<PAGE> 1
PROVIDENT INSTITUTIONAL FUNDS, INC.
Short Duration Fund
Intermediate Duration Fund
Semi-Annual Report to Shareholders
June 30, 1995
<PAGE> 2
PROVIDENT INSTITUTIONAL FUNDS, INC.
Short Duration Fund
Intermediate Duration Fund
August 15, 1995
Dear Shareholder:
We are pleased to present the Semi-Annual Report of Provident Institutional
Funds, Inc. for the period ended June 30, 1995.
Short Duration Fund and Intermediate Duration Fund invest only in U.S.
Government securities and repurchase agreements collateralized by U.S.
Government securities. Both Funds seek to maximize income and are managed by a
"controlled duration" philosophy.
Because each of the Funds can purchase only those securities deemed to be "Type
1 Securities" by the Office of the Comptroller of the Currency (OCC), the Funds
are bank eligible without limitation. To serve this market, Provident
Institutional Funds has developed an innovative product, Portfolio Allocation
Strategy (PAS). PAS is a systematic approach of incorporating mutual funds
into the available-for-sale segment of bank portfolios and is designed to help
provide banks with new ways to enhance their portfolio's total returns.
We appreciate your participation in Provident Institutional Funds, Inc. and
welcome opportunities to better service your investment challenges.
If you have any questions regarding these Funds or would like to request
further information, please contact Jim Nolan, our Account Executive at
1-800-821-7432 or Karen Sabath, our Portfolio Liaison Officer at 212-754-5538.
Sincerely,
G. Willing Pepper
Chairman
1
<PAGE> 3
PROVIDENT INSTITUTIONAL FUNDS, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
INVESTMENT SUBADVISER'S REPORT
Dear Shareholder:
We are pleased to provide this semi-annual report to shareholders, the first
report by BlackRock Financial Management, Inc. since we assumed the role of
subadviser of the Funds in February of this year.
In contrast to the rapid and substantial increase in interest rates during
1994, the fixed income markets have rallied sharply in the first and second
quarters of 1995. The bond market rally was fueled largely by modest
inflationary data and the perception that the Federal Reserve's attempt to
provide a "soft landing" for the economy (modest economic growth with little or
no inflation) through tighter monetary policy may have been successful.
The combination of slower growth and a declining inflation threat increased
investor confidence for an economic "soft landing", and yields on maturities of
less than 5 years dropped below the 6.00% Fed funds target during the second
quarter. Although the Federal Reserve recently eased its monetary stance by
lowering the Fed funds rate by 25 basis points to 5.75% on July 6, BlackRock
remains attentive to the fact that lower interest rates, a weak dollar and a
rising stock market have the potential to re-ignite growth (and inflation) in
the second half of the year.
Mortgage securities underperformed their Treasury counterparts during the
latter half of 1994 as the market became more concerned about the possibility
of these securities having greater "extension risk", (the concern that
homeowners will be less likely to prepay their mortgages in a rising rate
environment, which would "extend" the time that would be required for an
investor to receive their principal and interest payments). During the first
quarter of 1995 mortgage-backed securities posted strong performance relative
to Treasuries as fears of extension risk dissipated and prepayment concerns
remained in check. As the Treasury market rallied through the second quarter,
mortgages underperformed due to increased volatility and growing concerns over
prepayments.
INVESTMENT STRATEGY
Both the Short Duration Fund and the Intermediate Duration Fund invest solely
in U.S. Government securities that are deemed to be Type I securities by the
OCC. (Type I securities consist of direct Treasury obligations and qualifying
Agency securities.) BlackRock manages the Funds using a "targeted duration"
approach such that the Short Duration Fund's duration is approximately equal to
1 1/2 to 2 years. This duration target should create a fund with the price, or
net asset value sensitivity, between a 2- and 3-year Treasury. The duration
target of the Intermediate Duration Fund is approximately equal to 4 to 6
years, creating a net asset value sensitivity that is similar to a 5- to 7-year
Treasury. Changes in the prices and yields of these Treasury securities affect
the value of the Funds' securities. In addition to interest rates, the Funds'
net asset values are affected by the rate of prepayments of the mortgage
securities in the portfolios.
ACTIVE PORTFOLIO MANAGEMENT
Since assuming management of the Funds in February, BlackRock has selectively
traded securities to position the Funds consistent with BlackRock's investment
strategy, the fixed income markets and the investment guidelines of the Funds.
BlackRock's investment philosophy emphasizes a relative value approach,
rotating among eligible sectors to select securities that are undervalued while
remaining consistent with the duration targets of the Funds.
2
<PAGE> 4
The Funds have reduced their allocation to Treasuries over the past six months,
capturing their excellent performance during the first quarter rally and
increasing their allocation to spread product as yield spreads widened. The
Funds increased allocations to adjustable rate mortgage securities (ARMs), as
these securities are typically less sensitive to interest rate fluctuations
than most fixed-rate securities because their coupon levels periodically reset
to reflect changes in interest rates. Allocation to agency-backed (GNMA, FNMA,
FHLMC) ARMs increased over the first two quarters of 1995. GNMA ARMs performed
particularly well relative to other short duration products as increased demand
met with a sharp decrease in supply during the first quarter of 1995. As
spreads continued to tighten (GNMA ARMs increased in price relative to other
short duration securities), the Funds decreased their allocation to GNMA ARMs
in favor of other short duration sectors that offered stronger relative value
opportunities. Recently, as ARM spreads have widened again (causing the price
of these securities to decline) relative to other short duration products, the
Funds have been increasing their ARM positions.
