SCHNEIDER SMALL CAP VALUE FUND
OF
THE RBB FUND, INC.
Schneider Small Cap Value Fund (the "Fund") is an investment portfolio
of The RBB Fund, Inc. ("RBB"), an open-end management investment company. The
shares offered by this Prospectus represent interests in the Fund. The Fund
seeks long-term capital growth by investing primarily in common stocks of
companies with relatively small capitalizations that are less than the largest
company in the Russell 2000 Index which Schneider Capital Management Company
(the "Adviser") believes are undervalued.
This Prospectus contains information that a prospective investor needs
to know before investing. Please keep it for future reference. A Statement of
Additional Information, dated April 8, 1998 (as revised September 1, 1998), has
been filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. It may be obtained free of charge from the Fund by
calling (800) 888-9723. The Prospectus and the Statement of Additional
Information are available for reference, along with other related materials, on
the SEC Internet Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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APRIL 8, 1998
(AS REVISED SEPTEMBER 1, 1998)
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INTRODUCTION
RBB is an open-end investment management company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
twenty-three separate investment portfolios. The Shares offered by this
Prospectus represent interests in the Schneider Small Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
FEE TABLE
The following table illustrates annual operating expenses to be
incurred by the Fund (after expected fee waivers and expense reimbursements)
based on expenses expected to be incurred in the current fiscal period. An
example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waivers)(1)(2)......................................0.10%
Other Expenses (after waivers and expense reimbursements)..................1.00%
Total Fund Operating Expenses (after waivers)(2)...........................1.10%
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(1) Management Fees are based on average daily net assets and are calculated
daily and paid monthly.
(2) Before fee waivers and expense reimbursements, Management Fees would be
1.00%; Other Expenses would be 1.25%; and Total Fund Operating Expenses
would be 2.25%. Waivers are expected to remain in effect for the Fund's
current fiscal year.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
ONE THREE
YEAR YEARS
---- -----
Schneider Small Cap Value Fund $11 $35
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" and "Distribution of Shares" below.) The Fee Table reflects
expense reimbursements and voluntary waivers of Management Fees for the Fund.
However, there can be no assurance that any future
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expense reimbursements and waivers of Management Fees will not vary from the
figures reflected in the Fee Table.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks long-term capital growth by investing primarily in
common stocks of companies which have relatively small capitalizations that
are less than the largest company in the Russell 2000 Index and which Schneider
Capital Management Company (the "Adviser") believes are undervalued. Under
normal market conditions, at least 65% of the value of the Fund's total assets
will be invested in these companies. As of July 30, 1998, the company with the
largest market capitalization on the Russell 2000 Index was $1.9 billion. The
Russell 2000 Index is an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000, a market value weighted index of the 3,000 largest U.S.
publicly-traded. companies.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, industry literature, company reports,
financial reports, company presentations, earnings power and growth and other
investment criteria.
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. The Fund will invest in convertible securities without regard to their
credit ratings.
The Fund may invest up to 20% of the value of its net assets in
securities of foreign issuers. Investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies
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pending their investment in foreign securities or their conversion into U.S.
dollars. See "Risk Factors -- Foreign Securities" below and "Investment
Objectives and Policies--Foreign Securities" in the Statement of Additional
Information.
The Fund may also invest up to 5% of the value of its net assets in
derivative securities. The Fund may invest without limit in debt securities
issued by U.S. banks, corporations and other business organizations that are
investment grade securities; and debt securities issued by the U.S. Government
or government agencies.
The Fund may lend securities to brokers, dealers and other financial
institutions desiring to borrow securities to complete transactions and for
other purposes. Because the government securities or other assets that are
pledged as collateral to the Fund in connection with these loans generate
income, securities lending enables the Fund to earn income that may partially
offset expenses. These loans may not exceed 33 1/3% of the Fund's total assets.
The documentation for these loans will provide that the Fund will receive
collateral equal to at least 102% of the current market value of the loaned
securities, as marked to market each day that the net asset value of the Fund is
determined, consisting of government securities or other assets permitted by
applicable regulations and interpretations. The Fund will pay reasonable
administrative and custodial fees in connection with the loan of securities. The
Fund will invest collateral in Short-Term Investments, and will bear the risk of
loss of the invested collateral. In addition, the Fund will be exposed to the
risk of loss should a borrower default on its obligation to return the borrowed
securities. The Fund's share of income from the loan collateral will be included
in its gross investment income.
The Fund may invest up to 15% of the value of its net assets in
securities that are illiquid. The Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "1933 Act"), as amended, but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by the Adviser, acting under guidelines approved and
monitored by the Board, that an adequate trading market exists for that
security. This investment practice could have the effect of increasing the level
of illiquidity in the Fund during any period that qualified institutional buyers
become uninterested in purchasing these restricted securities.
In accordance with the above-mentioned policies, the Fund may also
invest up to 5% of the value of its net assets in each of the following types of
investments: indexed securities, repurchase and reverse repurchase agreements
and dollar rolls,
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financial futures contracts, and options on futures contracts. See "Investment
Objectives and Policies" in the Statement of Additional Information.
The Fund may invest up to 10% of its total assets in registered
investment companies and shares of investment companies investing primarily in
foreign securities including so-called "country funds." Country funds have
portfolios consisting exclusively of securities of issuers located in one
foreign country. See "Investment Objectives and Policies" in the Statement of
Additional Information for more information on the Fund's ability to invest in
investment companies. If the Fund invests in such investment companies, the Fund
will bear its proportionate share of the costs incurred by such companies,
including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above-mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. Eligible
money market instruments include bank obligations, such as certificates of
deposit and bankers' acceptances issued by foreign or domestic banks or
financial institutions that have total assets of more than $2.5 billion, and
commercial paper rated in the top rating category by S&P, Moody's, D&P or Fitch
and unrated commercial paper determined to be of comparable quality by the
Adviser. The Adviser will determine when market conditions warrant temporary
defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
The Fund may not change the following investment limitations without
shareholder approval, except as set forth below. (A complete list of the
investment limitations that cannot be changed without such a vote of the
shareholders is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Fund may not:
1. 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
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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.
2. Purchase any securities which would cause, at the time of
purchase, 25% or more of the value of the total assets of the Fund to
be invested in the obligations of issuers in any single industry,
provided that there is no limitation with respect to investments in
U.S. Government obligations.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase 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 Fund's total assets at the time of such borrowing. The
Fund has a non-fundamental policy which can be changed without
shareholder approval, that it will 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.
PORTFOLIO TURNOVER
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will be approximately 75%.
RISK FACTORS
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objectives and Policies" and in
the Statement of Additional Information under "Investment Objectives and
Policies."
EQUITY MARKETS. The Fund invests primarily in equity markets. Equity
markets can be highly volatile, so that investing in the Fund involves
substantial risk. In addition, the Fund can and will typically invest in stocks
that are riskier
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and more volatile than the average stock. As a result, investing in this Fund
involves risk of substantial loss of capital.
