BOSTON PARTNERS BOND FUND
(INSTITUTIONAL AND INVESTOR CLASSES)
OF
THE RBB FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of the Investor and Institutional
Classes (the "Shares") representing interests in the Boston Partners Bond Fund
(the "Fund") of The RBB Fund, Inc. ("RBB"). This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Boston Partners Bond Fund Prospectuses, dated January 1, 1998 (together, the
"Prospectus"). A copy of any of the Prospectuses may be obtained from RBB by
calling toll-free (800) 311-9783 or 9829. This Statement of Additional
Information is dated January 1, 1998.
CONTENTS
INSTITUTIONAL INVESTOR
PROSPECTUS PROSPECTUS
PAGE PAGE PAGE
---- ------------- ----------
General................................. 2 2 2
Investment Objectives and Policies...... 2 2 2
Directors and Officers.................. 20 N/A N/A
Investment Advisory, Distribution
and Servicing Arrangements............ 24 7 7
Portfolio Transactions.................. 28 4 4
Purchase and Redemption Information..... 29 9,10 10,15
Valuation of Shares..................... 29 12 18
Performance and Yield Information....... 30 13 18
Taxes................................... 32 13 18
Additional Information Concerning
RBB Shares........................... 35 14 19
Miscellaneous........................... 39 N/A N/A
Financial Statements.................... N/A N/A N/A
Appendix A.............................. A-1 N/A N/A
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IN
CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY RBB OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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GENERAL
The RBB Fund, Inc. ("RBB") is an open-end management
investment company currently operating or proposing to operate twenty-two
separate investment portfolios. RBB was organized as a Maryland corporation on
February 29, 1988.
Capitalized terms used herein and not otherwise defined have
the same meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the
Prospectus concerning the investment objectives and policies of the Fund.
ADDITIONAL INFORMATION ON FUND INVESTMENTS.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes"), which are guaranteed as to the timely payment of principal
and interest by GNMA and such guarantee is backed by the full faith and credit
of the United States. GNMA is a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the
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holder to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Fund may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by
private originators of, or investors in, mortgage loans. In general, CMOs and
REMICs are debt obligations of a legal entity that are collateralized by, and
multiple class pass-through securities represent direct ownership interests in,
a pool of residential mortgage loans or mortgage pass-through securities (the
"Mortgage Assets"), the payments on which are used to make payments on the CMOs
or multiple pass-through securities. Investors may purchase beneficial interests
in REMICs, which are known as "regular" interests or "residual" interests. The
Fund does not intend to purchase residual interests.
Each class of CMOs or REMIC Certificates, often referred to as
a "tranche," is issued at a specific adjustable or fixed interest rate and must
be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates may
cause some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs or REMIC Certificates in various
ways. In certain structures (known as "sequential pay" CMOs or REMIC
Certificates), payments of principal, including any principal prepayments, on
the Mortgage Assets generally are applied to the classes of CMOs or REMIC
Certificates in the order of their respective final distribution dates. Thus no
payment of principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs or REMIC Certificates include,
among others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or
REMIC Certificates are those which are structured to apply principal payments
and prepayments
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of the Mortgage Assets to two or more classes concurrently on a proportionate or
disproportionate basis. These simultaneous payments are taken into account in
calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the
parallel pay or sequential pay structures. These securities include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until all other certificates having an earlier final distribution
date have been retired and are converted thereafter to an interest-paying
security, and planned amortization class ("PAC") certificates, which are
parallel pay REMIC Certificates that generally require that specified amounts of
principal be applied on each payment date to one or more classes of REMIC
Certificates (the "PAC Certificates"), even though all other principal payments
and prepayments of the Mortgage Assets are then required to be applied to one or
more other classes of the Certificates. The scheduled principal payments for the
PAC Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created that absorb most of
the volatility in the underlying Mortgage Assets. These tranches tend to have
market prices and yields that are much more volatile than the PAC classes.
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely
payment of interest, and also guarantees the ultimate payment of principal as
payments are required to be made on the underlying mortgage participation
certificates ("PCs"). PCs represent undivided interests in specified level
payment, residential mortgages or participation therein purchased by FHLMC and
placed in a PC pool. With respect to principal payments on PCs, FHLMC generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. FHLMC also guarantees timely payment of principal
on certain PCs, referred to as "Gold PCs."
ASSET-BACKED SECURITIES. Asset-backed securities are
generally issued as pass-through certificates, which represent
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undivided fractional ownership interests in an underlying pool of assets, or as
debt instruments, which are also known as collateralized obligations, and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (I.E.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
FOREIGN SECURITIES. The Fund may invest in securities of
foreign issuers that may or may not be publicly traded in the United States. The
Fund may invest, either directly, or indirectly through investments in
closed-end investment companies, in securities issued by foreign companies
wherever organized. The Fund may invest in Eurodollar Convertible Securities
that are convertible into or exchangeable for foreign equity securities
represented by listed American Depositary Receipts ("ADRs"). Interest and
dividends on such Eurodollar securities are payable in U.S. dollars outside of
the United States.
ADRs are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the
over-the-counter market. ADR prices are denominated in United States dollars;
the underlying security may be denominated in a foreign currency. The underlying
security may be subject to foreign government taxes which would reduce the yield
on such securities. The extent to which a Portfolio will be invested in foreign
companies and ADRs will fluctuate from time to time within the limits stated in
the
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Prospectus depending on the Adviser's assessment of prevailing market, economic
and other conditions.
The Fund may purchase debt obligations issued or guaranteed by
governments (including states, provinces or municipalities) of countries other
than the United States, or by their agencies, authorities or instrumentalities.
The Fund may purchase debt obligations issued or guaranteed by supranational
entities organized or supported by several national governments, such as the
International Bank for Reconstruction and Development (the "World Bank"), the
Inter-American Development Bank, the Asian Development Bank and the European
Investment Bank. The Fund may purchase debt obligations of foreign corporations
or financial institutions, such as Yankee bonds (dollar-denominated bonds sold
in the United States by non-U.S. issuers) and Euro bonds (bonds not issued in
the country (and possibly currency of the country of the issuer).
Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Fund endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed companies than in the United
States. Settlement mechanics (e.g., mail service between the United States and
foreign countries) may be slower or less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of a Portfolio is uninvested
and no return is earned thereon. The inability of the Portfolios to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of Fund
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the securities, or, if a Fund has entered
into a contract to sell the securities, could result in possible liability to
the purchaser. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth or gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Investments in foreign securities involve certain inherent
risks, such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting
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international trade patterns and the possibility of imposition of exchange
controls. Such securities may also be subject to greater fluctuations in price
than securities of domestic corporations. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. Foreign brokerage commissions and custodian fees are
generally higher than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation, or
diplomatic developments which could affect investment in those countries.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. In order to protect
against a possible loss on investments resulting from a decline or appreciation
in the value of a particular foreign currency against the U.S. dollar or another
foreign currency or for other reasons, the Fund is authorized to enter into
forward currency exchange contracts. These contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate fluctuations
in the values of portfolio securities but rather may allow the Fund to establish
a rate of exchange for a future point in time.
The Fund may enter into forward foreign currency exchange
contracts in several circumstances. When entering into a contract for the
purchase or sale of a security, the Fund may enter into a contract for the
amount of the purchase or sale price to protect against variations, between the
date the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
When the Adviser anticipates that a particular foreign
currency may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. Similarly, when the securities held by the Fund create a short
position in a foreign currency, the Fund may enter into a forward contract to
buy, for a fixed amount, an amount of foreign currency approximating the short
position. With respect to any forward foreign currency contract, it will
generally not be possible to precisely match the amount covered by that contract
and the value of the securities involved due to the changes in the values of
such securities resulting from market movements between the date the forward
contract is entered into and the date it matures. While forward contracts may
offer protection from losses resulting from declines or appreciation in the
value
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of a particular foreign currency, they also limit potential gains which might
result from changes in the value of such currency. The Fund will also incur
costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars. In addition, the Adviser may
purchase or sell forward foreign currency exchange contracts for the Fund for
non- hedging purposes when the Adviser anticipates that the foreign currency
will appreciate or depreciate in value.
A separate account consisting of liquid assets, such as cash,
U.S. Government securities or other liquid high grade debt obligations, equal to
the amount of the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's Custodian except to the extent the
contracts are otherwise "covered." For the purpose of determining the adequacy
of the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund. A
forward contract to sell a foreign currency is "covered" if the Fund owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option) permitting the Fund to buy the same
currency at a price no higher than the Fund's price to sell the currency. A
forward contract to buy a foreign currency is "covered" if the Fund holds a
forward contract (or put option) permitting the Fund to sell the same currency
at a price as high as or higher than the Fund's price to buy the currency.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of
its net assets in illiquid securities (including repurchase agreements which
have a maturity of longer than seven days), including securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. With respect to the Fund, repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these
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restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The Adviser anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
The Adviser will monitor the liquidity of restricted
securities in the Fund under the supervision of the Board of Directors. In
reaching liquidity decisions, the Adviser may consider, INTER ALIA, the
following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security; and (5)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). The Fund does not presently intend to invest more
than 5% of net assets in illiquid securities.
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WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When the Fund
agrees to purchase securities on a when-issued basis or enters into a forward
commitment to purchase securities, the Custodian will set aside cash, U.S.
government securities or other liquid assets equal to the amount of the purchase
or the commitment in a separate account. The market value of the separate
account will be monitored and if such market value declines, the Fund will be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitments.
The Fund will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases, the Fund may realize a capital gain or loss.
The value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their value, is taken into account when determining the Fund's net asset
value starting on the day that the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
FORWARD CURRENCY TRANSACTIONS. The Fund's participation in
forward currency contracts will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging involves the purchase
or sale of foreign currency with respect to specific receivables or payables of
the Fund generally arising in connection with the purchase or sale of its
portfolio securities. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Funds will not speculate in foreign
currency exchange transactions. Transaction and position hedging will not be
limited to an overall percentage of the Fund's assets, but will be employed as
necessary to correspond to particular transactions or positions. The Fund may
not hedge its currency positions to an extent greater than the aggregate market
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value (at the time of entering into the forward contract) of the securities held
in its portfolio denominated, quoted in, or currently convertible into that
particular currency. When the Fund engages in forward currency transactions,
certain asset segregation requirements must be satisfied to ensure that the use
of foreign currency transactions is unleveraged. When a Fund takes a long
position in a forward currency contract, it must maintain a segregated account
containing liquid assets equal to the purchase price of the contract, less any
margin or deposit. When a Fund takes a short position in a forward currency
contract, the Fund must maintain a segregated account containing liquid assets
in an amount equal to the market value of the currency underlying such contract
(less any margin or deposit), which amount must be at least equal to the market
price at which the short position was established. Asset segregation
requirements are not applicable when a Fund "covers" a forward currency position
generally by entering into an offsetting position.
The transaction costs to the Fund of engaging in forward
currency transactions vary with factors such as the currency involved, the
length of the contract period and prevailing currency market conditions. Because
currency transactions are usually conducted on a principal basis, no fees or
commissions are involved. The use of forward currency contracts does not
eliminate fluctuations in the underlying prices of the securities being hedged,
but it does establish a rate of exchange that can be achieved in the future.
Thus, although forward currency contracts used for transaction or position
hedging purposes may limit the risk of loss due to an increase in the value of
the hedged currency, at the same time they limit potential gain that might
result were the contracts not entered into. Further, the Adviser may be
incorrect in its expectations as to currency fluctuations, and the Fund may
incur losses in connection with its currency transactions that it would not
otherwise incur. If a price movement in a particular currency is generally
anticipated, a Fund may not be able to contract to sell or purchase that
currency at an advantageous price.
At or before the maturity of a forward sale contract, the Fund
may sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between a
Fund's entering into a forward contract for the sale of
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a currency and the date it enters into an offsetting contract for the purchase
of the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to sell is less than the price of
the currency it has agreed to purchase in the offsetting contract. The foregoing
principles generally apply also to forward purchase contracts.
CONVERTIBLE SECURITIES. The Fund may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. While no securities investment is
completely without risk, investments in convertible securities generally entail
less risk than the corporation's common stock, although the extent to which such
risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low
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relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. A convertible security generally will sell at a premium
over its conversion value by the extent to which investors place value on the
right to acquire the underlying common stock while holding a fixed income
security.
A convertible security might be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. The Fund does not presently intend to invest more than 5% of net assets
in convertible securities, or securities received by the Fund upon conversion
thereof.
