RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
RCB GROWTH AND INCOME FUND
Dear Fellow Shareholders:
The RCB Growth & Income Fund generated strong results during its first quarter
of operation as the general market enjoyed one of its best quarters of the
post-war era.
The RCB Growth & Income Fund returned 17.51% in the quarter ended December 31,
1998, compared to 21.28% for the S&P 500. The Fund was launched at the depths of
one of the sharpest drops in years, and we made a conscious decision to deploy
incoming funds fairly quickly to take advantage of opportunistic prices.
Breaking down the performance, both the decision to invest rapidly and the
specific stocks selected for the portfolio contributed to the healthy returns,
while the continuous inflow of funds added to temporary cash and acted as a
slight damper. As the Fund continues to grow, cash balances should remain
relatively low and our stock selection will be the main driver of performance.
Clearly the fourth quarter of 1998, as well as the full year, was dominated by
the largest capitalization and the highest P/E stocks. While this trend has
persisted for the past few years (and the Fund's portfolio certainly includes
firms which fit into this category), our experience over many years shows that
it is best to buy high-quality, well-managed companies regardless of the latest
Wall Street fad. We devote our research efforts to finding these well managed
businesses and buy them when prices are reasonable. Over time this should
produce solid results.
During the quarter, AirTouch Communications, American Express, Corning, IMS
Health, Kimberly Clark, Motorola, PepsiCo, and Time Warner turned in strong
returns for the Fund. AirTouch Communications, a large international wireless
carrier, went into play in late December as both Bell Atlantic and Vodaphone
began aggressively bidding. Either way, the result should be a powerhouse
company.
As we look forward to 1999, we expect the U.S. economy to perform reasonably
well. Problems in Asia and South America won't disappear overnight, thereby
putting some pressure on U.S. corporate profit growth. Given the world's
irritating habit of generating surprises when one least expects them, we will
continue to insist on a reasonable price level before adding any security to the
Fund's portfolio. This should put the RCB Growth & Income Fund in a good
position to prosper regardless of any short-term vagaries of the market. Longer
term, we believe the world's economy will continue to grow, which is why we, as
the Fund's advisors, have our own money invested in the Fund as well.
Sincerely,
/s/ Donn B. Conner /s/ Victor F. Hawley
Donn B. Conner, CFA Victor F. Hawley, CFA
Manager Co-Manager
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 95.3% Market Value
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE: 3.9%
500 Raytheon Company-Class A............................. $ 25,844
---------
BANKS: 3.8%
500 Bank One Corp........................................ 25,531
---------
BEVERAGES: 6.6%
300 Anheuser-Busch Companies, Inc........................ 19,687
600 PepsiCo, Inc......................................... 24,563
---------
44,250
---------
CHEMICALS: 4.0%
900 Sigma-Aldrich Corp................................... 26,438
---------
CONSULTING SERVICES: 4.3%
1,700 Comdisco, Inc........................................ 28,687
---------
CONSUMER PRODUCTS: 12.7%
400 Eastman Kodak Company................................ 28,800
900 Fortune Brands, Inc.................................. 28,462
500 Kimberly-Clark Corp.................................. 27,250
---------
84,512
---------
DATA PROCESSING/MANAGEMENT: 4.1%
1,200 Reynolds & Reynolds Company-Class A.................. 27,525
---------
ELECTRONIC COMPONENTS: 3.6%
400 Motorola, Inc........................................ 24,425
---------
FINANCE: 10.2%
150 American Express Company............................. 15,338
800 Dun & Bradstreet Corp................................ 25,250
800 Equifax, Inc......................................... 27,350
---------
67,938
---------
See accompanying Notes to Financial Statements.
2
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
INSURANCE: 3.9%
400 The Chubb Corp....................................... $ 25,950
---------
MEDICAL - DRUGS: 7.0%
500 Abbott Laboratories.................................. 24,500
300 Warner-Lambert Company............................... 22,556
---------
47,056
---------
MEDICAL MISCELLANEOUS: 2.3%
200 IMS Health, Inc...................................... 15,088
---------
MISCELLANEOUS MANUFACTURING: 2.7%
400 Corning, Inc......................................... 18,000
---------
MULTIMEDIA: 2.8%
300 Time Warner, Inc..................................... 18,619
---------
OIL COMPANY - INTEGRATED: 3.5%
500 Royal Dutch Petroleum Company, ADR (Netherlands)..... 23,938
---------
PAPER AND RELATED PRODUCTS: 3.3%
800 Consolidated Papers, Inc............................. 22,000
---------
PIPELINES: 4.3%
500 Enron Corp........................................... 28,531
---------
RETAIL - FOOD: 3.8%
400 Albertson's, Inc..................................... 25,475
---------
TELECOMMUNICATIONS: 8.5%
400 AirTouch Communications, Inc.*....................... 28,850
700 General Motors Corp.-Class H*........................ 27,781
---------
56,631
---------
Total common stocks (cost $569,591).................. 636,438
---------
See accompanying Notes to Financial Statements.
