<PAGE> 1
PROVIDENT INSTITUTIONAL FUNDS, INC.
Short Duration Fund
Intermediate Duration Fund
Annual Report to Shareholders
December 31, 1995
<PAGE> 2
PROVIDENT INSTITUTIONAL FUNDS, INC. (SHORT DURATION AND INTERMEDIATE DURATION)
ANNUAL REPORT TO SHAREHOLDERS
February 12, 1996
Dear Shareholder:
We are pleased to present the Annual Report for Provident Institutional Funds,
Inc. for the year ended December 31, 1995.
THE FIXED INCOME MARKETS
The fixed income markets continued to rally through the third and fourth
quarters of 1995 and dramatically changed the landscape for fixed income
investors, as interest rates declined sharply. Data has shown that U.S.
economic growth has substantially slowed from the torrid pace of 1994 and
inflation has remained subdued. This combination presents a very favorable
environment for fixed income investors. Over the past twelve months, yields
declined across the Treasury yield curve. The yield of the 30-year Treasury
bond declined 193 basis points over the twelve-month period, and fell below
6.00% for the first time since October 1993 to close the year at 5.95%. The
performance of shorter maturities kept pace, as the yield of the 2-year
Treasury fell 255 basis points from its levels at the end of 1994, to close at
5.15% on December 29, 1995.
The Federal Reserve reversed its policy of "tight" monetary control for the
first time in almost two years by lowering the Fed funds target rate by 25
basis points on July 7 in response to economic reports citing a moderate but
sustainable rate of growth in the U.S. economy during the first half of 1995.
During July and early August, the bond market rally temporarily halted as
stronger economic data dampened expectations for a quick follow-up reduction.
However, as the third quarter progressed, the economy again showed signs of
sluggish growth and interest rates returned to their 1995 lows in anticipation
of another Fed ease by year-end. The Fed lowered short-term rates by a quarter
point on December 19 and again on January 31, 1996 to the current target level
of 5.25%.
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 portfolios in February of 1995, BlackRock has
substantially increased each portfolio's allocation to mortgage backed
securities. Specifically, each portfolio has been adding to adjustable rate
mortgages (ARMs).
1
<PAGE> 3
BlackRock believes that these securities offer substantial relative value in
addition to less prepayment sensitivity than fixed-rate mortgage pass-throughs
of similar maturity. As the levels of these indices change, the coupon of the
related ARM will adjust according to the terms of the specific security,
including limitations related to interest rate caps. ARMs remain cheap
relative to other short duration securities and the portfolios have been
increasing allocation in anticipation of future positive performance.
OUTLOOK FOR 1996
Market participants remain attentive to the politically-charged debate
surrounding the Federal budget proposals. Congressional and White House
leaders have been unable to agree upon a credible 7-year balanced budget
agreement, and appear resigned to let this debate linger as we move into
election year. This is likely to create some volatility in the fixed income
markets during early 1996, as investors anticipate possible effects of the
budget resolution on the values of Treasury and U.S. government securities.
BlackRock is attuned to these political issues, but we remain positive on the
fixed income markets as moderate economic and inflationary data set the stage
for continued decline in interest rates and further strong perfomance for fixed
income securities.
PERFORMANCE COMMENTARY
As the fixed income markets rallied over the past twelve months, both the Short
Duration Fund and the Intermediate Duration Fund experienced substantial
increases in net asset value. The NAV of the Short Duration Portfolio
increased from $9.47 per share as of 12/31/94 to $9.90 per share as of
12/31/95. The NAV of the Intermediate Duration portfolio increased from $9.17
per share as of 12/31/94 to $10.06 per share as of 12/31/95.
As the table below illustrates, both portfolios underperformed their respective
indices during 1995. The underperformance of the funds versus their benchmarks
can be attributed to the underperformance of mortgage backed securities versus
Treasuries over the past twelve months. Mortgage backed securities, and the
portfolios that invest in them, will typically underperform their Treasury
counterparts during a market rally. As rates decline substantially, mortgage
backed securities will typically experience pricing pressure as investors
become increasingly concerned with mortgage prepayments. Although both the
Short Duration and the Intermediate Duration portfolios maintain a significant
allocation to mortgage backed securities, BlackRock has primarily purchased
seasoned mortgages with relatively strong prepayment protection.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SHORT MERRILL LYNCH 1-3 YRS.
DURATION FUND TREASURY INDEX
-------------------------------------------------------------------------------------
CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Month .74% 9.02% .77% 9.43%
-------------------------------------------------------------------------------------
3 Months 2.38% 9.76% 2.52% 10.36%
-------------------------------------------------------------------------------------
1 Year 10.48% 10.48% 11.00% 11.00%
-------------------------------------------------------------------------------------
Year to Date 10.48% 10.48% 11.00% 11.00%
-------------------------------------------------------------------------------------
Since Inception 9.26% 4.83% 11.33% 5.89%
(02/15/94)
-------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
INTERMEDIATE MERRILL LYNCH 5-7 YRS.