LENDING OF FUND SECURITIES. The Fund may lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Adviser to be of good standing and only when, in the
Adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Fund's securities will be fully collateralized
and marked to market daily. The Fund does not presently intend to invest more
than 5% of net assets in securities lending.
REPURCHASE AGREEMENTS. The Fund may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Fund may
enter into repurchase agreements will be banks which the Adviser considers
creditworthy pursuant to criteria approved by the Board of Directors and nonbank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers. The Adviser will consider the
creditworthiness of a seller in determining whether to have the Fund enter into
a repurchase agreement. The seller under a repurchase agreement will be required
to maintain the value of the securities subject to the agreement at not less
than
-13-
<PAGE>
the repurchase price plus accrued interest. The Adviser will mark to market
daily the value of the securities, and will, if necessary, require the seller to
maintain additional securities, to ensure that the value is not less than the
repurchase price. Default by or bankruptcy of the seller would, however, expose
the Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
U.S. GOVERNMENT OBLIGATIONS. The Fund may purchase U.S.
Government agency and instrumentality obligations that are debt securities
issued by U.S. Government-sponsored enterprises and federal agencies. Some
obligations of agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. or by U.S. Treasury
guarantees, such as securities of the Government National Mortgage Association
and the Federal Housing Authority; others, by the ability of the issuer to
borrow, provided approval is granted, from the U.S. Treasury, such as securities
of the Federal Home Loan Mortgage Corporation and others, only by the credit of
the agency or instrumentality issuing the obligation, such as securities of the
Federal National Mortgage Association and the Federal Loan Banks.
The Fund's net assets may be invested in obligations issued or
guaranteed by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, the Asian-American Development Bank and the Inter-American
Development Bank.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to
increase total return, to hedge against changes in interest rates, securities
prices or currency exchange rates, the Fund may purchase and sell various kinds
of futures contracts, and purchase and write call and put options on any of such
futures contracts. The Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, securities indices and other financial
instruments and indices. The Fund will engage in
-14-
<PAGE>
futures and related options transactions for bona fide hedging purposes as
defined in regulations of the Commodity Futures Trading Commission or to seek to
increase total return to the extent permitted by such regulations. The Fund may
not purchase or sell futures contracts or purchase or sell related options to
seek to increase total return, except for closing purchase or sale transactions,
if immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related options
entered into for the purpose of seeking to increase total return would exceed 5%
of the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating the Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, while the Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance than if the Fund had not
entered into any futures contracts or options transactions. Because perfect
correlation between a futures position and portfolio position which is intended
to be protected is impossible to achieve, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. The loss incurred by the
Fund in entering into futures contracts and in writing call options on futures
is potentially unlimited and may exceed the amount of the premium received.
Futures markets are highly volatile and the use of futures may increase the
volatility of the Fund's net asset value. The profitability of the Fund's
trading in futures to seek to increase total return depends upon the ability of
the Adviser to correctly analyze the futures markets. In addition, because of
the low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to the
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single day.
STRIPPED SECURITIES. The Federal Reserve has established an
investment program known as "STRIPS" or "Separate Trading of Registered Interest
and Principal of Securities." The Fund may purchase securities registered under
this program. This program allows the Fund to be able to have beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury
-15-
<PAGE>
securities. The Treasury Department has, within the past several years,
facilitated transfers of such securities by accounting separately for the
beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system.
In addition, the Fund may acquire U.S. Government Obligations
and their unmatured interest coupons that have been separated ("stripped") by
their holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government Obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. RBB is unaware of any binding legislative, judicial or
administrative authority on this issue.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated
(at the time of purchase) "A-1," "A-2," or "A-3" by S&P or "Prime-1," "Prime-2,"
or "Prime-3" by Moody's or, when deemed advisable by the Fund's investment
adviser, issues rated "B" or "Not Prime" by S&P or Moody's, respectively. These
rating symbols are described in Appendix A hereto. The Fund may also purchase
unrated commercial paper provided that such paper is determined to be of
comparable quality by the Fund's investment adviser pursuant to guidelines
approved by the Fund's Board of Directors. Commercial paper issues in which the
Fund may invest include securities issued by corporations without registration
under the Securities Act in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration, which is afforded
by Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. The Fund does not presently intend to invest more than 5% of its net
assets in commercial paper.
-16-
<PAGE>
MONEY MARKET INSTRUMENTS. The Fund may invest in "money market
instruments," for purposes of temporary defensive measures which include, among
other things, bank obligations. Bank obligations include bankers' acceptances,
negotiable certificates of deposit, and non-negotiable time deposits earning a
specified return and issued by a U.S. bank which is a member of the Federal
Reserve System or insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"), or by a savings and loan association or savings
bank which is insured by the Savings Association Insurance Fund of the FDIC.
Bank obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Such investments may involve risks that are different from investments in
securities of domestic branches of U.S. banks. These risks may include future
unfavorable political and economic developments, possible withholding taxes on
interest income, seizure or nationalization of foreign deposits, currency
controls, interest limitations, or other governmental restrictions which might
affect the payment of principal or interest on the securities held in the Fund.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The Fund
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when the Adviser believes that the risks
associated with such investment are minimal.
INVESTMENT LIMITATIONS.
RBB has adopted the following fundamental investment
limitations, which may not be changed without the affirmative
vote of the holders of a majority of the Fund's outstanding Shares (as defined
in Section 2(a) (42) of the 1940 Act). The Fund may not:
1. Borrow money, except that each Portfolio may borrow from
banks and enter into reverse repurchae agreements and dollar rolls for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Portfolio's total assets at the time of such
borrowing. The Fund may not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
-17-
<PAGE>
2. Issue any senior securities, except as permitted under the
1940 Act;
3. Act as an underwriter of securities within the meaning of
the Securities Act, except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the limitation
on purchases of restricted securities;
4. Purchase or sell real estate (including real estate limited
partnership interests), provided that the Fund may invest (a) in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein or (b) in real estate investment trusts;
5. Purchase or sell commodities or commodity contracts, except
that a Fund may deal in forward foreign exchanges between currencies of the
different countries in which it may invest and purchase and sell stock index and
currency options, stock index futures, financial futures and currency futures
contracts and related options on such futures;
6. Make loans, except through loans of portfolio instruments
and repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, loan participations and assignments,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan;
7. Invest 25% or more of its total assets, taken at market
value at the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its agencies and
instrumentalities); or
8. Purchase the securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase, more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting securities
of such issuer would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
(For purposes of Investment Limitation No. 1, any collateral
arrangements with respect to, if applicable, the writing of options and futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of assets.