3
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Principal Amount REPURCHASE AGREEMENT: 15.9% Market Value
- --------------------------------------------------------------------------------
$106,000 Star Bank Repurchase Agreement, 3.50%, dated
12/31/1998, due 1/4/1999, collateralized by
$110,000 GNMA, 7.000%, due 3/20/2024 (proceeds
$106,041) (cost $106,000)......................... $ 106,000
---------
Total Investments in Securities (cost $675,591+):
111.2% ........................................... 742,438
Liabilities in excess of Other Assets: (11.2)%.... (74,957)
---------
TOTAL NET ASSETS: 100.0% ......................... $ 667,481
=========
*Non-income producing security.
+ At December 31, 1998, the cost for Federal income tax purposes was the same as
the basis for financial reporting. Unrealized appreciation and depreciation of
securities were as follows:
Gross unrealized appreciation..................... $ 72,191
Gross unrealized depreciation..................... (5,344)
---------
Net unrealized appreciation..................... $ 66,847
=========
See accompanying Notes to Financial Statements.
4
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $675,591) ....... $ 742,438
Cash ...................................................... 495
Receivables:
Dividends and interest .............................. 819
Due from Advisor .................................... 7,849
---------
Total assets .................................. 751,601
---------
LIABILITIES
Payables:
Administration fee .................................. 2,466
Distribution fees ................................... 279
Securities purchased ................................ 68,744
Accrued expenses .......................................... 12,631
---------
Total liabilities ............................. 84,120
---------
NET ASSETS ...................................................... $ 667,481
=========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($667,481/56,925 shares outstanding;
unlimited number of shares authorized
without par value) .................................. $ 11.73
=========
OFFERING PRICE PER SHARE .................................. $ 11.73
=========
COMPONENTS OF NET ASSETS
Paid-in capital ........................................... $ 600,945
Overdistribution of net investment income ................. (311)
Undistributed net realized gain on investments ............ 0
Net unrealized appreciation on investments ................ 66,847
---------
Net assets .......................................... $ 667,481
=========
See accompanying Notes to Financial Statements.
5
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 30, 1998* THROUGH DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................... $ 1,584
Interest ..................................................... 559
--------
Total income ........................................... 2,143
--------
Expenses
Administration fee ........................................... 7,479
Audit fee .................................................... 3,971
Fund accounting fees ......................................... 3,689
Transfer agent fees .......................................... 2,596
Registration fees ............................................ 2,244
Custody fees ................................................. 1,396
Reports to shareholders ...................................... 1,198
Legal fees ................................................... 1,048
Miscellaneous ................................................ 898
Advisory fees ................................................ 670
Trustee fees ................................................. 623
Distribution fees ............................................ 279
--------
Total expenses ............................................. 26,091
Less: expenses waived and reimbursed ....................... (24,695)
--------
Net expenses ............................................... 1,396
--------
NET INVESTMENT INCOME .................................... 747
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ................. 0
Net change in unrealized appreciation on investments ......... 66,847
--------
Net realized and unrealized gain on investments ............ 66,847
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 67,594
========
*Commencement of operations.
See accompanying Notes to Financial Statements.
6
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, 1998*
through
December 31, 1998
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income ........................................ $ 747
Net realized gain from security transactions ................. 0
Net change in unrealized appreciation on investments ......... 66,847
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... 67,594
---------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................................ (1,058)
---------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a) ..................................... 600,945
---------
TOTAL INCREASE IN NET ASSETS ............................... 667,481
NET ASSETS
Beginning of period .......................................... -0-
---------
END OF PERIOD .................................................. $ 667,481
=========
(a) A summary of capital shares transactions is as follows:
September 30, 1998*
through
December 31, 1998
-----------------
Shares Value
------ -----
Shares sold ............................................. 56,837 $ 599,958
Shares issued in reinvestment of distributions........... 88 987
Shares redeemed.......................................... -0- -0-
------ ---------
Net increase............................................. 56,925 $ 600,945
====== =========
*Commencement of operations.
