[LOGO]
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
================================================================================
ANNUAL REPORT
================================================================================
For the Year Ended
June 30, 2000
<PAGE>
[LOGO]
RCB Growth and
Income Fund
Dear Fellow Shareholders:
We are pleased to report that for the Fund's fiscal year ending June 30, 2000,
the portfolio significantly outpaced the Russell 1000 Value with a return of
+0.95% as compared with the index loss of -8.92%. The last six months of 1999
were certainly mixed, but the Fund prevailed, turning in a positive return of
0.14% compared to the Russell 1000 Value's -4.93%. The first half of the year
2000 was truly a tale of two markets. It has been the best of times and the
worst of times for both "value" as well as "growth" companies. The period was
marked by wild speculation, downright pessimism, and a recovery to the middle
ground. By the same measure, some of our holdings turned in very impressive
returns while others have suffered. Overall, the RCB Growth and Income Fund has
done well and is up 0.80% through June while the Russell 1000 Value is off
4.23%. (Returns shown are before the maximum sales charge of 3.50%).
RCB Growth & Russell
Income Fund 1000 Value S&P 500
----------- ---------- -------
YTD 0.80% -4.23% -0.40%
One year ending 6-30-00 0.95% -8.92% 7.27%
Since Inception (cumulative)* 39.86% 19.90% 46.22%
Since Inception (annualized)* 21.18% 10.90% 24.25%
In keeping with our practice of getting the bad news out of the way, let's begin
with the stocks that have experienced the "worst of times" since our last
letter. Many of our biggest disappointments, not surprisingly, have been in the
technology-related sector. These include Motorola, Comdisco, and Gartner Group
(the last of which has been sold). Motorola and Comdisco, while truly fine
companies, suffered from a combination of short-term company specific issues as
well as the proverbial "cold and sneeze" analogy. Even with their healthy
business models, Motorola and Comdisco sneezed following huge run-ups when the
technology sector caught a cold in the spring. Reynolds & Reynolds, the leading
dealership management software supplier to the automotive industry, also gave
way as it announced an alliance with GM along with a major restructuring to shed
non-core businesses. Fortune Brands has been weak due to concerns about consumer
spending, and Tricon Global Restaurants was hit by the bankruptcy filing of its
major food and supply distributor. Most of these companies are in fine shape and
we have used the price weakness as an opportunity to selectively increase
positions.
The best of times came along for Corning, Warner Lambert, Enron, PepsiCo, and
Abbott Laboratories. Corning's optical fiber and photonic segments have been
1
<PAGE>
primary beneficiaries of bandwidth demand, and its flat panel glass business has
mushroomed along with the growth in laptops and flat desktop monitors. Pfizer
has acquired our Warner Lambert stake in a stock swap; Enron continues to create
new products and markets; PepsiCo snack and beverage operations continue to
improve; and Abbott Laboratories' steady performance has driven the price
higher. We also sold Consolidated Papers subsequent to its merger announcement
for a substantial gain. Our remaining holdings delivered returns more in line
with the Fund's overall performance.
The economy has remained strong and has shown precious little slowing except
recently. GDP continues to grow at a healthy, if surprising, 3.5%. Inflation is
up slightly but, except for energy and some labor-intensive sectors, is still
under control. The big news, of course, is the rise in short-term interest rates
and the fact that the Fed has ratcheted up the discount rate a number of times.
Although long-term rates have cooled, this discount rate tightening seems to
have put a governor on the economy and hopefully is guiding it to a soft
landing.
So what has really happened with the market? Well, the background has been
varied and diverse. With the above backdrop, the stock market has been part
Energizer Bunny but mostly tortoise. In other words, Energizer stocks have been
mainly a handful of large cap, high octane, technology stocks and dot.com IPOs,
while the majority of the market has been the tortoise - good quality value
stocks that march inexorably ahead with reasonable earnings and reasonable
valuations. These are the kinds of stocks in which we invest and which we own in
your Fund.
A few years ago, market pundits wore out the Goldilocks analogy. At the risk of
inflicting further wear and tear, it's safe to say that the investing world
tired of "just right", took another sip of the "too hot" bowl with the NASDAQ
run-up early this year, got burned and jumped into the "too cold" bowl in April
and May, and now seems to be grudgingly going back to "just right".
We too feel that there are many stocks that are just right for investment and
have committed further personal capital to the Fund. We appreciate your
continued investment in the RCB Growth and Income Fund and welcome your
comments.