Additionally, the Short Duration Fund has allocated approximately 4% of net
assets to Small Business Administration (SBA) floating-rate securities. The
underlying assets of these securities are loans made to small businesses which
are backed by the full faith and credit of the U.S. Government. These
securities are similar to ARMs in that they have coupons which periodically
adjust to a spread over a specified index, have no lifetime or periodic caps
and offer excellent prepayment protection. The Short Duration Fund has also
increased its allocation to short average life sequential pay CMOs. These
securities, also referred to as "plain vanilla" CMOs, offer a relatively high
degree of prepayment protection while yielding approximately 100 basis points
over Treasury securities with a comparable duration.
OUTLOOK
Although the recent market rally has afforded fixed income investors an
opportunity to partially recoup losses suffered in 1994, we remain cautiously
optimistic concerning the near-term future of the bond market. Investor
sentiment clearly indicates that the inflationary fears that consumed the
market during most of 1994 have dissipated. However, the steep decline in
interest rates could stimulate a resurgence in consumption and increase the
potential for increased inflationary pressures. In addition, the momentum with
which the economy entered 1995 and the continued weakness of the dollar could
prove the arrival of a soft landing to be premature.
Should the levels of inflation remain low, BlackRock expects the performance of
the fixed income markets to remain strong and looks for a possible
stabilization of interest rates towards year end. The Funds will continue to
be actively managed to add value by both taking advantage of price dislocations
in the market and through sector rotation.
THE SUBADVISER
Effective February 17, 1995, BlackRock Financial Management, Inc. assumed the
role of investment sub-adviser of the Funds, and on February 28, 1995, became
an indirect wholly-owned subsidiary of PNC Bank. BlackRock is a New York based
registered investment adviser that provides asset management services with
respect to high quality fixed instruments. BlackRock currently manages over
$33 billion of fixed-income assets in more than 100 portfolios of government
mortgage, corporate and municipal securities.
Thank you for your investment in Provident Institutional Funds, Inc. and we
look forward to continuing to serve your investment objectives.
BlackRock Financial Management, Inc.
3
<PAGE> 5
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF NET ASSETS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------ --------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (16.3%):
U.S. Treasury Notes:
6.13%, 05/15/98 . . . . . . . . . . . . . . . . . . $ 700,000 * $ 704,767
7.75%, 12/31/99 . . . . . . . . . . . . . . . . . . 730,000 779,669
6.88%, 03/31/00 . . . . . . . . . . . . . . . . . . 1,020,000 1,055,822
6.25%, 05/31/00 . . . . . . . . . . . . . . . . . . 10,600,000 ** 10,710,558
----------
Total U.S. Government Securities
(cost: $13,227,366) . . . . . . . . . . . . . . . 13,250,816
----------
MORTGAGE-BACKED SECURITIES (68.6%):
GNMA (13.0%):
6.50%, 1-year CMT, ARM, 01/20/21 . . . . . . . . . 3,288,441 3,341,878
6.38%, 1-year CMT, ARM, 09/20/21 . . . . . . . . . 830,798 853,645
6.38%, 1-year CMT, ARM, 08/20/22 . . . . . . . . . 786,542 807,189
7.50%, 1-year CMT, ARM, 03/20/25 . . . . . . . . . 1,589,502 1,634,207
6.50%, 1-year CMT, ARM, 04/20/25 . . . . . . . . . 782,230 791,519
6.50%, 1-year CMT, ARM, 05/20/25 . . . . . . . . . 1,761,693 1,782,063
7.00%, 1-year CMT, ARM, 07/25/25 . . . . . . . . . 1,300,000 *** 1,324,781
-----------
10,535,282
-----------
FNMA (21.7%):
7.00%, 09/01/04 . . . . . . . . . . . . . . . . . . 2,577,314 2,602,660
7.00%, 04/01/08 . . . . . . . . . . . . . . . . . . 2,272,694 2,296,526
7.29%, 1-year CMT, ARM, 12/01/21 . . . . . . . . . 2,188,745 2,225,680
7.93%, 1-year CMT, ARM, 02/01/22 . . . . . . . . . 1,791,418 1,842,921
7.71%, 1-year CMT, ARM, 09/01/22 . . . . . . . . . 2,367,965 2,439,004
6.61%, 1-year CMT, ARM, 12/01/24 . . . . . . . . . 1,740,293 1,777,274
