RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
RCB GROWTH AND INCOME FUND
Dear Fellow Shareholders:
We are pleased to report strong returns for the RCB Growth and Income Fund in
1999. The second half of 1999 can be summed up by one sentence from our Annual
Report of six months ago: "So while we strongly caution that it will be
difficult to reproduce the strong absolute returns of the first half, our
performance relative to our peers should prove to be satisfactory." (If only our
view of the future was always this prescient.) After a very strong first half,
the Fund held value during the turbulent markets of the second half of the year.
Following the Fund's 17.90% return during the first six months the Fund rose
slightly in the second half to finish 1999 with an increase in net asset value
of 18.07%.* This compares to 21.03% for the S&P 500 and only 7.35% for the
Russell 1000 Value Index.
At RCB, our insistence on paying reasonable, "value" prices for healthy, growing
businesses has helped us deliver good returns while controlling volatility. Our
portfolio avoided much of the third quarter market turbulence because we own
solid companies with solid long-term prospects. During the market downturn in
the third quarter of 1999, many Internet stock indices fell 40% - 50% before
recovering in the last few weeks of the year. While we readily admit to enjoying
roller coasters, we would much rather ride those at Six Flags or Disney parks.
In addition to the market gyrations, the disparity of returns remains extreme.
While the major market indices were up 20% or more, more than 50% of the stocks
in each index were actually down in 1999. As represented by Frank Russell Index
Returns, another measure of the disparity between value and growth stocks for
the year was:
Growth Value
------ -----
Large Capitalization 33.16% 7.35%
Mid Capitalization 51.29% -0.11%
In contrast, our focused value approach served us well, because rather than
taking a scattergun approach to the value world, our rigorous analysis of
individual companies found excellent investments. We are sometimes asked whether
the recent difficulty that value investors have generally encountered dims our
long-term outlook. Quite the contrary. The wide disparity convinces us that
there are many inexpensive outstanding companies to uncover.
In the second half, our individual stocks were quite consistent with first half
trends, with our strongest continuing to grow and the laggards hanging back. In
the interest of getting the bad news out in the open, the stocks that hurt
performance were Abbott Labs, Albertsons, Bank One, Chubb, Dun & Bradstreet,
Equifax, Gartner Group, IMS Health, Raytheon, Service Master, Sigma Aldrich,
Tricon, and Unocal. We have always concentrated much more on the fundamental
performance of a company's business than the short-term stock price fluctuation,
and for the most part, these companies continue to operate well. In many
instances, we have added to positions as the stocks went "on sale", and we've
enjoyed a rebound in some of these. Nevertheless, a few warrant discussion.
Raytheon, which we entered at a P/E of 12x - 14x, enjoyed a nice boost in the
first half before management repeatedly lowered expectations. While we expect
and deal with occasional warnings in the course of managing a portfolio, the
second warning in as many months convinced us that management didn't have its
arms around the business so we sold. The bad news is that we weren't omniscient
enough to get out in June. The consolation is that we avoided a third warning
which drove the stock down a further 40%.
<PAGE>
RCB GROWTH AND INCOME FUND
Albertsons has struggled as it integrates the American Stores merger and
probably to a lesser degree due to the perceived threat from web-based grocers.
Albertsons has long been the leader in the grocery business and will bring
needed discipline to the American Stores chain. Nevertheless, we anticipated the
short-term disruptions from the acquisition and, in fact, curtailed our purchase
of the stock for almost six months. However, at current prices the short-term
impact is overly discounted. Also, while we have extreme doubts about the
financial models of internet grocers, Albertsons has had its own web grocery up
and running for a year as a hedge, and its operating model is far superior to a
web-only format.
While Raytheon's troubles were unexpected and Albertsons' disruptions were
expected, Tricon's operations have been at the other end of the extreme. While
quarter-to-quarter sales trends have always fluctuated at each division (this
should come as no surprise to restaurant analysts), the long-term trend has been
great. The company has repeatedly met or exceeded earnings expectations and
should continue to do very well. Nevertheless, the stock has suffered and we
continue to buy, given its P/E ratio of 10x for 2000 and tremendous cash flow.
Stocks in a "holding pattern" during the second half include Anheuser-Busch,
Consolidated Paper, Eastman Kodak, Enron, Fortune Brands, Pepsico, Reynolds &
Reynolds, and Royal Dutch Petroleum. These are healthy businesses with solid
prospects.
