RBB
FAMILY OF MUTUAL FUNDS
A TRADITION OF BUILDING WEALTH
(LOGO GRAPHIC OMITTED)
Government Securities Portfolio
Annual Report
August 31, 1998
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
ANNUAL INVESTMENT ADVISER'S REPORT
GOVERNMENT SECURITIES PORTFOLIO
During the period September 1, 1997 through August 31, 1998 long-term
interest rates moved lower as the Federal Reserve held monetary policy steady.
Above trend economic growth drove the U.S. unemployment rate to below 5% which
put upward pressure on wages. However lower commodity prices and a strong dollar
kept inflation well below 2%. Turmoil in the world financial markets led to a
flight to quality benefiting U.S. Treasury securities. Expectations that the
Federal Reserve will ease monetary policy flattened the yield curve. The slope
of the yield curve, as measured by the 3-month to 30-year Treasury issues, went
from 149 basis points on September 1, 1997 to 46 basis points on August 31,
1998.
The Government Securities Portfolio was fully invested during this period
with cash levels below 5% and the average maturity within a narrow band of 7.2
to 7.8 years.
YEAR 2000 SYSTEM PREPAREDNESS
BlackRock Institutional Management Corp. (BIMC) serves as investment
adviser to The RBB Fund, Inc. BIMC wishes to confirm for fund investors that PNC
Bank Corp. and its affiliates are actively addressing Year 2000 system changes
across all of our businesses.
Over the past eighteen months, we have reviewed all internal systems to
determine whether there is Year 2000 exposure and, if so, how to remedy. Our
corporate objective is to have all systems Year 2000 ready by December 31, 1998.
Many systems have already been cleared. Those that require changes are currently
undergoing active work and progressing satisfactorily.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GOVERNMENT
SECURITIES PORTFOLIO, AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX FROM
INCEPTION 8/1/91 AND AT EACH FISCAL YEAR END (UNAUDITED)
- ---------------------------------------------------------------------
TOTAL RETURNS
One Year Ended Since
August 31, 1998(1) Inception(1)
----------------- ------------
Government Securities Portfolio 1.45% 4.94%
- ---------------------------------------------------------------------
(1) Includes actual sales load of 4.75%
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Government Securities Lehman Brothers Intermediate
Portfolio Government Index
8/1/91 $9,525 $10,000
8/31/91 $9,711 $10,016
8/31/92 $10,850 $11,299
8/31/93 $11,974 $12,280
8/31/94 $11,663 $12,247
8/31/95 $12,447 $13,344
8/31/96 $12,789 $13,939
8/31/97 $13,982 $15,061
8/31/98 $14,777 $16,457
Note: Past performance is not predictive of future performance.
BlackRock Institutional Management Corporation
(Please dial toll-free 800-677-6310 for questions
regarding your account or contact your broker.)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of The RBB Fund, Inc.:
In our opinion, the accompanying statement of net assets of the Government
Securities Portfolio of The RBB Fund,Inc., (the "Fund"), and the related
statements of operations and changes in net assets, and the financial highlights
present fairly, in all material respects, the financial position of the
Government Securities Portfolio of The RBB Fund, Inc. at August 31, 1998, the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at August 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 2, 1998
2
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1998
PAR
(000) VALUE
------ ----------
AGENCY OBLIGATIONS--35.2%
Federal Form Credit Bank
5.450% 09/16/98 ........................... $ 280 $ 279,364
Federal Home Loan Bank
6.500% 11/29/05 ........................... 250 263,982
Federal National Mortgage Association
7.050% 12/10/98 ........................... 250 251,046
8.250% 12/18/00 ........................... 1,000 1,065,342
Government National Mortgage
Association
9.000% 08/24/00 ........................... 201 214,824
----------
TOTAL AGENCY OBLIGATIONS
(Cost $1,994,292) ..................... 2,074,558
----------
U.S. TREASURY OBLIGATIONS--64.3%
U.S. TREASURY BONDS--28.5%
7.250% 05/15/16 ........................... 250 301,309
8.500% 02/15/20 ........................... 1,000 1,379,844
----------
1,681,153
----------
U.S. TREASURY NOTES--35.8%
7.125% 10/15/98 ........................... 324 324,862
5.500% 11/15/98 ........................... 200 200,124
7.500% 10/31/99 ........................... 250 256,553
7.125% 02/29/00 ........................... 250 257,282
6.375% 09/30/01 ........................... 250 259,253
7.500% 11/15/01 ........................... 250 268,035
7.500% 05/15/02 ........................... 250 270,516
7.000% 07/15/06 ........................... 250 279,938
----------
2,116,563
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,276,939) ..................... 3,797,716
----------
VALUE