DURATION FUND TREASURY INDEX
-------------------------------------------------------------------------------------
CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Month 1.40% 17.72% 1.30% 16.37%
-------------------------------------------------------------------------------------
3 Months 4.23% 17.85% 4.53% 19.21%
-------------------------------------------------------------------------------------
1 Year 16.96% 16.96% 19.03% 19.03%
-------------------------------------------------------------------------------------
Year to Date 16.96% 16.96% 19.03% 19.03%
-------------------------------------------------------------------------------------
Since Inception 12.70% 6.58% 14.34% 7.42%
(02/15/94)
-------------------------------------------------------------------------------------
</TABLE>
THE SUB-ADVISER
Effective February 17, 1995, BlackRock Financial Management, Inc. assumed the
role of sub-investment adviser of the portfolios. BlackRock is a New York
based registered investment adviser that provides asset management services
with respect to high quality fixed income instruments. BlackRock currently
manages over $36 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
SHORT DURATION FUND vs. BENCHMARKS
VALUE OF $1,000,000 INVESTED
<TABLE>
<CAPTION>
Date Merrill 1-3 Yr. Tr. SDF
-------- ------------------- ----------
<S> <C> <C>
02/14/94 1,000,000 1,000,000
02/28/94 1,000,000 997,000
03/31/94 995,000 995,000
04/30/94 990,000 987,000
05/31/94 993,000 987,000
06/30/94 995,000 987,000
07/31/94 1,005,000 997,000
08/31/94 1,008,000 1,000,000
09/30/94 1,005,000 995,000
10/31/94 1,008,000 995,000
11/30/94 1,003,000 990,000
12/31/94 1,005,000 993,000
01/31/95 1,020,000 1,005,000
02/28/95 1,030,000 1,020,000
03/31/95 1,038,000 1,030,000
04/30/95 1,050,000 1,037,000
05/31/95 1,065,000 1,052,000
06/30/95 1,072,000 1,057,000
07/31/95 1,078,000 1,059,000
08/31/95 1,082,000 1,062,000
09/30/95 1,090,000 1,070,000
10/31/95 1,100,000 1,080,000
11/30/95 1,110,000 1,090,000
12/31/95 1,115,000 1,095,000
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
1 MO 3 MOS 6 MOS 1 YR
-------------------------------------------------------------------
11/30/95 09/30/95 06/30/95 12/31/94
-------------------------------------------------------------------
12/31/95 12/31/95 12/31/95 12/31/95
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prov Instl:Short Dur 0.74 2.38 3.92 10.48
-------------------------------------------------------------------
Merrill 1-3 Yr. Tr 0.77 2.52 4.06 11.00
-------------------------------------------------------------------
</TABLE>
The graph above shows the result of a hypothetical $1,000,000 investment in the
Short Duration Fund as compared to a similar investment in the Merrill Lynch
1-3 years Treasury Index from the commencement of operations on February 14,
1994, to the end of the year, December 31, 1995. For total return purposes of
the graph, the results assume reinvestment of all dividends and distributions.
4
<PAGE> 6
INTERMEDIATE DURATION FUND vs. BENCHMARKS
VALUE OF $1,000,000 INVESTED
<TABLE>
<CAPTION>
Date Merrill 5-7 Yr. Tr. IDF
-------- ------------------- ---------
<S> <C> <C>
02/14/94 1,000,000 1,000,000
02/28/94 1,000,000 990,000
03/31/94 975,000 980,000
04/30/94 970,000 975,000
05/31/94 965,000 970,000
06/30/94 965,000 970,000
07/31/94 980,000 982,000
08/31/94 980,000 982,000
09/30/94 970,000 970,000
10/31/94 968,000 968,000
11/30/94 968,000 968,000
12/31/94 975,000 975,000
01/31/95 990,000 990,000
02/28/95 1,010,000 1,010,000
03/31/95 1,020,000 1,015,000
04/30/95 1,035,000 1,030,000
05/31/95 1,080,000 1,065,000
06/30/95 1,085,000 1,070,000
07/31/95 1,083,000 1,065,000
08/31/95 1,100,000 1,080,000
09/30/95 1,110,000 1,090,000
10/31/95 1,130,000 1,110,000
11/30/95 1,145,000 1,125,000
12/31/95 1,160,000 1,137,000
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
1 MO 3 MOS 6 MOS 1 YR
-------------------------------------------------------------------
11/30/95 09/30/95 06/30/95 12/31/94
-------------------------------------------------------------------
12/31/95 12/31/95 12/31/95 12/31/95
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prov Instl:Intmdt Dur 1.40 4.23 6.37 16.96
-------------------------------------------------------------------
Merrill 5-7 Yrs. Tr 1.30 4.53 6.30 19.03
-------------------------------------------------------------------
</TABLE>
The graph above shows the result of a hypothetical $1,000,000 investment in the
Intermediate Duration Fund as compared to a similar investment in the Merrill
Lynch 5-7 year Treasury Index from the commencement of operations on February
14, 1994, to the end of the year, December 31, 1995. For total return purposes
of the graph, the results assume reinvestment of all dividends and
distributions.