FOREIGN SECURITIES. Investing in the securities of non-U.S. issuers
involves opportunities and risks that are different from investing in the
securities of U.S. issuers. Because foreign securities generally are denominated
and pay dividends or interest in foreign currencies, and the Fund may hold from
time to time various foreign currencies pending their investment in foreign
securities or their conversion into U.S. dollars, the value of the Fund's assets
as measured in U.S. dollars may be affected favorably or unfavorably by changes
in exchange rates. In addition, investors should realize that the value of the
Fund's investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control regulations in those foreign nations. In addition, changes in
government administrations or economic or monetary policies in the U.S. or
abroad could result in appreciation or depreciation of portfolio securities and
could favorably or adversely affect the Fund's operations. Furthermore, the
economies of individual foreign nations may differ from that of the United
States, whether favorably or unfavorably, in areas such as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Any foreign investments made
by the Fund must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. The Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities in U.S. companies. Expenses relating to
foreign investments are higher than those relating to domestic securities. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
YEAR 2000. The services provided to the Fund by the Adviser and others
depend in large part upon the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
or calculated. The Adviser has advised the Fund that the Adviser's own computer
system will correctly compute the year 2000. PFPC and the Fund's other service
providers have advised the Fund that they have been reviewing all of their
computer systems, are actively working on necessary changes to these systems to
prepare for the year 2000 and expect that, given the extensive testing which
they are undertaking, their systems will be year 2000 compliant before that
year. There can, however, be no assurance that PFPC or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction by the Adviser or other service providers with non-complying
computer systems of other firms (such as broker-dealers or firms that provide
securities pricing information) will not impair services to the Fund.
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Investment methods described in this Prospectus are among those that
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
INVESTMENT ADVISER
Schneider Capital Management Company, located at 460 East Swedesford
Road, Suite 1080, Wayne, PA 19087, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of April 30, 1998, in excess of $1.7 billion.
Schneider Capital Management Company is 100% employee-owned, with a staff of
fourteen, and was founded in 1996.
Subject to the supervision and direction of RBB's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund.
For its services to the Fund, the Adviser is entitled to receive under
the Advisory Agreement a monthly advisory fee computed at an annual rate of
1.00% of the Fund's average daily net assets. The Adviser has voluntarily agreed
to waive all or a portion of its fee and to reimburse expenses of the Fund in
order to limit total operating expenses of the Fund to an annual rate of not
more than 1.10% of the average daily net assets. The Adviser reserves the right,
in its sole discretion, to terminate its voluntary fee waiver and reimbursements
at any time.
The President and Chief Investment Officer of the Adviser, Arnold C.
Schneider III, is primarily responsible for the day-to-
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day management of the Fund's investment portfolio. Mr. Schneider founded the
Adviser in 1996, and has managed the Fund since its inception. Prior to 1996, he
was a senior vice president and partner of the Wellington Management Company
("Wellington"), where he was responsible for institutional accounts and mutual
fund portfolios since 1987.
John K. Schneider, Senior Vice President and Assistant Portfolio
Manager, joined his brother at the inception of the firm and had previously been
the Director of Research, Senior Vice President and Member of the Operating
Committee of Newbold Asset Management. John brings ten years of investment
experience to the firm, having started as a research analyst with Wilmington
Capital in 1986.
ADMINISTRATOR
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC is entitled to receive a fee under an administration and
accounting services agreement calculated at an annual rate of .125% of the
Fund's average daily net assets.
ADMINISTRATIVE SERVICES AGENT
Provident Distributors Inc. ("PDI") provides certain administrative
services to the Fund that are not provided by PFPC, subject to the supervision
and direction of the Board of Directors of the Fund. As compensation for such
administrative services, the Fund pays PDI each month a fee for the previous
month calculated at the annual rate of .15% of the average daily net assets of
the Fund. PDI's principal business address is Four Falls Corporate Center,
West Conshohocken, Pennsylvania 19428-2961.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
DISTRIBUTOR
Provident Distributors, Inc. (the "Distributor" or "PDI")serves as the
Company's distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares. No compensation is
payable by the
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Company to PDI for distribution services with respect to the Fund's Shares.
EXPENSES
The expenses of the Fund are deducted from its total income before
dividends are paid. These expenses include, but are not limited to: fees paid to
the Adviser and PFPC; fees and expenses of officers and directors who are not
affiliated with any of RBB's investment advisers, sub-advisers or the
Distributor; taxes; interest; legal fees; custodian fees; auditing fees;
brokerage fees and commissions; certain of the fees and expenses of registering
and qualifying the Fund and the Shares for distribution under federal and state
securities laws; expenses of preparing prospectuses and statements of additional
information and of printing and distributing them annually to existing
shareholders that are not attributable to a particular class of shares of RBB;
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of RBB;
fidelity bond and directors and officers' liability insurance premiums; the
expense of using independent pricing services; and other expenses that are not
expressly assumed by the Adviser under its investment advisory agreement with
respect to the Fund. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios.
The Adviser may assume expenses of the Fund from time to time. To
the extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
of increasing its yield to investors.
HOW TO PURCHASE SHARES
GENERAL
Shares representing interests in the Fund are offered continuously for
sale by the Distributor and may be purchased without imposition of a sales
charge. Shares may be purchased initially by completing the application included
in this Prospectus and forwarding the application to the Fund's transfer agent,
PFPC. Purchases of Shares may be effected by wire to an account to be specified
by PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Schneider Small Cap Value Fund," c/o PFPC Inc., P.O. Box 8945, Wilmington,
Delaware 19899-8945. Shareholders may not purchase shares of the Schneider Small
Cap Value Fund with a check issued by a third party and endorsed over to the
Fund. The name of the Fund,
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Schneider Small Cap Value Fund, must also appear on the check or Federal Reserve
Draft. Federal Reserve Drafts are available at national banks or any state bank
which is a member of the Federal Reserve System. Initial investments in the Fund
must be at least $250,000, and subsequent minimum investments must be at least
$25,000. The Adviser reserves the right to waive the minimum initial or
subsequent investment requirement. For purposes of meeting the minimum initial
purchase, clients which are part of endowments, foundations or other related
groups may be aggregated. The Fund reserves the right to suspend the offering of
Shares for a period of time or to reject any purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and 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, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at that Business Day's net
asset value. Orders received by the Fund or its agents after the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at the net asset value next
determined on the following Business Day. In those cases where an investor pays
for Shares by check, the purchase will be effected at the net asset value next
determined after the Fund or its agents receives the order and the completed
application.
An investor may also purchase Shares by having his bank or his broker
wire Federal Funds to PFPC. An investor's bank or broker may impose a charge for
this service. The Fund does not currently impose a service charge for effecting
wire transfers but reserves the right to do so in the future. In order to ensure
prompt receipt of an investor's Federal Funds wire for an initial investment, it
is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888)
520-3277, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification Number, the Fund selected, the
amount being wired, and by which bank. PFPC will then provide an
investor with a Fund account number. Investors with existing accounts
should also notify PFPC prior to wiring funds.
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B. Instruct your bank or broker to wire the specified amount,
together with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with
the Fund)
FOR PURCHASE OF: Schneider Small Cap Value Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the
address shown thereon. PFPC will not process purchases until it
receives a fully completed and signed application.
For subsequent investments, an investor should follow steps A and B
above.