5.81%, 6-month LIBOR, ARM, 01/01/25 . . . . . . . . 2,466,341 2,473,663
6.10%, 1-year CMT, ARM, 02/01/25 . . . . . . . . . 1,992,047 2,035,001
-----------
17,692,729
-----------
FHLMC (27.6%):
7.00%, 02/01/98 . . . . . . . . . . . . . . . . . . 91,932 92,909
7.00%, 07/01/99 . . . . . . . . . . . . . . . . . . 607,491 613,946
7.00%, 07/01/99 . . . . . . . . . . . . . . . . . . 580,859 587,031
7.00%, 10/01/99 . . . . . . . . . . . . . . . . . . 307,210 310,474
7.00%, 10/01/99 . . . . . . . . . . . . . . . . . . 186,388 188,369
7.00%, 12/01/99 . . . . . . . . . . . . . . . . . . 186,121 188,098
6.50%, 10/01/08 . . . . . . . . . . . . . . . . . . 2,748,274 2,738,584
</TABLE>
4
<PAGE> 6
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF NET ASSETS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------ --------
<S> <C> <C>
FHLMC - Continued
9.25%, 12/01/08 . . . . . . . . . . . . . . . . . . $ 2,390,254 $ 2,490,345
7.61%, 1-year CMT, ARM, 10/01/19 . . . . . . . . . 2,197,781 2,259,594
7.54%, 1-year CMT, ARM, 05/01/20 . . . . . . . . . 2,666,752 2,741,755
7.47%, 1-year CMT, ARM, 08/01/20 . . . . . . . . . 3,368,955 3,453,178
7.40%, 1-year CMT, ARM, 02/01/21 . . . . . . . . . 2,662,099 2,717,005
5.99%, 1-year CMT, ARM, 01/01/24 . . . . . . . . . 2,309,344 2,333,881
6.11%, 1-year CMT, ARM, 05/01/24 . . . . . . . . . 1,694,759 1,711,707
-----------
22,426,876
-----------
SBA (6.3%)
7.40%, ARM, 03/25/16 . . . . . . . . . . . . . . . 2,564,681 2,612,769
7.38%, ARM, 07/25/16 . . . . . . . . . . . . . . . 2,491,763 2,536,926
-----------
5,149,695
-----------
Total Mortgage-Backed Securities
(cost: $55,469,194) . . . . . . . . . . . . . . . 55,804,582
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (22.3%):
FNMA (13.7%):
5.50%, Series 1993-71, Class PD, 12/25/03 . . . . . 2,000,000 1,954,700
5.10%, Series 1994-50, Class PB, 04/25/10 . . . . . 2,000,000 1,938,125
5.50%, Series 1993-46, Class D, 01/25/13 . . . . . 2,000,000 1,956,612
6.00%, Series 1994-31, Class AD, 03/25/15 . . . . . 1,773,992 1,743,396
5.50%, Series 1994-38, Class PD, 12/25/15 . . . . . 1,500,000 1,451,204
7.61%, Series 1995-W2, Class 1A, 05/25/25 . . . . . 2,100,000 2,123,625
-----------
11,167,662
-----------
FHLMC (8.6%):
6.00%, Series 1708, Class A, 04/15/06 . . . . . . . 1,720,551 1,696,686
5.25%, Series 1706, Class C, 04/15/14 . . . . . . . 2,000,000 1,949,933
7.00%, Series 1593, Class A, 12/15/17 . . . . . . . 1,582,264 1,585,902
6.63%, Series 1611, Class G, 05/15/21 . . . . . . . 1,738,551 1,730,718
----------
6,963,239
----------
Total Collateralized Mortgage Obligations
(cost: $18,157,330) . . . . . . . . . . . . . . . 18,130,901
----------
</TABLE>
5
<PAGE> 7
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF NET ASSETS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------ --------
<S> <C> <C>
SHORT-TERM SECURITIES (1.9%):
FNMA
5.90%, 07/07/95 . . . . . . . . . . . . . . . . . . $ 1,600,000 $ 1,598,426
----------
Total Short-Term Securities
(cost: $1,598,426) . . . . . . . . . . . . . . . 1,598,426
----------
Total Investments in Securities (109.1%)
(cost: $88,452,316) . . . . . . . . . . . . . . . 88,784,725
Liabilities in Excess of Other Assets (-9.1%) . . . (7,428,072)
------------
Net Assets (100%) . . . . . . . . . . . . . . . . . $ 81,356,653
(Equivalent to $9.79 per share based on 8,310,993 shares ===========
of beneficial interest outstanding.)
Net asset value, offering price and
redemption value per share . . . . . . . . . . . . $9.79
====
</TABLE>
At June 30, 1995, the cost of investments for federal income tax purposes was
$88,454,538. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were as follows:
<TABLE>
<S> <C>
Unrealized appreciation . . . . . . . . . . . . . . . . . . $ 543,200
Unrealized depreciation . . . . . . . . . . . . . . . . . . (213,013)
-----------
Net unrealized appreciation . . . . . . . . . . . . . . $ 330,187
===========
</TABLE>
* Entire principal amount pledged as collateral for reverse repurchase
agreements.
** $7,100,000 principal amount pledged as collateral for reverse repurchase
agreements.
*** On June 30, 1995, total cost of investment purchased on a when-issued
basis was $1,357,223.
See accompanying Notes to Financial Statements.
