<PAGE>
N/I NUMERIC INVESTORS
family of funds
N/I NUMERIC INVESTORS Micro Cap Fund CLOSED
N/I NUMERIC INVESTORS Growth Fund CLOSED
N/I NUMERIC INVESTORS Growth & Value Fund
N/I NUMERIC INVESTORS Larger Cap Value Fund
N/I NUMERIC INVESTORS Small Cap Value Fund
--------------------------------------------
advised by NUMERIC INVESTORS LP(R)
--------------------------------------------
Prospectus
December 28, 1998
<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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION............................................................... 2
FINANCIAL HIGHLIGHTS....................................................... 6
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
INVESTMENT LIMITATIONS..................................................... 13
MANAGEMENT................................................................. 14
FUND TRANSACTIONS.......................................................... 15
HOW TO PURCHASE SHARES..................................................... 16
HOW TO REDEEM SHARES....................................................... 19
NET ASSET VALUE............................................................ 20
DIVIDENDS AND DISTRIBUTIONS................................................ 21
TAXES...................................................................... 21
DESCRIPTION OF SHARES...................................................... 22
OTHER INFORMATION.......................................................... 22
APPENDIX A--PERFORMANCE BENCHMARKS......................................... A-1
</TABLE>
INVESTMENT ADVISER
Numeric Investors L.P.(R)
Cambridge, Massachusetts
CUSTODIAN
Custodial Trust Company
Princeton, New Jersey
CO-ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
PFPC Inc.
Wilmington, Delaware
CO-ADMINISTRATOR
Bear Stearns Funds Management Inc.
New York, New York
DISTRIBUTOR AND ADMINISTRATIVE SERVICES AGENT
Provident Distributors, Inc.
West Conshohocken, Pennsylvania
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
<PAGE>
N/I NUMERIC INVESTORS family of funds
of
The RBB Fund, Inc.
The N/I NUMERIC INVESTORS family of funds consists of five classes of common
stock of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of each such class (collectively, the "N/I NUMERIC
INVESTORS family of funds Shares" or "Shares") offered by this Prospectus
represent interests in one of five investment portfolios of RBB and are
designed to offer a variety of investment opportunities (each such investment
portfolio referred to as a "Fund," collectively, the "Funds"). The investment
objectives of each investment portfolio described in this Prospectus are as
follows:
N/I NUMERIC INVESTORS MICRO CAP FUND--to provide long-term capital
appreciation. The Fund invests generally in common stock of companies with
higher than average earnings growth rates and market capitalization of $600
million or less, although the Fund may invest in companies with higher
market capitalization and lower than average growth rates.
N/I NUMERIC INVESTORS GROWTH FUND--to provide long-term capital
appreciation. The Fund invests generally in common stock of companies with
smaller ($1.2 billion or less) market capitalization, or companies with
substantial equity capital and higher than average earnings growth rates.
N/I NUMERIC INVESTORS GROWTH & VALUE FUND--to provide long-term capital
appreciation. The Fund invests generally in common stock of middle and
large market capitalization companies where earnings per share are
improving more rapidly than the earnings per share of the average company,
as well as companies whose securities have market valuations which are
lower than the average market valuations of securities, as measured by such
characteristics as price to earnings ratios and price to book ratios.
N/I NUMERIC INVESTORS LARGER CAP VALUE FUND--to provide long-term capital
appreciation. The Fund invests generally in common stock of larger ($2
billion or more) market capitalization companies. The stock selection
process for this Fund is primarily driven by the value stock model which
seeks to identify companies whose securities have market valuations that
are lower than the average market valuations of securities, as measured by
such characteristics as price to earnings ratios and price to book ratios.
Also considered, but of less importance, is the growth stock model which
seeks to identify companies whose earnings per share are improving more
rapidly than the earnings per share of the average company.
N/I NUMERIC INVESTORS SMALL CAP VALUE FUND--to provide long-term capital
appreciation. The Fund invests generally in common stock of companies with
smaller ($1.5 billion or less) market capitalizations. The stock selection
process for this Fund is primarily driven by the value stock model which
seeks to identify companies whose securities have market valuations that
are lower than the average market valuations of securities, as measured by
such characteristics as price to earnings ratios and price to book ratios.
Also considered, but of less importance, is the growth stock model which
seeks to identify companies whose earnings per share are improving more
rapidly than the earnings per share of the average company.
IMPORTANT FUND CLOSING INFORMATION
NUMERIC INVESTORS L.P.(R) ("NUMERIC"), THE FUNDS' INVESTMENT ADVISER, WILL
MONITOR THE FUNDS' TOTAL ASSETS AND MAY CLOSE ANY OF THE FUNDS AT ANY TIME TO
NEW INVESTMENT DUE TO CONCERNS THAT AN INCREASE IN THE SIZE OF A FUND MAY
ADVERSELY AFFECT THE IMPLEMENTATION OF NUMERIC'S INVESTMENT STRATEGY. NUMERIC
MAY ALSO CHOOSE TO REOPEN A CLOSED FUND TO NEW INVESTMENT AT ANY TIME, AND MAY
SUBSEQUENTLY CLOSE SUCH FUND AGAIN SHOULD CONCERNS REGARDING FUND SIZE RECUR.
AT THE TIME OF THIS PROSPECTUS, THE N/I NUMERIC INVESTORS MICRO CAP AND GROWTH
FUNDS ARE CLOSED TO FURTHER INVESTMENT, EXCEPT AS DESCRIBED ON PAGE 19 HEREOF.
IN THE EVENT THAT THE NET ASSETS OF THE N/I NUMERIC INVESTORS GROWTH & VALUE
FUND REACH $200,000,000, THE SALE OF ADDITIONAL SHARES OF THIS FUND WILL ALSO
BE RESTRICTED AS DESCRIBED ON PAGE 19 HEREOF.
Shares of the N/I NUMERIC INVESTORS family of funds 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 N/I NUMERIC INVESTORS family of funds Shares involve investment
risks, including the possible loss of principal.
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 December 28, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. The Prospectus and Statement of Additional Information are
available for reference, along with other related materials, on the SEC
Internet Web Site (http://www.sec.gov). It may also be obtained free of charge
by calling (800) NUMERIC [(800) 686-3742].
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.
PROSPECTUS December 28, 1998
<PAGE>
INTRODUCTION
RBB is registered under the Investment Company Act of 1940 (the "1940 Act") as
an open-end management investment company and is currently operating or
proposing to operate seventeen separate investment portfolios. Each of the
five classes of Shares offered by this Prospectus represents interests in one
of the following five investment portfolios: N/I NUMERIC INVESTORS Micro Cap
Fund; N/I NUMERIC INVESTORS Growth Fund; N/I NUMERIC INVESTORS Growth & Value
Fund; N/I NUMERIC INVESTORS Larger Cap Value Fund; and N/I NUMERIC INVESTORS
Small Cap Value Fund. RBB was incorporated under the laws of the State of
Maryland on February 29, 1988.
WHO SHOULD INVEST: LONG-TERM INVESTORS SEEKING CAPITAL APPRECIATION
The Funds are intended for investors who are seeking long-term capital
appreciation, and who do not need to earn current income from their investment
in the Funds. The net asset values per share of Shares representing interests
in the Funds will fluctuate as the values of the portfolio securities change
in response to changing market prices and other factors. Because of the risks
associated with common stock investments, the Funds are intended to be a long-
term investment vehicle and are not designed to provide investors with a means
of speculating on short-term stock market movements. The type of stocks held
by the Micro Cap, Growth, Small Cap Value and Growth & Value Funds may be more
volatile than stocks of larger companies. Investors should be able to tolerate
sudden, sometimes substantial fluctuations in the value of their investment.
Investors who engage in excessive account activity generate additional costs
that are borne by all of a Fund's shareholders. In order to minimize such
costs, the Funds reserve the right to reject any purchase request (including
exchange purchases from other N/I NUMERIC INVESTORS' Funds) that is reasonably
deemed to be disruptive to efficient portfolio management, either because of
the timing of the investment or previous excessive trading by the investor.
Additionally, the Funds have adopted exchange privilege limitations permitting
three exchanges per year as described in the section "Exchange Privilege
Limitations." Finally, the Funds reserve the right to suspend the offering of
their shares.
Because of these risks, the Funds should not be considered a complete
investment program. Most investors should maintain diversified holdings of
securities with different risk characteristics-- including common stocks,
bonds and money market instruments. Investors may wish to purchase shares on a
regular, periodic basis (Automatic Investing), rather than investing in one
lump sum, in order to reduce the risk of investing all their monies in common
stocks at a particularly unfavorable time. Investors may also wish to
complement an investment in the Fund with other types of common stock
investments.
FUND MANAGEMENT
Numeric serves as the investment adviser to the Funds. Numeric specializes in
the active management of U.S. and International equity portfolios using
internally developed quantitative stock selection and portfolio risk-control
techniques, and currently has over $5 billion in assets under management for
individual, limited partnership, mutual fund, offshore fund, pension plan and
endowment accounts.
THE FUNDS
The investment objectives and policies of each of the Funds are summarized in
the table below. There is no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
N/I
NUMERIC
INVESTORS INVESTMENT PERFORMANCE
FUND OBJECTIVE/POLICY BENCHMARK*
- -------------------------------------------------------------------------------
<C> <S> <C>
Micro Cap Objective is to provide long-term capital Russell 2000
appreciation. Invests generally in common stock of Growth Index
companies with market capitalizations of $600 million
or less and higher than average earnings growth
rates.
- -------------------------------------------------------------------------------
Growth Objective is to provide long-term capital Russell 2500
appreciation. Invests generally in common stock of Growth Index
companies with smaller ($1.2 billion or less) market
capitalization or companies with substantial equity
capital and higher than average earnings growth
rates.
- -------------------------------------------------------------------------------
Growth & Objective is to provide long-term capital S&P MidCap
Value appreciation. Invests generally in common stocks of 400 Index
middle and large capitalization companies where
earnings per share are improving more rapidly than
the earnings per share of the average company, as
well as companies whose securities have market
valuations which are lower than the average market
valuations of securities, as measured by such
characteristics as price to earnings ratios and price
to book ratios.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
N/I
NUMERIC
INVESTORS INVESTMENT PERFORMANCE
FUND OBJECTIVE/POLICY BENCHMARK*
- -------------------------------------------------------------------------------
<C> <S> <C>
Larger Cap Objective is to provide long-term capital Russell 1000
Value appreciation. The Fund invests generally in common Value Index
stock of larger ($2 billion or more) market
capitalization companies. The stock selection
process for this Fund is primarily driven by the
value stock model which seeks to identify companies
whose securities have market valuations that are
lower than the average market valuations of
securities, as measured by such characteristics as
price to earnings ratios and price to book ratios.
Also considered, but of less importance, is the
growth stock model which seeks to identify companies
whose earnings per share are improving more rapidly
than the earnings per share of the average company.
- -------------------------------------------------------------------------------
Small Cap Objective is to provide long-term capital Russell 2000
Value appreciation. The Fund invests generally in common Value Index
stock of companies with smaller ($1.5 billion or
less) market capitalizations. The stock selection
process for this Fund is primarily driven by the
value stock model which seeks to identify companies
whose securities have market valuations that are
lower than the average market valuations of
securities, as measured by such characteristics as
price to earnings ratios and price to book ratios.
Also considered, but of less importance, is the
growth stock model which seeks to identify companies
whose earnings per share are improving more rapidly
than the earnings per share of the average company.
</TABLE>
- --------
* For more information on a Fund's benchmark, see Appendix A at the back of
this prospectus.