HOW TO REDEEM AND EXCHANGE SHARES
REDEMPTION BY MAIL
Shareholders may redeem for cash some or all of their Shares of the
Fund at any time. To do so, a written request in proper form must be sent
directly to Schneider Small Cap Value Fund, c/o PFPC Inc., P.O. Box 8945,
Wilmington, Delaware 19899-8945. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names
the Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "How to Redeem
and Exchange Shares -- Exchange Privilege."
Generally, a properly signed written request with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary.
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INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem a shareholder's account at any
time the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
PAYMENT OF REDEMPTION PROCEEDS
In all cases, the redemption price is the net asset value per share
next determined after the request for redemption is received in proper form by
the Fund or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as permitted by the rules of the SEC. If the
Shares to be redeemed have been recently purchased by check, the Fund's transfer
agent may delay mailing a redemption check, which may be a period of up to 15
days from date of purchase, pending a determination that the check has cleared.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act so that a
portfolio 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 a portfolio.
TELEPHONE TRANSACTIONS
In order to request an exchange or redemption by telephone, a
shareholder must have completed and returned an account application containing
the appropriate telephone election. To add a telephone option to an existing
account that previously did not provide for this option, a Telephone
Authorization Form must be filed with PFPC. This form is available from PFPC.
Once this election has been made, the shareholder may simply contact PFPC by
telephone to request the exchange or redemption by calling (888) 520-3277.
Neither RBB, the Fund, the Distributor, the Administrator nor any Fund agent
will be liable for any loss, liability, cost or expense for following RBB's
telephone transaction procedures described below or for following instructions
communicated by telephone that they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of the Fund, all of which must match RBB's
records; (3) requiring RBB's service representative to complete a telephone
transaction
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form, listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
Business Days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals, additional documentation or information regarding the
scope of a caller's authority is required. Finally, for telephone transactions
in accounts held jointly, additional information regarding other account holders
is required. Telephone transactions will not be permitted in connection with IRA
or other retirement plan accounts or by an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
Net asset value per share of the Fund is calculated by adding the value
of all its securities to cash and other assets, deducting its actual and accrued
liabilities and dividing by the total number of shares outstanding. The net
asset value of the Fund is calculated and securities are valued as of the close
of regular trading on the NYSE, generally 4:00 p.m. Eastern Time on each
Business Day.
Valuation of securities held by the Fund is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the
average closing bid; and securities for which market quotations are not readily
available are valued at fair market 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.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
-14-
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually and pays them in the calendar year in which they are declared,
generally in December. Net realized capital gains (including net short-term
capital gains), if any, will be distributed at least annually.
TAXES
The following discussion is only a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, regardless of the length of time a
shareholder has held his shares, whether such gain was reflected in the price
paid for the shares, or whether such gain was attributable to bonds bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in December of
any year payable to shareholders of record on a specified date in such a month
will
-15-
<PAGE>
be deemed to have been received by the shareholders on December 31, provided
such dividends are paid during January of the following year. The Fund intends
to make sufficient actual or deemed distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.
DESCRIPTION OF SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 14.03 billion shares are currently
classified into 83 different classes of Common Stock. See "Description of
Shares" in the Statement of Additional Information.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO SCHNEIDER SMALL CAP VALUE FUND AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO SCHNEIDER SMALL CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders
-16-
<PAGE>
to consider the removal of one or more directors. To the extent required by law,
RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by
class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when RBB's Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of August 21, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
RBB.
OTHER INFORMATION
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to the Fund's
transfer agent, PFPC, at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 520-3277.
SHARE CERTIFICATES
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding
-17-
<PAGE>
the compounded average annual total return for each time period that would
equate the assumed initial investment of $1,000 to the ending redeemable value,
net of fees, according to a required standardized calculation. The standard
calculation is required by the SEC to provide consistency and comparability in
investment company advertising. The Fund may also from time to time include in
such advertising an aggregate total return figure or a total return figure that
is not calculated according to the standardized formula in order to compare more
accurately the Fund's performance with other measures of investment return. For
example, the Fund's total return may be compared with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of the Standard & Poor's 500
Stock Index, the Russell 1000 Value Index, the Russell 2000 Value Index, the
Russell Mid Cap Value Index or the Dow Jones Industrial Average. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
BUSINESS WEEK, FORTUNE, INSTITUTIONAL INVESTOR, MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, THE NEW YORK TIMES, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's Shares, when redeemed, may be worth more or
less than their original cost.
LITIGATION
One of the principals of the Adviser, Arnold C.Schneider, III, is a
party in litigation initiated against him on December 13, 1996 by
representatives of his former firm, Wellington Management Company, LLP
("Wellington") in Massachusetts Middlesex County Superior Court. The litigation
involves Mr. Schneider's withdrawal from Wellington and the terms of a
noncompetition agreement between Mr. Schneider and Wellington. Wellington is
seeking injunctive relief and damages in an unspecified amount. On February 17,
1998, the court issued a decision on Wellington's request for an injunction. It
found that Mr. Schneider had breached his duties to Wellington and prohibited
Mr. Schneider from directly or indirectly providing investment advisory services
to clients of his former firm until July 11, 2001. This decision has been
appealed. The issue of liability and damages is expected to be determined by a
jury. The court ruled that any findings by the court in its decision on
injunctive relief would not be binding on the jury in the damages phase of the
case.
-18-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------------
TABLE OF CONTENTS
PAGE
----
INTRODUCTION............................................................ 2
INVESTMENT OBJECTIVES AND POLICIES...................................... 3
INVESTMENT LIMITATIONS.................................................. 5
RISK FACTORS............................................................ 7
MANAGEMENT.............................................................. 8
HOW TO PURCHASE SHARES.................................................. 10
HOW TO REDEEM AND EXCHANGE SHARES....................................... 12
NET ASSET VALUE......................................................... 14
DIVIDENDS AND DISTRIBUTIONS............................................. 15
TAXES .................................................................. 15
DESCRIPTION OF SHARES................................................... 16
OTHER INFORMATION....................................................... 17
LITIGATION.............................................................. 18
<PAGE>
PROSPECTUS
APRIL 8, 1998
(AS REVISED
SEPTEMBER 1, 1998)
SCHNEIDER SMALL CAP
VALUE FUND
SCHNEIDER CAPITAL MANAGEMENT COMPANY
<PAGE>
INVESTMENT ADVISER
Schneider Capital Management Company
Wayne, Pennsylvania
CUSTODIAN
PNC Bank, N.A.
Philadelphia, Pennsylvania
TRANSFER AGENT AND ADMINISTRATOR
PFPC Inc.
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
West Conshohocken, Pennsylvania
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
<PAGE>
SCHNEIDER SMALL CAP VALUE FUND
SCHNEIDER CAPITAL MANAGEMENT COMPANY
------------------------------------
<TABLE>
<CAPTION>
ACCOUNT APPLICATION
PLEASE NOTE: Do not use this form to open a retirement plan account. For an IRA
application or help with this Application,
please call 1-888-520-3277.