Sincerely,
/s/ Donn B. Conner /s/ Victor F. Hawley
Donn B. Conner, CFA Victor F. Hawley, CFA
Manager Co-manager
* The Fund's one year and average annual total returns since inception
(September 30, 1998) through June 30, 2000, which includes the maximum
sales charge of 3.50%, were -2.58% and 18.74%, respectively. Past
performance does not guarantee future results. Investment returns and share
value will fluctuate and investors may have a gain or loss when they redeem
shares.
2
<PAGE>
RCB Growth and Income Fund
Value of $10,000 vs S&P 500 and Russell 1000 Value Indexes
Average Annual Total Return
Period Ended June 30, 2000
1 Year..................................... (2.58)%
Since Inception (9/30/98).................. 18.74%
RCB Growth and S&P 500 Russell 1000 Value
Income Fund Index w/inc. Index w/inc.
----------- ------------ ------------
9/30/98 9,650 10,000 10,000
10/30/98 10,490 10,819 10,775
11/30/98 11,069 11,472 11,278
12/31/98 11,340 12,134 11,661
1/31/99 11,378 12,644 11,754
2/28/99 11,253 12,245 11,588
3/31/99 11,987 12,734 11,828
4/30/99 13,080 13,329 12,933
5/31/99 12,761 14,059 12,791
6/30/99 13,370 13,633 13,162
7/31/99 13,041 13,307 12,776
8/31/99 12,403 14,305 12,302
9/30/99 11,755 12,781 11,872
10/31/99 12,171 13,693 12,555
11/30/99 12,219 15,098 12,457
12/31/99 13,389 14,683 12,517
1/31/00 13,300 14,051 12,108
2/29/00 13,036 14,892 11,209
3/31/00 14,151 15,019 12,577
4/30/00 13,682 14,677 12,430
5/31/00 14,102 15,533 12,561
6/30/00 13,496 14,619 11,987
Past performance is not predictive of future performance. Performance figures
include the maximum applicable sales charges of 3.50%
The S&P 500 Index is a broad market-weighted average of U.S. blue-chip
companies. Russell 1000 Value Index measures the performance of the Russell
1,000 companies with lower price-to-book ratios and lower forecasted growth
values. The indices are unmanaged and returns include reinvested dividends.
The Russell 1000 Index (dividends reinvested) has been removed from the above
chart and is being replaced by the Russell 1000 Value Index. The Russell 1000
Value Index more appropriately reflects our investment style. As a broad market
reference, the total return for the Russell 1000 Index for the year ended June
30, 2000 was 9.25% compared to -8.92% for the Russell 1000 Value Index.
3
<PAGE>
[LOGO]
RCB SMALL
CAP FUND
Dear Fellow Shareholders:
We would first like to thank all shareholders for their support of our nascent
mutual fund efforts and we are more particularly pleased to reward your
confidence with excellent results. (Returns shown are before the maximum sales
charge of 3.50%).
RCB Small Russell Russell
Cap Fund 2000 2000 Value S&P 500
-------- ---- ---------- -------
YTD 9.49% 3.04% 5.85% -0.40%
One year ending 6-30-00 3.28% 14.32% -0.94% 7.27%
Since Inception (cumulative)* 64.52% 45.31% 13.73% 46.22%
Since Inception (annualized)* 33.00% 23.81% 7.63% 24.25%
Some analysis is required here since "performance" is one of the most widely
abused and twisted statistics that modern man has wrought since the combination
of the spreadsheet and the marketing department. First of all, the goal of the
Fund is to generate long-term, after-tax returns in the neighborhood of 10
percentage points above the rate of inflation. That's a fancy way of saying
"low-to-mid-teens". This target is both realistic, doable and is in the ballpark
with the historical patterns of equity returns that we believe still carry some
probative weight. A secondary goal is to avoid having disastrous years on an
absolute basis. In other words, if we can avoid periods where we lose a lot of
money, we insure that the mathematics of compounding - the 8th wonder of the
world - will continue to work strongly in our favor. While we do worry about
relative performance over the intermediate and long term - i.e., versus other
money managers and relevant indices, it is invariably more important to worry
about the secondary goal first. There is enormous temptation in the investment
business to do stupid things that you know are stupid in an attempt to catch the
Joneses, and that is when you usually get hurt.
In looking at our numbers, even a modest glance indicates that we are doing
pretty well. In fact, we are earning rates of return well in excess of the
aforementioned goals, which is obviously a good thing. Nonetheless, we continue
to keep our heads low, do what we do every day and see what the scoreboard
produces at the end of the game. A money manager who spends much of his time
looking at the scoreboard is obviously spending less time playing on the field
and that too will eventually show up in the numbers.
A brief word here on the Russell 2000 indices. Obviously, it is entirely
appropriate to judge a manager against some sort of a benchmark so that there is
some relevant comparison. That, unfortunately, is where the problems begin.