See accompanying Notes to Financial Statements.
7
<PAGE>
RCB GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, 1998*
through
December 31, 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period ........................... $ 10.00
Income from investment operations:
Net investment income ........................................ 0.02
Net realized and unrealized gain on investments .............. 1.73
-------
Total from investment operations ............................... 1.75
-------
Less distributions:
From net investment income ................................... (0.02)
-------
Net asset value, end of period ................................. $ 11.73
=======
Total return ................................................... 17.51%
Ratios/supplemental data:
Net assets, end of period (millions) ........................... $ 0.7
Ratio of expenses to average net assets:
Before expense reimbursement ................................. 22.98%+
After expense reimbursement .................................. 1.25%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement and waiver ...................... (21.09)%+
After expense reimbursement and waiver ....................... 0.66%+
Portfolio turnover rate ........................................ 0.00%
*Commencement of operations.
+Annualized.
See accompanying Notes to Financial Statements.
8
<PAGE>
RCB SMALL CAP FUND
Dear Fellow Shareholders:
The RCB Small Cap Fund got off to an impressive start in the fourth quarter of
1998. From the Fund's inception on September 30, 1998 through the end of the
calendar year on December 31, 1998, the Fund was up 27.50%, which compares
favorably with our benchmark, the Russell 2000 Index, which returned 16.31% over
the same period. We were able to take advantage of a major freefall in small cap
stocks that occurred during the summer of 1998. An unprecedented downturn
provided tremendous opportunities to purchase very undervalued high-quality
stocks that we had been acquainted with for years. These chosen stocks moved
closer to fair valuation towards the end of 1998 and provided the strong
performance results indicated.
As will be the case going forward, individual stock picks rather than sector
bets were the major factor in the numbers. For example, we had limited exposure
to the retail sector, but one of our top performers was Ann Taylor Stores, up
94% due to strong turnaround results and impressive sales figures. However,
another major retail position, Smart & Final, was basically flat from our cost
due to lackluster earnings and internal issues within the company.
Our best performer was United International Holdings (UIHIA), a leading
international provider of cable television and other communication services in
Europe, Latin America and Australia. A long-term holding at Reed, Conner &
Birdwell, the Fund's advisor, UIHIA is significantly undervalued relative to
domestic cable operators and our own internal valuation methods. During the
small cap stock retreat mentioned earlier, UIHIA sold down to below $10 per
share in October. We knew that the European operations alone were worth more
that $10 per share! So we aggressively purchased UIHIA for the Fund and, by year
end, the stock had nearly doubled as the company is in the middle of taking a
portion of the European division public. As we write this letter, UIHIA is still
climbing towards its true value which we feel is in the high $30s.
One sector where we have seen a cluster of valuation anomalies is smaller cap
insurance stocks. Orion Capital, Guarantee Life, GAINSCO, and Horace Mann
Educators , are all niche, well-run insurers that are selling at very attractive
valuations that could attract the attention of the consolidators in the
insurance industry.
Our most disappointing holding has been Hunt Corporation. Hunt is a manufacturer
in the fast growing graphics products area and has a steady stable of brand-name
office products (such as X-Acto). Frankly, management misjudged the slowdowns in
both of their businesses and showed little of the earnings power of which the
company is capable. We would call its current quotation a "fire sale" and we are
adding to positions.
One interesting strategy that has worked well this year is buying small cap
spin-offs from companies which have been larger cap holdings of the firm, such
as Nielsen Media Research and R.H. Donnelley. These types of spin-offs generally
take months or even longer before they attract a following by Wall Street and
begin to garner recommendations. Having known these companies for years as part
of their large-cap parents (Cognizant and Dun and Bradstreet in these cases), we
were ready to pounce on these stocks after large cap holders who couldn't or
didn't want to hold the smaller spin-offs sold them down. We knew these were
fine companies with solid growth dynamics which represent significant mismatches
with their true intrinsic value. R.H. Donnelley increased a respectable 18%
while Nielsen Media almost doubled.