Each of the companies that delivered outsized returns in the latter half of 1999
continued to capitalize on its superb operating model. American Express grew its
financial services business; investors discovered the hidden venture capital and
DSL communication gems within Comdisco; Corning, GM Hughes, and Motorola
rebounded dramatically as the worldwide communications transformation drove
their results; Kimberly-Clark continued its transformation towards a
consumer-oriented business; Warner Lambert found itself a takeover target; and
Time Warner continued to expand its media empire. While some of these are
candidates for modest rebalancing, their future prospects remain outstanding and
continue as sizable holdings in the fund.
For 2000, we believe that the RCB Growth & Income Fund will continue its strong
record. While some while away the hours debating the existence of a speculative
bubble, we find company analysis a more productive use of our time. As we
mentioned above, there is no shortage of businesses selling at reasonable prices
and we will concentrate on finding them. After all, (to paraphrase a classic ad)
we're not only the managers of the Fund, we're customers too! As always, we
appreciate your continued support and welcome your comments either by e-mail or
telephone (toll free: 877-478-4722). Sincerely,
/s/ Donn B. Conner, CFA /s/ Victor F. Hawley, CFA
Donn B. Conner, CFA Victor F. Hawley, CFA
Manager Co-Manager
[email protected] [email protected]
* The Fund's total return for the one year period ended December 31, 1999 and
from inception on September 30, 1998 through that date were 13.94% and 26.25%,
respectively. Total return reflects the maximum sales charge of 3.50%. 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
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 97.3% Value
- --------------------------------------------------------------------------------
BANKS: 2.3%
1,300 Bank One Corp............................................... $ 41,681
----------
BEVERAGES: 5.7%
500 AnheuserBusch Companies, Inc................................ 35,438
1,900 PepsiCo, Inc................................................ 66,975
----------
102,413
----------
CHEMICALS: 3.2%
1,900 SigmaAldrich Corp........................................... 57,119
----------
COMMERCIAL SERVICES: 2.5%
3,700 ServiceMaster Company....................................... 45,556
----------
CONSUMER PRODUCTS: 14.5%
1,700 Consolidated Papers, Inc.................................... 54,081
700 Eastman Kodak Company....................................... 46,375
1,200 Fortune Brands, Inc......................................... 39,675
1,200 KimberlyClark Corp.......................................... 78,300
2,000 Sara Lee Corp............................................... 44,125
----------
262,556
----------
DATA PROCESSING/MANAGEMENT: 3.0%
2,400 Reynolds & Reynolds Company................................. 54,000
----------
ENERGY SERVICES: 3.9%
1,600 Enron Corp.................................................. 71,000
----------
FINANCE: 9.0%
300 American Express Company.................................... 49,875
2,400 Dun & Bradstreet Corp....................................... 70,800
1,800 Equifax, Inc................................................ 42,413
----------
163,088
----------
INSURANCE: 2.8%
900 The Chubb Corp.............................................. 50,681
----------
See accompanying Notes to Financial Statements.
3
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
MEDIA & ENTERTAINMENT: 4.0%
1,000 Time Warner, Inc............................................ $ 72,438
----------
MEDICAL INFORMATION: 3.3%
2,200 IMS Health, Inc............................................. 59,813
----------
OIL COMPANY INTEGRATED: 4.2%
700 Royal Dutch Petroleum Company ADR ......................... 42,306
1,000 Unocal Corp................................................. 33,563
----------
75,869
----------
PHARMACEUTICALS: 5.2%
1,000 Abbott Laboratories......................................... 36,312
700 WarnerLambert Company....................................... 57,356
----------
93,668
----------
RESTAURANTS: 3.4%
1,600 TRICON Global Restaurants, Inc.*............................ 61,800
----------
RETAIL FOOD: 3.6%
2,000 Albertson's, Inc............................................ 64,500
----------
TECHNOLOGY SERVICES: 9.9%
3,500 Comdisco, Inc............................................... 130,375
3,000 Gartner Group, Inc. Class A*............................... 45,750
286 Gartner Group, Inc. Class B*............................... 3,950
----------
180,075
----------
TELECOMMUNICATIONS EQUIPMENT: 16.8%
1,000 Corning, Inc................................................ 128,937
1,200 General Motors Corp. Class H*.............................. 115,200
400 Motorola, Inc............................................... 58,900
----------
303,037
----------
Total Common Stocks (cost $1,487,294)...................... 1,759,294
----------
See accompanying Notes to Financial Statements.