5
<PAGE> 7
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------- -------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES (52.5%):
Resolution Trust Funding Corporation, Zero Coupon (1.7%)
5.56%*, 10/15/98 . . . . . . . . . . . . . . . . . . . . $ 1,600,000 $ 1,383,008
U.S. Treasury Notes (50.8%):
5.38%, 11/30/97 . . . . . . . . . . . . . . . . . . . . . 24,945,000 ** 25,031,058
7.25%, 02/15/98 . . . . . . . . . . . . . . . . . . . . . 12,200,000 12,694,709
7.75%, 12/31/99 . . . . . . . . . . . . . . . . . . . . . 650,000 705,718
6.25%, 08/31/00 . . . . . . . . . . . . . . . . . . . . . 1,470,000 1,521,993
6.13%, 09/30/00 . . . . . . . . . . . . . . . . . . . . . 1,800,000 1,855,314
------------
41,808,792
------------
Total U.S. Government and Agency Securities
(cost: $43,076,610) . . . . . . . . . . . . . . . . . . 43,191,800
------------
MORTGAGE-BACKED SECURITIES (46.2%):
GNMA (11.3%):
6.50%, 1-year CMT, ARM, 01/20/21 . . . . . . . . . . . . 3,041,184 3,111,511
7.38%, 1-year CMT, ARM, 09/20/21 . . . . . . . . . . . . 787,786 808,466
7.38%, 1-year CMT, ARM, 08/20/22 . . . . . . . . . . . . 660,992 675,864
7.50%, 1-year CMT, ARM, 03/20/25 . . . . . . . . . . . . 1,411,007 1,444,519
6.50%, 1-year CMT, ARM, 04/20/25 . . . . . . . . . . . . 759,321 774,507
7.50%, 1-year CMT, ARM, 04/20/25 . . . . . . . . . . . . 1,267,332 1,299,015
6.00%, 1-year CMT, ARM, 06/20/25 . . . . . . . . . . . . 1,185,570 1,204,836
------------
9,318,718
------------
FNMA (11.1%):
7.00%, 09/01/04 . . . . . . . . . . . . . . . . . . . . . 2,279,136 2,332,759
7.00%, 04/01/08 . . . . . . . . . . . . . . . . . . . . . 1,931,591 1,982,127
10.00%, 04/01/20 . . . . . . . . . . . . . . . . . . . . . 1,152,118 1,266,610
7.49%, 1-year CMT, ARM, 12/01/21 . . . . . . . . . . . . 2,042,945 2,086,357
7.65%, 1-year CMT, ARM, 12/01/24 . . . . . . . . . . . . 1,439,403 1,479,887
------------
9,147,740
------------
FHLMC (23.8%):
8.50%, 12/01/99 . . . . . . . . . . . . . . . . . . . . . 632,781 654,533
8.50%, 01/01/00 . . . . . . . . . . . . . . . . . . . . . 604,858 625,650
8.50%, 03/01/00 . . . . . . . . . . . . . . . . . . . . . 1,735,358 1,795,011
6.50%, 10/01/08 . . . . . . . . . . . . . . . . . . . . . 2,200,138 2,208,988
9.25%, 12/01/08 . . . . . . . . . . . . . . . . . . . . . 2,182,032 2,297,953
7.88%, 1-year CMT, ARM, 10/01/19 . . . . . . . . . . . . 1,982,641 2,045,837
7.74%, 1-year CMT, ARM, 02/01/21 . . . . . . . . . . . . 2,451,540 2,511,296
6.02%, 1-year CMT, ARM, 01/01/24 . . . . . . . . . . . . 1,780,032 1,827,870
8.50%, 06/01/24 . . . . . . . . . . . . . . . . . . . . . 2,080,778 2,174,413
6.79%, 6-month LIBOR, ARM, 10/01/25 . . . . . . . . . . . 1,889,629 1,938,346
7.36%, ARM, 04/01/29 . . . . . . . . . . . . . . . . . . 1,489,739 1,525,120
------------
19,605,017
------------
Total Mortgage-Backed Securities
(cost: $37,573,158) . . . . . . . . . . . . . . . . . . 38,071,475
------------
</TABLE>
6
<PAGE> 8
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------- -----------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (6.1%):
FNMA (4.3%):
6.00%, Series 1994-31, Class AD, 03/25/15 . . . . . $ 1,641,409 $ 1,630,730
7.62%, Series 1995-W2, Class 1A, 05/25/22 . . . . . 1,847,069 1,886,896
------------
3,517,626
------------
FHLMC (1.8%):
7.00%, Series 1593, Class A, 12/15/17 . . . . . . . 1,461,279 1,484,005
------------
Total Collateralized Mortgage Obligations
(cost: $4,929,062) . . . . . . . . . . . . . . . 5,001,631
------------
SHORT-TERM SECURITIES (7.2%):
FHLB
5.75%, 01/02/96 . . . . . . . . . . . . . . . . . . 5,950,000 5,949,050
------------
Total Short-Term Securities
(cost: $5,949,050) . . . . . . . . . . . . . . . 5,949,050
------------
Total Investments in Securities (112.0%)
(cost: $91,527,880) . . . . . . . . . . . . . . . 92,213,956
Liabilities in Excess of Other Assets (-12.0%) . . . (9,897,727)
------------
Net Assets (100%) . . . . . . . . . . . . . . . . . $ 82,316,229
(Equivalent to $9.90 per share based on 8,311,143 shares ============
of beneficial interest outstanding.)