There is no such thing
4
<PAGE>
as a perfect index and depending upon the time period, it can make you look
better or worse than you might really be. The Russell 2000 is roughly stocks
number 1001 to 3000 when ranked by market capitalization on June 30th every
year. Then they are mostly static. The idea is that this is an approximation of
how the small cap market is doing. But what happens in a 12-month period like
June 30th 1999 to June 30th 2000 is that a handful of what once were obscure and
small bio-tech and internet stocks went from tiny portions of the Russell 2000
to ten billion dollar giants of the Russell 2000, throwing off the index's
validity as a small cap barometer. This accounts for our underperformance to
this index for the 12-month period ending June 30, 2000. A number of consultants
also use "value" versions of an index that are considered to be more appropriate
benchmarks for a value manager like RCB and they are helpful for perspective.
The problem with picking performance points is that it is similar to stopping a
three-hour movie in the 15th minute. It sure looks like the hero has fallen off
his horse and is going over a cliff if you stop it there; but if you keep
running the movie, you see that he grabs the heretofore unseen branch, hoists
himself back up onto solid ground and goes back and beats the stuffing out of
the bad guy. And gets the girl! It is simply crucial to always look at the
longer-term picture and you will always see us pointing you in that direction.
The last comment on performance is that not only is the Fund doing well versus
other small cap managers and small cap indices, but it is also doing well as
compared to large cap stock indices like the S&P 500. In other words, we are not
just blowing smoke out of our ears when we continue to say ad nauseum that it is
perfectly possible to generate excellent long-term returns in small cap stocks
on both an absolute and relative basis. Some "professionals" have come to
consider small cap growth and value styles more of a hedge against success and a
repository of tax loss carryforwards.
What we have done in the Fund over the past 13/4 years continues to be an
evolution of what we have done in small cap investing for the past seven years
and as a value investor for 40 years. We look for fundamentally decent
businesses selling at significant discounts to our estimate of their "intrinsic
value." We then attempt to assign a probability of that value being realized in
a two-to-three year time horizon and if there is a reasonably high probability,
we buy as much as we can prudently fit into the Fund. Our results have not been
due to sneaking into large cap companies, Internet stocks or playing the IPO
calendar to boost performance ... just for the record.
As is always the case, the performance of individual holdings tends to follow a
bell-shaped distribution curve: most stocks do "okay," some stocks do terrific
and some stocks go the exact opposite of our intentions. Our performance over
the long run is determined by minimizing the number of losers as well as the
depth of their impact on portfolio value, and letting the winners take care of
themselves. We have been mostly successful in this vein as some of our poorer
performers have been our smaller positions, while our largest positions have
justified our decision. In the latter camp, we would highlight Littelfuse, which
we started buying a year after the company's short-term results hit bottom after
the collapse of the electronics industry in the wake of the "Asian Crisis."
Littelfuse weathered the storm and as you might expect, the
5
<PAGE>
electronics industry has come roaring back. Littelfuse is a "pick and shovel"
supplier with a range of niche, high margin products that have dominant market
share positions. The stock has more than doubled for us in the past 12 months.
We have also racked up excellent returns in stocks as diverse as Canadian oil
and gas companies (Gulf Canada Resources), specialty finance companies (Enhance
Financial), and steel tower manufacturers (Rohn Industries). We also have
benefited from a number of takeovers, as third party acquirers have agreed with
our assessment. So far this calendar year, the list includes American Business
Products and Farr Company, the latter of which was our single largest holding
for the past year, making the event even more enjoyable.
Interestingly and somewhat frustratingly, our excellent performance has not in
any real way come from our biggest sector position, the insurance industry. We
expect continuing improvements in industry fundamentals plus further industry
consolidation to highlight the exceptional values we see in the sector
As usual, we have little to say about the macro-economic picture and prefer to
spend our time on company and industry analysis. Our general sense is that the
macro picture remains somewhat benign, as the economy appears to be slowing,
which is cooling the ardor of the Federal Reserve for further rate hikes. We
have become increasingly vigilant for changes in the inflation front, which
appears to us slightly worse than government statistics would have you believe.
Nonetheless, we remain fully invested as the schizophrenic nature of the market
continues to present interesting opportunities for patient long-term value
investors.
We are very encouraged by the increases in mergers and acquisitions in the small
cap world, as it serves not only to benefit us if our companies are taken over,
but it attracts more money to the small cap sector as investors belatedly
realize the size of the sale sign that has been on many companies in the sector.
We expect to see further gains ahead on an absolute basis and particularly on a
relative basis. Once again, thank you for your support and as previously noted,
the lead portfolio manager of this Fund has most of his own net worth invested
right alongside you.