----------
TOTAL INVESTMENTS--99.5%
(Cost $5,271,231*) ........................ $5,872,274
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5% ...................... 28,988
----------
NET ASSETS (Applicable to 665,080
RBB Shares)--100.0% ....................... $5,901,262
==========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE
($5,901,262 (DIVIDE) 665,080) ............. $8.87
=====
OFFERING PRICE PER SHARE
($8.87 (DIVIDE) .9525) .................... $9.31
=====
* Also cost for Federal income tax purposes. The gross appreciation
(depreciation) on a tax basis is as follows:
Gross Appreciation................ $615,438
Gross Depreciation................ (14,395)
--------
Net Appreciation.................. $601,043
========
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
Investment Income
Interest ..................................................... $422,094
--------
Expenses
Investment advisory fees ..................................... 24,599
Distribution fees ............................................ 24,599
Administration fees .......................................... 6,149
Custodian fees ............................................... 12,255
Transfer agent fees .......................................... 8,624
Printing expenses ............................................ 13,555
Registration fees ............................................ 12,000
Other expenses ............................................... 3,223
--------
105,004
Less fees waived ............................................. (30,749)
Less expense reimbursements by advisor ....................... (31,208)
--------
Total expenses ............................................ 43,047
--------
Net investment income ........................................... 379,047
--------
Realized and unrealized gain (loss) on investments
Net realized gain (loss) on investments ...................... (5,144)
Increase in net unrealized depreciation on investments ....... 265,769
--------
Net gain on investments ...................................... 260,625
--------
Net increase in net assets resulting from operations ............ $639,672
========
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1998 AUGUST 31, 1997
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......................................................... $ 379,047 $ 466,003
Net gain (loss) on investments ................................................. 260,625 135,686
---------- ----------
Net increase in net assets resulting from operations ........................... 639,672 601,689
---------- ----------
Distributions to shareholders:
Dividends to shareholders from net investment income:
RBB shares ..................................................................... (380,337) (466,085)
Distributions to shareholders from capital:
RBB shares ..................................................................... (250,222) (262,254)
---------- ----------
Total distributions to shareholders ........................................ (630,559) (728,339)
---------- ----------
Net capital share transactions ................................................... (845,217) (1,920,686)
---------- ----------
Total decrease in net assets ..................................................... (836,104) (2,047,336)
---------- ----------
Net Assets:
Beginning of year .............................................................. 6,737,366 8,784,702
---------- ----------
End of year .................................................................... $5,901,262 $6,737,366
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO
------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
August 31, 1998 August 31, 1997 August 31, 1996 August 31, 1995* August 31, 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $ 8.87 $ 9.04 $ 9.54 $ 9.69 $ 10.73
------- -------- -------- -------- ---------
Income from investment operations:
Net investment income .................... 0.5562 0.8744 0.5220 0.5819 0.5931
Net gain/(loss) on securities
(both realized and unrealized) ......... 0.3565 (0.1346) (0.2540) 0.0361 (0.8651)
------- -------- -------- -------- ---------
Total from investment operations ..... 0.9127 1.0090 0.2680 0.6180 (0.2720)
------- -------- -------- -------- ---------
Less distributions
Dividends (from net investment income) ... (0.5562) (0.8744) (0.5220) 0.5819 (0.5901)
Distributions (from excess net
investment income) ..................... -- -- -- -- (0.0235)
Return of capital ........................ (0.3565) (0.3046) (0.2460) (0.1861) (0.1544)
------- -------- -------- -------- ---------
Total distributions .................. (0.9127) (1.1790) (0.7680) (0.7680) (0.7680)
------- -------- -------- -------- ---------
Net asset value, end year ................... $ 8.87 $ 8.87 $ 9.04 $ 9.54 $ 9.69
======= ======== ======== ======== =========