6
<PAGE> 8
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF NET ASSETS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------ ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (40.3%):
U.S. Treasury Notes (25.2%):
7.25%, 08/15/04 . . . . . . . . . . . . . . . . . . $ 4,865,000 * $ 5,202,241
-----------
U.S. Treasury Bonds (15.1%):
12.00%, 05/15/05 . . . . . . . . . . . . . . . . . . 1,865,000 ** 2,638,751
10.75%, 08/15/05 . . . . . . . . . . . . . . . . . . 350,000 464,860
-----------
3,103,611
-----------
Total U.S. Government Securities
(cost: $8,143,257) . . . . . . . . . . . . . . . 8,305,852
-----------
MORTGAGE-BACKED SECURITIES (81.5%):
GNMA (18.4%)
7.50%, 1-year CMT, ARM, 01/20/25 . . . . . . . . . . 955,135 987,371
7.50%, 1-year CMT, ARM, 03/20/25 . . . . . . . . . . 894,095 919,241
6.50%, 1-year CMT, ARM, 04/20/25 . . . . . . . . . . 1,124,455 1,137,808
6.50%, 1-year CMT, ARM, 05/20/25 . . . . . . . . . . 734,039 742,526
----------
3,786,946
----------
FNMA (19.6%):
7.00%, 04/01/08 . . . . . . . . . . . . . . . . . . 1,323,493 1,337,372
9.00%, 12/01/20 . . . . . . . . . . . . . . . . . . 1,698,497 1,772,275
11.00%, 08/01/24 . . . . . . . . . . . . . . . . . . 839,786 930,588
----------
4,040,235
----------
FHLMC (43.5%):
7.00%, 02/01/99 . . . . . . . . . . . . . . . . . . 891,786 901,261
7.00%, 08/01/99 . . . . . . . . . . . . . . . . . . 294,001 297,124
7.00%, 11/01/99 . . . . . . . . . . . . . . . . . . 88,214 89,152
8.00%, 11/01/08 . . . . . . . . . . . . . . . . . . 768,336 797,759
9.25%, 06/01/16 . . . . . . . . . . . . . . . . . . 1,354,284 1,410,995
9.00%, 07/01/21 . . . . . . . . . . . . . . . . . . 1,462,116 1,517,403
9.50%, 12/01/22 . . . . . . . . . . . . . . . . . . 1,719,322 1,809,586
7.50%, 05/01/24 . . . . . . . . . . . . . . . . . . 312,982 314,450
6.10%, 6-month LIBOR, ARM, 08/01/24 . . . . . . . . 487,525 494,431
7.50%, 10/01/24 . . . . . . . . . . . . . . . . . . 47,998 48,223
7.50%, 01/01/25 . . . . . . . . . . . . . . . . . . 299,018 300,419
7.50%, 03/01/25 . . . . . . . . . . . . . . . . . . 88,558 88,973
7.50%, 06/01/25 . . . . . . . . . . . . . . . . . . 883,444 887,585
----------
8,957,361
----------
Total Mortgage-Backed Securities
(cost: $16,629,306) . . . . . . . . . . . . . . . 16,784,542
----------
</TABLE>
7
<PAGE> 9
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF NET ASSETS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------ ------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (.5%):
FNMA (.5%)
9.00%, Series 1995-W3, Class A, 04/25/25 . . . . . . $ 110,000 $ 113,506
----------
Total Collateralized Mortgage Obligations
(Cost: $113,129) . . . . . . . . . . . . . . . . . 113,506
----------
Total Investments in Securities (122.3%)
(cost: $24,885,692) . . . . . . . . . . . . . . . 25,203,900
Liabilities in Excess of Other Assets (-22.3%) . . . (4,594,542)
-----------
Net Assets (100%) . . . . . . . . . . . . . . . . . $20,609,358
(Equivalent to $9.76 per share based on 2,112,300 shares ==========
of beneficial interest outstanding.)
Net asset value, offering price and
redemption value per share . . . . . . . . . . . . $9.76
====
</TABLE>
At June 30, 1995, the cost of investments for federal income tax purposes
was $24,916,038. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were as follows:
<TABLE>
<S> <C>
Unrealized appreciation . . . . . . . . . . $ 319,901
Unrealized depreciation . . . . . . . . . . (32,039)
----------
Net unrealized appreciation . . . . . . $ 287,862
==========
</TABLE>
* Entire principal amount pledged as collateral for reverse repurchase
agreements.
** $1,086,000 principal amount pledged as collateral for reverse repurchase
agreements.
See accompanying Notes to Financial Statements.
8
<PAGE> 10
PROVIDENT INSTITUTIONAL FUNDS, INC.
<TABLE>
<S> <C>
INVESTMENT ABBREVIATIONS
ARM . . . . . . . . . . . . . . . . . . . . . . . Adjustable Rate Mortgage
CMO . . . . . . . . . . . . . . . . . . Collateralized Mortgage Obligation
CMT . . . . . . . . . . . . . . . . . . . . . . Constant Maturity Treasury
FHLMC . . . . . . . . . . . . . . . Federal Home Loan Mortgage Corporation
FNMA . . . . . . . . . . . . . . . . . Federal National Mortgage Association
GNMA . . . . . . . . . . . . . . . Government National Mortgage Association
LIBOR . . . . . . . . . . . . . . . . . . . . London Interbank Offered Rate
SBA . . . . . . . . . . . . . . . . . . . . . Small Business Administration
</TABLE>
9
<PAGE> 11
PROVIDENT INSTITUTIONAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost $88,452,316 and $24,885,692,
respectively) (Note 2) . . . . . . . . . . . . . . . . . . $ 88,784,725 $ 25,203,900
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,860 236,894
Receivable for investments sold* . . . . . . . . . . . . . . . . 24,413,723 6,841,414
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . 660,338 313,991
Deferred organization expenses (Note 2) . . . . . . . . . . . . . 37,590 37,590
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 412,360 47,729
------------ ------------
114,433,596 32,681,518
------------ ------------
LIABILITIES:
Payable for investments purchased . . . . . . . . . . . . . . . . 6,484,931 2,277,187
Reverse repurchase agreements (Note 2) . . . . . . . . . . . . . 26,140,000 9,643,875
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . 373,227 128,720
Other accrued expenses and liabilities . . . . . . . . . . . . . 78,785 22,378
------------- ------------
33,076,943 12,072,160
------------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,356,653 $ 20,609,358
=========== ===========
Net assets were comprised of:
Common stock, at par (Note 4) . . . . . . . . . . . . . . . $ 8,311 $ 2,112
Paid-in capital in excess of par . . . . . . . . . . . . . . 83,708,853 21,136,396
----------- -----------
83,717,164 21,138,508
Accumulated net realized loss on investments . . . . . . . . (2,692,920) (847,358)
Net unrealized appreciation of investments . . . . . . . . . 332,409 318,208
------------ ------------
Net assets, June 30, 1995 . . . . . . . . . . . . . . . . . $ 81,356,653 $ 20,609,358
=========== ===========
Net asset value per share . . . . . . . . . . . . . . . . . . . . $ 9.79 $ 9.76
=========== ===========
Total shares outstanding at end of period . . . . . . . . . . . . 8,310,993 2,112,300
=========== ===========
</TABLE>
* Includes $17,720,000 and $2,600,000 principal amounts, respectively,
pledged as collateral for reverse repurchase agreements.