For purposes of Investment Limitation No. 2, neither the foregoing arrangements
nor the purchase or sale of futures or
-18-
<PAGE>
related options are deemed to be the issuance of senior securities.)
The Fund may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Except as required by the 1940 Act with respect to the
borrowing of money, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in market values of portfolio securities or amount of total or net assets will
not be considered a violation of any of the foregoing restrictions.
Securities held by the Fund generally may not be purchased
from, sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
-19-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of RBB, their ages,
business addresses and principal occupations during the past five years are:
================================================================================
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and
Executive Officer of
Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
- --------------------------------------------------------------------------------
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
- --------------------------------------------------------------------------------
Francis J. McKay -60 Director Since 1963, Executive
7701 Burholme Avenue Vice President, Fox
Philadelphia, PA 19111 Chase Cancer Center
(biomedical research
and medical care).
-20-
<PAGE>
================================================================================
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
Marvin E. Sternberg -62 Director Since 1974, Chairman,
937 Mt. Pleasant Road Director and
Bryn Mawr, PA 19010 President, Moyco
Industries, Inc.
(manufacturer of
dental supplies and
precision coated
abrasives); since
1968, Director and
President, Mart MMM,
Inc. (formerly
Montgomeryville
Merchandise Mart Inc.)
and Mart PMM, Inc.
(formerly Pennsauken
Merchandise Mart,
Inc.) (shopping
centers); and since
1975, Director and
Executive Vice
President, Cellucap
Mfg. Co., Inc.
(manufacturer of
disposable headwear).
- --------------------------------------------------------------------------------
Julian A. Brodsky -63 Director Director and Vice
1234 Market Street Chairman since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107- (cable television and
3723 communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
- --------------------------------------------------------------------------------
Donald van Roden -72 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto
service); Director,
Keystone Insurance
Co.
-21-
<PAGE>
================================================================================
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management
Corporation; Director,
The Bradford Funds,
Inc.
- --------------------------------------------------------------------------------
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP;
Philadelphia, PA 19107- Director, Rocking
3496 Horse Child Care
Centers of America,
Inc.
================================================================================
- ----------------------
* Mr. Reichman is an "interested person" of RBB, as that term is defined
in the 1940 Act, by virtue of his positions with Counsellors Securities
Inc., RBB's distributor.
** Mr. Sablowsky is an "interested person" of RBB, as that term is defined
in the 1940 Act, by virtue of his position with Fahnestock Co., Inc., a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to RBB the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of RBB when the Board of Directors is
not in session.
-22-
<PAGE>
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of RBB.
RBB pays directors who are not "affiliated persons" (as that
term is defined in the 1940 Act) of any investment adviser or sub-adviser of the
Fund or the Distributer $12,000 annually and $1,000 per meeting of the Board or
any committee thereof that is not held in conjunction with a Board meeting. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of RBB are reimbursed for any expenses incurred in attending meetings of the
Board of Directors or any committee thereof. For the year ended August 31, 1997,
each of the following members of the Board of Directors received compensation
from RBB in the following amounts:
-23-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- -------------- ------------ ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, -0- N/A N/A -0-
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
</FN>
</TABLE>
On October 24, 1990 RBB adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which RBB will
contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
RBB's advisers, custodians, administrators and distributor, RBB itself requires
only two part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is
a partner, receives fees as legal counsel to RBB. No officer, director or
employee of Boston Partners Asset Management, L.P. ("Boston Partners" or the
"Adviser") or the Distributor currently receives any compensation from RBB.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. Boston Partners renders advisory services
to the Fund pursuant to an Investment Advisory Agreement dated December 1, 1997
(the "Advisory Agreement").
-24-
<PAGE>
Boston Partners has investment discretion for the Fund and
will make all decisions affecting assets in the Fund under the supervision of
RBB's Board of Directors and in accordance with the Fund's stated policies.
Boston Partners will select investments for the Fund. For its services to the
Fund, Boston Partners is entitled to receive a monthly advisory fee under the
Advisory Agreement computed at an annual rate of 0.80% of the Fund's average
daily net assets.
The Fund bears all of its own expenses not specifically
assumed by Boston Partners. General expenses of the Fund not readily
identifiable as belonging to a portfolio of the Fund are allocated among all
investment portfolios by or under the direction of RBB's Board of Directors in
such manner as the Board determines to be fair and equitable. In addition to the
expenses listed in the prospectus, expenses borne by a portfolio include, but
are not limited to, the following (or a portfolio's share of the following): (a)
expenses of organizing the Fund that are not attributable to a class of the
Fund; (b) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Fund or a portfolio for
violation of any law; (c) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; and
(d) the cost of investment company literature and other publications provided by
the Fund to its directors and officers. Distribution expenses, transfer agency
expenses, expenses of preparation, printing and mailing prospectuses, statements
of additional information, proxy statements and reports to shareholders, and
organizational expenses and registration fees, identified as belonging to a
particular class of the Fund, are allocated to such class.
Under the Advisory Agreement, Boston Partners will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or RBB in connection with the performance of the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Boston Partners in the performance of its duties or from reckless
disregard of its duties and obligations thereunder.