Net asset value, offering price and
redemption value per share . . . . . . . . . . . . $9.90
=====
</TABLE>
At December 31, 1995, the cost of investments for federal income tax purposes
was $91,534,016. The aggregate unrealized appreciation and depreciation of
investments in securities based on this cost were as follows:
<TABLE>
<S> <C>
Unrealized appreciation . . . . . . . . . . . . . . . . . . $ 695,195
Unrealized depreciation . . . . . . . . . . . . . . . . . . (15,255)
------------
Net unrealized appreciation . . . . . . . . . . . . . . $ 679,940
============
</TABLE>
* Yield to maturity
** $10,800,000 principal amount pledged as collateral for reverse repurchase
agreements.
See accompanying Notes to Financial Statements.
7
<PAGE> 9
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
---------------- ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (81.1%):
SBA (5.4%):
8.50%, 01/01/15 . . . . . . . . . . . . . . . . . . . $ 391,028 $ 429,520
6.85%, 10/01/15 . . . . . . . . . . . . . . . . . . . 400,000 407,813
6.65%, 11/01/15 . . . . . . . . . . . . . . . . . . . 300,000 303,703
------------
1,141,036
------------
U.S. Treasury Notes (74.4%):
5.38%, 11/30/97 . . . . . . . . . . . . . . . . . . . 450,000 451,552
6.88%, 03/31/00 . . . . . . . . . . . . . . . . . . . 3,425,000 * 3,622,040
6.13%, 07/31/00 . . . . . . . . . . . . . . . . . . . 2,750,000 ** 2,833,160
6.13%, 09/30/00 . . . . . . . . . . . . . . . . . . . 300,000 309,219
5.75%, 10/31/00 . . . . . . . . . . . . . . . . . . . 1,450,000 1,472,432
5.63%, 11/30/00 . . . . . . . . . . . . . . . . . . . 1,890,000 1,908,824
5.50%, 12/31/00 . . . . . . . . . . . . . . . . . . . 300,000 301,428
6.25%, 02/15/03 . . . . . . . . . . . . . . . . . . . 4,550,000 *** 4,751,155
6.50%, 05/15/05 . . . . . . . . . . . . . . . . . . . 150,000 159,724
------------
15,809,534
------------
U.S. Treasury Bonds (1.3%):
7.63%, 02/15/25 . . . . . . . . . . . . . . . . . . 220,000 268,906
------------
Total U.S. Government Securities
(cost: $16,683,053) . . . . . . . . . . . . . . . 17,219,476
------------
MORTGAGE-BACKED SECURITIES (52.2%):
GNMA (12.7%)
7.50%, 1-year CMT, ARM, 01/20/25 . . . . . . . . . 883,019 908,958
7.50%, 1-year CMT, ARM, 03/20/25 . . . . . . . . . 793,692 812,542
7.50%, 1-year CMT, ARM, 04/20/25 . . . . . . . . . 554,458 568,319
6.00%, 1-year CMT, ARM, 05/20/25 . . . . . . . . . 393,786 400,185
------------
2,690,004
------------
</TABLE>
8
<PAGE> 10
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
------------ -----------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (Continued)
FNMA (12.9%):
7.00%, 04/01/08 . . . . . . . . . . . . . . . . . . $ 1,124,854 $ 1,154,283
9.00%, 12/01/20 . . . . . . . . . . . . . . . . . . 1,506,181 1,588,080
-----------
2,742,363
-----------
FHLMC (26.7%):
8.00%, 11/01/08 . . . . . . . . . . . . . . . . . . 722,639 756,060
9.25%, 06/01/16 . . . . . . . . . . . . . . . . . . 1,212,430 1,276,841
9.50%, 12/01/22 . . . . . . . . . . . . . . . . . . 1,492,684 1,589,709
7.50%, 06/01/24 . . . . . . . . . . . . . . . . . . 1,002,645 1,029,277
7.50%, 10/01/24 . . . . . . . . . . . . . . . . . . 44,275 45,451
7.50%, 03/01/25 . . . . . . . . . . . . . . . . . . 87,917 90,252
7.50%, 09/01/25 . . . . . . . . . . . . . . . . . . 485,303 498,193
7.36%, ARM, 04/01/29 . . . . . . . . . . . . . . . 372,435 381,280
-----------
5,667,063
-----------
Total Mortgage-Backed Securities
(cost: $10,882,066) . . . . . . . . . . . . . . . 11,099,430
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.5%):
FNMA (0.5%)
9.00%, Series 1995-W3, Class A, 04/25/25 . . . . . 98,808 103,193
-----------
FHLMC (2.0%)
6.50%, Series 1687, Class G, 03/15/08 . . . . . . . 414,815 415,107
-----------
Total Collateralized Mortgage Obligations
(cost: $506,940) . . . . . . . . . . . . . . . . . 518,300
-----------
SHORT-TERM SECURITIES (1.0%):
FHLB
5.75%, 01/02/96 . . . . . . . . . . . . . . . . . 220,000 219,965
-----------
Total Short-Term Securities
(cost: $219,965) . . . . . . . . . . . . . . . . . 219,965
-----------
</TABLE>
9
<PAGE> 11
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Value
(Note 2)
------------
<S> <C>
Total Investments in Securities (136.8%)
(cost: $28,292,024) . . . . . . . . . . . . . . . $29,057,171
-----------
Liabilities in Excess of Other Assets (-36.8%) . . . (7,815,006)
------------
Net Assets (100%) . . . . . . . . . . . . . . . . . $21,242,165
===========
(Equivalent to $10.06 per share based on 2,112,480 shares
of beneficial interest outstanding.)
Net asset value, offering price and
redemption value per share . . . . . . . . . . . . $ 10.06
=======
</TABLE>
At December 31, 1995, the cost of investments for federal income tax purposes
was $28,334,829. The gross and net unrealized appreciation of investments in