FEE TABLE
The following tables illustrate all expenses and fees (after expected fee
waivers and expense reimbursements) that a shareholder would incur in each
Fund. The expenses and fees in the tables for the N/I NUMERIC INVESTORS Micro
Cap, Growth, and Growth & Value are based on expenses incurred for the fiscal
year ended August 31, 1998. The expenses and fees in the tables for the n/i
numeric investors Larger Cap Value Fund are based on the period December 9,
1997 through August 31, 1998. The expenses and fees in the tables for the N/I
NUMERIC INVESTORS Small Cap Value Fund are based on expenses expected to be
incurred in the current fiscal period.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as percentage of offering
price) NONE
Sales Charge Imposed on Reinvested Dividends NONE
Redemption Fees NONE
Exchange Fees/1/ NONE
</TABLE>
- --------
/1/Exchanges.are limited to three (3) per year. See "How to Purchase Shares--
Exchange Privilege Limitations."
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH LARGER SMALL
MICRO & CAP CAP
CAP GROWTH VALUE VALUE VALUE
FUND FUND FUND FUND FUND
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)/1/ 0.65% 0.65% 0.62% 0.32% 0.00%
12b-1 Fees.................................. None None None None None
Other Expenses (after waivers and
reimbursements)/1/......................... 0.35% 0.35% 0.38% 0.68% 1.00%
---- ---- ---- ---- ----
Total Fund Operating Expenses, (after
waivers and reimbursements)/1/............. 1.00% 1.00% 1.00% 1.00% 1.00%
==== ==== ==== ==== ====
</TABLE>
- --------
1. Before expense reimbursements and waivers, Management Fees would be 0.75%
for each of the five Funds, and Other Expenses would be 0.48% for the Micro
Cap Fund, 0.49% for the Growth Fund, 0.51% for the Growth & Value Fund,
1.45% for the Larger Cap Value Fund and 1.06% for the Small Cap Value Fund.
Total Fund Operating Expenses would be 1.23% for the Micro Cap Fund, 1.24%
for the Growth Fund, 1.26% for the Growth & Value Fund, 2.20% for the
Larger Cap Value Fund and 1.81% for the Small Cap Value Fund.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in each of
the Funds, assuming (1) a 5% annual return, and (2) redemption at the end of
each time period:
3
<PAGE>
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Micro Cap................................................ $10 $32 $55 $122
Growth................................................... $10 $32 $55 $122
Growth & Value........................................... $10 $32 $55 $122
Larger Cap Value......................................... $10 $32 $55 $122
Small Cap Value.......................................... $10 $32 N/A N/A
</TABLE>
The Examples in the Fee Table assume 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 INVESTMENT RETURN OR OPERATING EXPENSES AND
ACTUAL INVESTMENT RETURN OR OPERATING EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
The Fee Table is designed to assist an investor in understanding the various
costs and expenses that an investor in any of the N/I NUMERIC INVESTORS family
of funds Classes of RBB 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 a voluntary waiver of Management Fees for each Fund through the current
fiscal year. There can be no assurance that any future expense reimbursements
and waivers (if any) of Management Fees will not vary from the figures
reflected in the Fee Table. Fee waivers and expense reimbursements will have
the effect of lowering a Fund's overall expense ratio and increasing its yield
or total return to investors. "Other Expenses" for the Funds are based on
estimated amounts for the current fiscal year.
OFFERING PRICES
Shares of the N/I NUMERIC INVESTORS Growth & Value Fund, N/I NUMERIC INVESTORS
Larger Cap Value Fund and N/I NUMERIC INVESTORS Small Cap Value Fund are
offered to the public. Shares of the N/I NUMERIC INVESTORS Micro Cap Fund and
the N/I NUMERIC INVESTORS Growth Fund are offered only to certain persons
described under "How to Purchase Shares--Closing of Funds." Purchase orders
receive the next determined net asset value after receipt of an order in
proper form by PFPC Inc. ("PFPC"), the Funds' transfer agent. THE SHARES ARE
OFFERED ON A NO-LOAD BASIS: THERE IS NO SALES CHARGE IMPOSED ON PURCHASES OF
SHARES, NOR ARE THE SHARES SUBJECT TO A DISTRIBUTION ("12B-1") FEE.
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for each Fund is $3,000. Subsequent
investments must be $100 or more. The minimum initial investment for an
Automatic Investment Plan is $1,000 with minimum monthly payments of $100. The
minimum investment for Individual Retirement Accounts ("IRAs"), or pension,
profit-sharing or other employee benefit plans is $1,000 and minimum
subsequent investments are $100. See "How to Purchase Shares."
EXCHANGES
Shares of a N/I NUMERIC INVESTORS fund may be exchanged up to three (3) times
per year for Shares of the N/I NUMERIC INVESTORS Growth & Value Fund, N/I
NUMERIC INVESTORS Larger Cap Value Fund or N/I NUMERIC INVESTORS Small Cap
Value Fund at the net asset value next determined after receipt by PFPC of an
exchange request. In addition, RBB reserves the right to impose an
administrative charge for each exchange or to reject any exchange request that
is reasonably deemed to be disruptive to efficient portfolio management. See
"How to Purchase Shares--Exchange Privilege" and "Exchange Privilege
Limitation."
REDEMPTION PRICE
Shares generally may be redeemed at any time at their net asset value next
determined after receipt by PFPC of a redemption request. RBB reserves the
right, upon 30 days' written notice, to redeem an account in any of the Funds
if the net asset value of the investor's Shares in that account falls below
$500 and is not increased to at least such amount within such 30-day period.
See "How to Redeem Shares."
RISK FACTORS TO CONSIDER
An investment in any of the Funds is subject to certain risks, as set forth in
detail under "Investment Objectives and Policies." As with other mutual funds,
there can be no assurance that any Fund will achieve its objective. Some or
all of the Funds, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: short sales,
borrowings, the lending of
4
<PAGE>
portfolio securities, engaging in options and futures transactions and
investments in micro-cap and small cap issuers. All of these transactions
involve certain special risks, as set forth under "Investment Objectives and
Policies." In addition, the Funds are subject to high portfolio turnover
rates. See "Investment Objectives and Policies--Portfolio Turnover" and
"Taxes."
TAX IMPLICATIONS FROM PORTFOLIO TURNOVER
When any of the Funds sells a portfolio security, it may recognize a gain
that, for federal tax purposes, may be deemed to be a taxable capital gain.
Short-term capital gains typically are taxed at higher rates than are long-
term capital gains. These funds have high portfolio turnover rates, and
therefore may experience a greater current tax burden, which is passed to the
Fund's shareholders, than a Fund with low portfolio turnover.
SHAREHOLDER INQUIRIES
For questions regarding shareholder accounts, call toll-free: 1-800-348-5031.
Any questions regarding (i) new or existing accounts or (ii) purchases or
redemptions should be directed to PFPC by writing to it at:
N/I NUMERIC INVESTORS family of funds
c/o PFPC Inc.
P.O. Box 8966
Wilmington, Delaware 19899
For overnight deliveries:
N/I NUMERIC INVESTORS family of funds
c/o PFPC Inc.
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 108
Wilmington, Delaware 19809
or by calling PFPC toll-free at:
1-800-348-5031.
To request a prospectus, call toll-free:
1-800-NUMERIC (1-800-686-3742).
For any other questions, call toll-free:
1-800-NUMERIC (1-800-686-3742).
To reach Numeric and the Funds on the Internet: Information is available on
the Internet through the World Wide Web. Shareholders and investment
professionals may obtain information on Numeric and the Funds by accessing:
http://www.numeric.com
To reach Numeric through e-mail:
[email protected]
GENERAL CONSIDERATIONS FOR TAXABLE INVESTORS. Investment strategies that
require periodic changes to portfolio holdings with the expectation of
outperforming equity indices are called "active" strategies. These compare
with "passive" or "index" strategies that hold only the stocks in the equity
indices. Passive strategies trade infrequently--only as the indices change.
Most equity mutual funds pursue active strategies, which have higher turnover
than passive strategies. The following describes the impact of portfolio
turnover on returns.
High portfolio turnover (100% or more) can adversely affect taxable investors,
especially those in higher marginal tax brackets, in two ways: First, short
term capital gains, which are a by-product of high turnover investment
strategies, are currently taxed at rates comparable to ordinary income rates.
Ordinary income tax rates are higher than long term capital gain tax rates for
middle and upper income taxpayers. Second, the frequent realization of gains,
which causes taxes to be paid frequently, is less advantageous than infrequent
realization of gains. Infrequent realization of gains allows the payment of
taxes to be deferred to later years, allowing more of the gains to compound
before taxes are paid. Consequently after-tax compound rates of return will
generally be higher for taxable investors using investment strategies with
very low turnover, all else being equal.
Although tax considerations should not typically drive an investment decision,
investors should consider their ability to allocate tax-deferred (such as IRAs
and 401(k) plans) versus taxable assets when considering where to invest. All
else being equal, investors will earn better returns investing tax-deferred
assets in active strategies, while using lower turnover passive strategies for
taxable investments.
5
<PAGE>
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for each share
outstanding, total investment return, ratios to average net assets and other
supplemental data for the period from commencement of operations (June 3,
1996) through August 31, 1996 and for the fiscal years ended August 31, 1997
and August 31, 1998, with respect to the N/I NUMERIC INVESTORS Micro Cap, N/I
NUMERIC INVESTORS Growth and N/I NUMERIC INVESTORS Growth & Value Funds, and
for the period from commencement of operations (December 9, 1997) through
August 31, 1998, with respect to the N/I NUMERIC INVESTORS Larger Cap Value
Fund. The financial data included in this table should be read in conjunction
with the financial statements and related notes contained in the Annual Report
to Shareholders and incorporated by reference in the Statement of Additional
Information, which have been audited by PricewaterhouseCoopers LLP, RBB's
independent accountants. No financial information has been provided with
respect to the N/I NUMERIC INVESTORS Small Cap Value Fund because it had not
commenced operations as of August 31, 1998.
<TABLE>
<CAPTION>
MICRO
CAP GROWTH
FUND FUND
--------------------------------- ---------------------------------
FISCAL YEAR FISCAL YEAR PERIOD FISCAL YEAR FISCAL YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
8/31/98 8/31/97 8/31/96* 8/31/98 8/31/97 8/31/96*
----------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE**
Net asset value,
beginning of period.... $ 18.47 $ 11.67 $ 12.00 $ 16.29 $ 11.84 $ 12.00
------- -------- ------- ------- -------- -------
Net investment
income/(loss)(1)....... (0.07) (0.01) 0.01 (0.07) (0.04) 0.01
Net realized and
unrealized gain/(loss)
on investments and
future transactions,
if any(2).............. (3.23) 6.82 (0.34) (3.98) 4.50 (0.17)
------- -------- ------- ------- -------- -------
Net increase/(decrease)
in net assets resulting
from operations........ (3.30) 6.81 (0.33) (4.05) 4.46 (0.16)
------- -------- ------- ------- -------- -------
Dividends and
distributions to
shareholders from:
Net investment income... -- (0.01) -- -- (0.01) --
Net realized capital
gains.................. (2.65) -- -- (2.49) -- --
------- -------- ------- ------- -------- -------
Total dividends and
distributions to
shareholders........... (2.65) (0.01) -- (2.49) (0.01) --
------- -------- ------- ------- -------- -------
Net asset value, end of
period................. $ 12.52 $ 18.47 $ 11.67 $ 9.75 $ 16.29 $ 11.84
======= ======== ======= ======= ======== =======
Total investment
return(3).............. (20.47)% 58.41 % (2.75)% (29.03)% 37.69% (1.33)%
======= ======== ======= ======= ======== =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted)............... $99,266 $142,119 $14,100 $77,840 $117,724 $26,756
Ratio of expenses to
average net
assets(1)(4)........... 1.00 % 1.00 % 1.00 %*** 1.00 % 1.00 % 1.00%***
Ratio of net investment
income/(loss) to
average net assets(1).. (0.41)% (0.06)% 0.73 %*** (0.50)% (0.38)% 0.71%***
Portfolio turnover
rate................... 408.70 % 233.49 % 42.92 % 338.40 % 266.25 % 19.21%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GROWTH LARGER
& VALUE CAP VALUE
FUND FUND
--------------------------------- ---------
FISCAL YEAR FISCAL YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
8/31/98 8/31/97 8/31/96* 8/31/98+
----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE**
Net asset value, beginning
of period................ $ 17.16 $ 11.56 $12.00 $ 12.00
-------- ------- ------ -------
Net investment
income/(loss)(1)......... 0.05 0.08 0.03 0.06
Net realized and
unrealized gain/(loss) on
investments and
future transactions, if
any(2)................... (1.24) 5.58 (0.47) (1.22)
-------- ------- ------ -------
Net increase/(decrease) in
net assets resulting from
operations............... (1.19) 5.66 (0.44) (1.16)
-------- ------- ------ -------
Dividends and
distributions to
shareholders from:
Net investment income..... (0.06) (0.06) -- --
Net realized capital
gains.................... (2.61) -- -- --
-------- ------- ------ -------
Total dividends and
distributions to
shareholders............. (2.67) (0.06) -- --
-------- ------- ------ -------
Net asset value, end of
period................... $ 13.30 $ 17.16 $11.56 $ 10.84
======== ======= ====== =======
Total investment
return(3)................ (8.97)% 49.11% (3.67)% (9.67)%
======== ======= ====== =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).......... $110,176 $52,491 $3,813 $25,257
Ratio of expenses to
average net
assets(1)(4)............. 1.00% 1.00% 1.00 %*** 1.00 %***
Ratio of net investment
income/(loss) to average
net assets(1)............ 0.36% 0.79% 1.89 %*** 1.26 %***
Portfolio turnover rate... 341.73% 263.83% 5.25 % 166.81 %
</TABLE>
- --------
* These Funds commenced operations on June 3, 1996.