The Advisory Agreement was most recently approved on October
15, 1997 by vote of RBB's Board of Directors, including a majority of those
directors who are not parties to the Advisory Agreement or interested persons
(as defined in the 1940 Act) of such parties. The Advisory Agreement was
approved by the initial shareholder of each class of the Fund. The Advisory
Agreement is terminable by vote of RBB's Board of Directors or by the holders of
a majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to Boston Partners. The Advisory Agreement
may also be terminated by Boston Partners on 60 days' written notice to RBB. The
Advisory
-25-
<PAGE>
Agreement terminates automatically in the event of its assignment.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of the Fund
(b) holds and transfers portfolio securities on account of the Fund, (c) accepts
receipts and makes disbursements of money on behalf of the Fund, (d) collects
and receives all income and other payments and distributions on account of the
Fund's portfolio securities and (e) makes periodic reports to RBB's Board of
Directors concerning the Fund's operations. PNC Bank is authorized to select one
or more banks or trust companies to serve as sub-custodian on behalf of the
Fund, provided that PNC Bank remains responsible for the performance of all of
its duties under the Custodian Agreement and holds the Fund harmless from the
acts and omissions of any sub-custodian. For its services to the Fund under the
Custodian Agreement, PNC Bank receives a fee, which is calculated based upon the
Fund's average daily gross assets as follows: $.18 per $1,000 on the first $100
million of average daily gross assets; $.15 per $1,000 on the next $400 million
of average daily gross assets; $.125 per $1,000 on the next $500 million of
average daily gross assets; and $.10 per $1,000 on average daily gross assets
over $1 billion, exclusive of transaction charges and out-of-pocket expenses,
which are also charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the
transfer and dividend disbursing agent for the Fund pursuant to a Transfer
Agency Agreement dated November 5, 1991, as supplemented (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems shares of the Fund, (b)
addresses and mails all communications by the Fund to record owners of the
Shares, including reports to shareholders, dividend and distribution notices and
proxy materials for its meetings of shareholders, (c) maintains shareholder
accounts and, if requested, sub-accounts and (d) makes periodic reports to RBB's
Board of Directors concerning the operations of the Fund. PFPC may, on 30 days'
notice to RBB, assign its duties as transfer and dividend disbursing agent to
any other affiliate of PNC Bank Corp. For its services to the Fund, under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $12 per
account in the Fund, exclusive of out-of-pocket expenses, and also receives
reimbursement of its out-of-pocket expenses.
ADMINISTRATION AGREEMENT. PFPC serves as administrator to the
Fund pursuant to an Administration and Accounting Services Agreement dated
October 15, 1997, (the "Administration Agreement"). PFPC has agreed to furnish
to the Fund statistical and research data, clerical, accounting and bookkeeping
services,
-26-
<PAGE>
and certain other services required by the Fund. In addition, PFPC has agreed to
prepare and file various reports with the appropriate regulatory agencies and
prepare materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by RBB
or the Fund in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder.
DISTRIBUTION AGREEMENT. Pursuant to the terms of a
distribution agreement, dated as of April 10, 1991, as supplemented (the
"Distribution Agreement"), entered into by the Distributor and RBB on behalf of
the Institutional and Investor Classes, and Plans of Distribution for the
Institutional and Investor Classes (together, the "Plans"), which were adopted
by RBB in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to solicit orders for the sale of Fund
Shares. As compensation for its distribution services, the Distributor receives,
pursuant to the terms of the Distribution Agreement, a distribution fee, to be
calculated daily and paid monthly by the Institutional and Investor Classes, at
the annual rate set forth in the Prospectus.
On October 15, 1997, the Plans were approved by RBB's Board of
Directors, including the directors who are not "interested persons" of RBB and
who have no direct or indirect financial interest in the operation of the Plans
or any agreements related to the Plans ("12b-1 Directors"). RBB believes that
the Plans may benefit the Fund by increasing sales of Fund shares.
Among other things, the Plans provide that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
RBB regarding all amounts expended under the Plans and the purposes for which
such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are approved at least annually, and
any material amendment thereto is approved, by RBB's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Institutional and Investor Classes under the Plans shall not be
materially increased without the affirmative vote of the holders of a majority
of the shareholders in the respective class; and (4) while the Plans remain in
effect, the selection and nomination of RBB's directors who are not "interested
persons" of RBB (as defined in the 1940 Act) shall be committed to the
-27-
<PAGE>
discretion of such directors who are not "interested persons" of RBB.
Mr. Reichman, a director of RBB, has an indirect financial
interest in the operation of the Plans by virtue of his position with the
Distributor. Mr. Sablowsky, a director of RBB, has an indirect interest in the
operation of the Plans by virtue of his position as Senior Vice President of
Fahnestock Co., Inc., a broker-dealer.
PORTFOLIO TRANSACTIONS
Corporate debt and U.S. Government securities are generally traded on
the over-the-counter market on a "net" basis without a stated commission,
through dealers acting for their own account and not as brokers. The Fund will
primarily engage in transactions with these dealers or deal directly with the
issuer unless a better price or execution could be obtained by using a broker.
Prices paid to a dealer in debt securities will generally include a "spread,"
which is the difference between the prices at which the dealer is willing to
purchase and sell the specific security at the time, and includes the dealer's
normal profit.
In purchasing or selling securities for the Fund, the Adviser will seek
to obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, the Adviser may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Investment decisions for the Fund and for other investment
accounts managed by Boston Partners are made independently of each other in the
light of differing conditions. However, the same investment decision may be made
for two or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as the Fund is concerned, in other cases it is believed
to be beneficial to the Fund.
The Fund expects that its annual portfolio turnover rate will
be approximately 100%. A high (100% or more) rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs that must be borne directly by the Fund. The Fund anticipates that its
annual portfolio turnover rate will vary from year to year. The portfolio
turnover rate is calculated by dividing the lesser of a
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<PAGE>
portfolio's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
portfolio during the year.
PURCHASE AND REDEMPTION INFORMATION
RBB reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of the
Fund's shares by making payment in whole or in part in securities chosen by RBB
and valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Fund.
Under the 1940 Act, RBB may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange, Inc. (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on the NYSE is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (RBB
may also suspend or postpone the recordation of the transfer of its shares upon
the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The net asset value per share of the Fund is calculated as of
4:00 p.m. Eastern Time on each Business Day. "Business Day" means each weekday
when the NYSE is open. Currently, the NYSE is closed on New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities that
are listed on stock exchanges are valued at the last sale price on the day the
securities are valued or, lacking any sales on such day, at the mean of the bid
and asked prices available prior to the evaluation. In cases where securities
are traded on more than one exchange, the securities are generally valued on the
exchange designated by the Board of Directors as the primary market. Securities
traded in the over-the-counter market and listed on the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ") are valued at the last
trade price listed on the NASDAQ at the close of regular trading
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<PAGE>
(generally 4:00 p.m. Eastern Time); securities listed on NASDAQ for which there
were no sales on that day and other over-the-counter securities are valued at
the mean of the bid and asked prices available prior to valuation. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of RBB's Board of
Directors. The amortized cost method of valuation may also be used with respect
to debt obligations with sixty days or less remaining to maturity.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by RBB's Board of
Directors.