<S> <C>
+--------------+ (Please check the appropriate box(es) below.)
| 1 | |_| Individual |_| Joint Tenant |_| Other
| Account |
| Registration:| -------------------------------------------------------------------------------
+--------------+ Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts, the account registrants will be joint
tenants with right of survivorship and not tenants in common
unless tenants in common or community property registrations
are requested.
- --------------
GIFT TO MINOR: |_| UNIFORM GIFTS/TRANSFER TO MINOR'S ACT
- --------------
-------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
-------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
-------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- ------------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- ------------------ -------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
-------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
+--------------+ -------------------------------------------------------------------------------
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: | -------------------------------------------------------------------------------
+--------------+ CITY STATE ZIP CODE
-------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
+--------------+ Minimum initial investment of $250,000 Amount of investment $_______
| 3 |
| Information: | Make the check payable to Schneider Small Cap Value Fund.
+--------------+
Shareholders may not purchase shares of this Fund with a
check issued by a third party and endorsed over to the Fund.
- ------------------
DISTRIBUTION NOTE: Dividends and capital gains may be reinvested or paid by check. If not options are selected
OPTIONS: below, both dividends and capital gains will be reinvested in additional Fund shares.
- ------------------
DIVIDENDS |_| Pay by check |_| Reinvest |_| CAPITAL GAINS |_| Pay by check |_| Reinvest |-|
+--------------+ To use this option, you must initial the appropriate line below.
| 4 | I authorize the Transfer Agent to accept instructions from any persons to redeem or exchange shares
| Telephone | in my account(s) by telephone in accordance with the procedures and conditions set forth in the
| Redemption: | Fund's current prospectus.
+--------------+
______________________ ____________________ Redeem shares, and send the proceeds to
individual initial joint initial the address of record.
______________________ ____________________ Exchange shares for shares of RBB
individual initial joint initial Money Market Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- --------------- -------------------------------------------------------------------------------
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
- ---------------
-------------------------------------------------------------------------------
CITY STATE ZIP CODE
-------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
+--------------+
| 5 | The undersigned warrants that I (we) have fully authority and, if a natural person, I (we) am (are) of
| Signatures: | legal age to purchase shares pursuant to this Account Application, and I (we) have received a current
+--------------+ prospectus for the Fund in which I (we) am (are) investing.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a
number to be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue Service that I am subject to 31% backup withholding as
a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
NOTE: YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY
SUBJECT TO BACKUP WITHHOLDING BECAUSE YOU HAVE FAILED TO REPORT ALL INTEREST AND DIVIDENDS ON YOUR TAX
RETURN. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT
OTHER THAN THE CERTIFICATION REQUIRED TO AUDIT BACKUP WITHHOLDING.
-------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
-------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
-------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
-------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish
additional signatories on the account, please include a corporate resolution. If signing as a
fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified
retirement plans, or for wire instructions, please call us at 1-888-520-3277.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO: THE SCHNEIDER SMALL CAP VALUE FUND
C/O PFPC INC.
P.O. BOX 8945
WILMINGTON, DE 19899-8945
</TABLE>
<PAGE>
SCHNEIDER SMALL CAP VALUE FUND
OF
THE RBB FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares (the "Shares") representing
interest in the Schneider Small Cap Value 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 Schneider Small Cap Value Fund
Prospectus, dated April 8, 1998 (as revised September 1, 1998) (the
"Prospectus"). A copy of the Prospectus may be obtained from RBB by calling
toll-free (800) 888-9723 or 9829. This Statement of Additional Information is
dated April 8, 1998 (as revised September 1, 1998).
CONTENTS
GENERAL..................................................................2
INVESTMENT OBJECTIVES AND POLICIES.......................................2
DIRECTORS AND OFFICERS...................................................9
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS............13
PORTFOLIO TRANSACTIONS..................................................15
PURCHASE AND REDEMPTION INFORMATION.....................................16
VALUATION OF SHARES.....................................................17
PERFORMANCE AND YIELD INFORMATION.......................................18
TAXES ..................................................................18
ADDITIONAL INFORMATION CONCERNING RBB SHARES............................21
MISCELLANEOUS...........................................................24
APPENDIX A.............................................................A-1
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.
<PAGE>
GENERAL
The RBB Fund, Inc. ("RBB") is an open-end management
investment company currently operating or proposing to operate twenty-three
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.
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 Schneider Capital Management Company (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.
INDEXED SECURITIES. The Fund may invest in indexed securities
whose value is linked to securities indices. Most such securities have values
which rise and fall according to the change in one or more specified indices,
and may have characteristics similar to direct investments in the underlying
securities. The Fund does not presently intend to invest more than 5% of its net
assets in indexed securities.
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 13 months, provided the repurchase agreement itself matures in less
than 13 months. 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 non-bank 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 the
repurchase price plus accrued interest. The
-2-
<PAGE>
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.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may
enter into reverse repurchase agreements with respect to portfolio securities
for temporary purposes (such as to obtain cash to meet redemption requests) when
the liquidation of portfolio securities is deemed disadvantageous or
inconvenient by the Adviser. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to the Fund's agreement to repurchase the
securities at an agreed-upon price, date and rate of interest. Such agreements
are considered to be borrowings under the Investment Company Act of 1940 (the
"1940 Act"), and may be entered into only for temporary or emergency purposes.
While reverse repurchase transactions are outstanding, the Fund will maintain in
a segregated account with the Fund's custodian or a qualified sub-custodian,
cash or liquid securities of an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement and will monitor the
account to ensure that such value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the price of the securities the Fund is obligated to repurchase.
The Fund may also enter into "dollar rolls," in which it sells fixed income
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, the Fund would forgo principal
and interest paid on such securities. The Fund would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. The Fund does not presently intend to engage in reverse repurchase or
dollar roll transactions involving more than 5% of the Fund's net assets.
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. Government 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
-3-
<PAGE>
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, the Maritime Administration, the
Asian-American Development Bank and the Inter-American Development Bank.
HEDGING INVESTMENTS. At such times as the Adviser deems it
appropriate and consistent with the investment objective of the Fund, the Fund
may invest in financial futures contracts and options on financial futures
contracts. The purpose of such transactions is to hedge against changes in the
market value of securities in the Fund caused by fluctuating interest rates and
to close out or offset its existing positions in such futures contracts or
options as described below. Such instruments will not be used for speculation.
Futures contracts and options on futures are discussed below.
FUTURES CONTRACTS. The Fund may invest in financial futures
contracts with respect to those securities listed on the S&P 500 Stock Index.
Financial futures contracts obligate the seller to deliver a specific type of
security called for in the contract, at a specified future time, and for a
specified price. Financial futures contracts may be satisfied by actual delivery
of the securities or, more typically, by entering into an offsetting
transaction. There are risks that are associated with the use of futures
contracts for hedging purposes. In certain market conditions, as in a rising
interest rate environment, sales of futures contracts may not completely offset
a decline in value of the portfolio securities against which the futures
contracts are being sold. In the futures market, it may not always be possible
to execute a buy or sell order at the desired price, or to close out an open
position due to market conditions, limits on open positions, and/or daily price
fluctuations. Risks in the use of futures contracts also result from the
possibility that changes in the market interest rates may differ substantially
from the changes anticipated by the Fund's investment adviser when hedge
positions were established. The Fund does not presently intend to invest more
than 5% of net assets in futures contracts.