See accompanying Notes to Financial Statements.
10
<PAGE> 12
PROVIDENT INSTITUTIONAL FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
<S> <C> <C>
INCOME:
Interest (net of interest expense of $66,183 and
$63,634, respectively) . . . . . . . . . . . . . . . . . $ 3,095,557 $ 1,206,686
Dollar Roll income (Note 2) . . . . . . . . . . . . . . . . 0 6,756
---------- ----------
Total investment income . . . . . . . . . . . . . . . . . . 3,095,557 1,213,442
---------- ----------
EXPENSES (Note 5):
Investment advisory fee . . . . . . . . . . . . . . . . . . 222,506 76,821
Administration, transfer agent
and custodian fees . . . . . . . . . . . . . . . . . . . 115,001 60,478
Registration fees . . . . . . . . . . . . . . . . . . . . . 6,016 5,618
Reports to shareholders . . . . . . . . . . . . . . . . . . 3,293 1,287
Amortization of organization costs . . . . . . . . . . . . . 5,135 5,135
Directors' fees and officer's salary . . . . . . . . . . . . 17,418 9,541
Audit and legal fees . . . . . . . . . . . . . . . . . . . . 22,749 7,854
Shareholder service fees . . . . . . . . . . . . . . . . . . 35,843 12,328
Other expenses . . . . . . . . . . . . . . . . . . . . . . . 8,184 4,257
---------- ----------
436,145 183,319
Less fees waived . . . . . . . . . . . . . . . . . . . . . . (117,438) (73,386)
---------- ----------
Total expenses . . . . . . . . . . . . . . . . . . . . . 318,707 109,933
---------- ----------
Net investment income . . . . . . . . . . . . . . . . . . . 2,776,850 1,103,509
---------- ----------
REALIZED AND UNREALIZED LOSSES
ON INVESTMENTS:
Net realized loss on investments (Note 3) . . . . . . . . . (649,255) (165,938)
Net change in unrealized appreciation
of investments . . . . . . . . . . . . . . . . . . . . . 4,012,414 2,487,849
---------- ----------
Net gain on investments . . . . . . . . . . . . . . . . . . 3,363,159 2,321,911
---------- ----------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . $ 6,140,009 $ 3,425,420
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 13
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C>
Increase (decrease) in cash from operating activities:
Interest purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,254,732)
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,344,481
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . (53,058)
Operating expenses paid . . . . . . . . . . . . . . . . . . . . . . . . (391,398)
---------------
Net increase in cash from operating activities . . . . . . . . . . . $ 2,645,293
Investing activities:
Purchases of long-term portfolio investments . . . . . . . . . . . . . . (272,582,839)
Proceeds from disposition of long-term portfolio investments . . . . . . 250,586,857
Proceeds from disposition of short-term portfolio securities, net . . . 17,607,184
Paydowns of long-term portfolio investments . . . . . . . . . . . . . . 2,505,897
--------------
Net decrease in cash from investing activities . . . . . . . . . . . (1,882,901)
Financing activities:*
Redemption of Fund shares . . . . . . . . . . . . . . . . . . . . . . . (23,949,720)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (2,829,694)
Increase in reverse repurchase agreements . . . . . . . . . . . . . . . 26,140,000
-------------
Net decrease in cash from financing activities . . . . . . . . . . . (639,414)
------------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . 122,978
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . 1,882
-------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 124,860
============
Reconciliation of net increase in net assets from operations to
net increase in cash from operating activities:
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,140,009
Adjustments:
Increase in interest receivable . . . . . . . . . . . . . . . . . . . . $ (156,992)
Amortization of bond premium . . . . . . . . . . . . . . . . . . . . . . 85,001
Decrease in accrued expenses . . . . . . . . . . . . . . . . . . . . . . (76,332)
Increase in accrued interest . . . . . . . . . . . . . . . . . . . . . . 13,125
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 3,641
Net realized and unrealized gain on investments . . . . . . . . . . . . (3,363,159)
---------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,494,716)
-----------
Net increase in cash from operating activities . . . . . . . . . . . . . . $ 2,645,293
===========
</TABLE>
- ---------------------------
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See accompanying Notes to Financial Statements.