4
<PAGE>
RCB GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
Total Investments in Securities (cost $1,487,294): 97.3%... $1,759,294
Other Assets less Liabilities: 2.7%......................... 48,479
----------
Total Net Assets: 100.0%.................................... $1,807,773
==========
* Nonincome producing security.
ADR American depositary receipt.
See accompanying Notes to Financial Statements.
5
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $1,487,294) ....... $ 1,759,294
Cash ....................................................... 50,350
Receivables:
Due from Advisor .......................................... 5,507
Dividends ................................................. 2,440
Prepaid expenses and other assets ........................... 1,705
-----------
Total assets .............................................. 1,819,296
-----------
LIABILITIES
Distribution fees .......................................... 1,020
Accrued expenses ........................................... 10,503
-----------
Total liabilities ......................................... 11,523
-----------
NET ASSETS ................................................... $ 1,807,773
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,807,773/132,097 shares outstanding; unlimited
number of shares authorized without par value) ............ $13.69
===========
MAXIMUM OFFERING PRICE PER SHARE ($13.69/96.50%) ........... $14.19
===========
COMPONENTS OF NET ASSETS
Paidin capital .............................................. $ 1,563,186
Accumulated net investment loss ............................. (66)
Accumulated net realized loss on investments ................ (27,347)
Net unrealized appreciation on investments .................. 272,000
-----------
Net assets ................................................ $ 1,807,773
===========
See accompanying Notes to Financial Statements.
6
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................... $ 12,499
Interest ..................................................... 573
--------
Total income .............................................. 13,072
--------
Expenses
Administration fee ........................................... 15,123
Audit fee .................................................... 8,030
Fund accounting fees ......................................... 5,924
Advisory fees ................................................ 4,864
Registration fees ............................................ 4,537
Transfer agent fees .......................................... 3,124
Custody fees ................................................. 2,823
Distribution fees ............................................ 2,027
Legal fees ................................................... 1,512
Trustee fees ................................................. 1,260
Reports to shareholders ...................................... 256
--------
Total expenses ............................................ 49,480
Less: expenses waived and reimbursed ...................... (39,347)
--------
Net expenses .............................................. 10,133
--------
NET INVESTMENT INCOME .................................. 2,939
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions ................... (27,335)
Net change in unrealized appreciation on investments ........... 42,799
--------
Net realized and unrealized gain on investments ........... 15,464
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ 18,403
========
See accompanying Notes to Financial Statements.
7
<PAGE>
RCB GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months September 30, 1998*
Ended through
December 31, 1999# June 30, 1999
------------------ -------------
<S> <C> <C>
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income ...................................... $ 2,939 $ 2,048
Net realized gain (loss) from security transactions ........ (27,335) 15,577
Net change in unrealized appreciation on investments........ 42,799 229,201
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 18,403 246,826
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................................. (3,995) (1,058)
From net realized gains .................................... (15,589) --
----------- -----------
TOTAL DISTRIBUTIONS .................................... (19,584) (1,058)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net
change in outstanding shares (a) .......................... 245,724 1,317,462
----------- -----------
TOTAL INCREASE IN NET ASSETS ........................... 244,543 1,563,230
NET ASSETS
Beginning of period ........................................ 1,563,230 --
----------- -----------
END OF PERIOD .............................................. $ 1,807,773 $ 1,563,230
=========== ===========
Accumulated net investment income (loss) ..................... $ (66) $ 990
=========== ===========
(a) A summary of capital share transactions is as follows:
Six Months September 30, 1998*
Ended through
December 31, 1999# June 30, 1999
------------------- -----------------------
Shares Value Shares Value
Shares sold ...................................... 21,900 $ 283,015 114,638 $ 1,336,995
Shares issued in reinvestment of distributions.... 1,097 14,070 88 987
Shares redeemed .................................. (3,896) (51,361) (1,730) (20,520)
------- --------- -------- -----------
Net increase ..................................... 19,101 $ 245,724 112,996 $ 1,317,462
======= ========= ======== ===========
</TABLE>
# Unaudited.
* Commencement of operations.