OPTIONS ON FUTURES. The Fund may purchase and write call and
put options on futures contracts with respect to those securities listed on the
S&P 500 Stock Index and enter into closing transactions with respect to such
options to terminate an existing position. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract. The Fund may use options on futures contracts in connection
with hedging strategies. The purchase of put options on futures contracts is a
means of hedging against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of hedging against a market advance when
the Fund is not fully invested.
There is no assurance that the Fund will be able to close out
its financial futures positions at any time, in which case it would be required
to maintain the margin deposits on the contract. There can be no assurance that
hedging transactions will be successful, as there may be imperfect correlations
(or no correlations) between movements in the prices of the futures contracts
and of the securities being hedged, or price distortions due to market
conditions in the futures markets. Such imperfect correlations could have an
impact on the Fund's ability to effectively hedge its securities. The Fund does
not presently intend to invest more than 5% of net assets in options on futures.
-4-
<PAGE>
BANK AND CORPORATE OBLIGATIONS. The Fund may purchase
obligations of issuers in the banking industry, such as short-term obligations
of bank holding companies, certificates of deposit, bankers' acceptances and
time deposits issued by U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. Investment in
obligations of foreign banks or foreign branches of U.S. banks may entail risks
that are different from those of investments in obligations of U.S. banks due to
differences in political, regulatory and economic systems and conditions. The
Fund may also make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of its total assets.
The Fund may invest in debt obligations, such as bonds and
debentures, issued by corporations and other business organizations that are
rated at the time of purchase within the three highest ratings categories of S&P
or Moody's (or which, if unrated, are determined by the Adviser to be of
comparable quality). Unrated securities will be determined to be of the
comparable quality to rated debt obligations if, among other things, other
outstanding obligations of the issuers of such securities are rated A or better.
See Appendix "A" for a description of corporate debt ratings.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated
(at the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed
advisable by the Adviser, issues rated "A-2" or "Prime-2" 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 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 of 1933, as amended (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.
FOREIGN SECURITIES. The Fund may invest in foreign securities,
either directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other
-5-
<PAGE>
governmental restrictions, might adversely affect the payment of principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as the price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar may have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in its foreign markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
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 or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase 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 Fund's total assets at
the time of such borrowing. The Fund will 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.
2. 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;
3. 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;
4. Purchase or sell commodities or commodity contracts, except
that the 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-
<PAGE>
5. 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;
6. Invest 25% or more of its 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
7. 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.
8. Purchase any securities which would cause, at the time of
purchase, 25% or more of the value of the total assets of the Fund to be
invested in the obligations of issuers in any single industry, provided that
there is no limitation with respect to investments in U.S. Government
obligations.
(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 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 and the limitation on illiquid holdings, 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 permitted under the 1940 Act.
-7-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of RBB, their ages,
business addresses and principal occupations during the past five years are:
================================================================================
NAME AND ADDRESS AND AGE POSITION PRINCIPAL OCCUPATION
WITH FUND DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
*Arnold M. Reichman - 49 Director Senior Managing Director, Chief
466 Lexington Avenue Operating Officer and Assistant
New York, NY 10017 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 - 59 Director Senior Vice President, Fahnestock Co.,
110 Wall Street Inc. (a registered broker-dealer);
New York, NY 10005 Priot to October 1996, Executive Vice
President of Gruntal & Co., Inc. (a
registered broker-dealer).
- --------------------------------------------------------------------------------
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
7701 Burholme Avenue Fox Chase Cancer Center (biomedical
Philadelphia, PA 19111 research and medical care).
- --------------------------------------------------------------------------------
Marvin E. Sternberg - 63 Director Since 1974, Chairman, Director and
937 Mt. Pleasant Road President, Moyco Industries, Inc.
Bryn Mawr, PA 19010 (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).
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
Julian A. Brodsky - 64 Director Director and Vice Chairman since 1969
1234 Market Street Comcast Corporation (cable television
16th Floor and communications); Director Comcast
Philadelphia, PA 19107-3723 Cablevision of Philadelphia (cable
television and communications) and
Nextel (wireless communications).
- --------------------------------------------------------------------------------
Donald van Roden - 73 Director Self-employed businessman. From
1200 Old Mill Lane and February 1980 to March 1987, Vice
Wyomissing, PA 19610 Chairman of Chairman, SmithKline Beecham
the Board Corporation (pharmaceuticals);
Director, AAA Mid-Atlantic (auto
service); Director, Keystone Insurance
Co.
- --------------------------------------------------------------------------------
Edward J. Roach - 74 President Certified Public Accountant; Vice
400 Bellevue Parkway and Chairman of the Board, Fox Chase
Wilmington, DE 19809 Treasurer Cancer Center; Trustee Emeritus,
Pennsylvania School for the Deaf;
Trustee Emeritus, Immaculata College;
Vice President and Treasurer of
various investment companies advised
by BlackRock Institutional Management
Corporation; Director, The Bradford
Funds, Inc.
- --------------------------------------------------------------------------------
Morgan R. Jones - 58 Secretary Chairman of the law firm of Drinker
Drinker Biddle & Reath LLP Biddle & Reath LLP; Director, Nobel
1345 Chestnut Street Education Dynamics, Inc.
Philadelphia, PA 19107-3496
- --------------------------------------------------------------------------------
- ----------------------
* Mr. Reichman is an "interested person" of RBB, as that term is defined
in the 1940 Act, by virtue of his position with Counsellors Securities
Inc., a registered broker-dealer.
** 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.
-9-
<PAGE>
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.
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 Distributor and Mr. Sablowsky, who is considered to be an affiliated
person, $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 and
Mr. Sablowsky 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:
-10-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT BENEFITS TOTAL COMPENSATION
ACCRUED AS ESTIMATED ANNUAL FROM REGISTRANT AND
AGGREGATE COMPENSATION PART OF FUNDS BENEFITS UPON FUND COMPLEX 1 PAID TO
NAME OF PERSON/ POSITION FROM 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 the Company adopted, as a participating
employer, the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a
retirement plan for employees (currently Edward J. Roach is the Company's sole
employee), pursuant to which the Company will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer, director or employee of the Adviser or
the Distributor currently receives any compensation from the Company.
-11-
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. Schneider Capital Management Company
renders advisory services to the Fund pursuant to an Investment Advisory
Agreement dated September 1, 1998 (the "Advisory Agreement").
The Adviser is a Pennsylvania corporation and has been
managing assets for institutional accounts since 1996. The Adviser currently
acts as investment adviser for two other investment companies registered under
the 1940 Act, Frank Russell Investment Management Company-Equity Fund I, and
Frank Russell Investment Management Company-Diversified Equity Fund. As of
December 31, 1997, the Adviser managed approximately $1.8 billion in assets. The
Adviser is a registered investment advisor under the Investment Advisors Act of
1940, as amended.