+ This Fund commenced operations on December 9, 1997.
** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the dates of distributions.
*** Annualized.
(1) Reflects waivers and reimbursements.
(2) The amounts shown for each share outstanding throughout the respective
periods are not in accord with the changes in the aggregate gains and
losses on investments during the respective periods because of the timing
of sales and repurchases of Fund shares in relation to fluctuating net
asset value during the respective periods.
(3) Total investment return is calculated assuming a purchase of shares on the
first day and a sale of shares on the last day of each period reported and
includes reinvestments of dividends and distributions, if any. Total
investment returns are not annualized.
(4) Without the waiver of advisory, administration and transfer agent fees and
without the reimbursement of certain operating expenses, the ratio of
expenses to average net assets annualized for the periods ended August 31,
1998, August 31, 1997 and August 31, 1996, respectively, would have been
1.23%, 1.45% and 3.45% for the N/I NUMERIC INVESTORS Micro Cap Fund,
1.24%, 1.40% and 2.62% for the N/I NUMERIC INVESTORS Growth Fund, and
1.26%, 1.81% and 8.98% for the N/I NUMERIC INVESTORS Growth & Value Fund,
and 2.20% for the N/I NUMERIC INVESTORS Larger Cap Value Fund for the
period December 9, 1997 through August 31, 1998.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
To meet its investment objective, each Fund employs a specific investment
style, as described below. There is no assurance that a Fund will achieve its
investment objective.
The investment objective of the N/I NUMERIC INVESTORS Micro Cap Fund is to
provide long-term capital appreciation. The Fund invests generally in common
stocks, although it may also invest in securities which are convertible into
common stock, fixed income securities and money market securities. Under
normal circumstances, the Fund invests at least 65% of its total assets in
common stock of companies with market capitalization of $600 million or less,
although the Fund may invest in companies with higher market capitalization.
Numeric determines its stock selection decisions for this Fund primarily on
the basis of its growth stock model, which seeks to identify companies whose
earnings per share are improving more rapidly than the earnings per share of
the average company. Considered, but of significantly less importance, is the
value stock model, which seeks to identify companies whose securities have
market valuations that are lower than the average market valuations of
securities, as measured by characteristics including price to earnings ratios
and price to book ratios. The Fund measures its performance against the
Russell 2000 Growth Index.
The investment objective of the N/I NUMERIC INVESTORS Growth Fund is to
provide long-term capital appreciation. The Fund invests generally in common
stocks, although it may also invest in securities which are convertible into
common stock, fixed income securities and money market securities. Under
normal circumstances, the Fund invests in common stock of companies with
smaller ($1.2 billion or less) market capitalization or companies with
substantial equity capital and higher than average earnings growth rates.
Numeric determines its stock selection decisions for this Fund primarily on
the basis of its growth stock model, which seeks to identify companies whose
earnings per share are improving more rapidly than the earnings per share of
the average company. Considered, but of significantly less importance, is the
value stock model, which seeks to identify companies whose securities have
market valuations that are lower than the average market valuations of
securities, as measured by characteristics including price to earnings ratios
and price to book ratios. The Fund will measure its performance against the
Russell 2500 Growth Index.
The investment objective of the N/I NUMERIC INVESTORS Growth & Value Fund is
to provide long-term capital appreciation. The Fund invests generally in
common stocks of middle and large capitalization companies where earnings per
share are improving more rapidly than earnings per share of the average
Company, as well as companies whose securities have market valuations which
are lower than the average market valuations of securities, as measured by
such characteristics as price to earnings ratios and price to book ratios. The
Fund may also invest in securities which are convertible into common stock,
fixed income securities and money market securities. Numeric determines its
stock selection decisions for this Fund primarily on the basis of its growth
stock model and its value stock model. The growth stock model seeks to
identify companies whose earnings per share are improving more rapidly than
the earnings per share of the average company. The value stock model seeks to
identify companies whose securities have market valuations that are lower than
the average market valuation of securities, as measured by characteristics
including price to earnings ratios and price to book ratios. The Fund
anticipates that it will invest a large portion of its total assets in common
stock of "mid cap" companies, which the Fund defines as the 151st to the
1000th largest companies (excluding American Depository Receipts ("ADRs")) as
ranked by market capitalization. The market capitalization of the 1000th
largest company is approximately $1.1 billion. The Fund will measure its
performance against the S&P MidCap 400 Index.
The investment objective of the N/I NUMERIC INVESTORS Larger Cap Value Fund is
to provide long-term capital appreciation. The Fund invests generally in
common stock of larger ($2 billion or more) capitalization companies, although
it may also invest in middle capitalization companies and securities which are
convertible into common stock, fixed income securities and money market
securities. Under normal circumstances, the Fund invests at least 65% of its
total assets in common stock of companies with a market capitalization of $2
billion or more. Numeric determines its stock selection
8
<PAGE>
decisions for this Fund primarily on the basis of its value stock model which
seeks to identify companies whose securities have market valuations which are
lower than the average market valuations of securities, as measured by such
characteristics as price to earnings ratios and price to book ratios. Also
considered, but of less importance, is the growth stock model which seeks to
identify companies whose earnings per share are improving more rapidly than
the earnings per share of the average company. The Fund anticipates that it
will invest a large portion of its total assets in common stock of the 1000th
largest companies (excluding ADRs) as ranked by market capitalization. The
market capitalization of the 1000th largest company is approximately $1.1
billion. The Fund will measure its performance against the Russell 1000 Value
Index.
The investment objective of the N/I NUMERIC INVESTORS Small Cap Value Fund is
to provide long-term capital appreciation. The Fund invests generally in
common stock of companies with smaller ($1.5 billion or less) capitalizations,
although it may also invest in middle market-capitalization companies. It may
also hold securities which are convertible into common stock, fixed income
securities and money market securities. Under normal circumstances, the Fund
invests at least 65% of its total assets in common stock of companies with
market capitalizations of $1.5 billion or less. Numeric determines its stock
selection decisions for the Fund primarily on the basis of its value stock
model which seeks to identify companies whose securities have market
valuations which are lower than the average market valuations of securities,
as measured by such characteristics as price to earnings ratios and price to
book ratios. Also considered, but of less importance, is the growth stock
model which seeks to identify companies whose earnings per share are improving
more rapidly than the earnings per share of the average company. The Fund will
measure its performance against the Russell 2000 Value Index.
NUMERIC'S INVESTMENT STYLE. Numeric employs a quantitative approach to
investment management. Numeric relies on proprietary quantitative computer
models utilizing internally developed computer technology and financial
databases to assist in the stock selection process. Numeric's proprietary
models are capable of ranking a large universe of eligible investments using a
wide array of financial data such as market price, book value, earnings, cash
flow and earnings growth rates. The models also evaluate the degree to which
independent research analysts are changing their earnings forecasts for the
companies they follow. The models are broadly classified into two types:
Numeric's value stock model seeks to identify companies whose securities have
market valuations that are lower than the average market valuation of
securities, as measured by characteristics including price to earnings ratios
and price to book ratios; Numeric's growth stock model, Estrend(TM), seeks to
identify companies whose earnings per share are improving more rapidly than
the earnings per share of the average company. Stocks are ranked according to
their relative attractiveness as determined by these models. These rankings
assist Numeric in constructing a portfolio it believes is invested in the most
attractive securities consistent with a Fund's investment objectives. The same
investment strategy used to manage a particular Fund also may be used for
institutional accounts managed by Numeric. These models may be changed
periodically to capture the insights of Numeric's ongoing research efforts.
In pursuing the investment objectives of each of the Funds, Numeric may use
the investment instruments and techniques discussed below:
EQUITY MARKETS. The Funds invest primarily in equity markets at all times.
Equity markets can be highly volatile, so that investing in the Funds involves
substantial risk. In addition, the Funds can and will typically invest in
stocks that are riskier and more volatile than the average stock. As a result,
investing in these Funds involves risk of substantial loss of capital.
MICRO CAP AND SMALL CAP STOCKS. Securities of companies with micro and small
capitalizations tend to be riskier than securities of companies with medium or
large capitalizations. This is because micro and small cap companies typically
have smaller product lines and less access to liquidity than mid cap or large
cap companies, and are therefore more sensitive to economic downturns. In
addition, growth prospects of micro and small cap companies tend to be less
certain than mid or large cap companies, and the dividends paid on micro and
small cap stocks are frequently negligible. Moreover, micro and small cap
stocks have, on occasion, fluctuated in the opposite direction of large cap
stocks or the general stock market. Consequently, securities of micro and
small cap companies tend to
9
<PAGE>
be more volatile than those of mid and large cap companies.
MARKET FLUCTUATION. Because the investment alternatives available to each Fund
may be limited by the specific objectives of that Fund, investors should be
aware that an investment in a particular Fund may be subject to greater market
fluctuation than an investment in a portfolio of securities representing a
broader range of investment alternatives. In view of the specialized nature of
the investment activities of each Fund, an investment in any single fund
should not be considered a complete investment program.
OPTIONS AND FUTURES. The Funds may write covered call options, buy put
options, buy call options and write put options, without limitation except as
noted in this paragraph. Such options may relate to particular securities or
to various indexes and may or may not be listed on a national securities
exchange or issued by the Options Clearing Corporation. The Funds may also
invest in futures contracts and options on futures contracts (index futures
contracts or interest rate futures contracts, as applicable) for hedging
purposes, including conversion of cash to equity.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the right to sell the underlying security at the stated exercise
price at any time prior to the expiration date of the option, regardless of
the market price of the security. In contrast to an option on a particular
security, an option on an index provides the holder with the right to make or
receive a cash settlement upon exercise of the option. The amount of this
settlement will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed
in dollars, times a specified multiple.
The Funds will engage in unlisted over-the-counter options only with broker-
dealers deemed creditworthy by Numeric. Closing transactions in certain
options are usually effected directly with the same broker-dealer that
effected the original option transaction. The Funds bear the risk that the
broker-dealer will fail to meet its obligations. There is no assurance that
the Funds will be able to close an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to do so in connection with the purchase
or sale of options.
To enter into a futures contract, the Funds must make a deposit of an initial
margin with their custodian in a segregated account in the name of the futures
broker or directly with the futures broker itself. Subsequent payments to or
from the broker, called variation margin, will be made on a daily basis as the
price of the underlying security or index fluctuates, making the long and
short positions in the futures contracts more or less valuable.