securities based on this cost is $722,342.
* $2,200,000 principal amount pledged as collateral for reverse repurchase
agreements.
** $2,125,000 principal amount pledged as collateral for reverse repurchase
agreements.
*** Entire principal amount pledged as collateral for reverse repurchase
agreements.
See accompanying Notes to Financial Statements.
10
<PAGE> 12
PROVIDENT INSTITUTIONAL FUNDS, INC.
<TABLE>
<CAPTION>
INVESTMENT ABBREVIATIONS
<S> <C>
ARM . . . . . . . . . . . . . . . . . . . . . . . Adjustable Rate Mortgage
CMO . . . . . . . . . . . . . . . . . . Collateralized Mortgage Obligation
CMT . . . . . . . . . . . . . . . . . . . . . . Constant Maturity Treasury
FHLB . . . . . . . . . . . . . . . . . . . . . . . . Federal Home Loan Bank
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>
11
<PAGE> 13
PROVIDENT INSTITUTIONAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
--------------- ---------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost $91,527,880 and $28,292,024,
respectively) (Note 2) . . . . . . . . . . . . . . . . . . $ 92,213,956 $ 29,057,171
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,509 8,408
Receivable for investments sold . . . . . . . . . . . . . . . . . 0 1,448,063
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . 890,131 401,095
Deferred organization expenses (Note 2) . . . . . . . . . . . . . 32,370 32,370
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 416,431 75,907
------------ ------------
93,595,397 31,023,014
------------ ------------
LIABILITIES:
Payable for investments purchased . . . . . . . . . . . . . . . . 0 299,322
Reverse repurchase agreements (Note 2) . . . . . . . . . . . . . 10,854,000 9,345,750
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . 355,022 103,465
Other accrued expenses and liabilities . . . . . . . . . . . . . 70,146 32,312
------------ ------------
11,279,168 9,780,849
------------ ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,316,229 $ 21,242,165
============ ============
Net assets were comprised of:
Common stock, at par (Note 4) . . . . . . . . . . . . . . . $ 8,311 $ 2,113
Paid-in capital in excess of par . . . . . . . . . . . . . . 83,710,318 21,138,160
------------ ------------
83,718,629 21,140,273
Accumulated net realized loss on investments . . . . . . . . (2,088,476) (663,255)
Net unrealized appreciation of investments . . . . . . . . . 686,076 765,147
Net assets, December 31 ,1995 . . . . . . . . . . . . . . . $ 82,316,229 $ 21,242,165
============ ============
Net asset value per share . . . . . . . . . . . . . . . . . . . . $ 9.90 $ 10.06
============ ============
Total shares outstanding at end of period . . . . . . . . . . . . 8,311,143 2,112,480
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 14
PROVIDENT INSTITUTIONAL FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
<S> <C> <C>
INCOME:
Interest (net of interest expense of $279,293 and
$245,823 respectively) . . . . . . . . . . . . . . . . . $ 5,596,799 $ 1,927,824
Fee income (Note 2) . . . . . . . . . . . . . . . . . . . . 0 10,166
----------- -----------
Total investment income . . . . . . . . . . . . . . . . . . 5,596,799 1,937,990
----------- -----------
EXPENSES (Note 5):
Investment advisory fee . . . . . . . . . . . . . . . . . . 387,018 118,643
Administration, transfer agent
and custodian fees . . . . . . . . . . . . . . . . . . . 200,628 98,982
Registration fees . . . . . . . . . . . . . . . . . . . . . 14,777 13,379
Reports to shareholders . . . . . . . . . . . . . . . . . . 13,424 3,083
Amortization of organization costs . . . . . . . . . . . . . 10,355 10,355
Directors' fees and officer's salary . . . . . . . . . . . . 34,842 10,207
Audit and legal fees . . . . . . . . . . . . . . . . . . . . 60,786 18,467
Shareholder service fees . . . . . . . . . . . . . . . . . . 76,970 22,783
Other expenses . . . . . . . . . . . . . . . . . . . . . . . 7,347 2,935
----------- -----------
806,147 298,834
Less fees waived . . . . . . . . . . . . . . . . . . . . . . (220,109) (120,941)
----------- -----------
Total expenses . . . . . . . . . . . . . . . . . . . . . 586,038 177,893
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . 5,010,761 1,760,097
----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS:
Net realized gain (loss) on investments . . . . . . . . . . (44,811) 18,165
Net change in unrealized appreciation
of investments . . . . . . . . . . . . . . . . . . . . . 4,366,081 2,934,788
----------- -----------
Net gain on investments . . . . . . . . . . . . . . . . . . 4,321,270 2,952,953
----------- -----------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . $ 9,332,031 $ 4,713,050
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 15
PROVIDENT INSTITUTIONAL FUNDS, INC.