Sincerely,
/s/ Jeffrey Bronchick /s/ Thomas D. Kerr
Jeffrey Bronchick, CFA Thomas D. Kerr, CFA
Manager Co-Manager
* The Fund's one year and average annual total return since inception
(September 30, 1998) through June 30, 2000, which includes the maximum
sales charge of 3.50%, were -0.35% and 30.31%, respectively. Past
performance does not guarantee future results. Investment returns and share
value will fluctuate and investors may have a gain or loss when they redeem
shares.
6
<PAGE>
RCB SMALL CAP FUND
Value of $10,000 vs S&P 500 and Russell 2000 Value Indexes
Average Annual Total Return
Period Ended June 30, 2000
1 Year.................................. (0.35)%
Since Inception (9/30/98)............... 30.31%
RCB Small S&P 500 Russell 2000 Value
Cap Fund Index w/inc. Index w/inc.
-------- ------------ ------------
9/30/98 9,650 10,000 10,000
10/31/98 10,663 10,819 10,297
11/30/98 11,551 11,472 10,576
12/31/98 12,304 12,134 10,908
1/31/99 13,105 12,644 10,661
2/28/99 12,352 12,245 9,933
3/31/99 12,642 12,734 9,851
4/30/99 14,176 13,227 10,750
5/31/99 14,475 12,915 11,081
6/30/99 15,372 13,633 11,482
7/31/99 14,870 13,206 11,209
8/31/99 14,783 13,141 10,800
9/30/99 14,590 12,781 10,584
10/31/99 13,924 13,589 10,372
11/30/99 14,406 13,869 10,426
12/31/99 14,498 14,683 10,746
1/31/00 14,619 13,943 10,465
2/29/00 14,820 13,680 11,105
3/31/00 15,955 15,019 11,157
4/30/00 15,151 14,565 11,223
5/31/00 15,201 14,268 11,051
6/30/00 15,874 14,619 11,374
Past performance is not predictive of future performance. Performance figures
include the maximum applicable sales charges of 3.50%
The S&P 500 Index is a broad market-weighted average of U.S. blue-chip
companies. Russell 2000 Value Index measures the performance of the Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
The indices are unmanaged and returns include reinvested dividends.
The Russell 2000 Index (dividends reinvested) has been removed from the above
chart and is being replaced by the Russell 2000 Value Index. The Russell 2000
Value Index more appropriately reflects our investment style. As a broad market
reference, the total return for the Russell 2000 Index for the year ended June
30, 2000 was 14.32% compared to -0.94% for the Russell 2000 Value Index.
7
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS at June 30, 2000
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 94.0%
Banking: 2.8%
2,500 Bank One Corp. $ 66,406
-----------
Beverages: 5.0%
2,600 PepsiCo, Inc. 115,537
-----------
Beverages - Alcoholic: 2.6%
800 Anheuser-Busch Companies, Inc. 59,750
-----------
Chemicals: 4.0%
3,200 Sigma-Aldrich Corp. 93,600
-----------
Commercial Services: 5.8%
3,700 Reynolds & Reynolds Co. (The) 67,525
5,900 ServiceMaster Co. (The) 67,112
-----------
134,637
-----------
Communications - Technology: 12.4%
4,500 Comdisco, Inc. 100,406
1,200 General Motors Corporation - Class H* 105,300
2,800 Motorola, Inc. 81,375
-----------
287,081
-----------
Consumer Products: 15.4%
1,300 Eastman Kodak Co. 77,350
3,700 Fortune Brands, Inc. 85,331
1,800 Kimberly Clark Corp. 103,275
4,700 Sara Lee Corp. 90,769
-----------
356,725
-----------
Distribution/Wholesale: 1.4%
1,000 Costco Wholesale Corp.* 33,000
-----------
Diversified Operations: 3.8%
50 Berkshire Hathaway, Inc.* 88,000
-----------
Electric/Natural Gas: 2.8%
1,000 Enron Corp. 64,500
-----------
Financial Services: 8.8%
900 American Express Co. 46,912
2,400 Dun & Bradstreet Corp. (The) 68,700
3,400 Equifax Inc. 89,250
-----------
204,862
-----------
Food - Retail: 3.7%
2,600 Albertson's, Inc. 86,450
-----------
Insurance: 2.4%
900 Chubb Corp. (The) 55,350
-----------
Media: 2.3%
700 Time Warner, Inc. 53,200
-----------
Medical Information Systems: 3.3%
4,300 IMS Health, Inc. 77,400
-----------
Medical Supplies: 2.7%
1,400 Abbott Laboratories 62,388
-----------
Oil - Domestic Integrated: 4.3%
700 Royal Dutch Petroleum Co. ADR 43,094
1,700 Unocal Corp. 56,313
-----------
99,407
-----------
Pharmaceuticals: 4.0%
1,925 Pfizer, Inc. 92,400
-----------
Restaurants: 3.0%
2,500 Tricon Global Restaurants, Inc.* 70,625
-----------
Telecommunications - Equipment: 3.5%
300 Corning, Inc. 80,963
-----------
TOTAL COMMON STOCKS
(cost $1,960,345) 2,182,281
-----------
8
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Continued)
Principal
Amount Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 9.0%
$210,000 Firstar Bank Repurchase Agreement, 4.25%,
dated 06/30/2000, due 07/03/2000,
[collateralized by $214,193 FHLMC ARM,
6.311% due 09/01/2029] (value of proceeds
$210,074) (cost $210,000) $ 210,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $2,170,345+): 103.0% 2,392,281
Liabilities in excess of Other Assets: (3.0)% (69,919)
-----------
NET ASSETS: 100.0% $ 2,322,362
-----------
* Non-income producing security.