The risks related to the use of options and futures contracts include: (i) the
correlation between movements in the market price of a Fund's investments
(held or intended for purchase) being hedged and in the price of the futures
contract or option may be imperfect; (ii) possible lack of a liquid secondary
market for closing out options or futures positions; (iii) the need for
additional portfolio management skills and techniques; and (iv) losses due to
unanticipated market movements. Successful use of options and futures by the
Funds is subject to Numeric's ability to predict correctly movements in the
direction of the market. For example, if a Fund uses future contracts as a
hedge against the possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the Fund will
lose part or all of the benefit of the increased value of its securities which
it has hedged because it will have approximately equal offsetting losses in
its futures positions. The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required,
and the extremely high degree of leverage involved in futures pricing. As a
result, a relatively small price movement in a futures contract may result in
immediate and substantial loss or gain to the investor. Thus, a purchase or
sale of a futures contract may result in losses or gains in excess of the
amount invested in the contract. For a further discussion see "Investment
Objectives and Policies" in the Statement of Additional Information.
10
<PAGE>
SHORT SALES. Short sales are transactions in which a Fund sells a security it
does not own in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow the security to
make delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security
was sold by the Fund. Until the security is replaced, the Fund is required to
pay to the lender amounts equal to any dividend which accrues during the
period of the loan. To borrow the security, the Fund also may be required to
pay a premium, which would increase the cost of the security sold. The
proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
Until a Fund replaces a borrowed security in connection with a short sale, the
Fund will: (a) maintain daily a segregated account, containing cash, cash
equivalents, or liquid marketable securities, at such a level that (i) the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii)
the amount deposited in the segregated account plus the amount deposited with
the broker as collateral will not be less than the market value of the
security at the time it was sold short; or (b) otherwise cover its short
position in accordance with positions taken by the Staff of the Securities and
Exchange Commission.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security.
The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or amounts in lieu of interest the
Fund may be required to pay in connection with a short sale. A Fund may
purchase call options to provide a hedge against an increase in the price of a
security sold short by the Fund. See "Options and Futures Contracts" above.
The Funds anticipate that the frequency of short sales will vary substantially
in different periods, and they do not intend that any specified portion of
their assets, as a matter of practice, will be invested in short sales.
However, no securities will be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of a Fund's net assets.
In addition to the short sales discussed above, the Funds may make short sales
"against the box," a transaction in which a Fund enters into a short sale of a
security that the Fund owns. The proceeds of the short sale will be held by a
broker until the settlement date at which time the Fund delivers the security
to close the short position. The Fund receives the net proceeds from the short
sale. It currently is anticipated that the Funds will make short sales against
the box for purposes of protecting the value of the Funds' net assets.
LENDING OF FUND SECURITIES. The Funds may lend their portfolio securities to
financial institutions. Such loans would involve risks of delay in receiving
additional collateral in the event the value of the collateral decreases 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
which Numeric deems to be of good standing and only when, in Numeric's
judgment, the income to be earned from the loans justifies the attendant
risks. A Fund may not make loans in excess of 33 1/3% of the value of its
total assets.
PORTFOLIO TURNOVER. Numeric will effect portfolio transactions in the Funds
without regard to holding periods if, in its judgment, such transactions are
advisable in light of general market, economic or financial conditions.
Portfolio turnover may vary greatly from year to year as well as within a
particular year. High portfolio turnover rates (100% or more) will generally
result in higher transaction costs to the Fund and may result in the
realization of short-term capital gains that are taxable to shareholders as
ordinary income. The amount of portfolio activity will not be a limiting
factor when making portfolio decisions. See the Statement of Additional
Information, "General Considerations for Taxable Investors", "Tax Implications
from Portfolio Turnover", "Portfolio Transactions" and "Taxes." The annual
portfolio turnover rate for the Small Cap Value Fund is not expected to exceed
400%. The portfolio turnover rates for the other Funds for the period ended
August 31, 1996 and for
11
<PAGE>
the fiscal years ended August 31, 1997 and August 31, 1998 are set forth above
in the financial highlights.
GENERAL CONSIDERATIONS FOR TAXABLE INVESTORS. Investment strategies that
require periodic changes to portfolio holdings with the expectation of
outperforming equity indices are called "active" strategies. These compare
with "passive" or "index" strategies that hold only the stocks in the equity
indices. Passive strategies trade infrequently--only as the indices change.
Most equity mutual funds pursue active strategies, which have higher turnover
than passive strategies. The following describes the impact of portfolio
turnover on returns.
High portfolio turnover (100% or more) can adversely affect taxable investors,
especially those in higher marginal tax brackets, in two ways: First, short
term capital gains, which are a by-product of high turnover investment
strategies, are currently taxed at rates comparable to ordinary income rates.
Ordinary income tax rates are higher than long term capital gain tax rates for
middle and upper income taxpayers. Second, the frequent realization of gains,
which causes taxes to be paid frequently, is less advantageous than infrequent
realization of gains. Infrequent realization of gains allows the payment of
taxes to be deferred to later years, allowing more of the gains to compound
before taxes are paid. Consequently after-tax compound rates of return will
generally be higher for taxable investors using investment strategies with
very low turnover, all else being equal.
Although tax considerations should not typically drive an investment decision,
investors should consider their ability to allocate tax-deferred (such as IRAs
and 401(k) plans) versus taxable assets when considering where to invest. All
else being equal, investors will earn better returns investing tax-deferred
assets in active strategies, while using lower turnover passive strategies for
taxable investments.
BORROWING MONEY. As a fundamental policy, the Funds are permitted to borrow to
the extent permitted under the 1940 Act and to mortgage, pledge or hypothecate
their respective assets in connection with such borrowings in amounts not in
excess of 125% of the dollar amounts borrowed. The 1940 Act permits an
investment company to borrow in an amount up to 33 1/3% of the value of such
company's total assets. However, the Funds currently intend to borrow money
only for temporary or emergency (not leveraging) purposes, in an amount up to
15% of the value of their respective total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. No Fund will
make any additional investments while borrowings exceed 5% of its total
assets.
DEBT SECURITIES. The Funds may invest in debt securities rated no less than
investment grade by either Standard & Poor's Ratings Services ("S&P") or
Moody's Investors Service, Inc. ("Moody's"). Bonds in the lowest investment
grade debt category (e.g., bonds rated BBB by S&P or Baa by Moody's) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. The Funds will
not retain a bond that was rated as investment grade at the time of purchase
but whose rating is subsequently downgraded below investment grade. The value
of debt securities held by a Fund will tend to vary inversely in relation to
changes in prevailing interest rates. Thus, if interest rates have increased
from the time a debt security was purchased, such security, if sold, might be
sold at a price less than its cost. Conversely, if interest rates have
declined from the time a debt security was purchased, the debt security, if
sold, might be sold at a price greater than its cost.
SHORT-TERM DEBT OBLIGATIONS. The Funds may purchase money market instruments
to the extent consistent with their investment objectives and policies. Such
instruments include U.S. Government obligations, repurchase agreements,
certificates of deposit, bankers acceptances and commercial paper.
REPURCHASE AGREEMENTS. The Funds 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 financial
institutions with whom the Funds may enter into repurchase agreements will be
banks and broker/dealers which Numeric considers creditworthy pursuant to
criteria approved by the Board of Directors. Numeric will consider, among
other things, whether a repurchase obligation of a seller involves minimal
credit risk to a Fund in determining whether to have the Fund enter into a
repurchase agreement. The seller under a repurchase
12
<PAGE>
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.
Numeric 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 a Fund to a possible loss because of
adverse market action or delays in connection with the disposition of the
underlying obligations.
YEAR 2000. Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers,
or persons with whom they deal, do not properly process and calculate date-
related information and data from and after January 1, 2000. This possibility
is commonly known as the "Year 2000 Problem." The Year 2000 Problem could also
hurt companies whose securities the Fund holds or securities markets
generally: The Fund has been advised by the Adviser, the Administrators and
the Custodian that they are actively taking steps to address the Year 2000
Problem with respect to the computer systems that they use and to obtain
assurances that comparable steps are being taken by the Fund's other major
service providers. While there can be no assurance that the Fund's service
providers will be Year 2000 compliant, the Fund's service providers expect
that their plans to be compliant will be achieved.
OTHER INVESTMENT INSTRUMENTS AND TECHNIQUES. In addition to the above
investment instruments and techniques, the Funds presently intend to invest
not more than 5% of a Fund's net assets in when-issued and forward
commitments, illiquid securities, depositary receipts, investment company
securities and convertible securities. These investment instruments and
techniques and related risks are described in greater detail in the Funds'
Statement of Additional Information under "Investment Objectives and
Policies."
The Funds' investment objectives and policies described above may be changed
by RBB's Board of Directors without shareholder approval. Shareholders will be
provided 30 days prior written notice of any change in a Fund's investment
objectives. There is no assurance that the investment objective of the Funds
will be achieved.
INVESTMENT LIMITATIONS
No Fund may change the following investment limitations (with certain
exceptions, as noted below) without shareholder approval. (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 FUNDS 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 a 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.
2. Borrow money, except to the extent permitted under the 1940 Act or
mortgage, pledge or hypothecate any of their respective assets in connection
with any such borrowing except in amounts not in excess of 125% of the dollar
amounts borrowed. For purposes of this investment restriction, the entry into
options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes shall not constitute
borrowing.
3. Purchase any securities which would cause, at the time of purchase, 25% or
more of the value of the total assets of a Fund to be invested in the
obligations of issuers in any industry, provided that there is no limitation
with respect to investments in U.S. Government obligations.
4. Make loans, except that a Fund may purchase or hold debt obligations in
accordance with its investment objective, policies and limitations, may enter
into repurchase agreements for securities, and may lend portfolio securities
against collateral consisting of cash or securities which are consistent with
the Fund's permitted investments, which is equal at all times to at least 100%
of the value of the securities loaned. There is no investment restriction on
the amount of securities that may be loaned, except that payments received on
such loans, including amounts received during the loan on
13
<PAGE>
account of interest on the securities loaned, may not (together with all non-
qualifying income) exceed 10% of a Fund's annual gross income (without offset
for realized capital gains) unless, in the opinion of counsel to RBB, such
amounts are qualifying income under federal income tax provisions applicable
to regulated investment companies.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not
be considered a violation (except with respect to any restrictions that may
apply to borrowings or senior securities issued by the Fund).
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of RBB and the Funds are managed under the direction
of RBB's Board of Directors.
INVESTMENT ADVISER
Numeric serves as investment adviser to the Funds. Numeric, whose principal
business address is 1 Memorial Drive, Cambridge, Massachusetts 02142, was
organized in October 1989 as a Delaware limited partnership. The firm, which
specializes in the active management of U.S. and international equity
portfolios using internally developed quantitative stock selection and
portfolio risk-control techniques, currently has over $5 billion in assets
under management for individuals, limited partnerships, mutual funds, offshore
funds, pension plans and endowment accounts. Langdon B. Wheeler, CFA is the
founder of Numeric. Mr. Wheeler received his MBA from Harvard University and
an undergraduate degree from Yale University. All investment decisions with
respect to the Funds are made by a team of Numeric Investor's Portfolio
Management Department, which is subject to the supervision of John C. Bogle,
Jr., CFA and Mark F. Engerman, CFA. No one person is responsible for making
recommendations to that team. The general partner of Numeric is WBE &
Associates, LLC, a Delaware limited liability company. The principal officers
of WBE & Associates, LLC are Messrs. Wheeler and Bogle. Mr. Bogle received his
MBA and BS from Vanderbilt University. Mr. Engerman received a BS in Applied
Mathematics and Economics from Brown University.
For the services provided and the expenses assumed by it, Numeric is entitled
to receive a fee from each Fund at an annual rate of 0.75% of such Fund's
average daily net assets, computed daily and payable monthly. Numeric may from
time to time voluntarily agree to waive all or any portion of its advisory
fee. Numeric presently intends to waive its fees with respect to each Fund for
the current fiscal year to the extent necessary to maintain an annualized
expense ratio for each Fund of 1.00%, although there is no guarantee that
Numeric will maintain such waiver indefinitely.