9
<PAGE>
RCB SMALL CAP FUND
We are currently doing intensive research in the energy sector. The recent
decline in energy prices and the subsequent decimation of oil exploration and
production stocks and oil service stocks is presenting some valuation
opportunities that this industry segment has not seen in years. We are narrowing
a focus list on some high quality S & P companies that are selling well below
reserve value with great exploration profiles, as well as some niche-oriented
service companies. We presently own one of the latter, Hanover Compressor.
Looking forward, we will continue our disciplined style of investing by choosing
only well managed companies selling at significant discounts to their intrinsic
value. We feel strongly that 1999 will be the year in which the "direct neglect"
of smaller cap companies will fade and prices of our holdings will more closely
reflect their intrinsic value.
Thank you for your support. Please feel free to contact us at any time.
Sincerely,
/s/ Jeffrey Bronchick /s/ Thomas D. Kerr
Jeffrey Bronchick, CFA Thomas D. Kerr, CFA
Manager Co-Manager
10
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.3% Market Value
- --------------------------------------------------------------------------------
ADVERTISING SERVICES: 2.8%
2,000 R.H. Donnelley Corp................................. $ 29,125
-----------
BROADCAST SERVICES: 7.0%
3,800 United International Holdings, Inc.*................ 73,150
-----------
BUSINESS SERVICES: 9.5%
1,000 ACNielsen Corp.*.................................... 28,250
2,000 Angelica Corp....................................... 37,250
2,000 CCC Information Services Group, Inc.*............... 34,500
-----------
100,000
-----------
CABLE TV: 3.4%
1,000 Jones Intercable, Inc.*............................. 35,625
-----------
COMPUTER - SOFTWARE: 2.9%
4,000 Tripos, Inc.*....................................... 30,500
-----------
COMMERCIAL SERVICES: 2.1%
1,200 Nielsen Media Research, Inc......................... 21,600
-----------
DATA PROCESSING/MANAGEMENT: 6.3%
4,000 Information Resources, Inc.*........................ 40,750
1,100 Reynolds & Reynolds Company-Class A................. 25,231
-----------
65,981
-----------
ELECTRONIC PRODUCTS: 5.7%
1,500 AMETEK, Inc......................................... 33,469
1,500 UCAR International, Inc.*........................... 26,719
-----------
60,188
-----------
INSTRUMENTS - SCIENTIFIC: 3.1%
500 Dionex Corp.*....................................... 18,312
500 Millipore Corp...................................... 14,219
-----------
32,531
-----------
See accompanying Notes to Financial Statements.
12
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
INSURANCE: 14.1%
5,000 GAINSCO, Inc........................................ $ 30,625
2,300 Guarantee Life Companies, Inc....................... 42,550
1,500 Horace Mann Educators Corp.......................... 42,750
800 Orion Capital Corp.................................. 31,850
-----------
147,775
-----------
OFFICE SUPPLIES: 3.0%
3,000 Hunt Corp........................................... 31,875
-----------
OIL-FIELD SERVICES: 3.2%
1,300 Hanover Compressor Company*......................... 33,394
-----------
MACHINERY - ELECTRICAL: 2.6%
400 Franklin Electric Co., Inc.......................... 27,000
-----------
MISCELLANEOUS MANUFACTURING: 9.4%
12,000 ROHN Industries, Inc.*.............................. 41,250
400 Sequa Corp.-Class A*................................ 23,950
1,200 Superior Industries International, Inc.............. 33,375
-----------
98,575
-----------
RETAIL - MISCELLANEOUS: 6.2%
2,000 Mark Bros. Jewelers, Inc.*.......................... 36,000
3,000 Smart & Final, Inc.................................. 28,875
-----------
64,875
-----------
RETAIL - RESTAURANTS: 5.7%
800 IHOP Corp.*......................................... 31,950
1,800 VICORP Restaurants, Inc.*........................... 27,900
-----------
59,850
-----------
SECURITY SERVICES: 3.9%
2,200 Borg-Warner Security Corp.*......................... 41,250
-----------
See accompanying Notes to Financial Statements.
12
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATION: 2.2%
4,300 American Mobil Satellite Corp.*.................... $ 22,575
-----------
TELEVISION: 5.2%
2,000 SBS Broadcasting SA (Luxembourg)*.................. 54,000
-----------
Total Investments in Securities (cost $852,525+):
98.3% ............................................. 1,029,869
Other Assets less Liabilities: 1.7%................ 17,345
-----------
TOTAL NET ASSETS: 100.0% .......................... $ 1,047,214
===========
*Non-income producing security.