SHORT DURATION FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Increase (decrease) in cash from operating activities:
Interest purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,961,037)
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,809,944
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . (272,238)
Operating expenses paid . . . . . . . . . . . . . . . . . . . . . . . . (655,919)
---------------
Net increase in cash from operating activities . . . . . . . . . . . $ 4,920,750
Investing activities:
Purchases of long-term portfolio investments . . . . . . . . . . . . . . (498,546,612)
Proceeds from disposition of long-term portfolio investments . . . . . . 490,843,026
Proceeds from disposition of short-term portfolio securities, net . . . 13,258,355
Paydowns of long-term portfolio investments . . . . . . . . . . . . . . 7,741,173
---------------
Net increase in cash from investing activities . . . . . . . . . . . 13,295,942
Financing activities:*
Redemption of Fund shares . . . . . . . . . . . . . . . . . . . . . . . (23,949,720)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (5,080,345)
Increase in reverse repurchase agreements . . . . . . . . . . . . . . . 10,854,000
---------------
Net decrease in cash from financing activities . . . . . . . . . . . (18,176,065)
--------------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . 40,627
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . 1,882
--------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,509
==============
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,332,031
Adjustments:
Increase in interest receivable . . . . . . . . . . . . . . . . . . . . $ (153,924)
Amortization of bond premium . . . . . . . . . . . . . . . . . . . . . . 126,739
Decrease in accrued expenses . . . . . . . . . . . . . . . . . . . . . . (78,901)
Increase in accrued interest expense . . . . . . . . . . . . . . . . . . 7,055
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 9,020
Net realized and unrealized gain on investments . . . . . . . . . . . . (4,321,270)
---------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,411,281)
---------------
Net increase in cash from operating activities . . . . . . . . . . . . . . $ 4,920,750
==============
</TABLE>
- ---------------------------
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See accompanying Notes to Financial Statements.
14
<PAGE> 16
PROVIDENT INSTITUTIONAL FUNDS, INC.
INTERMEDIATE DURATION FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Increase (decrease) in cash from operating activities:
Interest purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,309,835)
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,617,868
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . (231,110)
Operating expenses paid . . . . . . . . . . . . . . . . . . . . . . . . (201,256)
---------------
Net increase in cash from operating activities . . . . . . . . . . . $ 1,875,667
Investing activities:
Purchases of long-term portfolio investments . . . . . . . . . . . . . . (162,413,877)
Proceeds from disposition of long-term portfolio investments . . . . . . 163,534,122
Proceeds from disposition of short-term portfolio securities, net . . . 4,629,637
Paydowns of long-term portfolio investments . . . . . . . . . . . . . . 1,977,480
---------------
Net increase in cash from investing activities . . . . . . . . . . . 7,727,362
Financing activities:*
Redemption of Fund shares . . . . . . . . . . . . . . . . . . . . . . . (17,119,041)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (1,824,823)
Increase in reverse repurchase agreements . . . . . . . . . . . . . . . 9,345,750
---------------
Net decrease in cash from financing activities . . . . . . . . . . . (9,598,114)
-----------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . 4,915
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . 3,493
-----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,408
===========
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,713,050
Adjustments:
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . $ 92,124
Amortization of bond premium . . . . . . . . . . . . . . . . . . . . . . 32,097
Decrease in accrued expenses . . . . . . . . . . . . . . . . . . . . . . (33,312)
Increase in accrued interest expense . . . . . . . . . . . . . . . . . . 14,712
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 9,949
Net realized and unrealized gain on investments . . . . . . . . . . . . (2,952,953)
---------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,837,383)
-----------
Net increase in cash from operating activities . . . . . . . . . . . . . . $ 1,875,667
===========
</TABLE>
- ---------------------------
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See accompanying Notes to Financial Statements.