For the Funds' fiscal year ended August 31, 1998, Numeric waived investment
advisory fees earned with respect to the N/I NUMERIC INVESTORS Micro Cap Fund,
N/I NUMERIC INVESTORS Growth Fund, N/I NUMERIC INVESTORS Growth & Value Fund
and N/I NUMERIC INVESTORS Larger Cap Value Fund in the amounts of 0.10%,
0.10%, 0.13% and 0.43%, respectively, of the average daily net assets of such
Funds. For the N/I NUMERIC INVESTORS Micro Cap Fund, N/I NUMERIC INVESTORS
Growth Fund, N/I NUMERIC INVESTORS Growth & Value Fund and N/I NUMERIC
INVESTORS Larger Cap Value Fund, RBB paid Numeric investment advisory fees of
0.65%, 0.65%, 0.62% and 0.32%, respectively, of the average daily net assets
of such Funds.
CO-ADMINISTRATORS
Bear Stearns Funds Management Inc. ("BSFM"), an affiliate of Bear, Stearns &
Co. Inc. ("Bear Stearns"), serves as co-administrator to the Funds. BSFM's
principal business address is 245 Park Avenue, 15th Floor, New York, New York
10167. BSFM generally assists each of the Funds in all aspects of their
administration and operations. For its services, BSFM is entitled to a monthly
fee calculated at the annual rate of 0.05% of the first $150 million of each
Fund's average daily net assets and 0.02% on all assets above $150 million.
PFPC, an indirect wholly-owned subsidiary of PNC Bank, N.A. ("PNC"), also
serves as co-administrator to the Funds. PFPC's principal business address is
Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809.
PFPC assists the Funds in matters relating to the maintenance of financial
records and accounting. For its services, PFPC is entitled to a fee calculated
at the annual rate of 0.125% of each Fund's average daily net assets.
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ADMINISTRATIVE SERVICES AGENT
Provident Distributors, Inc. ("PDI"), with principal offices at Four Falls
Corporate Center, 6th Floor, West Conshohocken, Pennsylvania 19428, provides
certain administrative services to the Funds not otherwise provided by BSFM or
PFPC. PDI furnishes certain internal administrative services to the Funds,
acts as a liaison between the Funds and their various services providers and
coordinates and assists in the preparation of proxy statements and reports
prepared on behalf of the Funds. For its services, PDI is entitled to a
monthly fee calculated at the annual rate of 0.15% of each Fund's average
daily net assets.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
PFPC serves as the Funds' transfer agent and dividend disbursing agent. The
services provided and the fees payable by the Funds for these services are
described in the Statement of Additional Information under "Investment
Advisory, Distribution and Servicing Arrangements."
CUSTODIAN
Custodial Trust Company ("CTC"), an affiliate of Bear Stearns, serves as
custodian for the Funds. The services provided and the fees payable by the
Funds for these services are described in the Statement of Additional
Information under "Investment Advisory, Distribution and Servicing
Arrangements."
DISTRIBUTOR
PDI acts as distributor for the Funds pursuant to a distribution agreement
with RBB on behalf of the Funds.
EXPENSES
The expenses of each Fund are deducted from its total income before dividends
are paid. 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 at the time such expenses are cited.
Numeric may assume additional expenses of the Funds from time to time. In
certain circumstances, Numeric may assume such expenses on the condition that
it is reimbursed by the Funds for such amounts prior to the end of a fiscal
year. In such event, the reimbursement of such amounts, will have the effect
of increasing a Fund's expense ratio and of decreasing the total return or
yield to investors.
For the fiscal year ended August 31, 1998, the total expenses (before waivers
and reimbursements) expressed as a percentage of average net assets of the N/I
NUMERIC INVESTORS Micro Cap Fund, the N/I NUMERIC INVESTORS Growth Fund, the
N/I NUMERIC INVESTORS Growth & Value Fund, and the N/I NUMERIC INVESTORS
Larger Cap Value Fund were 1.23%, 1.24%, 1.26% and 2.20%, respectively. The
N/I NUMERIC INVESTORS. Small Cap Value Fund had not commenced operations as of
August 31, 1998.
FUND TRANSACTIONS
Numeric may consider a number of factors in determining which brokers to use
in purchasing or selling a Fund's securities. These factors, which are more
fully discussed in the Statement of Additional Information, include, but are
not limited to, research services, the reasonableness of commissions and
quality of services and execution. A Fund may enter into brokerage
transactions with and pay brokerage commissions to brokers that are affiliated
persons (as such term is defined in the 1940 Act) provided that the terms of
the brokerage transactions comply with the provisions of the 1940 Act.
Numeric may allocate trades among any or all of its clients, including the
Funds. Numeric combines orders and allocates to each account its proportionate
or "pro rata" share of the trade. Accounts included in the trade allocation
may include limited partnerships for which Numeric serves as general partner
and in which employees and/or partners of Numeric may own a substantial
interest. Numeric may cause the Funds to pay brokerage commissions which may
be in excess of the lowest rates available to brokers who execute transactions
for the Funds or who otherwise provide brokerage and research services
utilized by Numeric, provided that Numeric determines in good faith that the
amount of each such commission paid to a broker is reasonable in relation to
the value of the brokerage viewed in terms of either the particular
transaction to which the commission relates or Numeric's overall
responsibilities with respect to the Funds.
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HOW TO PURCHASE SHARES
GENERAL
Shares representing interests in the Funds are offered continuously (subject
to closure of the Funds as described on page 19) for sale by the Distributor
and may be purchased without imposition of a sales charge through PFPC, the
Funds' transfer agent. Shares may be purchased initially by completing the
application included in this Prospectus and forwarding the application and
payment to PFPC. Subsequent purchases of Shares may be effected by mailing a
check or Federal Reserve Draft payable to the order of "N/I NUMERIC INVESTORS
family of funds" to N/I NUMERIC INVESTORS family of funds, c/o PFPC, P.O. Box
8966, Wilmington, Delaware 19899-8966. The name of the Fund for which Shares
are being purchased 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 any Fund
must be at least $3,000 and subsequent investments must be at least $100. The
minimum initial investment for an Automatic Investment Plan is $1,000 with
minimum monthly payments of $100. RBB reserves the right to reject any
purchase order or to waive the minimum initial or subsequent investment
requirement. Investors will be given notice of any increase in minimum
investment requirements.
Provided that the investment is at least $2,500, 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 Funds do
not currently impose a sales charge for effecting wire transfers but reserve
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 Funds' transfer agent, PFPC, toll-free at (800) 348-5031, and
provide your name, address, telephone number, Social Security or Tax
Identification Number, the Fund selected, the amount being wired, and by which
bank or broker. PFPC will then provide an investor with a Fund account number.
Investors with existing accounts should also notify PFPC prior to wiring
funds.
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.
ABA-0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2312
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Fund)
FOR PURCHASE OF: (name of the 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 initial purchases until it receives a completed
and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Shares of the Funds may be purchased on any Business Day. A "Business Day" is
any day that the New York Stock Exchange (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 the preceding Friday or
subsequent Monday when one of those holidays falls on a Saturday or Sunday.
The price paid for a Fund's Shares purchased initially or acquired through the
exercise of an exchange privilege is based on the net asset value next
computed after a purchase order is received in good order by PFPC, provided
such order is transmitted to and received by PFPC prior to the close of
regular trading on the NYSE (generally 4:00 p.m. Eastern Time) on such day.
Orders received by PFPC after the close of regular trading on the NYSE 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 PFPC receives payment
in good order.
Shareholders whose shares are held in a street name account and who desire to
transfer such shares to another street name account should contact the record
holder of their current street name account.
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<PAGE>
Some broker-dealers (other than the Distributor), financial institutions,
financial planners and other industry professionals ("Service Agents") may
impose certain conditions on their clients who invest in the Funds such as
initial and subsequent minimums and certain trading restrictions, which are in
addition to or different from those described in this Prospectus. Service
Agents may impose transaction or administrative charges or other direct fees,
which charges and fees would not be imposed if Fund shares are purchased
directly from a Fund. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of a Fund's shares and should read
this Prospectus in light of the terms governing his accounts with Service
Agents. Service Agents will be responsible for promptly transmitting client or
customer purchase and redemption orders to the Funds in accordance with their
agreements with clients or customers. Service Agents or, if applicable, their
designees, that have entered into agreements with a Fund or its agent may
enter confirmed purchase or redemption orders on behalf of clients and
customers, with payment to follow no later than the Funds' pricing on the
following Business Day. If payment is not received by such time, the Service
Agent could be held liable for resulting fees or losses. A Fund may be deemed
to have received a purchase or redemption order when a Service Agent, or, if
applicable, its authorized designee, accepts the order. Orders received by a
Fund in proper form will be priced at the Fund's net asset value next computed
after they are accepted by the Service Agent or its authorized designee.
AUTOMATIC INVESTMENT PLAN
Additional investments in Shares of the Funds may be made automatically by
authorizing PFPC to withdraw funds from your bank account through an Automatic
Investment Plan. Investors desiring to participate in an Automatic Investment
Plan should call PFPC at (800) 348-5031 to obtain the appropriate forms, or
complete the appropriate section of the Application included with this
Prospectus. The minimum initial investment for an Automatic Investment Plan is
$1,000, with minimum monthly payments of $100.
RETIREMENT PLANS
N/I NUMERIC INVESTORS family of funds Shares may be purchased in conjunction
with individual retirement accounts ("IRAs"), rollover IRAs, or pension,
profit-sharing or other employer benefit plans. Contact PFPC for further
information as to applications and annual fees. To determine whether the
benefits of an IRA are available and/or appropriate, a shareholder should
consult with a tax adviser.
EXCHANGE PRIVILEGE
The exchange privilege is available to shareholders residing in any state in
which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of any Fund for Shares of any other Fund up to three (3) times
per year (at least 30 days apart). Such exchange will be effected at the net
asset value of the exchanged Fund and the net asset value of the Fund to be
acquired next determined after PFPC's receipt of a request for an exchange. In
addition, RBB reserves the right to impose a $5.00 administrative fee for each
exchange. An exchange of Shares will be treated as a sale for federal income
tax purposes. See "Taxes." A shareholder wishing to make an exchange may do so
by sending a written request to PFPC.
If the exchanging shareholder does not currently own Shares of the Fund whose
Shares are being acquired, a new account will be established with the same
registration, dividend and capital gain options as the account from which
shares are exchanged, unless otherwise specified in writing by the shareholder
with all signatures guaranteed. A signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency or savings
association who are participants in a medallion program recognized by the
Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (MSP). Signature guarantees which are not a part of these programs
will not be accepted. The exchange privilege may be modified or terminated at
any time, or from time to time, by RBB, upon 60 days' written notice to
shareholders.
If an exchange is to a new N/I NUMERIC INVESTORS family fund, the dollar value
of Shares acquired must equal or exceed RBB's minimum for a new account; if to
an existing account, the dollar value must equal
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<PAGE>
or exceed RBB's minimum for subsequent investments. If an amount remains in
the N/I NUMERIC INVESTORS Fund from which the exchange is being made that is
below the minimum account value required by RBB, the account will be subject
to involuntary redemption.
PURCHASE AND EXCHANGE PRIVILEGE LIMITATIONS
The Funds' exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt
the management of the Funds and increase transactions costs, the Funds have
established a policy of limiting excessive exchange activity.
Shareholders are entitled to three (3) exchange redemptions (at least 30 days
apart) from each Fund during any twelve-month period. Notwithstanding these
limitations, the Funds reserve the right to reject any purchase request
(including exchange purchases from other N/I NUMERIC INVESTORS Funds) that the
Adviser reasonably deems to be disruptive to efficient portfolio management.