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation $ 340,798
Gross unrealized depreciation (118,862)
-----------
Net unrealized appreciation $ 221,936
===========
See accompanying Notes to Financial Statements.
9
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS at June 30, 2000
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 98.4%
Advertising: 3.7%
10,000 R.H. Donnelley Corp.* $ 193,750
-----------
Auto Parts and Equipment: 2.7%
5,400 Superior Industries International, Inc. 139,050
-----------
Building and Construction: 3.8%
5,500 Ameron International Corp. 196,625
-----------
Computers - Software: 4.4%
12,000 Tripos, Inc.* 231,000
-----------
Electric Products: 11.9%
5,500 AMETEK, Inc. 96,250
8,000 Littelfuse, Inc.* 392,000
10,000 UCAR International, Inc.* 130,625
-----------
618,875
-----------
Financial Services: 0.9%
10,000 Billing Concepts Corp.* 44,375
-----------
Food - Retail: 1.6%
10,859 Smart & Final, Inc.* 83,479
-----------
Industrials: 4.0%
12,000 Scott Technologies, Inc.* 206,250
-----------
Instruments - Scientific: 1.8%
3,400 Dionex Corp.* 90,950
-----------
Insurance: 16.6%
19,000 Enhance Financial Services Group, Inc. 273,125
800 Fairfax Financial Holdings Ltd* 87,469
18,200 GAINSCO, Inc. 91,000
1,000 Horace Mann Educators Corp. 15,000
500 Markel Corp.* 70,812
7,000 Philadelphia Consolidated Holding Corp. Prfd.* 117,687
1,300 White Mountains Insurance Group, Inc. 209,300
-----------
864,393
-----------
Leisure & Recreation Products: 2.6%
53,000 American Coin Merchandising, Inc* 132,500
-----------
Linen Supply: 2.2%
14,500 Angelica Corp. 116,000
-----------
Machinery - General: 6.2%
1,500 Franklin Electric Co., Inc. 101,625
7,000 IDEX Corp. 220,937
-----------
322,562
-----------
Market Research: 4.8%
9,000 ACNielsen Corp.* 198,000
13,400 Information Resources, Inc.* 52,762
-----------
250,762
-----------
Metal Processors and Fabrication: 4.9%
60,000 ROHN Industries, Inc.* 253,125
-----------
Office Supplies: 3.1%
15,500 Hunt Corp. 160,813
-----------
Oil - Exploration & Production: 5.1%
55,000 Gulf Canada Resources Ltd.* 264,688
-----------
Restaurants: 5.7%
10,000 IHOP Corp.* 167,500
7,000 VICORP Restaurants, Inc.* 127,750
-----------
295,250
-----------
Retail: 3.2%
9,000 Whitehall Jewellers, Inc.* 167,625
-----------
Technology: 2.3%
12,000 Gartner Group, Inc. - Class B* 118,500
-----------
Television: 6.9%
6,600 SBS Broadcasting SA* 359,700
-----------
TOTAL COMMON STOCKS
(cost $4,426,294) 5,110,272
-----------
10
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Continued)
Principal
Amount Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 1.8%
$95,000 Firstar Bank Repurchase Agreement, 4.25%,
dated 06/30/2000, due 07/03/2000,
[collateralized by $96,897 FHLMC ARM,
6.311% due 09/01/2029] (value of proceeds
$95,034) (cost $95,000) $ 95,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $4,521,294+): 100.2% 5,205,272
Liabilities in excess of Other Assets: (0.2)% (12,241)
-----------
NET ASSETS: 100.0% $ 5,193,031
===========
* Non-income producing security.