See accompanying Notes to Financial Statements.
8
<PAGE>
RCB GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months September 30, 1998*
Ended through
December 31, 1999# June 30, 1999
------------------ -------------
<S> <C> <C>
Net asset value, beginning of period ............................ $13.83 $ 10.00
------ -------
Income from investment operations:
Net investment income ......................................... 0.02 0.03
Net realized and unrealized gain (loss) on investments ........ (0.01) 3.82
------ -------
Total from investment operations ................................ 0.01 3.85
------ -------
Less distributions:
From net investment income .................................... (0.03) (0.02)
From net realized gains ....................................... (0.12) --
------ -------
Total distributions ............................................. (0.15) (0.02)
------ -------
Net asset value, end of period .................................. $13.69 $ 13.83
====== =======
Total return++ .................................................. 0.14% 38.55%
Ratios/supplemental data:
Net assets, end of period (millions) ............................ $ 1.8 $ 1.6
Ratio of expenses to average net assets:+
Before expense waivers and reimbursements ..................... 6.10% 12.32%
After expense waivers and reimbursements ...................... 1.25% 1.25%
Ratio of net investment income (loss) to average net assets:+
Before expense waivers and reimbursements ..................... (4.49)% (10.74)%
After expense waivers and reimbursements ...................... 0.36% 0.33%
Portfolio turnover rate++ ....................................... 1.59% 4.41%
</TABLE>
# Unaudited.
* Commencement of operations.
+ Annualized.
++ Not annualized.
See accompanying Notes to Financial Statements.
9
<PAGE>
RCB SMALL CAP FUND
Dear Fellow Shareholders:
"IT WAS THE BEST OF TIMES, IT WAS THE WORST OF TIMES, IT WAS THE AGE OF WISDOM,
IT WAS THE AGE OF FOOLISHNESS, IT WAS THE EPOCH OF BELIEF, IT WAS THE EPIC OF
INCREDULITY, IT WAS THE SEASON OF LIGHT, IT WAS THE SEASON OF DARKNESS, IT WAS
THE SPRING OF HOPE, IT WAS THE WINTER OF DESPAIR, WE HAD EVERYTHING BEFORE US,
WE HAD NOTHING BEFORE US, WE WERE ALL GOING DIRECT TO HEAVEN, WE WERE ALL GOING
DIRECT THE OTHER WAY - IN SHORT, THE PERIOD WAS SO FAR LIKE THE PRESENT PERIOD,
THAT SOME OF ITS NOISIEST AUTHORITIES INSISTED ON IT BEING RECEIVED, FOR GOOD OR
FOR EVIL, IN THE SUPERLATIVE DEGREE OF COMPARISON ONLY."
CHARLES DICKENS
Yes, as we write this letter covering the 6 months ending December 31, 1999, we
are clearly in Dickensian territory, as only a small cap value manager can
attest. We present the following index returns data from the Frank Russell
Company to support our market comments. We fall in the small cap value category,
to be found in the last grouping below.
4th Quarter 1999 Year 1999
---------------- ---------
Large Cap:
Value: 5.44% 7.35%
Growth: 25.14% 33.16%
Mid Cap:
Value: 3.77% -0.11%
Growth: 39.47% 51.29%
Small Cap:
Value: 1.53% -1.49%
Growth: 33.39% 43.09%
It's clear that the hypothesis declaring the end of the Internet sillies and a
return to more rational thinking that was outlined in our last shareholder
letter, as of June 30th, was "early." What worked in 1999 was limited to a very
select group of market categories and "small cap" and "value" were not among
them. We spent the entire second half of the year desperately trying to maintain
the gains of the first half, and were only somewhat successful.
So how did we manage to be up 17.85% for the year at net asset value when we are
a small cap value manager, the worst performing style during 1999? * There are
some very obvious responses to this question and I shall leave most of them to
your imagination. Let me mention some things that might not be quite as
apparent. One advantage we have is size. As a firm managing $1.2 billion in
assets, we have more flexibility than a $10 billion firm. If something does not
work out, we can get out. Additionally, we have a very focused approach, which
means that while we also may have had a number of stocks suffering smallcap
"valueitis," a half dozen winners in the portfolio can and did propel us to our
solid results.