12
<PAGE> 14
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C>
Increase (decrease) in cash from operating activities:
Interest purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,783,028)
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,172,598
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . (59,220)
Operating expenses paid . . . . . . . . . . . . . . . . . . . . . . . . (138,275)
---------------
Net increase in cash from operating activities . . . . . . . . . . . $ 1,192,075
Investing activities:
Purchases of long-term portfolio investments . . . . . . . . . . . . . . (120,634,576)
Proceeds from disposition of long-term portfolio investments . . . . . . 122,640,193
Proceeds from disposition of short-term portfolio securities, net . . . 4,863,183
Paydowns of long-term portfolio investments . . . . . . . . . . . . . . 792,437
--------------
Net increase in cash from investing activities . . . . . . . . . . . 7,661,237
Financing activities:*
Redemption of Fund shares . . . . . . . . . . . . . . . . . . . . . . . (17,119,041)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (1,144,745)
Increase in reverse repurchase agreements . . . . . . . . . . . . . . . 9,643,875
-------------
Net decrease in cash from financing activities . . . . . . . . . . . (8,619,911)
------------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . 233,401
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . 3,493
------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 236,894
============
Reconciliation of net increase in net assets from operations to
net increase in cash from operating activities:
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,425,420
Adjustments:
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . $ 85,704
Amortization of bond premium . . . . . . . . . . . . . . . . . . . . . . 26,790
Decrease in accrued expenses . . . . . . . . . . . . . . . . . . . . . . (32,948)
Increase in accrued interest . . . . . . . . . . . . . . . . . . . . . . 4,414
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 4,606
Net realized and unrealized gain on investments . . . . . . . . . . . . (2,321,911)
---------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,233,345)
-----------
Net increase in cash from operating activities . . . . . . . . . . . . . . $ 1,192,075
==========
</TABLE>
- ---------------------------
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See accompanying Notes to Financial Statements.
13
<PAGE> 15
PROVIDENT INSTITUTIONAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
Six Months Six Months
Ended Period Ended Ended Period Ended
June 30, 1995 December 31, 1994(1) June 30, 1995 December 31, 1994(1)
------------- ----------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . $ 2,776,850 $ 4,869,240 $ 1,103,509 $ 1,814,666
Net realized loss on investments . . . . . . (649,255) (2,043,665) (165,938) (681,420)
Net change in unrealized appreciation
(depreciation) of investments . . . . . . 4,012,414 (3,680,005) 2,487,849 (2,169,641)
------------ ------------ ---------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 6,140,009 (854,430) 3,425,420 (1,036,395)
------------ ------------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income . . . . . . . . . . . (2,776,850) (4,869,240) (1,103,509) (1,814,666)
------------ ----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS (Note 4):
Proceeds from sales . . . . . . . . . . . . 0 144,554,622 0 43,000,000
Shares issued for reinvestment of
distributions . . . . . . . . . . . . . . 38,969 251,578 16,544 245,627
Payments for shares redeemed . . . . . . . . (23,949,720) (37,228,285) (17,119,041) (5,054,622)
----------- ------------ ----------- ----------
Increase (decrease) in net assets from
capital share transactions . . . . . . (23,910,751) 107,577,915 (17,102,497) 38,191,005
----------- ----------- ----------- ----------
Total increase (decrease) in net assets . (20,547,592) 101,854,245 (14,780,586) 35,339,944
Net assets at beginning of period . . . . . . . 101,904,245 50,000 35,389,944 50,000
----------- ----------- ---------- ----------
Net assets at end of period . . . . . . . . . . $ 81,356,653 $101,904,245 $20,609,358 $35,389,944
=========== =========== ========== ==========
</TABLE>
(1) Commencement of operations was February 14, 1994.
See accompanying Notes to Financial Statements.
14
<PAGE> 16
PROVIDENT INSTITUTIONAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
Six Months Six Months
Ended Period Ended Ended Period Ended
June 30, 1995 December 31, 1994(1) June 30, 1995 December 31, 1994 (1)
------------- ----------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period . . . . $ 9.47 $10.00 $ 9.17 $10.00
----- ----- ----- -----
Operations:
Net investment income . . . . . . . . . .27(5) .42 .31(5) .46
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . .32 (.53) .59 (.83)
----- ------ ------ ------
Total from operations . . . . . . . .59 (.11) .90 (.37)
----- ------ ------ ------
Distributions to shareholders:
From net investment income . . . . . . . (.27) (.42) (.31) (.46)
----- ------ ------ ------
Net asset value, end of period . . . . . . . $ 9.79 $ 9.47 $ 9.76 $ 9.17
===== ===== ===== =====
Total return(2) . . . . . . . . . . . . . . . 6.32% (1.11)% 9.96% (3.64)%
Ratios/Supplemental Data
Net assets at end of period $(000) . . . 81,357 101,904 20,609 35,390
Ratios of total expenses to average
net assets(3)(4) . . . . . . . . . . .65% .50% .65% .55%
Ratios of net investment income to
average net assets(3) . . . . . . . 5.66% 4.96% 6.52% 5.68%
Portfolio turnover rate
(excluding short-term securities) . 310.5% 90.6% 365.1% 50.5%
Amount of reverse repurchase agreements
outstanding at end of period $(000) 26,140 - 9,644 -
Average amount of repurchase agreements
outstanding during the period $(000) 5,519 - 1,881 -
Average shares outstanding (000) . . . . 10,203 N/A 3,591 N/A
Average amount of repurchase agreements
per share during the period . . . . $ .54 - $ .52 -
</TABLE>
(1) Commencement of operations was February 14, 1994.