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation $ 955,442
Gross unrealized depreciation (271,464)
-----------
Net unrealized appreciation $ 683,978
===========
See accompanying Notes to Financial Statements.
11
<PAGE>
RCB FUNDS
STATEMENTS OF ASSETS AND LIABILITIES at June 30, 2000
Growth and Small Cap
Income Fund Fund
----------- ----------
ASSETS
Investments in securities, at value
(cost $2,170,345 and $4,521,294 respectively) .. $2,392,281 $5,205,272
Cash ............................................. 506 122
Receivables:
Due from advisor ............................... 5,295 3,557
Dividends and interest ......................... 2,821 2,190
Prepaid expenses and other assets ................ 1,238 5,339
---------- ----------
Total assets ................................. 2,402,141 5,216,480
---------- ----------
LIABILITIES
Payables:
Securities purchased ........................... 58,323 --
Administration fees ............................ 2,466 2,465
Distribution fees .............................. 1,423 3,013
Accrued expenses ................................. 17,567 17,971
---------- ----------
Total liabilities ............................ 79,779 23,449
---------- ----------
NET ASSETS.......................................... $2,322,362 $5,193,031
========== ==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,322,362/168,257 and $5,193,031/328,755)
shares outstanding; unlimited number of shares
authorized without par value)...................... $ 13.80 $ 15.80
========== ==========
MAXIMUM OFFERING PRICE PER SHARE ($13.80/.9650 AND
$15.80/.9650 RESPECTIVELY)......................... $ 14.30 $ 16.37
========== ==========
COMPONENTS OF NET ASSETS
Paid-in capital .................................. $2,054,782 $4,423,618
Accumulated net investment income ................ 3,336 --
Accumulated net realized gain on investments ..... 42,308 85,435
Net unrealized appreciation on investments ....... 221,936 683,978
---------- ----------
Net assets ................................... $2,322,362 $5,193,031
========== ==========
See accompanying Notes to Financial Statements.
12
<PAGE>
RCB FUNDS
STATEMENTS OF OPERATIONS For the Year Ended June 30, 2000
Growth and Small Cap
Income Fund Fund
----------- ----------
INVESTMENT INCOME
Income
Dividends ........................................ $ 28,018 $ 36,101
Interest ......................................... 2,126 2,823
--------- ---------
Total income ................................... 30,144 38,924
--------- ---------
Expenses
Administration fees .............................. 30,000 30,000
Audit fees ....................................... 14,672 14,631
Fund accounting fees ............................. 13,513 16,669
Advisory fees .................................... 11,420 33,384
Transfer agent fees .............................. 10,105 10,007
Registration expense ............................. 5,292 6,478
Distribution fees ................................ 4,758 9,819
Trustee fees ..................................... 3,798 3,695
Legal fees ....................................... 3,626 2,568
Reports to shareholders .......................... 2,181 3,693
Custody fees ..................................... 1,919 6,281
Insurance expense ................................ 236 204
Miscellaneous .................................... 82 --
--------- ---------
Total expenses ................................. 101,602 137,429
Less: fees waived and expenses absorbed ........ (77,811) (78,909)
--------- ---------
Net expenses ................................. 23,791 58,520
--------- ---------
NET INVESTMENT INCOME (LOSS) ............... 6,353 (19,596)
--------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments ................... 42,308 141,107
Net unrealized appreciation (depreciation)
on investments ................................... (7,265) 118,530
--------- ---------
Net realized and unrealized gain on
investments................................... 35,043 259,637
--------- ---------
Net increase in net assets resulting
from operations............................ $ 41,396 $ 240,041
========= =========
See accompanying Notes to Financial Statements.
13
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
September 30, 1998*
Year Ended through
June 30, 2000 June 30, 1999
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income ........................ $ 6,353 $ 2,048
Net realized gain on investments ............. 42,308 15,577
Net unrealized appreciation (depreciation)
on investments............................... (7,265) 229,201
----------- -----------
Net increase in net assets resulting
from operations ......................... 41,396 246,826
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (4,007) (1,058)
From net realized gain ....................... (15,577) --
----------- -----------
Total distributions to shareholders ...... (19,584) (1,058)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a) ....... 737,320 1,317,462
----------- -----------
Total increase in net assets ............. 759,132 1,563,230
NET ASSETS
Beginning of period .......................... 1,563,230 --
----------- -----------
End of period ................................ $ 2,322,362 $ 1,563,230
=========== ===========
Accumulated net investment income .............. $ 3,336 $ 990
=========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
September 30, 1998*
Year Ended through
June 30, 2000 June 30, 1999
------------------ -------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 58,935 $ 787,090 114,638 $ 1,336,995
Shares issued in reinvestment
of distributions 1,097 14,070 88 987
Shares redeemed (4,771) (63,840) (1,730) (20,520)
------ --------- ------- -----------
Net increase 55,261 $ 737,320 112,996 $ 1,317,462
====== ========= ======= ===========
* Commencement of operations.