When we initiate a stock position, we naturally have high expectations for its
performance based upon our estimate of the underlying company's intrinsic value
and the severe discount it is selling for in the marketplace relative to that
10
<PAGE>
RCB SMALL CAP FUND
estimate. The reality is that only a handful of investments truly achieve
"greatness." We were fortunate to have such a handful in 1999, led by
UnitedGlobalCom Inc. Our average cost is $4.00 and the stock is currently
selling at 70 5/8. In classic Wall Street fashion, the stock was ignored at our
purchase price and 9-fold later it looks "cheap" according to leading analysts.
While the magnitude of this success will be difficult to repeat on a regular
basis, the principle is very clonable: a focus on smaller companies out of the
limelight of popular opinion, yet possessing solid businesses run by "smart"
management and a stock price that does not reflect the true economic value of
the underlying business, is a recipe for successful investing.
Whitehall Jeweler's was another big winner for the Fund. The retail jewelry
industry was a disaster in the 1980s and early 1990s as a number of high-profile
consolidators went bankrupt or mismanaged themselves into obscurity. Whitehall
is a Chicago-based, family-owned player that has staked out a neat niche in
small square foot, high-profile mall-based stores that generate a terrific
return on investment. They have quietly opened or acquired locations at a steady
clip, outsourced all credit decisions and have built a wonderful record of
consistent growth. We have benefited from the ability of management to continue
to produce the numbers, as well as from the fact that the multiple which people
are willing to pay for the stock has increased from 10x at our purchase to the
mid-teens, which is still a very reasonable price.
We also had a number of takeovers in 1999 and this is a theme that we hope will
remain at the forefront of continuing good performance. There are over 700
companies that trade for under 10 times earnings, most of them smaller. At the
same time, you have the bigger non-tech companies starved for growth and
desperate to make acquisitions. Some of our holdings will hopefully fill their
bill.
We have also had our share of disappointments. Borg Warner Security, which
received "something" from an interested acquirer putting its stock some 40%
above our cost, had that something disappear, which along with a slow quarter,
tanked the stock to 40% below our cost. Angelica Corp., a collection of three
basic businesses, finally gave up the ghost and put itself up for sale. While we
expect a decent profit, it will undoubtedly be below our original estimate of
value, due to the benign neglect of the small cap sector. We noted in our last
letter that this is an unpleasant trend in small cap investing, as many
investors are willing to take a mediocre offer for the company for the sake of
getting out.
On another note, it is difficult to overstate the ridiculousness of the
valuation of many technology-related companies. As you can see from the above
table, it is also difficult to overstate just how well many of them did last
year. As a rule, we are generally skeptical of what passes for conventional
wisdom and we would encourage those pining away for triple digit annual returns
to read a terrific book, DEVIL TAKE THE HINDMOST: A HISTORY OF FINANCIAL
SPECULATION by Edward Chancellor. While it is a fact that there was not a
collapse in the euphoria and valuation in the technology world in 1999, it is
still only a hypothesis to suggest that this will not occur in the near future.
Despite some suggestions in the press that "this time, things are different,"
the philosophy and the discipline of valuing a company and its future growth are
no different when looking at a technology company or at a manufacturing or
services company. The only thing different in our view is that there seems to be
a group of investors who have an extraordinarily high certainty about what the
future is going to look like and are willing to pay nearly any price to see if
they are right. This flies in the face of our conventional wisdom that risk
increases geometrically as you move further into the future.
11
<PAGE>
RCB SMALL CAP FUND
The interesting thing about this environment is that in many ways there is more
opportunity in more stocks than we have seen in years, thanks to many investors'
myopic focus on a relatively small number of "hot" stocks. We remain fully
invested and in fact have more ideas than money to invest at the current time.
What will "happen" to resolve the enormous chasm between the relative valuations
of many smaller companies and many of the "dot.coms"? Timing, of course, is
everything and is as elusive as it has always been. Rising interest rates always
hurt the longest duration assets the most and it is clear that the profitability
schedules of many of the Class of 1999 IPOs put them in this category. Part of
it we suspect will simply be the sound of hubris sinking under its own weight.
As the new batch of IPOs season and start to face things like year-over-year
comparisons, even if it is on something as amorphous as "page-views" or press
releases per week, it will become increasingly difficult to justify current
prices in many cases. This possibility at least should benefit us on a relative
basis.