15
<PAGE> 17
PROVIDENT INSTITUTIONAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
For the For the
Year Ended Period Ended Year Ended Period Ended
December 31, 1995 December 31, 1994(1) December 31, 1995 December 31, 1994(1)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . $ 5,010,761 $ 4,869,240 $ 1,760,097 $ 1,814,666
Net realized gain (loss) on investments . . (44,811) (2,043,665) 18,165 (681,420)
Net change in unrealized appreciation
(depreciation) of investments . . . . . . 4,366,081 (3,680,005) 2,934,788 (2,169,641)
------------- ------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 9,332,031 (854,430) 4,713,050 (1,036,395)
------------- ------------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income . . . . . . . . . . . (5,010,761) (4,869,240) (1,760,097) (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 . . . . . . . . . . . . . . 40,434 251,578 18,309 245,627
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 . . . . . . (23,909,286) 107,577,915 (17,100,732) 38,191,005
------------- ------------- ----------- -----------
Total increase (decrease) in net assets . (19,588,016) 101,854,245 (14,147,779) 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 . . . . . . . . . . $ 82,316,229 $ 101,904,245 $21,242,165 $35,389,944
============= ============= =========== ===========
</TABLE>
(1) Commencement of operations was February 14, 1994.
See accompanying Notes to Financial Statements.
16
<PAGE> 18
PROVIDENT INSTITUTIONAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
For the For the
Year Ended Period Ended Year Ended Period Ended
December 31, 1995 December 31, 1994(1) December 31, 1995 December 31, 1994 (1)
------------------ ------------------ ----------------- -----------------
<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 . . . . . . . . . .54(5) .42 .62(5) .46
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . .43 (.53) .89 (.83)
------ ------ ------ ------
Total from operations . . . . . . . .97 (.11) 1.51 (.37)
------ ------ ------ ------
Distributions to shareholders:
From net investment income . . . . . . . (.54) (.42) (.62) (.46)
------ ------ ------ ------
Net asset value, end of period . . . . . . . $ 9.90 $ 9.47 $10.06 $ 9.17
====== ====== ====== ======
Total return(2) . . . . . . . . . . . . . . . 10.48% (1.11)% 16.96% (3.64)%
Ratios/Supplemental Data
Net assets at end of period $(000) . . . 82,316 101,904 21,242 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) . . . . . . . 5.56% 4.96% 6.43% 5.68%
Portfolio turnover rate
(excluding short-term securities) . 567.7% 90.6% 532.2% 50.5%
Amount of reverse repurchase agreements
outstanding at end of period $(000) 10,854 - 9,346 -
Average amount of reverse repurchase
agreements outstanding during
the period $(000) . . . . . . . . . 4,256 - 2,278 -
Average shares outstanding (000) . . . . 9,249 11,549 2,846 3,876
Average amount of reverse repurchase
agreements per share during
the period . . . . . . . . . . . . . $ .46 - $ .80 -
</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 year ended
December 31, 1995 and for the period ended December 31, 1994, respectively,
for Short Duration Fund and 1.09% and 1.23% for the year ended December 31,
1995 and for the period ended December 31, 1994, respectively, for
Intermediate Duration Fund.
(5) Net of $.03 and $.09 of interest expense for Short Duration Fund and
Intermediate Duration Fund, respectively.
See accompanying Notes to Financial Statements.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
<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. The investment objective of each Fund is to seek as high a level
of current income as is consistent with preservation of principal and the
average weighted duration of its respective portfolio securities.
2) Significant The preparation of financial statements in accordance with generally
Accounting accepted accounting principles requires management to make estimates and
Policies assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
INVESTMENTS IN SECURITIES
The market value of fixed income securities is 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 December 31, 1995 Short
Duration Fund and Intermediate Duration Fund had no such outstanding
when-issued or forward 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 to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date from the
same party. As an inducement to "roll over" its purchase commitments, the
Fund receives negotiated fees. For the period ended December 31, 1995, such
fees earned by Intermediate Duration Fund amounted to $10,166.
</TABLE>
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<S> <C>
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.