See accompanying Notes to Financial Statements.
14
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
September 30, 1998*
Year Ended through
June 30, 2000 June 30, 1999
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss .......................... $ (19,596) $ (3,547)
Net realized gain on investments ............. 141,107 95,563
Net unrealized appreciation on investments ... 118,530 565,448
----------- -----------
Net increase in net assets resulting
from operations.......................... 240,041 657,464
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gain ....................... (128,092) --
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a)........ 1,925,052 2,498,566
----------- -----------
Total increase in net assets.............. 2,037,001 3,156,030
NET ASSETS
Beginning of period .......................... 3,156,030 --
----------- -----------
End of period ................................ $ 5,193,031 $ 3,156,030
=========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
September 30, 1998*
Year Ended through
June 30, 2000 June 30, 1999
------------------ ---------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 132,275 $ 1,955,635 198,111 $2,498,602
Shares issued in reinvestment
of distributions 7,915 113,337 -- --
Shares redeemed (9,543) (143,920) (3) (36)
-------- ----------- -------- ----------
Net increase 130,647 $ 1,925,052 198,108 $2,498,566
======== =========== ======== ==========
* Commencement of operations.
See accompanying Notes to Financial Statements.
15
<PAGE>
RCB GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
September 30, 1998*
Year Ended through
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Net asset value, beginning of period ........................... $13.83 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................ 0.04 0.03
Net realized and unrealized gain on
investments ................................................ 0.08 3.82
------ ------
Total from investment operations ............................... 0.12 3.85
------ ------
LESS DISTRIBUTIONS:
From net investment income ................................... (0.03) (0.02)
From net realized gain ....................................... (0.12) --
------ ------
Total distributions ............................................ (0.15) (0.02)
------ ------
Net asset value, end of period ................................. $13.80 $13.83
====== ======
Total return ................................................... 0.95% 38.55%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ......................... $ 2.3 $ 1.6
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed...................... 5.33% 12.32%+
After fees waived and expenses absorbed ...................... 1.25% 1.25%+
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed...................... (3.75%) (10.74%)+
After fees waived and expenses absorbed....................... 0.33% 0.33%+
Portfolio turnover rate ...................................... 25.63% 4.41%++
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not annualized.
See accompanying Notes to Financial Statements.
16
<PAGE>
RCB SMALL CAP FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
September 30, 1998*
Year Ended through
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Net asset value, beginning of period .................... $15.93 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ................................... (0.06) (0.02)
Net realized and unrealized gain on
investments ......................................... 0.52 5.95
------ ------
Total from investment operations ........................ 0.46 5.93
------ ------
LESS DISTRIBUTIONS:
From net realized gain ................................ (0.59) --
------ ------
Net asset value, end of period .......................... $15.80 $15.93
====== ======
Total return ............................................ 3.28% 59.30%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) .................. $ 5.2 $ 3.2
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed .............. 3.49% 7.76%+
After fees waived and expenses absorbed ............... 1.49% 1.49%+
RATIO OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed .............. (2.50%) (6.60%)+
After fees waived and expenses absorbed ............... (0.50%) (0.33%)+
Portfolio turnover rate ............................... 59.76% 35.70%++
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not annualized.
See accompanying Notes to Financial Statements.
17
<PAGE>
RCB FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The RCB Growth and Income Fund and the RCB Small Cap Fund (the "Funds") are
each a diversified 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 an open-end management investment
company. The Funds began operations on September 30, 1998. The investment
objectives of the RCB Growth and Income Fund is capital appreciation with growth
of income as a secondary objective. The investment objective of the RCB Small
Cap Fund is capital appreciation.
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 Nasdaq are valued at the last reported sales
price at the close of regular trading on each day that the exchanges
are open for trading; 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. Security Transactions, Dividend Income and Distributions. Security
transactions are accounted for on the trade date. The cost of
securities sold is determined on an identified cost 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.