The Fund's portfolio managers continue to have the bulk of their net worth
invested in the Fund and clearly strive to have your best interests in mind.
Please feel free to look us up on our website, www.rcbinvest.com, where we
update our holdings and current thoughts on a more frequent basis or to contact
us toll-free at 877-478-4RCB. We look forward to more good opportunities to
come. Thank you again for your continuing confidence and support.
Sincerely,
/s/ Jeffrey Bronchick, CFA /s/ Thomas D. Kerr, CFA
Jeffrey Bronchick, CFA Thomas D. Kerr, CFA
Manager Co-Manager
[email protected] [email protected]
* The Fund's total return for the one year period ended December 31, 1999 and
from inception on September 30, 1998 through that date were 13.72% and 34.55%,
respectively. Total return reflects the maximum sales charge of 3.50%. 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.
12
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.3% Value
- --------------------------------------------------------------------------------
ADVERTISING SERVICES: 2.5%
5,000 R. H. Donnelley Corp.*...................................... $ 94,375
----------
AEROSPACE/DEFENSE: 2.0%
1,400 Sequa Corp.*................................................ 75,513
----------
AUTO PARTS & EQUIPMENT: 3.2%
4,400 Superior Industries International, Inc...................... 117,975
----------
BUILDING AND CONSTRUCTION PRODUCTS: 3.2%
3,000 Ameron International Corp................................... 118,687
----------
BROADCAST SERVICECABLE: 2.6%
1,400 UnitedGlobalCom, Inc.*...................................... 98,875
----------
COMPUTER SOFTWARE: 3.1%
10,000 Tripos, Inc.*............................................... 115,000
----------
DATA PROCESSING: 3.4%
13,600 Information Resources, Inc.*................................ 125,800
----------
ELECTRONICS: 4.5%
7,000 Littelfuse, Inc.*........................................... 169,859
----------
FINANCIAL SERVICES: 1.7%
10,000 Billing Concepts Corp.*..................................... 65,000
----------
INSURANCE: 14.9%
4,200 AmerUs Life Holdings, Inc. Class A......................... 96,600
20,200 GAINSCO, Inc................................................ 108,575
7,600 Horace Mann Educators Corp.................................. 149,150
9,000 UICI*....................................................... 95,063
900 White Mountains Insurance Group, Inc........................ 108,450
----------
557,838
----------
See accompanying Notes to Financial Statements.
13
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
LINEN SUPPLY: 3.1%
12,000 Angelica Corp............................................... $ 117,000
----------
MACHINERY GENERAL: 8.6%
5,000 AMETEK, Inc................................................. 95,312
1,500 Franklin Electric Co., Inc.................................. 105,281
4,000 IDEX Corp................................................... 121,500
----------
322,093
----------
MANUFACTURING: 15.3%
18,000 Farr Company*............................................... 175,500
40,000 ROHN Industries, Inc.*...................................... 115,000
6,000 Scott Technologies, Inc.*................................... 113,250
9,500 UCAR International, Inc.*................................... 169,219
----------
572,969
----------
MARKET RESEARCH: 3.0%
4,500 ACNielsen Corp.*............................................ 110,812
----------
MEDICAL: 0.5%
500 Dionex Corp.*............................................... 20,594
----------
OFFICE SUPPLIES: 6.2%
9,000 American Business Products, Inc............................. 105,188
13,500 Hunt Corp................................................... 128,250
----------
233,438
----------
OILEXPLORATION & PRODUCTION: 3.7%
41,000 Gulf Canada Resources Ltd.*................................. 138,375
----------
OILFIELD SERVICES: 0.8%
800 Hanover Compressor Company*................................. 30,200
----------
RESTAURANTS: 5.2%
7,500 IHOP Corp.*................................................. 125,156
4,200 VICORP Restaurants, Inc.*................................... 67,725
----------
192,881
----------
See accompanying Notes to Financial Statements.