Total return ................................ 6.48%(b) 9.39%(b) 2.75%(b) 6.72%(b) (2.60%)(b)
Ratios/Supplemental Data
Net assets, end of year (000) ............ $ 5,901 $ 6,737 $ 8,785 $10,514 $54,938
Ratios of expenses to
average net assets ..................... 0.70%(a) 0.70%(a) 0.70%(a) 0.72%(a) 0.64%(a)
Ratios of net investment income to
average net assets ..................... 6.16% 6.18% 6.05% 6.59% 5.86%
Portfolio turnover rate .................. 5% 26% 77% 86% 65%
<FN>
(a) Without the waiver of advisory, administration and custody fees and without
the reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Government Securities Portfolio would have been
1.71%, 2.15%, 2.05%, 1.22%, 1.10% and 1.22% for the years ended August 31,
1998, 1997, 1996, 1995 and 1994, respectively.
(b) Sales load not reflected in total return.
* Certain numbers were revised to conform to current year presentation.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988, and currently has twenty-six
investment Portfolios, one of which is included in these financial statements.
The Fund has authorized capital of thirty billion shares of common stock of
which 16.27 billion are currently classified into ninety-seven classes. Each
class represents an interest in one of twenty-six investment portfolios of the
Fund. The classes have been grouped into fourteen separate "families", nine of
which have begun investment operations.
A) SECURITY VALUATION -- Government Securities Portfolio: Portfolio
securities for which market quotations are readily available are valued at
market value, which is currently determined using the last reported sales price.
If no sales are reported, as in the case of some securities traded
over-the-counter, portfolio securities are valued at the mean between the last
reported bid and asked prices. Corporate bonds, tax-exempt bonds and notes, and
government securities are valued on the basis of quotations provided by an
independent pricing service which uses information with respect to transactions
on bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining value.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost which approximates market value.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on the accrual basis. Certain
expenses, principally distribution, transfer agent and printing, are class
specific expenses and vary by class. Expenses not directly attributable to a
specific portfolio or class are allocated based on relative net assets of each
portfolio and class, respectively.
C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Government Securities
Portfolio: Dividends from net investment income from each portfolio are declared
and paid at least monthly. Any net realized capital gains will be distributed at
least annually. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of mortgage-backed securities.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes as it is
the Fund's intention to have each portfolio continue to qualify for and elect
the tax treatment applicable to regulated investment companies under the
Internal Revenue Code and make the requisite distributions to its shareholders
which will be sufficient to relieve it from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be purchased
subject to the seller's agreement to repurchase them at an agreed upon date and
price. The seller will be required on a daily basis to maintain the value of the
securities subject to the agreement at not less than there repurchase price plus
accrued interest. If the value of the underlying securities falls below 102% of
the value of the purchase price plus accrued interest, the Fund will require the
seller to deposit additional collateral by the next Fund business day. In the
event that the seller under the agreement defaults on its repurchase obligation
or fails to deposit sufficient collateral, the Fund has the contractual right,
subject to the requirements of applicable bankruptcy and insolvency laws, to
sell the underlying securities and may claim any resulting loss from the seller.
The agreements are conditioned upon the collateral being deposited under the
Federal Reserve book-entry system or with the Fund's custodian or a third party
sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
7
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1998
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
In March 1998, PNC Institutional Management Corporation, which changed its
name to BlackRock Institutional Management Corporation ("BIMC"), assumed the
responsibilities of PNC Bank, as subadviser, to provide research, credit
analysis and recommendations with respect to the Fund's investments and supply
certain computer facilities, personnel and other services. The personnel and
facilities related to these services are being transferred to BIMC and BIMC's
obligation to pay to PNC Bank a portion of the advisory fee has been terminated.