The Adviser is an active, equity value manager that believes a
disciplined fundamental approach can consistently add value in a market that has
shown to be extremely efficient with current data, but less so with future
events. Schneider Capital Management Co. is research intensive and focuses on
new ideas, believing that the market is slow to react to change, particularly
where out-of-favor stocks are concerned. The Advisor strives to act on them as
soon as possible to generate above-average returns.
The Adviser 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. The
Adviser will select investments for the Fund. For its services to the Fund, the
Adviser is entitled to receive a monthly advisory fee under the Advisory
Agreement computed at an annual rate of 1.00% of the Fund's average daily net
assets.
The Fund bears its own expenses not specifically assumed by
the Adviser. General expenses of RBB not readily identifiable as belonging to a
portfolio of RBB 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. Expenses borne by a portfolio include, but are not
limited to, the following (or a portfolio's share of the following): (a) the
cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by the Adviser; (c) any costs,
expenses or losses arising out of a liability of or claim for damages or other
relief asserted against RBB or a portfolio for violation of any law; (d) any
extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by RBB
to its directors and officers; (g) organizational costs; (h) fees to the Adviser
and PFPC; (i) fees and expenses of officers and directors who are not affiliated
with the Adviser or Distributor; (j) taxes; (k) interest; (l) legal fees; (m)
custodian fees; (n) auditing fees; (o) brokerage fees and commissions; (p)
certain of the fees and expenses of registering and qualifying the Fund and its
shares for distribution under federal and state securities laws; (q) expenses of
preparing prospectuses and statements of
-12-
<PAGE>
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of RBB; (r) the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class of shares of RBB; (s) fidelity bond and
directors' and officers' liability insurance premiums; (t) the expense of using
independent pricing services; and (u) other expenses which are not expressly
assumed by the Adviser under its advisory agreement with the portfolio. Each
class of the Fund pays its own distribution fees, if applicable, and may pay a
different share than other classes of other expenses (excluding advisory and
custodial fees) if those expenses are actually incurred in a different amount by
such class or if it receives different services.
Under the Advisory Agreement, the Adviser 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 the Adviser in the performance of its duties or from reckless disregard
of its duties and obligations thereunder.
The Advisory Agreement was approved on January 21, 1998 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 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 the Adviser. The Advisory Agreement may also be terminated by the
Adviser on 60 days' written notice to RBB. The Advisory 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.
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.
-13-
<PAGE>
ADMINISTRATION AND ADMINISTRATIVE SERVICES AGREEMENTS. PFPC
serves as administrator to the Fund pursuant to an Administration and Accounting
Services Agreement dated September 1, 1998, (the "Administration Agreement").
PFPC has agreed to furnish to the Fund statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Fund. In addition, PFPC has agreed to, among other things, prepare and file (or
assist in the preparation) of certain reports with the SEC and other regulatory
agencies. For its services to the Fund, PFPC is entitled to receive a fee
calculated at an annual rate of .125% of the Fund's average daily net assets,
with a minimum monthly fee of $8,333.
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.
Provident Distributors, Inc. ("PDI") provides certain
administrative services to the Fund that are not provided by PFPC, pursuant to
an Agreement dated May 29, 1998 (the "Administrative Services Agreement"). Such
services are provided subject to the supervision and direction of the Board of
Directors of the Company.
The Administrative Services Agreement provides that PDI shall
not be liable for any error of judgment or mistake of law or any loss suffered
by the Fund in connection with the performance of services under the Agreement,
except a loss resulting from willful misfeasance, negligence or reckless
disregard of its duties and obligations thereunder.
As compensation for its services to the Fund under the
Administrative Services Agreement, PDI receives a monthly fee for the previous
month calculated at the annual rate of .15% of the average daily net assets of
the Fund.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, the
Adviser is responsible for the execution of portfolio transactions and the
allocation of brokerage transactions for the Fund. In purchasing and selling
portfolio securities, the Adviser seeks 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 the Adviser 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.
-14-
<PAGE>
The Fund expects that its annual portfolio turnover rate will
not exceed 75%. A high rate (100% or more) 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 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.)
The computation of the hypothetical offering price per Share
of the Fund based on the value of the Fund's net assets on September 1, 1998 and
the Fund's Shares outstanding on such date is as follows:
-15-
<PAGE>
SCHNEIDER SMALL CAP VALUE FUND
Net Assets..................................................... $1,295,808.77
Outstanding Shares............................................. 129,580.877
Net Asset Value per Share...................................... $ 10
Maximum Offering Price to Public............................... $ 10
VALUATION OF SHARES
The net asset value per share of the Fund is calculated as of
the close of the NYSE, generally 4:00 p.m. Eastern Time on each Business Day. A
"Business Day" is any day that the NYSE is open for business. 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 and on the preceding Friday and subsequent Monday when one of
these holidays falls on Saturday or Sunday. Net asset value per share, the value
of an individual share in a fund, is computed by adding the value of the Fund's
portfolio securities, cash and other assets, subtracting its actual and accrued
liabilities, and dividing the result by the number of outstanding shares of the
Fund. 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 average closing bid. 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 (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 average closing bid.
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.
-16-
<PAGE>
PERFORMANCE AND YIELD INFORMATION
TOTAL RETURN. The Fund may from time to time advertise its
"average annual total return." The Fund computes such return separately for its
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
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 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
-17-
<PAGE>
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 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 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.
-18-
<PAGE>
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 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 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
-19-
<PAGE>
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 14.03 billion shares are currently
classified in 83 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 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 (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
-20-
<PAGE>
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), 100 million shares are classified as Class YY Common Stock (Schneider
Small Cap Value Fund), 100 million shares are classified as Class ZZ Common
Stock (BEA Institutional Long-Short Market Neutral), 100 million shares are
classified as Class AAA Common Stock (BEA Advisor Long-Short Market Neutral),
100 million shares are classified as Class BBB Common Stock (BEA Institutional
Long-Short Equity), 100 million shares are classified as Class CCC Common Stock
(BEA Advisor Long-Short Equity), 100 million shares are classified as Class DDD
Common Stock (Boston Partners Institutional Micro Cap Value), 100 million shares
are classified as Class EEE Common Stock (Boston Partners Investor Micro Cap
Value), 100 million shares are classified as Class FFF Common Stock (BEA
Institutional Select Economic Value), 100 million shares are classified as Class
GGG Common Stock (BEA Advisor Select Economic Value), 100 million are classified
as Class HHH Common Stock (BEA U.S. Core Equity Advisor Class), 700 million
shares are classified as Class Janney Money Common Stock (Money), 200 million
shares are classified as Class Janney 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
-21-
<PAGE>
(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 YY Common Stock constitute the Schneider Small Cap Value Fund. 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 fifteen
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 Schneider Capital
Management 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 Obligations Money Market Funds; the
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 Schneider Capital Management Family represents interests
in one non-money market portfolio; 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 the Fund
will vote in the aggregate on all matters. Further, shareholders of RBB 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 RBB 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
-22-
<PAGE>
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.
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
and the non-interested directors.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as RBB's
independent accountants.
CONTROL PERSONS. As of August 28, 1998, to the Company's
knowledge, the following named persons at the addresses shown below owned of
record approximately 5% or more of the total outstanding shares of the class of
the Company indicated below. See "Additional Information Concerning the Company
Shares" above. The Company does not know whether such persons also beneficially
own such shares.