14
<PAGE>
RCB SMALL CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
RETAIL: 3.0%
3,000 Whitehall Jewellers, Inc.*.................................. $ 110,625
----------
SECURITY SERVICES: 2.5%
8,700 Burns International Services Corp.*......................... 94,069
----------
TECHNOLOGY SERVICES: 1.2%
3,000 Gartner Group, Inc.A*....................................... 45,750
----------
TELEVISION: 3.0%
2,300 SBS Broadcasting SA (Luxembourg)............................ 111,981
----------
WHOLESALE FOOD: 1.1%
5,859 Smart & Final, Inc.*........................................ 42,478
----------
Total Common Stocks (cost $3,454,418)....................... 3,682,187
----------
PREFERRED STOCK: 0.6%
INSURANCE: 0.6%
3,200 Philadelphia Consolidated Holding Corp. (cost $30,160)...... 22,400
----------
Total Investments in Securities (cost $3,484,578): 98.9%... 3,704,587
Other Assets less Liabilities: 1.1%......................... 40,348
----------
Total Net Assets: 100.0%.................................... $3,744,935
==========
* Nonincome producing security.
See accompanying Notes to Financial Statements.
15
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $3,484,578) ....... $ 3,704,587
Cash ....................................................... 41,275
Receivables:
Due from Advisor .......................................... 4,878
Dividends ................................................. 1,737
Prepaid expenses and other assets ........................... 6,499
-----------
Total assets .............................................. 3,758,976
-----------
LIABILITIES
Distribution fees ........................................... 2,040
Accrued expenses ............................................ 12,001
-----------
Total liabilities ......................................... 14,041
-----------
NET ASSETS ................................................... $ 3,744,935
-----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($3,744,935/259,499 shares outstanding; unlimited
number of shares authorized without par value) ........... $ 14.43
===========
MAXIMUM OFFERING PRICE PER SHARE ($14.43/96.50%) ........... $ 14.95
===========
COMPONENTS OF NET ASSETS
Paidin capital ............................................. $ 3,402,227
Accumulated net investment loss ............................ (8,729)
Accumulated net realized gain on investments ............... 131,428
Net unrealized appreciation on investments ................. 220,009
-----------
Net assets ................................................ $ 3,744,935
===========
See accompanying Notes to Financial Statements.
16
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends ................................................... $ 14,350
Interest .................................................... 1,229
---------
Total income .............................................. 15,579
---------
Expenses
Administration fee .......................................... 15,123
Advisory fees ............................................... 13,867
Audit fee ................................................... 8,030
Fund accounting fees ........................................ 7,127
Transfer agent fees ......................................... 6,500
Registration fees ........................................... 4,538
Distribution fees ........................................... 4,078
Custody fees ................................................ 2,823
Legal fees .................................................. 1,512
Trustee fees ................................................ 1,260
Reports to shareholders ..................................... 287
---------
Total expenses ............................................ 65,145
Less: expenses waived and reimbursed ...................... (40,837)
---------
Net expenses .............................................. 24,308
---------
NET INVESTMENT LOSS ..................................... (8,729)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions .................. 167,504
Net change in unrealized appreciation on investments .......... (345,439)
---------
Net realized and unrealized loss on investments ........... (177,935)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .... $(186,664)
=========
See accompanying Notes to Financial Statements.
17
<PAGE>
RCB SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months September 30, 1998*
Ended through
December 31, 1999# June 30, 1999
------------------ -------------
<S> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss ................................. $ (8,729) $ (3,547)
Net realized gain from security transactions ........ 167,504 95,563
Net change in unrealized appreciation on investments (345,439) 565,448
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ................................. (186,664) 657,464
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains ............................. (128,092) --
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net
change in outstanding shares (a) ................... 903,661 2,498,566
----------- -----------
TOTAL INCREASE IN NET ASSETS ..................... 588,905 3,156,030
NET ASSETS
Beginning of period ................................. 3,156,030 --
----------- -----------
END OF PERIOD ....................................... $ 3,744,935 $ 3,156,030
=========== ===========
Accumulated net investment loss ....................... $ (8,729) $ --
=========== ===========
(a) A summary of capital share transactions is as follows:
Six Months September 30, 1998*
Ended through
December 31, 1999# June 30, 1999
---------------------- ----------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold ....................................... 59,882 $886,382 198,111 $2,498,602
Shares issued in reinvestment of distribution...... 7,915 113,337 -- --
Shares redeemed.................................... (6,406) (96,058) (3) (36)
------ -------- ------- ----------
Net increase ...................................... 61,391 $903,661 198,108 $2,498,566
====== ======== ======= ==========
</TABLE>
# Unaudited.
* Commencement of operations.