(2) Based on the change in net asset value of a common share during the period.
Assumes reinvestment of distributions at net asset value. Total returns
are not annualized for periods of less than one year.
(3) Adjusted to an annual basis.
(4) Without the voluntary waiver of expenses, the annualized ratios of expenses
to average net assets would have been .89% and 1.03% for the six months
ended June 30, 1995 and for the period ended December 31, 1994,
respectively, for Short Duration Fund and 1.08% and 1.23% for the six
months ended June 30, 1995 and for the period ended December 31, 1994,
respectively, for Intermediate Duration Fund.
(5) Net of $.01 and $.02 of interest expense for Short Duration Fund and
Intermediate Duration Fund, respectively.
See accompanying Notes to Financial Statements.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<S> <C>
(1) Organization On February 17, 1995, Piper Trust Funds, Inc., the predecessor company,
merged into Provident Institutional Funds, Inc., a newly formed Maryland
corporation (the "Company"). The merger was accomplished on the basis of a
tax-free exchange of stock. The Company is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
(2) Significant
Accounting INVESTMENTS IN SECURITIES
Policies The market value of fixed income securities will be provided by dealers or
by an independent pricing service. When market values are not readily
available, securities are valued at fair value as determined in good faith
by the board of directors. Short-term securities with maturities of less
than sixty days are valued at amortized cost which approximates market
value.
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified cost basis. Interest income, including amortization of bond
discount and premium computed on a level yield basis, is accrued daily.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by the Funds on
a forward commitment or when-issued basis can take place a month or more
after the transaction date. During this period, such securities do not earn
interest, are subject to market fluctuations, and may increase or decrease
in value prior to their delivery. The Funds maintain in a segregated
account with their custodian, securities with a market value equal to the
amount of their purchase commitments. The purchase of securities on a when-
issued or forward commitment basis may increase the volatility of the Funds'
net asset value to the extent the Funds make such purchases while remaining
substantially fully invested. As of June 30, 1995 Short Duration Fund had
entered into outstanding when-issued or forward commitments of $1,357,223.
Intermediate Duration Fund had no such commitments.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, each Fund may enter into mortgage "dollar rolls"
in which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar
(same type, coupon and maturity) but not identical securities on a
specified future date. As an inducement to "roll over" its purchase
commitments, the Fund receives negotiated fees. For the period ended June
30, 1995, such fees earned by Intermediate Duration Fund amounted to $6,756.
FEDERAL TAXES
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund's policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income to shareholders; therefore, no income tax
provision is required. In addition, on a calendar-year basis, each Fund
intends to distribute substantially all of its net investment income and
realized gains, if any, and will, therefore, not be subject to federal
excise taxes.
</TABLE>
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
<S> <C>
Net realized gains (losses) may differ for financial statement and tax purposes
primarily due to the recognition of losses deferred on "wash sale" transactions.
The character of distributions made during the year from net realized gains, if any,
may also differ from their ultimate characterization for federal income tax
purposes. In addition, due to the timing of dividend distributions, the fiscal year
in which amounts are distributed may differ from the year that the realized gains
(losses) were recorded by the Fund.
For federal income tax purposes, there were capital loss carryovers of $2,005,845
for Short Duration Fund and $630,852 for Intermediate Duration Fund on December 31,
1994, which, if not offset by subsequent capital gains, will expire in 2002. It is
unlikely the board of directors will authorize a distribution of any net realized
capital gains until the available capital loss carryovers have been offset or
expire.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income are declared daily and paid
monthly in cash or reinvested in additional shares. Distributions from net realized
capital gains, if any, will be made on an annual basis.
ORGANIZATION COSTS
Organization costs were incurred in connection with the start-up and initial
registration of the Funds. These costs are being amortized over 60 months on a
straight-line basis. If any or all of the shares representing initial capital of
each Fund are redeemed by any holder thereof prior to the end of the amortization
period, the proceeds will be reduced by the unamortized organization cost balance in
the same proportion as the number of shares redeemed bears to the number of initial
shares outstanding immediately preceding the redemption.
REPURCHASE AGREEMENTS
During the period ended June 30, 1995, the Funds have invested in repurchase
agreements. In accordance with the Funds' investment objectives and policies, the
Funds may purchase money market instruments from financial institutions, such as
banks and non-bank dealers, subject to the seller's agreement to repurchase them at
an agreed upon date and price. The seller will be required on a daily basis to
maintain the value of the collateral subject to the agreement at not less than the
repurchase price (including accrued interest). The agreements are conditioned upon
the collateral being deposited under the Federal Reserve book-entry system or with
the Funds' custodian or a third party sub-custodian. If the seller defaults and the
value of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Funds
may be delayed or limited.
REVERSE REPURCHASE AGREEMENTS
The Funds enter into reverse repurchase agreements with banks and securities
dealers. Interest on the value of reverse repurchase agreements issued and
outstanding is based on competitive market rates at the time of issuance. At the
time each Fund enters into a reverse repurchase agreement, it establishes and
maintains a segregated account with the custodian containing cash or U.S. Government
securities having a value not less than the repurchase price, including accrued
interest, of the repurchase agreement.