For its advisory services, BIMC is entitled to receive the following fees,
computed daily and payable monthly based on a portfolio's average daily net
assets:
<TABLE>
<CAPTION>
PORTFOLIO ANNUAL RATE
------------------------------- --------------------------------------------------
<S> <C>
Government Securities Portfolio .40% of first $250 million of net assets;
.35% of next $250 million of net assets;
and .30% of net assets in excess of $500 million.
</TABLE>
BIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee. For the year ended August 31, 1998, advisory fees and waivers were
as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
-------- -------- --------
Government Securities Portfolio $24,599 $(24,599) $--
======= ======== ===
PNC Bank serves as custodian for the Fund. PFPC Inc. ("PFPC"), an indirect
wholly-owned subsidiary of PNC Bank, serves as transfer and disbursing agent.
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee. For the year ended August 31, 1998, transfer agency fees
were as follows:
TRANSFER AGENCY
FEE
---------------
Government Securities Portfolio $8,624
======
In addition, PFPC serves as administrator for the Government Securities
Portfolio. The administration fee is computed daily and payable monthly at the
annual rate of .10% of the Portfolio's average daily net assets. PFPC may, at
its discretion, voluntarily waive all or any portion of its administration fee.
For the year ended August 31, 1998, administration fees and waivers were as
follows:
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- ------- --------------
Government Securities Portfolio $ 6,149 $(6,149) $--
======= ======= ===
8
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1998
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
The Fund, on behalf of each class of shares within the investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Provident Distributors ("PDI"), which provide for each class to
make monthly payments, based on average net assets, to PDI of up to .40% on an
annualized basis for the RBB Government Securities Portfolio. Prior to May 29,
1998, Counsellors Securities, Inc. served as distributor.
For the year ended August 31, 1998, distribution fees of shares within the
investment portfolio were as follows:
DISTRIBUTION
FEE
------------
Government Securities Portfolio
RBB Class $24,599
=======
NOTE 3. PURCHASE AND SALES OF SECURITIES
For the year ended August 31, 1998, purchases and sales of investment
securities and United States Government Obligations (other than short-term
investments) were as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES U.S. GOVERNMENT OBLIGATIONS
------------------------- ---------------------------
Purchases Sales Purchases Sales
--------- ----- ---------- ----------
<S> <C> <C> <C> <C>
Government Securities Portfolio $-- $-- $-- $1,119,991
</TABLE>
NOTE 4. CAPITAL SHARES
Transactions in capital shares for each year were as follows:
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO
-----------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1998 AUGUST 31, 1997
---------------------------- ----------------------------
SHARES VALUE SHARES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold:
RBB Class 1,394 $ 12,311 6,764 $ 60,974
Shares issued in reinvestment of dividends:
RBB Class 44,414 393,184 49,208 441,918
Shares repurchased:
RBB Class (140,687) (1,250,712) (267,555) (2,423,578)
----------- ----------- ----------- -----------
Net decrease (94,879) $ (845,217) (211,583) $(1,920,686)
=========== =========== =========== ===========
RBB Shares authorized 100,000,000 100,000,000
=========== ===========
</TABLE>
9
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1998
NOTE 5. NET ASSETS
At August 31, 1998, net assets consists of the following:
GOVERNMENT
SECURITIES
PORTFOLIO
-----------
Capital Paid-In
RBB Class $ 9,778,937
Accumulated Net Realized Gain (Loss) on Investments
RBB Class (4,478,718)
Unrealized Appreciation (Depreciation) on Investments
RBB Class 601,043
-----------
$ 5,901,262
===========
NOTE 6. CAPITAL LOSS CARRYOVERS
At August 31, 1998, capital loss carryovers were available to offset future
realized gains as follows: $4,478,718 in the Government Securities Portfolio of
which $602,716 expires in 1999, $764,714 expires in 2000, $750,038 expires in
2002, $2,345,236 expires in 2003, $10,177 expires in 2005, and $5,835 expires in
2006.
10