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
BEA INT'L EQUITY - Employees Ret Plan Marshfield Clini 7.23%
INSTITUTIONAL 1000 N. Oak Avenue
Marshfield, WI 54449-5772
- --------------------------------------------------------------------------------
Indiana University Foundation 5.05%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- --------------------------------------------------------------------------------
BEA EMERGING Wachovia Bank North Carolina 47.78%
MARKETS EQUITY - Trust Carolina Power & Light Co.
INSTITUTIONAL Supplemental Retirement Trust
P.O. Box 3073
301 N. Main Street, MC NC 31057
Winston-Salem, NC 27101-3819
- --------------------------------------------------------------------------------
Clariden Bank 6.93%
Clariden Str. 26
CH-8002 Zurich
Switzerland
- --------------------------------------------------------------------------------
National Academy of Sciences 5.36%
2101 Constitution Ave. NW
Washington, DC 20418-0006
- --------------------------------------------------------------------------------
Arkansas Public Emp. Retirement Syst. 32.00%
124 W. Capitol Ave.
Little Rock, AR 72201-3704
- --------------------------------------------------------------------------------
BEA LONG-SHORT Michael A. Wall TTEE 95.80%
MARKET NEUTRAL- Michael A. Wall Trust
INSTITUTIONAL U/A DTD 12/29/1997
P.O. Box 4579
Jackson, WY 83001-4579
- --------------------------------------------------------------------------------
BEA SELECT Patterson & Co. 91.54%
ECONOMIC VALUE P.O. Box 7829
EQUITY-INSTITUTIONAL Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
BEA Associates 5.56%
FAO Pension Trust
153 E. 53rd St.
New York, NY 10022-4611
- --------------------------------------------------------------------------------
BEA U.S. CORE EQUITY - Werner & Pfleiderer Pension Plan 8.91%
INSTITUTIONAL Employees
663 E. Crescent Ave.
Ramsey, NJ 07446-1287
- --------------------------------------------------------------------------------
-23-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 8.98%
Dividend Reinvest Plan
C/o Credit Suisse Pvt Bkg
12 E. 49th St., 40th Floor
New York, NY 10017-1028
- --------------------------------------------------------------------------------
Washington Hebrew Congregation 16.18%
3935 Macomb St., NW
Washington, DC 20016-3799
- --------------------------------------------------------------------------------
Fleet National Bank Trst. 8.02%
Hospital St. Raphael Malpractice
Attn: 1958875010
P.O. Box 92800
Rochester, NY 14692-8900
- --------------------------------------------------------------------------------
Patterson & Co. 32.75%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
FTC & Co. 6.14%
Attn. Datalynx # House Acct.
P.O. Box 173736
Denver, CO 80217-3736
- --------------------------------------------------------------------------------
Sema & Co. 5.14%
12 E. 49th St. - Fl. 41
New York, NY 10017-1028
- --------------------------------------------------------------------------------
BEA U.S. CORE FIXED The Northern Trust Company TTEE 12.80%
INCOME - Uniroyal Holdings Bond Fund
INSTITUTIONAL c/o Uniroyal Holding Inc.
70 Great Hill Road
Naugatuck, CT 06770-2224
- --------------------------------------------------------------------------------
Winifred Masterson Burke Foundation 6.17%
785 Mamaroneck Ave.
White Plains, NY 10605-2593
- --------------------------------------------------------------------------------
New England UFCW & Employers' 11.86%
Pension Fund Board of Trustees
161 Forbes Rd, Ste. 201
Braintree, MA 02184-2606
- --------------------------------------------------------------------------------
BEA STRATEGIC Sunkist Master Trust 52.73%
GLOBAL FIXED 14130 Riverside Dr.
INCOME FUND Sherman Oaks, CA 91423-2392
- --------------------------------------------------------------------------------
Patterson & Co. 37.70%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
-24-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
State St. Bank & Trust TTEE 5.48%
Fenway Holdings LLC Master Trust
P.O. Box 470
Boston, MA 02102-0470
- --------------------------------------------------------------------------------
BEA HIGH YIELD- Carl F Besenbach 18.35%
INSTITUTIONAL Trst Michelin North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- --------------------------------------------------------------------------------
Southdown Inc. Pension Pl 9.61%
Mac & Co. A/C SDIF8575302
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
Edward J. Demske TTEE 5.54%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
- --------------------------------------------------------------------------------
Fidelity Investments Institutional 16.89%
Operations Co. Inc. as Agent for
Certain Employee Benefits Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
MAC & CO A/C CSBF8605082 5.18%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
BEA MUNI BOND Arnold Leon 12.59%
INSTITUTIONAL c/o Fiduciary Trust Company
P.O. Box 3199 Church Street Station
New York, NY 10008-3199
- --------------------------------------------------------------------------------
William A. Marquard 36.03%
2199 Maysville Rd.
Carlisle, KY 40311-9716
- --------------------------------------------------------------------------------
Leo Bogart 5.21%
135 Central Park West 9N
New York, NY 10023-2465
- --------------------------------------------------------------------------------
Howard Isermann 8.86%
9 Tulane Dr.
Livingston, NJ 07039-6212
- --------------------------------------------------------------------------------
-25-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
BEA INT'L EQUITY TRANSCORP 9.45%
ADVISOR FBO William E Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------------------------------------------------------
Charles Schwab & Co. 8.53%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Bob & Co. 76.46%
P.O. Box 1809
Boston, MA 02105-1809
- --------------------------------------------------------------------------------
BEA EMERGING SEMA & Co. 97.75%
MARKETS EQUITY- 12E 49th St. Fl. 41
ADVISOR New York, NY 10017-1028
- --------------------------------------------------------------------------------
BEA GLOBAL TELE- E. M. Warburg Pincus & Co. Inc. 18.48%
COMMUNICATIONS- Attn: Sandra Correale
ADVISOR 466 Lexington Ave.
New York, NY 10017-3140
- --------------------------------------------------------------------------------
Charles Schwab & Co. 14.52%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
William W. Priest 5.03%
2 E. 70th St. #5
New York, NY 10021-4913
- --------------------------------------------------------------------------------
FTC & Co. 25.50%
Attn: DATALYNX #148
P.O. Box 173736
Denver, CO 80217-3736
- --------------------------------------------------------------------------------
BEA HIGH YIELD- Charles Schwab & Co. 83.14%
ADVISOR Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Richard A. Wilson TTEE 14.19%
E. Francis Wilson TTEE
The Wilson Family Trust
U/A 11/1/95
7612 March Ave.
West Hills, CA 91304-5232
- --------------------------------------------------------------------------------
-26-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
CASH PRESERVATION Jewish Family and Children's Agency 47.10%
MONEY MARKET of Phil Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Marian E. Kunz 12.60%
52 Weiss Ave.
Flourtown, PA 19031
- --------------------------------------------------------------------------------
SANSOM STREET Saxon and Co. 78.00%
MONEY MARKET FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- --------------------------------------------------------------------------------
Wasner & Co. for Account of 21.20%
Paine Webber and Managed Assets
Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- --------------------------------------------------------------------------------
CASH PRESERVATION Gary L. Lange 36.70%
MUNICIPAL MONEY and Susan D. Lange
MARKET JT TEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- --------------------------------------------------------------------------------
Andrew Diederich 6.70%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- --------------------------------------------------------------------------------
Kenneth Farwell 12.10%
and Valerie Farwell
3854 Sullivan
St. Louis, MO 63107
- --------------------------------------------------------------------------------
Gwendolyn Haynes 5.40%
2757 Geyer
St. Louis, MO 63104
- --------------------------------------------------------------------------------
Emil R. Hunter and 7.60%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- --------------------------------------------------------------------------------
-27-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc. 14.00%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Janis Claflin, Bruce Fetzer and 5.20%
Winston Franklin, Robert Lehman Trst
the John E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- --------------------------------------------------------------------------------
Public Inst. For Social Security 7.30%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- --------------------------------------------------------------------------------
Portland General Holdings Inc. 16.60%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- --------------------------------------------------------------------------------
State Street Bank and Trust Company 8.50%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr.
Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise
Dr.
North Quincy, MA 02171
- --------------------------------------------------------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.60%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
-28-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Citibank North America Inc. 20.60%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- --------------------------------------------------------------------------------
U.S. Equity Investment Portfolio LP 6.20%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- --------------------------------------------------------------------------------
Union Bank of California 5.20%
Trst Sunkist Growers-Match-Svgspln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 109
San Diego, CA 92112
- --------------------------------------------------------------------------------
N/I GROWTH AND Charles Schwab & Co. Inc. 21.80%
VALUE FUND Special Custody Accuont for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
The John E. Fetzer Institute Inc. 7.80%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- --------------------------------------------------------------------------------
Bankers Trust Cust Pge-Enron 5.40%
Foundation
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- --------------------------------------------------------------------------------
N/I LARGER CAP Charles Schwab & Co. Inc. 18.60%
VALUE FUND Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
-29-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Bank of America NT & SA 17.90%
FBO Community Hospital Central Cal
Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- --------------------------------------------------------------------------------
The John E. Fetzer Institute, Inc. 47.40%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- --------------------------------------------------------------------------------
BOSTON PARTNERS Dr. Janice B. Yost 16.90%
LARGE CAP FUND INST Trst Mary Black Foundation Inc.
SHARES Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- --------------------------------------------------------------------------------
Saxon And Co. 6.20%
FBO UJF Equity Funds
AC 10-01-001-0578481
P.O. Box 7780-1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------------
Irving Fireman's Relief & Ret Fund 7.60%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- --------------------------------------------------------------------------------
Wells Fargo Bank 6.80%
Trst Stoel Rives
Tr 008125
P.O. Box 9800
Calabasas, CA 91308
- --------------------------------------------------------------------------------
James B. Beam 6.40%
Trst World Publishing Co. Pft Shr Trust
P.O. Box 1511
Wenatchee, WA 98807
- --------------------------------------------------------------------------------
Swanee Hunt and Charles Ansbacher 8.20%
Trst The Swanee Hunt Family Fund
C/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- --------------------------------------------------------------------------------
-30-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Swanee Hunt and Charles Ansbacher 6.30%
Trst The Hunt Alternatives Fund
C/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- --------------------------------------------------------------------------------
Samuel Gary and Ronald Williams 7.20%
And David Younggren
Trst Gary Tax Advantaged PRO+ PSP
370 17th St. Suite 5300
Denver, CO 80202
- --------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Services Corp. 17.60%
LARGE CAP FUND For the Exclusive Bene of Our
INVESTOR SHARES Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial
Center
New York, NY 10281
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 74.50%
Special Custody Account for the
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
BOSTON PARTNERS Donaldson Lufkin & Jenrette 11.50%
MID CAP VALUE FUND Securities Corporation
INST. SHARES Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------
North American Trst. Co. 5.80%
FBO Cooley Godward
P.O. Box 84419
San Diego, CA 92138
- --------------------------------------------------------------------------------
John Carroll University 6.70%
20700 N. Park Blvd.
University Heights, OH 44118
- --------------------------------------------------------------------------------
MAC & CO. 9.50%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
-31-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
ISTCO 6.80%
P.O. Box 523
Belleville, IL 62222-0523
- --------------------------------------------------------------------------------
Coastal Insurance Enterprises Inc. 8.70%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- --------------------------------------------------------------------------------
Healthcare Workers Compensation 6.00%
Fund
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- --------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Svcs Corp. for 12.50%
MID CAP VALUE FUND Exclusive Bene of Our Customers Sal
INV SHARES Vella
200 Liberty St.
New York, NY 10281
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 46.00%
Special Custody Account for Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
George B. Smithy, Jr. 5.20%
38 Greenwood Rd.
Wellesley, MA 02181
- --------------------------------------------------------------------------------
Jupiter & Co. 6.00%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02010
- --------------------------------------------------------------------------------
BOSTON PARTNERS Boston Partners Asset Mgmt LP 35.10%
BOND FUND One Financial Center 43rd Fl.
INSTITUTIONAL SHARES Boston, MA 02111
- --------------------------------------------------------------------------------
Chiles Foundation 16.70%
111 S.W. Fifth Ave.
4010 US Bancorp Tower
Portland, OR 97204
- --------------------------------------------------------------------------------
-32-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
The Roman Catholic Diocese of 39.10%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- --------------------------------------------------------------------------------
The Roman Catholic Diocese of 9.00%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- --------------------------------------------------------------------------------
BOSTON PARTNERS Charles Schwab & Co. Inc. 77.00%
BOND FUND INVESTOR Special Custody Account for Benefit of
SHARES Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette 5.10%
Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------
Stephen W. Hamilton 15.30%
17 Lakeside Ln
N. Barrington, IL 60010
- --------------------------------------------------------------------------------
BOSTON PARTNERS Desmond J. Heathwood 6.80%
MICRO CAP VALUE 41 Chestnut St.
FUND-INSTITUTIONAL Boston, MA 02108
SHARES
- --------------------------------------------------------------------------------
Boston Partners Asset Management LP 67.70%
One Financial Center
43rd Floor
Boston, MA 02111
- --------------------------------------------------------------------------------
Wayne Archambo 6.80%
42 DeLopa Circle
Westwood, MA 02090
- --------------------------------------------------------------------------------
David M. Dabora 6.80%
11 White Plains Ct.
San Anselmo, CA 94960
- --------------------------------------------------------------------------------
-33-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Services Corp. 34.90%
MICRO CAP VALUE For the Exclusive Bene of our
FUND-INVESTOR Customers
SHARES Attn. Mutual Funds 5th Floor
200 Liberty St.
1 World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------
Scott J. Harrington 62.10%
54 Torino Ct.
Danville, CA 94526
- --------------------------------------------------------------------------------
As of the above date, directors and officers as a group owned
less than one percent of the shares of the Company.
-34-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. 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. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
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 supporting institutions) have a strong
ability for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
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. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
A-2
<PAGE>
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation 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 or the taking of similar action if payments on
an obligation 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
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 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
A-3
<PAGE>
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 are considered as 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 speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of 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.
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.
A-4