TELEPHONE TRANSACTIONS
In order to request redemptions and exchanges by telephone, an investor must
have completed and returned an account application containing the appropriate
telephone election. To add a telephone exchange feature to an existing account
that previously did not provide for this option, a Telephone Exchange
Authorization Form (available from PFPC) must be filed with PFPC. Once this
election has been made, the shareholder may simply contact PFPC by telephone
to request the exchange by calling (800) 348-5031. Neither RBB, the Funds, the
Distributor, the Co-Administrators, the Administrative Services Agent, the
transfer agent, nor any other 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's federal
tax identification number and name of the Fund, all of which must match RBB's
records; (3) permitting exchanges only if the two account registrations are
identical; (4) 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; (5) 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 (6)
maintaining tapes of telephone transactions for six months, if the Fund elects
to record shareholder telephone transactions.
For accounts held of record by Service Agents, 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 power of attorney.
INTERNET TRANSACTIONS
You may also redeem and exchange shares of the Funds via the Internet by
contacting Numeric at http://www.numeric.com. In order to engage in Internet
transactions, an investor must have completed and returned an account
application containing the appropriate Internet election (see "Telephone
Transactions" above). RBB employs reasonable procedures to confirm that
instructions communicated over the Internet are genuine. Such procedures
include, but are not limited to, requiring a separate application for Internet
access services and appropriate personal identification for each on-line
session, providing written confirmations to the address of record and
employing other precautions reasonably designed to protect the integrity,
confidentiality and security of shareholder information. Neither RBB, Numeric,
PDI, PFPC, BSFM nor any agent of RBB will be liable for any loss, liability,
cost or expense for following instructions communicated via the Internet that
they reasonably believe to be genuine or for following such security
procedures. In the event that high volume on the Internet or other technical
difficulties make Internet access unavailable, investors may contact RBB
through the other methods described herein.
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<PAGE>
CLOSING OF FUNDS
Numeric will monitor the Funds' total assets and may close any of the Funds at
any time to new investment or new accounts due to concerns that a significant
increase in the size of a Fund may adversely affect the implementation of
Numeric's investment strategy. Numeric may also choose to reopen a closed fund
to new investment at any time, and may subsequently close such Fund again
should concerns regarding Fund size recur. Numeric reserves the right while a
Fund is closed to accept new investments from any of its employees or their
spouses, parents or children, or to further restrict the sale of its shares.
N/I NUMERIC INVESTORS MICRO CAP FUND. Shares of the N/I NUMERIC INVESTORS
Micro Cap Fund are offered only to certain existing shareholders of the Fund
and certain other persons, who are generally subject to cumulative, maximum
purchase amounts, as follows:
. Each person who on September 12, 1997 held shares of this Fund directly, may
invest up to an additional $25,000 in shares of this Fund in each fiscal
year ended August 31, plus distributions that are automatically reinvested.
. Employees of Numeric and their spouses, parents and children may invest in
shares of this Fund without limit.
All purchase orders that are wholly or partially in excess of the maximum
purchase amounts will be returned. Other persons who are shareholders of other
N/I NUMERIC INVESTORS Funds are not permitted to acquire shares of this Fund
by exchange.
N/I NUMERIC INVESTORS GROWTH FUND. Shares of the N/I NUMERIC INVESTORS Growth
Fund are offered only to (i) persons who already hold shares of this Fund
directly or through accounts maintained by brokers by arrangement with RBB,
(ii) existing and future clients of financial advisors and planners whose
clients already hold shares of this Fund, and (iii) employees of Numeric and
their spouses and children. Other persons who are shareholders of other N/I
NUMERIC INVESTORS Funds are not permitted to acquire shares of this Fund by
exchange. Distributions to all shareholders of the Fund will continue to be
reinvested unless a shareholder elected otherwise.
N/I NUMERIC INVESTORS GROWTH & VALUE FUND. In the event that the net assets of
the N/I NUMERIC INVESTORS Growth & Value Fund increase to an amount that
exceeds $200,000,000, the restrictions that apply to the sale of shares of the
N/I NUMERIC INVESTORS Growth Fund would also apply to the sale of shares of
this Fund. As of December 7, 1998, the net assets of this Fund were $125
million.
HOW TO REDEEM SHARES
REDEMPTION IN WRITING
Shareholders may redeem for cash some or all of their Fund Shares at any time.
To do so, a written request in proper form must be sent directly to the N/I
NUMERIC INVESTORS family of funds c/o PFPC, P.O. Box 8966, Wilmington,
Delaware 19899-8966. Shareholders may also place redemption requests through a
Service Agent, but such Service Agent might charge a fee for this service.
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 above
under "How to Purchase Shares--Exchange Privilege." A signature guarantee
verifies the authenticity of your signature. You may call PFPC at (800) 348-
5031 with respect to questions about signature guarantees.
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. Additional documentary evidence of authority
is also required by PFPC in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
REDEMPTION BY TELEPHONE OR INTERNET
Investors may redeem shares without charge by telephone or Internet if they
have checked the appropriate box and supplied the necessary information on the
Application, or have filed a Telephone Authorization or Internet Authorization
with PFPC. An investor may obtain a Telephone Authorization or Internet
Authorization from PFPC by calling (800) 348-5031. The proceeds will be mailed
by check to an investor's registered address unless he has designated in his
Application, Telephone Authorization or Internet Authorization that such
proceeds are to be sent by wire transfer to a
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<PAGE>
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone or Internet redemption request received prior to the
close of regular trading on the NYSE will result in redemption proceeds being
wired to the investor's bank account on the next bank business day and the
redemption price will be the net asset value completed as of the close of
regular trading on the NYSE on that Business Day. A redemption request
received after the close of regular trading on the NYSE will be priced at the
net asset value computed on the next Business Day. All redemption requests
must be in good order before being processed. The minimum redemption for
proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Funds may modify this redemption service at any
time or charge a service fee upon prior notice to shareholders. No service fee
is currently contemplated, although RBB and PFPC reserve the right to refuse a
telephone or Internet redemption request if they deem it advisable to do so.
RBB's telephone procedures are set forth under "How to Purchase Shares--
Telephone Trans- actions" above. RBB's Internet procedures are set forth under
"How to Purchase Shares--Internet Transactions" above.
OTHER INFORMATION ON REDEMPTIONS
The Funds are not responsible for the efficiency of the Federal Wire System or
a shareholder's investment adviser, broker-dealer or bank. The shareholder is
responsible for any charges imposed by the shareholder's bank. To change the
name of the single designated bank account to receive redemptions, it is
necessary to send a written request (with a signature guaranteed as set forth
above) to The N/I NUMERIC INVESTORS family of funds, c/o PFPC Inc., P.O. Box
8966, Wilmington, Delaware 19899-8966.
INVOLUNTARY REDEMPTION
RBB reserves the right to redeem a shareholder's account in any Fund at any
time the net asset value of the account in such Fund 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 in a Fund 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
PFPC. Payment for Shares redeemed is made by check mailed within seven days
after acceptance by PFPC of the request and any other necessary documents in
proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the Shares to be redeemed
have been recently purchased by check, PFPC may delay mailing a redemption
check, which may be a period of up to 15 days, pending a determination that
the check has cleared.
REDEMPTION IN-KIND
The Funds reserve the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption of a Fund's shares by making
payment in whole or in part in securities chosen by the Fund and valued in the
same way as they would be valued for purposes of computing a Fund's net asset
value. If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash after they have redeemed their
Shares. The Funds have elected, however, to be governed by Rule 18f-1 under
the 1940 Act, so that a 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 a Fund.
AUTOMATIC WITHDRAWAL
Automatic withdrawal permits investors to request withdrawal of a specified
dollar amount (minimum of $25) on either a monthly, quarterly or annual basis
if the investor has a $10,000 minimum account. An application for automatic
withdrawal can be obtained from PFPC. Automatic withdrawal may be ended at any
time by the investor, RBB or PFPC. Purchases of additional shares concurrently
with withdrawals generally are undesirable.
NET ASSET VALUE
The net asset value of each Fund is calculated as of the close of regular
trading on the NYSE on each Business Day. The net asset value for each Fund is
calculated by adding the value of all its securities, cash and other assets,
deducting its actual and accrued liabilities and dividing the result by the
number of outstanding Shares of a Fund. The net asset value of each Fund is
calculated independently of the other Funds.
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<PAGE>
Valuation of securities held by each 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 mean of the bid and asked prices; and securities for which market
quotations are not readily available are valued at fair market value as
determined in good faith under procedures established by 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, each Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value a Fund's
securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income and
net realized capital gains, if any, to its shareholders. Its distributions are
reinvested in additional full and fractional Shares of the Fund unless a
shareholder elects otherwise.
The Funds expect to declare and pay dividends from net investment income
annually, generally near the end of the year. 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 Funds and their shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in
the Funds should consult their tax advisers with specific reference to their
own tax situation.
Each Fund will elect to be taxed as a regulated investment company for federal
income tax purposes. So long as each Fund qualifies for this tax treatment, it
will be relieved of federal income tax on amounts distributed to shareholders.
Fund shareholders, unless otherwise exempt, will be taxed on Fund
distributions (except distributions that are treated for federal income tax
purposes as a return of capital) regardless of whether the distributions are
received in cash or reinvested in additional shares. Distributions by a Fund
attributable to its "net capital gain" (the excess of its net long-term
capital gain- i.e., gains or assets held more than 12 months- over its net
short-term capital loss), if any, qualify as "capital gains distributions."
These distributions are taxable to shareholders as long-term capital gain,
regardless of how long each shareholder has held shares. For individuals,
long-term capital gain is generally subject to a maximum federal tax rate of
20%.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Funds. Dividends declared in October,
November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, if such dividends are paid during January of the
following year.
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 sell or redeem shares, or 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. The
gain or loss will be long-term capital gain or loss if the shares have been
held for more than 12 months, and short-term otherwise, except that a loss on
shares held six months or less will be treated as long term capital loss to
the extent of any capital gains distributions received on the shares.
Shareholders who are nonresident alien individuals, foreign trusts or estates,
foreign corporations or foreign partnerships are generally subject to
different U.S. federal income tax treatment from that described above.
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DESCRIPTION OF SHARES
RBB has authorized capital of thirty billion shares of Common Stock, $.001 par
value per share, of which 18.326 billion shares are currently classified into
ninety-seven different classes of Common Stock (see "Description of Shares" in
the Statement of Additional Information).
Exchanges between the N/I NUMERIC INVESTORS family of funds and other families
of RBB are not permitted. In addition, persons who are shareholders of the
other N/I NUMERIC INVESTORS Funds are not permitted to acquire shares of the
N/I NUMERIC INVESTORS Growth Fund or N/I NUMERIC INVESTORS Micro Cap Fund by
exchange.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE N/I NUMERIC INVESTORS FAMILY CLASSES AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE N/I NUMERIC INVESTORS FAMILY CLASSES.
Each share that represents an interest in a Fund has an equal proportionate
interest in the assets belonging to such Fund with each other share that
represents an interest in such Fund, even where a share has a different class
designation than another share representing an interest in that Fund. Shares
of RBB do not have preemptive or conversion rights. When issued for payment as
described in this Prospectus, shares of RBB 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 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 each of the Funds 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 the 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 RBB 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 RBB may
elect all of the directors.
As of November 16, 1998, to RBB'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 Funds'
investment operations
and annual financial statements audited by independent accountants.
Shareholder inquiries should be addressed to PFPC, Bellevue Park Corporate
Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, toll-free (800) 348-
5031.
FUND PERFORMANCE INFORMATION
From time to time, the Funds may advertise their performance, including
comparisons to other mutual funds with similar investment objectives or 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 such Funds.
Such total return quotations will be computed by finding 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 Funds 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
22
<PAGE>
accurately a Fund's performance with other measures of investment return. For
example, a Fund's total return may be compared with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar,
Inc. or Weisenberger Investment Company Service, or with the performance of
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average, as
well as the benchmarks described in the Appendix to this Prospectus.
Performance information may also include evaluation of the Funds by nationally
recognized ranking services and information as reported in financial
publications such as Barron's, Business Week, Forbes, Fortune, Money Magazine,
Mutual Fund Magazine, The New York Times, The Wall Street Journal, 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.