PERFORMANCE AND YIELD INFORMATION
YIELD AND PERFORMANCE OF THE FUNDS
The Fund's 30-day (or one month) standard yields described in the
Prospectus are calculated separately for each class of shares in the Fund in
accordance with the method prescribed by the SEC for mutual funds:
a - b
YIELD = 2[( - - - - +1)6 - 1]
cd
Where: a = dividends and interest earned by
the Fund during the period;
b = expenses accrued for the period
(net of reimbursements);
c = average daily number of shares outstanding during
the period, entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by the
Fund is recognized by accruing
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<PAGE>
1/360 of the stated dividend rate of the security each day that the security is
in the Fund. Except as noted below, interest earned on debt obligations held by
the Fund is calculated by computing the yield to maturity of each obligation
based on the market value of the obligation (including actual accrued interest)
at the close of business on the last business day of each month, or, with
respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Fund. for
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market value of such debt obligations. Expenses accrued for the period
(variable "b" in the formula) include all recurring fees charged by the Fund to
all shareholder accounts in proportion to the length of the base period and the
Fund's mean (or median) account size. Undeclared earned income will be
subtracted from the offering price per share (variable "d" in the formula).
With respect to mortgage or other receivables-backed obligations that
are expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) the Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
The Fund when advertising its "average annual total return" computes
such return separately for each class of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV 1/n
T = [(------) - 1]
P
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<PAGE>
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);
P = hypothetical initial payment of
$1,000; and
n = period covered by the computation,
expressed in years.
The Fund when advertising its "aggregate total return" computes such
returns separately for each class of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Fund has elected to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund is exempt from
federal income tax on
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<PAGE>
its net investment income and realized capital gains that it distributes to
shareholders, provided that it distributes an amount equal to the sum of (a) at
least 90% of its investment company taxable income (net taxable investment
income and the excess of net short-term capital gain over net long-term capital
loss, if any, for the year) and (b) at least 90% of its net tax-exempt interest
income, if any, for the year (the "Distribution Requirement") and satisfies
certain other requirements of the Code that are described below. Distributions
of investment company taxable income made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year will satisfy the Distribution Requirement.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of the Fund's total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Requirement").
Distributions of investment company taxable income will be
taxable (subject to the possible allowance of the dividend received deduction
described below) to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in shares. Shareholders
receiving any distribution from the Fund in the form of additional shares will
be treated as receiving a taxable distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment date.
The Fund intends to distribute to shareholders its net capital
gain (excess of net long-term capital gain over net short-term capital loss), if
any, for each taxable year. Such gain is distributed as a capital gain dividend
and is taxable to shareholders as mid-term or other long-term capital gain,
regardless of the length of time the shareholder has held his shares, whether
such gain was recognized by the Fund prior to the date on which a shareholder
acquired shares of the Fund and whether the distribution was paid in cash or
reinvested in shares. The aggregate amount of distributions designated by the
Fund as capital gain dividends may not exceed the net capital gain of the Fund
for any taxable year, determined by excluding any net capital loss or net
long-term capital loss attributable to transactions occurring after October 31
of such year and by
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<PAGE>
treating any such loss as if it arose on the first day of the following taxable
year. Such distributions will be designated as capital gain dividends in a
written notice mailed by the Fund to shareholders not later than 60 days after
the close of the Fund's taxable year.
In the case of corporate shareholders, distributions (other
than capital gain dividends) of the Fund for any taxable year generally qualify
for the dividends received deduction to the extent of the gross amount of
"qualifying dividends" received by the Fund for the year. Generally, a dividend
will be treated as a "qualifying dividend" if it has been received from a
domestic corporation. Distributions of net investment income received by the
Fund from investments in debt securities will be taxable to shareholders as
ordinary income and will not be treated as "qualifying dividends" for purposes
of the dividends received deduction. The Fund will designate the portion, if
any, of the distribution made by the Fund that qualifies for the dividends
received deduction in a written notice mailed by the Fund to corporate
shareholders not later than 60 days after the close of the Fund's taxable year.
If for any taxable year the Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends to the
extent of the Fund's current and accumulated earnings and profits. Such
distributions will be eligible for the dividends received deduction in the case
of corporate shareholders. Investors should be aware that any loss realized on a
sale of shares of the Fund will be disallowed to the extent an investor
repurchases shares of the Fund within a period of 61 days (beginning 30 days
before and ending 30 days after the day of disposition of the shares). Dividends
paid by the Fund in the form of shares within the 61-day period would be treated
as a purchase for this purpose.
A shareholder will recognize gain or loss upon a redemption of
shares or an exchange of shares of the Fund for shares of another Boston
Partners Fund upon exercise of the exchange privilege, to the extent of any
difference between the price at which the shares are redeemed or exchanged and
the price or prices at which the shares were originally purchased for cash.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98% of their ordinary income for the calendar year plus 98%
of their capital gain net income for the 1-year period ending on October 31 of
such calendar year. The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a company is treated as having
distributed any amount
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<PAGE>
on which it is subject to income tax for any taxable year ending in such
calendar year. Investors should note that the Fund may in certain circumstances
be required to liquidate investments in order to make sufficient distributions
to avoid excise tax liability.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends paid to any shareholder (1)
who has provided either an incorrect tax identification number or no number at
all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to report the receipt of interest or dividend income properly, or
(3) who has failed to certify to the Fund that he is not subject to backup
withholding or that he is an "exempt recipient."
The foregoing general discussion of federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although the Fund expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Fund may be subject to the tax laws of such states or
localities.