+ At December 31, 1998, the cost for Federal income tax purposes was the same as
the basis for financial reporting. Unrealized appreciation and depreciation of
securities were as follows:
Gross unrealized appreciation....................... $ 195,700
Gross unrealized depreciation....................... (18,356)
----------
Net unrealized appreciation....................... $ 177,344
==========
See accompanying Notes to Financial Statements.
13
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $852,525) .......... $ 1,029,869
Cash ......................................................... 24,555
Receivables:
Dividends and interest ..................................... 1,184
Due from Advisor ........................................... 7,331
-----------
Total assets ............................................. 1,062,939
-----------
LIABILITIES
Payables:
Administration fee ......................................... 2,466
Distribution fees .......................................... 516
Accrued expenses ............................................. 12,743
-----------
Total liabilities ........................................ 15,725
-----------
NET ASSETS ..................................................... $ 1,047,214
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,047,214/82,122 shares outstanding;
unlimited number of shares authorized without par value) ... $ 12.75
===========
OFFERING PRICE PER SHARE ..................................... $ 12.75
===========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $ 846,019
Accumulated net investment loss .............................. (407)
Undistributed net realized gain on investments ............... 24,258
Net unrealized appreciation on investments ................... 177,344
-----------
Net assets ................................................. $ 1,047,214
===========
See accompanying Notes to Financial Statements.
14
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 30, 1998* THROUGH DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................... $ 1,871
Interest ..................................................... 798
---------
Total income ............................................... 2,669
---------
Expenses
Administration fee ........................................... 7,479
Fund accounting fees ......................................... 4,189
Audit fee .................................................... 3,971
Transfer agent fees .......................................... 2,396
Registration fees ............................................ 2,244
Advisory fees ................................................ 1,755
Custody fees ................................................. 1,396
Reports to shareholders ...................................... 1,098
Miscellaneous ................................................ 898
Legal fees ................................................... 848
Trustee fees ................................................. 623
Distribution fees ............................................ 516
---------
Total expenses ............................................. 27,413
Less: expenses waived and reimbursed ....................... (24,337)
---------
Net expenses ............................................... 3,076
---------
NET INVESTMENT LOSS ...................................... (407)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ............... 24,258
Net change in unrealized appreciation on investments ....... 177,344
---------
Net realized and unrealized gain on investments .......... 201,602
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ 201,195
=========
* Commencement of operations.
See accompanying Notes to Financial Statements.
15
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, 1998*
through
December 31, 1998
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss......................................... $ (407)
Net realized gain from security transactions................ 24,258
Net unrealized appreciation on investments.................. 177,344
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... 201,195
-----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a).................................... 846,019
-----------
TOTAL INCREASE IN NET ASSETS ........................... 1,047,214
NET ASSETS
Beginning of period......................................... -0-
-----------
END OF PERIOD ................................................ $ 1,047,214
===========
(a) A summary of capital shares transactions is as follows:
September 30, 1998*
through
December 31, 1998
--------------------
Shares Value
------ -----
Shares sold .......................................... 82,122 $846,019
Shares issued in reinvestment of distributions........ -0- -0-
Shares redeemed....................................... -0- -0-
------ --------
Net increase.......................................... 82,122 $846,019
====== ========
* Commencement of operations.
See accompanying Notes to Financial Statements.
16
<PAGE>
RCB SMALL CAP FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, 1998*
through
December 31, 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period ........................ $ 10.00
-------
Income from investment operations:
Net investment loss ....................................... (0.01)
Net realized and unrealized gain on investments ........... 2.76
-------
Total from investment operations ............................ 2.75
-------
Net asset value, end of period .............................. $ 12.75
=======
Total return ................................................ 27.50%
Ratios/supplemental data:
Net assets, end of period (millions) ........................ $ 1.0
Ratio of expenses to average net assets:
Before expense reimbursement .............................. 13.10%+
After expense reimbursement ............................... 1.49%+
Ratio of net investment loss to average net assets:
Before expense reimbursement and waiver ................... (11.82)%+
After expense reimbursement and waiver .................... (0.19)%+
Portfolio turnover rate ..................................... 8.59%
* Commencement of operations.
+ Annualized.
See accompanying Notes to Financial Statements.