23
<PAGE>
APPENDIX A
PERFORMANCE BENCHMARKS
<TABLE>
<CAPTION>
N/I NUMERIC PERFORMANCE
INVESTORS FUND BENCHMARK DESCRIPTION
- -------------------------------------------------------------------------------
<C> <C> <S>
Micro Cap Russell 2000 The Russell 2000 is an index of stocks 1001
Growth Index through 3000 in the Russell 3000 Index as ranked
by total market capitalization. This index is
segmented into growth and value categories. The
Russell 2000 Growth Index contains stocks from
the Russell 2000 with greater-than-average
growth orientation. Companies in this index
generally have higher price-to-book and
price/earnings ratios.
- -------------------------------------------------------------------------------
Growth Russell 2500 The Russell 2500 is an index of stocks 501
Growth Index through 3000 in the Russell 3000 Index, as
ranked by total market capitalization. This
index is segmented into growth and value
categories. The Russell 2500 Growth Index
contains stocks from the Russell 2500 with
greater-than-average growth orientation.
Companies in this index generally have higher
price-to-book and price/earnings ratios.
- -------------------------------------------------------------------------------
Growth S&P MidCap 400 A broad-based index of 400 companies with market
& Value Index capitalizations currently from $200 million to
$38 billion. The Standard & Poor's MidCap 400
Index is a widely accepted, unmanaged index of
overall mid-cap stock market performance.
- -------------------------------------------------------------------------------
Larger Cap Russell 1000 The Russell 1000 Index consists of the 1,000
Value Value Index largest securities in the Russell 3000 Index as
ranked by total market capitalization. This
index is segmented into growth and value
categories. The Russell 1000 Value Index
contains stocks from the Russell 1000 with less
than average growth orientation. Companies in
this index generally have low price to book and
price/earnings ratios, higher dividend yields,
and lower forecasted growth values.
- -------------------------------------------------------------------------------
Small Cap Russell 2000 The Russell 2000 is an index of stocks 1001
Value Value Index through 3000 in the Russell 3000 Index as ranked
by total market capitalization. This index is
segmented into growth and value categories. The
Russell 2000 Value Index contains stocks from
the Russell 2000 with less than average growth
orientation. Companies in this index generally
have low price to book and price/earnings
ratios, higher dividend yields, and lower
forecasted growth values.
- -------------------------------------------------------------------------------
</TABLE>
App. A-1
<PAGE>
N/I NUMERIC INVESTORS family of funds
1 - 800 - NUMERIC (686-3742)
ACCOUNT APPLICATION
Please Note: Do not use this form to open an individual retirement plan account
(such as an IRA). For an IRA application or help with this Application, please
call 1-800-NUMERIC (686-3742).
1. ACCOUNT REGISTRATION: (PLEASE CHECK THE APPROPRIATE BOX(ES) BELOW.)
[_] Individual [_] Joint Tenant
- --------------------------------------------------------------------------------
NAME
- --------------------------------------------------------------------------------
SOCIAL SECURITY NUMBER OF PRIMARY OWNER
- --------------------------------------------------------------------------------
NAME OF JOINT OWNER (if applicable)
- --------------------------------------------------------------------------------
JOINT OWNER SOCIAL SECURITY NUMBER
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 (IF APPLICABLE):
[_] UNIFORM GIFTS/TRANSFERS TO MINOR'S ACT
- --------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
- --------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
- --------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER DATE OF BIRTH
CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY (IF APPLICABLE):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER
- --------------------------------------------------------------------------------
NAME(S) OF TRUSTEE(S)
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
- -----------------
TRUST DATE
2. MAILING ADDRESS:
- --------------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
( ) ( )
- --------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
- --------------------------------------------------------------------------------
E-mail Address (Optional but Recommended)
3. INVESTMENT AMOUNT:
Minimum initial investment of $3,000 per Fund or $1,000 for an automatic
investment plan.
[_] N/I NUMERIC INVESTORS MICRO CAP $ CLOSED
---------
[_] N/I NUMERIC INVESTORS GROWTH $ CLOSED
---------
[_] N/I NUMERIC INVESTORS GROWTH & VALUE $
---------
[_] N/I NUMERIC INVESTORS LARGER CAP VALUE $
---------
[_] N/I NUMERIC INVESTORS SMALL CAP VALUE $
---------
Make the check payable to N/I NUMERIC INVESTORS family of funds
Shareholders may not purchase shares of the N/I NUMERIC INVESTORS Funds with a
check issued by a third party and endorsed over to the Funds. Checks for
investment must be made payable to the N/I NUMERIC INVESTORS family of funds.
4. DISTRIBUTION OPTIONS:
NOTE: Dividends and capital gains may be reinvested or paid by check. If no
options are selected below, both dividends and capital gains will be reinvested
in additional Fund shares.
DIVIDENDS [_] Pay by check [_] Reinvest
CAPITAL GAINS [_] Pay by check [_] Reinvest
Please check one of the following options:
[_] Please mail checks to Address of Record (Named in Section 2)
[_] Please electronically credit my Bank of Record (Named in Section 8)
(PLEASE COMPLETE OTHER SIDE)
NOT PART OF THE PROSPECTUS
<PAGE>
5. TELEPHONE AND INTERNET EXCHANGE AND REDEMPTION:
To use either or both of these options, you must initial the appropriate line
below.
I authorize the Transfer Agent to accept instructions from any person to
exchange shares in my account(s) by telephone or internet access in accordance
with the procedures and conditions set forth in the Fund's current prospectus.
Exchange shares for shares of another
- ---------- ------------- N/I NUMERIC INVESTORS Fund.
initial joint initial
Redeem shares, and send the proceeds to the
- ---------- ------------- address of record (not applicable to IRA accounts).
initial joint initial
6. AUTOMATIC INVESTMENT PLAN
(IF APPLICABLE):
PLEASE ATTACH AN UNSIGNED, VOIDED CHECK.
The Automatic Investment Plan ($1,000 minimum initial investment), makes
possible regularly scheduled purchases of Fund shares. The Fund's Transfer
Agent can arrange for an amount of money selected by you ($100 minimum) to be
deducted from your checking account and used to purchase shares of a specified
N/I NUMERIC INVESTORS Fund.
Please debit $ from my checking account (named below) on or about the 20th
of every month.
$ ____________ into the _____ Fund ___ Start Month.
$100 minimum
$ ____________ into the _____ Fund ___ Start Month.
$100 minimum
$ ____________ into the _____ Fund ___ Start Month.
$100 minimum
$ ____________ into the _____ Fund ___ Start Month.
$100 minimum
$ ____________ into the _____ Fund ___ Start Month.
$100 minimum
7. SYSTEMATIC WITHDRAWAL PLAN
(IF APPLICABLE):
PLEASE ATTACH AN UNSIGNED, VOIDED CHECK.
To select this option please fill out the information below:
Fund Name _________ Amount ___________________________________
Startup Month _____
Frequency Options: [_] Annually [_] Monthly
[_] Quarterly
. A minimum account value of $10,000 in a single account is required to
establish a Systematic Withdrawal Plan
. Payments will be made on or near the 25th of the month Complete only if using
Automatic Investment Plan or Systematic Withdrawal Plan
8. BANK OF RECORD:
COMPLETE ONLY IF USING AUTOMATIC INVESTMENT PLAN (SECTION 6) OR SYSTEMATIC
WITHDRAWAL PLAN (SECTION 7)
- --------------------------------------------------------------------------------
BANK NAME
- --------------------------------------------------------------------------------
STREET ADDRESS OR P.O. BOX
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
9. SIGNATURES:
The undersigned warrants that I (we) have full authority and, if a natural
person, I (we) am (are) of legal age to purchase shares pursuant to this
Account Information Form, and I (we) have received a current prospectus for the
N/I NUMERIC INVESTORS Fund(s) 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 ME), 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 1-800-NUMERIC (686-3742). For information on new or existing accounts
call 1-800-348-5031.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO:
N/I NUMERIC INVESTORS FAMILY OF FUNDS
C/O PFPC INC.
P.O. BOX 8966
WILMINGTON, DE 19899-8966
NOT PART OF THE PROSPECTUS
<PAGE>
N/I NUMERIC INVESTORS family of funds
1-800-NUMERIC [686-3742]
HTTP://WWW.NUMERIC.COM
INVESTMENT ADVISER
Numeric Investors L.P.(R)
One Memorial Drive
Cambridge, MA 02142
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 05840
CO-ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809
CO-ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue, 15th floor
New York, NY 10167
DISTRIBUTOR AND ADMINISTRATIVE SERVICES AGENT
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor West
Conshohocken, Pennsylvania 19428
COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107-3496
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
<PAGE>
N/I NUMERIC INVESTORS Micro Cap Fund
N/I NUMERIC INVESTORS Growth Fund
N/I NUMERIC INVESTORS Growth & Value Fund
N/I NUMERIC INVESTORS Larger Cap Value Fund
N/I NUMERIC INVESTORS Small Cap Value Fund
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of the classes (the "Shares") representing interests in the
N/I NUMERIC INVESTORS Micro Cap Fund (the "Micro Cap Fund"), the N/I NUMERIC
INVESTORS Growth Fund (the "Growth Fund"), the N/I NUMERIC INVESTORS Growth &
Value Fund (the "Growth & Value Fund"), the N/I NUMERIC INVESTORS Larger Cap
Value Fund (the "Larger Cap Value Fund") and the N/I NUMERIC INVESTORS Small Cap
Value Fund (the "Small Cap Value Fund") (together, the "Funds") of The RBB Fund,
Inc. ("RBB"). This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the N/I NUMERIC INVESTORS family of
funds Prospectus dated December 28, 1998 (the "Prospectus"). A copy of the
Prospectus may be obtained from Numeric by calling toll-free (800) NUMERIC
[(800) 686-3742]. This Statement of Additional Information is dated December
28, 1998.
<TABLE>
<CAPTION>
Page
----
<S> <C>
General............................................. 3
Investment Objectives and Policies.................. 3
Investment Limitations.............................. 13
Directors and Officers.............................. 15
Investment Advisory, Distribution and Servicing
Arrangements....................................... 19
Fund Transactions................................... 26
Purchase and Redemption Information................. 28
Valuation of Shares................................. 30
Performance Information............................. 30
Taxes............................................... 34
Description of Shares............................... 36
Additional Information Concerning Fund Shares....... 39
Miscellaneous....................................... 40
Financial Statements................................ 41
Appendix A.......................................... A-1
</TABLE>
<PAGE>
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 STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE AN OFFERING BY RBB OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-2-
<PAGE>
GENERAL
RBB is an open-end management investment company currently operating or
proposing to operate seventeen separate investment portfolios. RBB is
registered as an open-end investment company under the Investment Company Act of
1940 (the "1940 Act") and was organized as a Maryland corporation on February
29, 1988. This Statement of Additional Information pertains to Shares
representing interests in the Funds offered by the Prospectus dated December
28, 1998.
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 Funds.
FUTURES
Futures Contracts. When a Fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when a Fund enters into the contract. The underlying instrument may be
a specified type of security, such as U.S. Treasury bonds or notes.
The majority of futures contracts are closed out by entering into an
offsetting purchase or sale transaction in the same contract on the exchange
where they are traded, rather than being held for the life of the contract.
Futures contracts are closed out at their current prices, which may result in a
gain or loss.
If a Fund holds a futures contract until the delivery date, it will be
required to complete the purchase and sale contemplated by the contract. In the
case of futures contracts on securities, the purchaser generally must deliver
the agreed-upon purchase price in cash, and the seller must deliver securities
that meet the specified characteristics of the contract.