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 13.93 billion shares are currently
classified in 82 classes as follows: 100 million shares are classified as Class
A Common Stock, 100 million shares are classified as Class B Common Stock, 100
million shares are classified as Class C Common Stock, 100 million shares are
classified as Class D Common Stock, 500 million shares are classified as Class E
Common Stock (Money), 500 million shares are classified as Class F Common Stock
(Municipal Money), 500 million shares are classified as Class G Common Stock
(Money), 500 million shares are classified as Class H Common Stock (Municipal
Money), 1 billion shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock
-35-
<PAGE>
(Money), 500 million shares are classified as Class M Common Stock (Municipal
Money), 500 million shares are classified as Class N Common Stock (Government
Money), 500 million shares are classified as Class O Common Stock (N.Y. Money),
100 million shares are classified as Class P Common Stock (Government), 100
million shares are classified as Class Q Common Stock, 500 million shares are
classified as Class R Common Stock (Municipal Money), 500 million shares are
classified as Class S Common Stock (Government Money), 500 million shares are
classified as Class T Common Stock (International), 500 million shares are
classified as Class U Common Stock (High Yield), 500 million shares are
classified as Class V Common Stock (Emerging), 100 million shares are classified
as Class W Common Stock, 50 million shares are classified as Class X Common
Stock (U.S. Core Equity), 50 million shares are classified as Class Y Common
Stock (U.S. Core Fixed Income), 50 million shares are classified as Class Z
Common Stock (Strategic Global Fixed Income), 50 million shares are classified
as Class AA Common Stock (Municipal Bond), 50 million shares are classified as
Class BB Common Stock (BEA Balanced), 50 million shares are classified as Class
CC Common Stock (Short Duration), 100 million shares are classified as Class DD
Common Stock, 100 million shares are classified as Class EE Common Stock, 50
million shares are classified as Class FF Common Stock (n/i numeric investors
Micro Cap), 50 million shares are classified as Class GG Common Stock (n/i
numeric investors Growth), 50 million shares are classified as Class HH (n/i
numeric investors Growth & Value), 100 million shares are classified as Class II
Common Stock (BEA Investor International), 100 million shares are classified as
Class JJ Common Stock (BEA Investor Emerging), 100 million shares are classified
as Class KK Common Stock (BEA Investor High Yield), 100 million shares are
classified as Class LL Common Stock (BEA Investor Global Telecom), 100 million
shares are classified as Class MM Common Stock (BEA Advisor International), 100
million shares are classified as Class NN Common Stock (BEA Advisor Emerging),
100 million shares are classified as Class OO Common Stock (BEA Advisor High
Yield), 100 million shares are classified as Class PP Common Stock (BEA Advisor
Global Telecom), 100 million shares are classified as Class QQ Common Stock
(Boston Partners Institutional Large Cap), 100 million shares are classified as
Class RR Common Stock (Boston Partners Investor Large Cap), 100 million shares
are classified as Class SS Common Stock (Boston Partners Advisor Large Cap), 100
million shares are classified as Class TT Common Stock (Boston Partners Investor
Mid Cap), 100 million shares are classified as Class UU Common Stock (Boston
Partners Institutional Mid Cap), 100 million shares are classified as Class VV
Common Stock (Boston Partners Institutional Bond), 100 million shares are
classified as Class WW Common Stock (Boston Partners Investor Bond), 50 million
shares are classified as Class XX Common Stock (n/i numeric investors Larger Cap
Value), 700 million shares are classified as Class Janney Money Common Stock
(Money), 200 million shares are classified as Class Janney
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<PAGE>
Municipal Money Common Stock (Municipal Money), 500 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 1 million shares are classified as Class Beta 1 Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 1 million shares are classified as Gamma 1 Common Stock (Money), 1
million shares are classified as Gamma 2 Common Stock (Municipal Money), 1
million shares are classified as Gamma 3 Common Stock (Government Money), 1
million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1 million
shares are classified as Delta 1 Common Stock (Money), 1 million shares are
classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class VV and WW Common Stock constitute
the Boston Partners Institutional and Investor classes of the Bond Fund,
respectively. Under RBB's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into sixteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Family, the
n/i numeric investors Family, the Boston Partners Family, the Beta Family, the
Gamma Family, the Delta Family, the Epsilon Family, the Zeta Family, the Eta
Family and the Theta Family. The Cash Preservation Family represents interests
in the Money Market and Municipal Money Market Funds; the Sansom Street Family
represents interests in the Money Market, Municipal Money Market and Government
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<PAGE>
Obligations Money Market Funds; Bedford Family represents interests in the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the BEA Family represents interests in ten
non-money market portfolios; the n/i numeric investors Family represents
interests in four non-money market portfolios; the Boston Partners Family
represents interest in three non-money market portfolios; the Janney Montgomery
Scott Family and the Beta, Gamma, Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
RBB does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. RBB's
amended By-Laws provide that shareholders owning at least ten percent of the
outstanding shares of all classes of Common Stock of RBB have the right to call
for a meeting of shareholders to consider the removal of one or more directors.
To the extent required by law, RBB will assist in shareholder communication in
such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of the 1940 Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a portfolio only if approved by
the holders of a majority of the outstanding voting securities, as defined in
the 1940 Act, of such portfolio. However, Rule 18f-2 also provides that the
ratification of the selection of independent public accountants and the election
of directors are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of an investment company voting without
regard to portfolio.
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<PAGE>
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of RBB's common stock (or of any class voting as a class)
in connection with any corporate action, unless otherwise provided by law or by
RBB's Articles of Incorporation, RBB may take or authorize such action upon the
favorable vote of the holders of more than 50% of all of the outstanding shares
of Common Stock entitled to vote on the matter voting without regard to class
(or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496 serves as counsel to RBB.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as RBB's independent
accountants. No financial statements appear in this Statement of Additional
Information because, as of the date hereof, the Investor and Institutional
Classes did not have performance histories.
CONTROL PERSONS. As of October 6, 1997 to RBB's knowledge, the
following named persons at the addresses shown below owned of record
approximately 5% or more of the total outstanding shares of each class of RBB
indicated below. See "Additional Information Concerning RBB Shares" above. RBB
does not know whether such persons also beneficially own such shares.
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Cash Preservation Money Jewish Family and Children's 44.3%
Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- --------------------------------------------------------------------------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
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================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Gary L. Lange and 32.7%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- --------------------------------------------------------------------------------
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
- --------------------------------------------------------------------------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
- --------------------------------------------------------------------------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
- --------------------------------------------------------------------------------
Sansom Street Money Wasner & Co. 15.4%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
- --------------------------------------------------------------------------------
Saxon and Co. 82.2%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------------
BEA International Equity Blue Cross & Blue Shield of 6.98%
- - Institutional Class Massachusetts Inc.