18
<PAGE>
RCB FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
E. Reclassification of Capital Accounts. The Funds account and report for
distributions to shareholders in accordance with the American
Institute of Certified Public Accountants' Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of
Income, Capital and Return of Capital Distributions by Investment
Companies. For the year ended June 30, 2000, the RCB Small Cap Fund
decreased net realized gain on investments by $19,596 due to the Fund
experiencing a net investment loss during the year. Paid-in capital
and net assets were not affected by these changes.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
Reed, Conner & Birdwell, Inc. (the "Advisor") provides the Funds with
investment management services under an Investment Advisory Agreement. The
Advisor furnished all investment advice, office space and certain administrative
services and most of the personnel needed by the Funds. As compensation for its
services, the Advisor is 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 year
ended June 30, 2000, the RCB Growth and Income Fund and the RCB Small Cap Fund
incurred advisory fees of $11,420 and $33,384, respectively.
The Funds are responsible for their own operating expenses. The Advisor has
contractually agreed to limit each Fund's total operating expenses by reducing
all or a portion of its fees and reimbursing the Funds for expenses, excluding
interest and tax expense, so that their ratio of expenses to average net assets
will not exceed 1.25% and 1.49% for the RCB Growth and Income Fund and the RCB
Small Cap Fund, respectively. Any fee waived and/or any Fund expense absorbed by
the Advisor pursuant to an agreed upon expense cap shall be reimbursed by the
Fund to the Advisor, if so requested by the Advisor, provided the aggregate
amount of the Fund's current operating expenses for such fiscal year does not
exceed the applicable limitation on Fund expenses. For the year ended June 30,
2000, the Advisor waived fees of $11,420 and 33,384 and absorbed expenses of
$66,391 and $45,525 for the RCB Growth and Income Fund and RCB Small Cap Fund,
respectively. At June 30, 2000, the cumulative unreimbursed amount paid and/or
waived by the Advisor on behalf of the RCB Growth and Income Fund and the RCB
Small Cap Fund was $146,982 and $147,234, respectively. The Advisor may
recapture the above amounts no later than June 30, 2004 for the RCB Growth and
Income Fund and the RCB Small Cap Fund. The Funds must pay their current
ordinary operating expenses before the Advisor is entitled to any reimbursement.
Any such reimbursement is also contingent upon Board of Trustees review and
approval prior to the time the reimbursement is initiated.
19
<PAGE>
RCB FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
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 accountant;
coordinates the preparation and payment of Fund expenses and reviews the Funds'
expense accruals. For its services, the Administrator receives a monthly fee
from each Fund at the following annual 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 $150 million 0.10% of average daily net assets
Over $150 million 0.05% of average daily net assets
For the year ended June 30, 2000, RCB Growth and Income Fund and RCB Small
Cap Fund each incurred $30,000 in administration fees.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
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.
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 year ended June 30, 2000, the RCB Growth
and Income Fund and the RCB Small Cap Fund, paid to the Advisor, as Distribution
Coordinator, $4,758 and $9,819, respectively.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other than
short-term investments, were $1,138,721 and $463,502 respectively, for the RCB
Growth and Income Fund and $4,186,994 and $2,303,585 respectively, for the RCB
Small Cap Fund.
20
<PAGE>
RCB FUNDS
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board, with member banks of the
Federal Reserve System or with such other brokers or dealers that meet the
credit guidelines established by the Board of Trustees. The Funds will always
receive and maintain, as collateral, securities whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Funds in each agreement, and the Funds will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the accounts of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral.
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.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
RCB Growth And Income Fund and RCB Small Cap
Fund and
The Board of Trustees of
Professionally Managed Portfolios
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of RCB Growth and Income Fund and RCB Small Cap
Fund, each a series of Professionally Managed Portfolios, as of June 30, 2000,
and the related statements of operations for the year then ended and the
statements of changes in net assets and the financial highlights for the year
then ended and the period from September 30, 1998 through June 30, 1999. These
financial statements and financial highlights are the responsibility of the
Funds' 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 confirmation of securities owned as of June
30, 2000, by correspondence with the custodian and brokers. 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 positions of RCB
Growth and Income Fund and RCB Small Cap Fund as of June 30, 2000, the results
of their operations for the year then ended, and the changes in their net assets
and the financial highlights for the year then ended and the period from
September 30, 1998 through June 30, 1999, in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 4, 2000
22
<PAGE>
================================================================================
Investment Advisor
REED, CONNER & BIRDWELL, INC.
11111 Santa Monica Blvd., Suite 1700
Los Angeles, CA 90025
(310) 478-4005
(877) 478-4RCB Toll-free
Distributor
FIRST FUND DISTRIBUTORS, INC.
4455 E. Camelback Rd., Suite 261-E
Phoenix, AZ 85018
Custodian
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
425 Walnut Street
Cincinnati, OH 45202
Transfer and Dividend Disbursing Agent
AMERICAN DATA SERVICES, INC.
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.
