal Water Finance Sewer System Revenue
PA Power Authority
PAR Power Authority Revenue
PCC Pollution Control Corporation
PCFA Pollution Control Financing Authority
PCFR Pollution Control Facilities Revenue
PCR Pollution Control Revenue
PFA Public Facility Authority
PPA Public Power Authority
PPR Public Power Revenue
PSA Public School Authority
PSR Power Supply Revenue
RAN Revenue Anticipation Note
RRR Resource Recovery Revenue
SCD Statewide Communities Development
SLMA Student Loan Marketing Association
SLR Student Loan Revenue
STR Sales Tax Revenue
SWDR Solid Waste Disposal Revenue
TA Transportation Authority
TAN Tax Anticipation Note
TRAN Tax Revenue Anticipation Note
WD Water District
WDA Waste Disposal Authority
B-19
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
of OCC Cash Reserves
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Primary Portfolio, Government
Portfolio, General Municipal Portfolio, California Municipal Portfolio and New
York Municipal Portfolio (constituting OCC Cash Reserves, hereafter referred to
as the "Portfolio") at November 30, 1997, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
January 16, 1998
B-20