17
<PAGE>
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The RCB Growth and Income Fund and the RCB Small Cap Fund (the "Funds") are
each a series of shares of beneficial interest of Professionally Managed
Portfolios (the "Trust"), which is registered under the Investment Company Act
of 1940 (the "1940 Act") as a diversified, open-end management investment
company. The Funds began operations on September 30, 1998. The investment
objectives of the Funds are capital appreciation with growth of income as a
secondary objective and capital appreciation, respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sales price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at the last reported bid
price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith
by the Board of Trustees. Short-term investments are stated at cost,
which when combined with accrued interest, approximates market
value.
B. FEDERAL INCOME TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of their taxable income
to their shareholders. Therefore, no federal income tax provision is
required.
C. SECURITIES TRANSACTIONS, INVESTMENT INCOME AND DISTRIBUTIONS. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized
transactions is relieved on a first-in, first-out basis. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date.
D. USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the period ended December 31, 1998, Reed, Conner & Birdwell, Inc. (the
"Advisor") provided the Funds with investment management services under an
Investment Advisory Agreement. The Advisor furnishes all investment advice,
office space, facilities, and most of the personnel needed by the Funds. As
compensation for its services, the Advisor was entitled to a monthly fee at the
annual rate of 0.60% and 0.85% for the RCB Growth and Income Fund and the RCB
Small Cap Fund, respectively, based upon the average daily net assets of the
Funds. For the period ended December 31, 1998, the RCB Growth and Income Fund
and the RCB Small Cap Fund incurred $670 and $1,755 in Advisory fees,
respectively.
18
<PAGE>
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
The Funds are responsible for their own operating expenses. The Advisor has
agreed to limit the Funds' total expenses to not more than 1.25% and 1.49% of
average net assets for the RCB Growth and Income Fund and the RCB Small Cap
Fund, respectively. Any such reductions made by the Advisor in its fees or
payments or reimbursement of expenses which are each respective Fund's
obligation are subject to reimbursement by the respective Fund within three
years, provided the respective Fund is able to effect such reimbursement and
remain in compliance with any expense limitations then in effect. For the period
ended December 31, 1998, the Advisor reimbursed the Fund in the total amount of
$24,695 for the RCB Growth and Income Fund and $24,337 for the RCB Small Cap
Fund.
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Funds' custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Funds'
expense accruals. For its services, the Administrator receives an annual fee at
the following rate:
Under $15 million $30,000
$15 to $50 million 0.20% of average daily net assets
$50 to $100 million 0.15% of average daily net assets
$100 to $200 million 0.10% of average daily net assets
Over $200 million 0.05% of average daily net assets
For the period ended December 31, 1998, RCB Growth and Income Fund and RCB
Small Cap Fund each incurred $7,479 in Administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Funds'
principal underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and the Distributor.
NOTE 4 - DISTRIBUTION PLAN
The Funds have adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Funds will pay a fee
to the Advisor as Distribution Coordinator at an annual rate of up to 0.25% of
the average daily net assets of the Funds. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. For the period ended December 31, 1998, the RCB
Growth and Income Fund and the RCB Small Cap Fund paid fees of $279 and $516,
respectively, to the Advisor.
19
<PAGE>
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from the sales of securities, other
than short-term investments, were $569,591 and $0, respectively, for the RCB
Growth and Income Fund and $901,532 and $73,265, respectively, for the RCB Small
Cap Fund.
NOTE 6 - SALES LOAD
The sales charge applicable to purchases of shares of the Funds, which is a
maximum of 3.50% of the offering price, was waived during the period from
inception on September 30, 1998 through March 31, 1999.
20
<PAGE>
INVESTMENT ADVISOR
Reed, Conner & Birdwell, Inc.
11111 Santa Monica Blvd., Ste. 1700
Los Angeles, CA 90025
(310) 478-4005
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Rd., Suite 261-E
Phoenix, AZ 85018
CUSTODIAN
Star Bank, N.A.
425 Walnut St.
Cincinnati, OH 45202
TRANSFER AND DIVIDEND DISBURSING AGENT
American Data Services
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 282-2340
AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
This report is intended for shareholders of the Funds and
may not be used as sales literature unless preceded or
accompanied by a current prospectus.
Past performance results shown in this report should not be
considered a representation of future performance. Share
price and returns will fluctuate so that shares, when
redeemed, may be worth more or less than their original
cost. Statements and other information herein are dated and
are subject to change.