(Class T) Retirement Income Trust
100 Summer Street
Boston, MA 02110-2106
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 6.95%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------------
Indiana University Foundation 5.50%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- --------------------------------------------------------------------------------
Employees Ret. Plan Marshfield 5.32%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
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================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
State Street Bank & Trust 5.07%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
- --------------------------------------------------------------------------------
BEA International Equity Bob & Co. 84.65%
Portfolio - Advisor P.O. Box 1809
Class (Class MM) Boston, MA 02105-1809
- --------------------------------------------------------------------------------
TRANSCORP 13.71%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------------------------------------------------------
BEA High Yield Portfolio Fidelity Investments 16.68%
- - Institutional Class Institutional
(Class U) Operations Co. Inc. as Agent for
Certain Employee Benefit Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
Guenter Full Trust Michelin 17.79%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- --------------------------------------------------------------------------------
C S First Boston Pension Fund 6.32%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
- --------------------------------------------------------------------------------
Southdown Inc. Pension Plan 9.91%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
- --------------------------------------------------------------------------------
BEA High Yield Portfolio Richard A. Wilson TTEE 96.66%
- - Advisor Class E. Francis Wilson TTEE
(Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
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<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
BEA Emerging Markets Wachovia Bank North Carolina 26.18%
Equity Portfolio - Trust for Carolina Power & Light
Institutional Class Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
- --------------------------------------------------------------------------------
Hall Family Foundation 38.15%
P.O. Box 419580
Kansas City, MO 64141-8400
- --------------------------------------------------------------------------------
Arkansas Public Employees 19.30%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
- --------------------------------------------------------------------------------
BEA Emerging Markets Charles Schwab & Co. 82.86%
Equity Portfolio - Special Custody Account for the
Advisor Class (Class NN) Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4175
- --------------------------------------------------------------------------------
Louis C. DeMarco 12.59%
11 Elvira Ct.
Huntington, NY 11743-6802
- --------------------------------------------------------------------------------
BEA US Core Equity Patterson & Co. 43.93%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 13.13%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------------
Fleet National Bank Trust 5.95%
Hospital St. Raphael Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
- --------------------------------------------------------------------------------
Werner & Pfleiderer Pension 7.13%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
- --------------------------------------------------------------------------------
Washington Hebrew Congregation 12.46%
3935 Macomb St. NW
Washington, DC 20016-3799
-42-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
BEA US Core Fixed Income New England UFCW & Employers' 22.83%
Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
- --------------------------------------------------------------------------------
Patterson & Co. 6.54%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
MAC & Co 5.10%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
Fidelity Investments 9.89%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
DCA Food Industries Inc. 8.99%
100 East Grand Avenue
Beloit, WI 53511-6255
- --------------------------------------------------------------------------------
State St. Bank & Trust TTE 7.66%
Fenway Holdings LLC Master Trust
P.O. Box 470
Boston, MA 02102-0470
- --------------------------------------------------------------------------------
The Valley Foundation 6.02%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
- --------------------------------------------------------------------------------
BEA Strategic Global Sunkist Master Trust 32.58%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
- --------------------------------------------------------------------------------
Patterson & Co. 23.51%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
Key Trust Co. of Ohio 19.01%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
-43-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Hard & Co. 17.62%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
- --------------------------------------------------------------------------------
BEA Municipal Bond Fund William A. Marquard 39.45%
Portfolio (Class AA) 2199 Maysville Rd.
Carlisle, KY 40311-9716
- --------------------------------------------------------------------------------
Arnold Leon 13.15%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
- --------------------------------------------------------------------------------
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
- --------------------------------------------------------------------------------
S. Finkelstein Family Fund 5.30%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
- --------------------------------------------------------------------------------
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.75%
communications Portfolio 466 Lexington Ave.
- - Advisor Class New York, NY 10017-3140
(Class PP)
- --------------------------------------------------------------------------------
Bea Associates 401K 11.31%
153 East 53rd Street
New York, NY 10022-4611
- --------------------------------------------------------------------------------
John B. Hurford 48.35%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
- --------------------------------------------------------------------------------
n/i numeric investors Charles Schwab & Co. Inc. 15.5%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Public Inst. for Social Security 6.0%
1001 19th Street N, 16th Floor
Arlington, VA 22209
-44-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Portland General Corp. 13.6%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
- --------------------------------------------------------------------------------
n/i numeric investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
U.S. Equity Investment Portfolio 6.5%
LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
- --------------------------------------------------------------------------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
-45-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
n/i numeric investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Special Custody Account for the
Fund (Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Chase Manhattan Bank 6.0%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
- --------------------------------------------------------------------------------
Boston Partners Large Dr. Janice B. Yost 27.8%
Cap Value Fund - Trust Mary Black Foundation Inc.
Institutional Class Bell Hill-945 E. Main St.
(Class QQ) Spartanburg, SC 29302
- --------------------------------------------------------------------------------
Saxon and Co. 11.5%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------------
Irving Fireman's Relief & Ret 7.5%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
- --------------------------------------------------------------------------------
John N. Brodson and Paul A. 9.3%
Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
- --------------------------------------------------------------------------------
Wells Fargo Bank 14.6%
Trst Stoel Rives
Tr 008125
P.O. Box 9800
Calabasas, CA 91308
- --------------------------------------------------------------------------------
Hawaiian Trust Company LTD 5.8%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
- --------------------------------------------------------------------------------
Shady Side Academy Endowment 10.3%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
-46-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Boston partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
- --------------------------------------------------------------------------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
- --------------------------------------------------------------------------------
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
- --------------------------------------------------------------------------------
Boston Partners Mid Cap National Financial SVCS Corp. 25.7%
Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
-47-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 35.7%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
George B. Smithy, Jr. 12.3%
38 Greenwood Road
Wellesley, MA 02181
- --------------------------------------------------------------------------------
John N. Brodson 6.1%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
Linda C. Brodson 6.1%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
Boston Partners Mid Cap Wells Fargo Bank Cust 5.4%
Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
================================================================================
As of the same date, no person owned of record or, to RBB's
knowledge, beneficially, more than 25% of the outstanding shares of all classes
of RBB; and as of the same date, directors and officers as a group owned less
than one percent of the shares of RBB.
LITIGATION. There is currently no material litigation
affecting RBB.
FINANCIAL STATEMENTS. No financial statements are supplied
because, as of the date of the Prospectus and this Statement of Additional
Information, the Fund had no operating history.
-48-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit
feature are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for
timely repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
A-4
<PAGE>
CORPORATE LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
The following summarizes the ratings used by Moody's for corporate
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of
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principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
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