</TABLE>
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
<S> <C>
The weighted average daily balances of reverse repurchase agreements outstanding
during the six months ended June 30, 1995, were approximately $5,519,005 and
$1,880,846 at weighted average interest rates of approximately 6.03% and 5.99% for
Short Duration Fund and Intermediate Duration Fund, respectively. The maximum
amounts of reverse repurchase agreements outstanding at any month end during the six
months ended June 30, 1995, were $26,140,000 as of June 30, 1995, representing 22.8%
of total assets for Short Duration Fund and $9,643,875 as of June 30, 1995,
representing 29.5% of total assets for Intermediate Duration Fund.
(3) Investment Cost of purchases and proceeds from sales of securities, other than short-term
Security securities, for the period ended June 30, 1995, were as follows:
Transactions
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
---- ----
<S> <C> <C>
Purchases . . . . . . . . . . . . . . . $279,038,371 $122,904,263
Sales Proceeds . . . . . . . . . . . . $274,791,712 $129,408,302
</TABLE>
<TABLE>
<CAPTION>
(4) Capital Share Transactions in shares of each Fund are summarized as follows:
Transactions
Short Duration
Fund
----------------
Six Months
Ended Period Ended
June 30, 1995 December 31, 1994
------------- -----------------
(Unaudited)
<S> <C> <C>
Sold . . . . . . . . . . . . . . . . . 0 14,569,758
Issued for reinvested distributions . . 4,064 25,952
Redeemed . . . . . . . . . . . . . . . (2,449,940) (3,843,841)
----------- ----------
Increase (Decrease) . . . . . . . (2,445,876) 10,751,869
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Intermediate Duration
Fund
-------------------------
Six Months
Ended Period Ended
June 30, 1995 December 31, 1994
------------- -----------------
(Unaudited)
<S> <C> <C>
Sold . . . . . . . . . . . . . . . . . 0 4,364,584
Issued for reinvested distributions . . 1,783 25,954
Redeemed . . . . . . . . . . . . . . . (1,749,574) (535,447)
----------- ---------
Increase (Decrease) . . . . . . . (1,747,791) 3,855,091
========== =========
</TABLE>
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS - concluded
<TABLE>
<S> <C>
(5) Fees And As of February 17, 1995, PNC Institutional Management Corporation ("PIMC"), a
Expenses wholly-owned subsidiary of PNC Asset Management Group, Inc., which is a wholly-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), became the Company's
investment adviser. Under an investment advisory agreement, PIMC receives a fee
payable monthly at an annual rate of .40% of the average daily net assets of each
Fund. BlackRock Financial Management, Inc. ("BlackRock"), also a wholly-owned
subsidiary of PNC Asset Management Group, Inc., serves as subadviser for each Fund
and receives a fee directly from PIMC.
Through February 16, 1995, the Company's corporate predecessor (the "Predecessor
Company") received a management fee at an annual rate of .60% of the average daily
net assets of each Fund pursuant to an investment advisory and management agreement
between the Predecessor Company and Piper Trust Company, the former investment
adviser. For the six months ended June 30, 1995, Piper Trust Company and PIMC
voluntarily waived fees of $39,328 and $49,635, respectively, for Short Duration
Fund and $24,903 and $29,856, respectively, for Intermediate Duration Fund.
PFPC Inc., ("PFPC") an indirect wholly-owned subsidiary of PNC Bank Corp., serves as
the Funds' administrator and transfer agent. PNC Bank serves as the Funds'
custodian. For the period ended June 30, 1995, PFPC and PNC Bank have voluntarily
waived fees of $14,112 for Short Duration Fund and $11,343 for Intermediate Duration
Fund for these services.
Provident Distributors, Inc. ("PDI"), acts as the principal distributor of the
Funds' shares. In connection with a Shareholder Service Plan adopted pursuant to
Rule 12b-1 under the 1940 Act, the Funds pay PDI a fee computed daily and paid
monthly at the annual rate of .10% of the average daily net assets of each Fund.
For the six months ended June 30, 1995 the Funds' directors and officer voluntarily
waived fees totalling $14,363 and $7,284 for Short Duration Fund and Intermediate
Duration Fund, respectively.
</TABLE>
19
<PAGE> 21
DIRECTORS
G. Willing Pepper
Chairman
David R. Wilmerding, Jr.
Vice-Chairman
Philip E. Coldwell
Robert R. Fortune
Rodney D. Johnson
Anthony M. Santomero
OFFICERS
G. Willing Pepper
President
Edward J. Roach
Vice President and Treasurer
W. Bruce McConnel, III
Secretary
INVESTMENT ADVISER
PNC Institutional Management Corporation
400 Bellevue Parkway
Wilmington, DE 19809
SUBADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
ADMINISTRATOR
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
DISTRIBUTOR
Provident Distributors, Inc.
259 Radnor-Chester Road
Suite 120
Radnor, PA 19087
TRANSFER AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, DE 19885-9628
This report is submitted for the general information of the shareholders of the
Company. It is not authorized for distribution to prospective investors unless
accompanied or preceded by effective prospectuses for each portfolio of the
Company, which contain information concerning the investment policies of the
portfolios as well as other pertinent information.