Net realized gains (losses) may differ for financial statement and tax
purposes due primarily 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
$2,082,340 for Short Duration Fund and $620,450 for Intermediate Duration
Fund on December 31, 1995, which, if not offset by subsequent capital gains,
will expire in 2003. 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 year ended December 31, 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.
</TABLE>
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<S> <C>
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. Reverse repurchase agreements may be used as
a means of borrowing for investment purposes.
The weighted average daily balances of reverse repurchase agreements outstanding
during the year ended December 31, 1995, were approximately $4,256,201 and
$2,277,598 at weighted average interest rates of approximately 5.80% and 5.87% for
Short Duration Fund and Intermediate Duration Fund, respectively. The maximum
amounts of reverse repurchase agreements outstanding at any month end during the
year ended December 31, 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.
The following reverse repurchase agreements were outstanding on December 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
Short Duration Fund:
Acquisition Accrued
Amount Date Rate Due Interest
----------- ----------- ----- -------- --------
<S> <C> <C> <C> <C>
$10,854,000 12/28/95 5.85% 01/04/96 $7,055
</TABLE>
<TABLE>
<CAPTION>
Intermediate Duration Fund:
Acquisition Accrued
Amount Date Rate Due Interest
----------- ----------- ----- -------- --------
<S> <C> <C> <C> <C>
$7,000,000 12/21/95 5.80% 01/03/96 $12,406
2,345,750 12/26/95 5.90% 01/09/96 2,307
---------- -------
$9,345,750 $14,713
========== =======
</TABLE>
<TABLE>
<S> <C>
(3) Investment Cost of purchases and proceeds from sales of securities, other than short-term
Security securities, for the year ended December 31, 1995, were as follows:
Transactions
</TABLE>
<TABLE>
<CAPTION>
Short Duration Intermediate Duration
Fund Fund
-------------- ---------------------
<S> <C> <C>
Purchases . . . . . . . . . . . . . . . $498,546,612 $162,713,199
Sales Proceeds . . . . . . . . . . . . $490,843,026 $164,978,212
</TABLE>
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<S> <C>
(4) Capital Transactions in shares of each Fund are summarized as follows:
Share
Transactions
</TABLE>
<TABLE>
<CAPTION>
Short Duration
Fund
--------------
For the Year
Ended Period Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Sold . . . . . . . . . . . . . . . . . 0 14,569,758
Issued for reinvested distributions . . 4,214 25,952
Redeemed . . . . . . . . . . . . . . . (2,449,940) (3,843,841)
---------- ----------
Increase (Decrease) . . . . . . . (2,445,726) 10,751,869
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Intermediate Duration
Fund
---------------------
For the Year
Ended Period Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Sold . . . . . . . . . . . . . . . . . 0 4,364,584
Issued for reinvested distributions . . 1,963 25,954
Redeemed . . . . . . . . . . . . . . . (1,749,574) (535,447)
---------- ---------
Increase (Decrease) . . . . . . . (1,747,611) 3,855,091
========== =========
</TABLE>
<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; the adviser has, however, agreed to waive a portion of its advisory fee, so
that the fee payable to it is payable at the effective annual rate of .30% of each
Fund's average daily net assets. 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 year ended December 31, 1995, Piper Trust Company and PIMC
voluntarily waived fees of $39,328 and $119,566, respectively, for Short Duration
Fund and $24,903 and $62,909, 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. For its administrative services PFPC
receives a fee, payable monthly at an annual rate of .15% of the average daily net
assets of each Fund. PNC Bank serves as the Funds' custodian. For the period ended
December 31, 1995, PFPC and PNC Bank have voluntarily waived fees of $28,514 for
Short Duration
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
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Fund and $23,293 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 year ended December 31, 1995 the Funds' directors and officer voluntarily
waived fees totaling $32,701 and $9,836 for Short Duration Fund and Intermediate
Duration Fund, respectively.
PNC Bank, National Association, as the largest shareholder of beneficial interest in
the Funds, owned 96.26% of the outstanding shares of the Short Duration Fund and
94.68% of the outstanding shares of Intermediate Duration Fund at December 31, 1995.
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INDEPENDENT AUDITORS' REPORT
To the Shareholders and Trustees
Provident Institutional Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the statements of net assets, of Provident Institutional Funds, Inc.
(comprising, respectively, the Short Duration Fund and Intermediate Duration
Fund) as of December 31, 1995, and the related statements of operations and
cash flows for the year then ended, the statements of changes in net assets,
and the financial highlights, for the year-ended December 31, 1995 and the
period February 14, 1994 (commencement of operations) to December 31, 1994.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included inspection of and
confirmation by correspondence with the custodians and brokers of securities
owned as of December 31, 1995. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting Provident Institutional Funds, Inc.
as of December 31, 1995, the results of their operations and cash flows for the
year then ended, the changes in their net assets, and the financial highlights,
for the year ended December 31, 1995 and the period February 14, 1994 to
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, PA
February 9, 1996
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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.
24