See accompanying Notes to Financial Statements.
18
<PAGE>
RCB SMALL CAP FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months September 30, 1998*
Ended through
December 31, 1999# June 30, 1999
------------------ -------------
<S> <C> <C>
Net asset value, beginning of period ................... $15.93 $10.00
------ ------
Income from investment operations:
Net investment loss .................................. (0.03) (0.02)
Net realized and unrealized gain (loss)
on investments....................................... (0.88) 5.95
------ ------
Total from investment operations ....................... (0.91) 5.93
------ ------
Less distributions:
From net realized gains .............................. (0.59) --
------ ------
Net asset value, end of period ......................... $14.43 $15.93
====== ======
Total return++ ......................................... (5.68)% 59.30%
Ratios/supplemental data:
Net assets, end of period (millions) ................... $ 3.7 $ 3.2
Ratio of expenses to average net assets:+
Before expense waivers and reimbursements ............ 3.99% 7.76%
After expense waivers and reimbursements ............. 1.49% 1.49%
Ratio of net investment loss to average net assets:+
Before expense waivers and reimbursements ............ (3.04)% (6.60)%
After expense waivers and reimbursements ............. (0.54)% (0.33)%
Portfolio turnover rate++ .............................. 24.93% 35.70%
</TABLE>
# Unaudited.
* Commencement of operations.
+ Annualized.
++ Not annualized.
See accompanying Notes to Financial Statements.
19
<PAGE>
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1999 (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 Nasdaq 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. SECURITY TRANSACTIONS, INVESTMENT INCOME AND DISTRIBUTIONS. Security
transactions are accounted for on the trade date. The cost of
securities sold is determined 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
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 six
months ended December 31, 1999, the RCB Growth and Income Fund and the RCB Small
Cap Fund incurred $4,864 and $13,867 in advisory fees, respectively. The Advisor
has agreed to reduce fees payable to it by the Funds and reimburse other
20
<PAGE>
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
expenses to the extent necessary to limit the Funds' aggregate annual operating
expenses, excluding brokerage commissions and other portfolio transaction
expenses, interest, taxes, capital expenditures and extraordinary expenses to
1.25% and 1.49% for the RCB Growth and Income Fund and the RCB Small Cap Fund,
respectively, of average daily net assets for an indefinite period. As a result,
the Advisor reimbursed the Funds for expenses in excess of the limits in the
amounts of $39,347 for RCB Growth and Income Fund and $40,837 for RCB Small Cap
Fund. The cumulative amounts paid by the Advisor on behalf of the RCB Growth and
Income Fund and the RCB Small Cap Fund are $108,518 and $109,162, respectively.
The Advisor may recapture from the RCB Growth and Income Fund and the RCB
Small Cap Fund the cumulative expense reimbursements of $108,518 and $109,162,
respectively, subject to the requirements that the Funds must pay their current
operating expenses before any such recapture and their continued compliance with
any other expense limitations. The Advisor must recapture the cumulative
reimbursements by June 30, 2004 or it forgoes the right to recapture these
amounts.
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 $200 million 0.10% of average daily net assets
Over $200 million 0.05% of average daily net assets
For the six months ended December 31, 1999, each Fund incurred $15,123 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 six months ended December 31, 1999, the
RCB Growth and Income Fund and the RCB Small Cap Fund, paid fees of $2,027 and
$4,078, respectively, to the Advisor.
21
<PAGE>
RCB GROWTH AND INCOME FUND
RCB SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other than
short-term investments, were $296,356 and $24,535, respectively, for the RCB
Growth and Income Fund and $1,713,054 and $797,757 respectively, for the RCB
Small Cap Fund.
NOTE 6 - TAX BASIS APPRECIATION
At December 31, 1999, the cost of securities for federal income tax
purposes and the gross unrealized appreciation and depreciation of securities
were as follows:
RCB Growth and RCB Small
Income Fund Cap Fund
----------- --------
Gross unrealized appreciation.................... $ 401,459 $ 437,431
Gross unrealized depreciation.................... (129,459) (217,422)
---------- ----------
Net unrealized appreciation............... $ 272,000 $ 220,009
========== ==========
Cost for federal income tax purposes .... $1,487,294 $3,484,578
========== ==========
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 St.
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. See
accompanying Notes to Financial Statements.