A Fund may purchase futures contracts as an alternative to purchasing
actual securities. For example, if a Fund intended to purchase bonds but had not
yet done so, it could purchase a futures contract in order to lock in current
bond prices while deciding on particular investments. This strategy is sometimes
known as an anticipatory hedge. Alternatively, a Fund could purchase a futures
contract if it had cash and short-term securities on hand that it wished to
invest in longer-term securities, but at the same time that Fund wished to
maintain a highly liquid position in order to be prepared to meet redemption
requests or other obligations. In these
-3-
<PAGE>
strategies a Fund would use futures contracts to attempt to achieve an overall
return -- whether positive or negative -- similar to the return from longer-term
securities, while taking advantage of potentially greater liquidity that futures
contracts may offer. Although the Funds would hold cash and liquid debt
securities in a segregated account with a value sufficient to cover their open
futures obligations, the segregated assets would be available to the Funds
immediately upon closing out the futures position, while settlement of
securities transactions can take several days. However, because a Fund's cash
that would otherwise have been invested in higher-yielding bonds would be held
uninvested or invested in short-term securities so long as the futures position
remains open, the Fund's return would involve a smaller amount of interest
income and potentially a greater amount of capital gain or loss.
The Funds may sell futures contracts to hedge their other investments
against changes in value, or as an alternative to sales of securities. For
example, if the investment adviser anticipated a decline in bond prices, but did
not wish to sell bonds owned by a Fund, it could sell a futures contract in
order to lock in a current sale price. If prices subsequently fell, the future
contract's value would be expected to rise and offset all or a portion of the
loss in the bonds that the Fund had hedged. Of course, if prices subsequently
rose, the futures contract's value could be expected to fall and offset all or a
portion of the benefit of the Fund. In this type of strategy, a Fund's return
will tend to involve a larger component of interest income, because the Fund
will remain invested in longer-term securities rather than selling them and
investing the proceeds in short-term securities which generally provide lower
yields.
Futures margin payments. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker (known as a futures
commission merchant, or FCM), when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as set by the
exchange where the contract is traded, and may be maintained in cash or high
quality liquid securities. If the value of either party's position declines,
that party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may be
entitled to receive all or a portion of this amount. Initial and variation
margin payments are similar to good faith deposits or performance bonds, unlike
margin extended by a securities broker, and initial and variation margin
payments do not constitute purchasing securities on margin for purposes of a
Fund's investment limitations. In the event of the bankruptcy of an FCM that
holds margin on behalf of a Fund, that Fund may be entitled to a return of
margin owed to it only in proportion to the amount received by the FCM's other
customers. The investment adviser will attempt to minimize this risk by careful
monitoring of the creditworthiness of the FCMs with which a Fund does business.
Correlation of price changes. The prices of futures contracts depend
primarily on the value of their underlying instruments. Because there are a
limited number of types of futures contracts, it is likely that the standardized
futures contracts available to a Fund will not match that Fund's current or
anticipated investments. Futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match a Fund's
investments well. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instrument, and the time remaining until expiration
-4-
<PAGE>
of the contract, which may not affect security prices the same way. Imperfect
correlation between a Fund's investments and its futures positions may also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
or from imposition of daily price fluctuation limits for futures contracts. The
Funds may purchase or sell futures contracts with a greater or lesser value than
the securities they wish to hedge or intend to purchase in order to attempt to
compensate for differences in historical volatility between the futures contract
and the securities, although this may not be successful in all cases. If price
changes in a Fund's futures positions are poorly correlated with its other
investments, its futures positions may fail to produce anticipated gains or
result in losses that are not offset by the gains in the Fund's other
investments.
Liquidity of futures contracts. Because futures contracts are generally
settled within a day from the date they are closed out, compared with a
settlement period of seven days for some types of securities, the futures
markets can provide liquidity superior to the securities markets in many cases.
Nevertheless, there is no assurance a liquid secondary market will exist for any
particular futures contract at any particular time. In addition, futures
exchanges may establish daily price fluctuation limits for futures contracts and
may halt trading if a contract's price moves upward or downward more than the
limit in a given day. On volatile trading days when the price fluctuation limit
is reached, it may be impossible for a Fund to enter into new positions or close
out existing positions. If the secondary market for a futures contract is not
liquid because of price fluctuation limits or otherwise, it would prevent prompt
liquidation of unfavorable futures positions, and potentially could require a
Fund to continue to hold a futures position until the delivery date regardless
of changes in its value. As a result, a Fund's access to other assets held to
cover its futures positions could also be impaired.
PUT AND CALL OPTIONS
Purchasing Put Options. By purchasing a put option, a Fund obtains the
right (but not the obligation) to sell the option's underlying instrument at a
fixed strike price. The option may give a Fund the right to sell only on the
option's expiration date, or may be exercisable at any time up to and including
that date. In return for this right, a Fund pays the current market price for
the option (known as the option premium). The option's underlying instrument may
be a security or a futures contract.
A Fund may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the Fund will lose the entire premium it paid. If the Fund exercises the
option, it completes the sale of the underlying instrument at the strike price.
If a Fund exercises a put option on a futures contract, it assumes a seller's
position in the underlying futures contract. Purchasing an option on a futures
contract does not require a Fund to make futures margin payments unless it
exercises the option. A Fund may also terminate a put option position by closing
it out in the secondary market at its current price, if a liquid secondary
market exists.
Put options may be used by a Fund to hedge securities it owns, in a manner
similar to selling futures contracts, by locking in a minimum price at which the
Fund can sell. If security prices fall, the value of the put option would be
expected to rise and offset all or a portion of the
-5-
<PAGE>
Fund's resulting losses. The put thus acts as a hedge against a fall in the
price of such securities. However, all other things being equal (including
securities prices) option premiums tend to decrease over time as the expiration
date nears. Therefore, because of the cost of the option in the form of the
premium (and transaction costs), a Fund would expect to suffer a loss in the put
option if prices do not decline sufficiently to offset the deterioration in the
value of the option premium. This potential loss represents the cost of the
hedge against a fall in prices. At the same time, because the maximum a Fund has
at risk is the cost of the option, purchasing put options does not eliminate the
potential for a Fund to profit from an increase in the value of the securities
hedged to the same extent as selling a futures contract.
Purchasing Call Options. The features of call options are essentially the
same as those of put options, except that the purchaser of a call option obtains
the right to purchase, rather than sell, the underlying instrument at the
option's strike price (call options on futures contracts are settled by
purchasing the underlying futures contract). By purchasing a call option, a
Fund would attempt to participate in potential price increases of the underlying
instrument, with results similar to those obtainable from purchasing a futures
contract, but with risk limited to the cost of the option if security prices
fell. At the same time, a Fund can expect to suffer a loss if security prices
do not rise sufficiently to offset the cost of the option.
The Funds will purchase call options only in connection with "closing
purchase transactions." A Fund may terminate its position in a call option by
entering into a closing purchase transaction. A closing purchase transaction is
the purchase of a call option on the same security with the same exercise price
and call period as the option previously written by a Fund. If a Fund is unable
to enter into a closing purchase transaction, the Fund may be required to hold a
security that it might otherwise have sold to protect against depreciation.
Writing Put Options. When a Fund writes a put option, it takes the opposite
side of the transaction from the option's purchaser. In return for receipt of
the premium, a Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract a Fund will be
required to make margin payments to an FCM as described above for futures
contracts. A Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for an option a Fund has written,
however, the Fund must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
A Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund would expect to profit from a
written put option, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund would have
experienced from purchasing the underlying instrument directly, however, because
the premium received for writing the option should mitigate the effects of the
decline. As with other futures and options strategies used as alternatives for
purchasing securities, a Fund's return from writing put options generally will
involve a smaller amount of
-6-
<PAGE>
interest income than purchasing longer-term securities directly, because a
Fund's cash will be invested in shorter-term securities which usually offer
lower yields.
Writing Call Options. Writing a call option obligates a Fund to sell or
deliver the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, as described above, except that writing covered
call options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate the
effects of a price decline. At the same time, because a Fund would have to be
prepared to deliver the underlying instrument in return for the strike price,
even if its current value is greater, the Fund would give up some ability to
participate in security price increases when writing call options.
Combined Option Positions. A Fund may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
overall position. For example, a Fund may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in order
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.
Risks of Options Transactions. Options are subject to risks similar to
those described above with respect to futures contracts, including the risk of
imperfect correlation between the option and a Fund's other investments and the
risk that there might not be a liquid secondary market for the option. In the
case of options on futures contracts, there is also a risk of imperfect
correlation between the option and the underlying futures contract. Options are
also subject to the risks of an illiquid secondary market, particularly in
strategies involving writing options, which a Fund cannot terminate by exercise.
In general, options whose strike prices are close to their underlying
instruments' current value will have the highest trading volume, while options
whose strike prices are further away may be less liquid. The liquidity of
options may also be affected if options exchanges impose trading halts,
particularly when markets are volatile.
Asset Coverage for Futures and Options Positions. A Fund will not use
leverage in its options and futures strategies. A Fund will hold securities or
other options or futures positions whose values are expected to offset its
obligations under the hedge strategies. A Fund will not enter into an option or
futures position that exposes the Fund to an obligation to another party unless
it owns either (i) an offsetting position in securities or other options or
futures contracts or (ii) cash, receivables and short-term debt securities with
a value sufficient to cover its potential obligations. A Fund will comply with
guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require will set
aside cash and high grade liquid debt securities in a segregated account with
its custodian bank in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with similar securities. As a result, there is a
possibility that segregation of a large percentage of a Fund's assets could
impede
-7-
<PAGE>
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Limitations on Futures and Options Transactions. RBB, on behalf of the
Funds, has filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the Commodity Futures Trading Commission
("CFTC") and the National Futures Association, which regulate trading in the
futures markets. Pursuant to Section 4.5 of the regulations under the Commodity
Exchange Act, the Funds will not enter into any commodity futures contract or
option on a commodity futures contract for non-hedging purposes if, as a result,
the sum of initial margin deposits on commodity futures contracts and related
commodity options and premiums paid for options on commodity futures contracts
the Funds have purchased would exceed 5% of a Fund's net assets after taking
into account unrealized profits and losses on such contracts.
The Funds' limitations on investments in futures contracts and their
policies regarding futures contracts and the limitations on investments in
options and its policies regarding options discussed above in this Statement of
Additional Information, are not fundamental policies and may be changed as
regulatory agencies permit. The Funds will not modify the above limitations to
increase its permissible futures and options activities without supplying
additional information in a current Prospectus or Statement of Additional
Information that has been distributed or made available to the Funds'
shareholders.
SHORT SALES "AGAINST THE BOX"
In a short sale, a Fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Fund may engage in
short sales if at the time of the short sale it owns or has the right to obtain,
at no additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." In a short
sale, a seller does not immediately deliver the securities sold and is said to
have a short position in those securities until delivery occurs. If a Fund
engages in a short sale, the collateral for the short position will be
maintained by the Fund's custodian or a qualified sub-custodian. While the
short sale is open, the Fund will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. These
securities constitute a Fund's long position. The Funds will not engage in
short sales against the box for speculative purposes. A Fund may, however, make
a short sale as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund (or a
security convertible or exchangeable for such security), or when the Fund wants
to sell the security at an attractive current price, but also wishes possibly to
defer recognition of gain or loss for federal income tax purposes. (A short
sale against the box will defer recognition of gain for federal income tax
purposes only if the Portfolio subsequently closes the short position by making
a purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in a Fund's long position should
be reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
such gains or losses are reduced will depend upon the amount of the security
sold short relative to the amount a Fund owns. There will be certain additional
transaction costs
-8-
<PAGE>
associated with short sales against the box, but the Funds will endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.
SECTION 4(2) PAPER
"Section 4(2) paper" is commercial paper which is issued in reliance on the
"private placement" exemption from registration which is afforded by Section
4(2) of the Securities Act of 1933. Section 4(2) paper is restricted as to
disposition under the federal securities laws and is generally sold to
institutional investors such as the Funds which agree that they are purchasing
the paper for investment and not with a view to public distribution. Any resale
by the purchaser must be in an exempt transaction. Section 4(2) paper normally
is resold to other institutional investors through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. See "Illiquid Securities" below and Appendix "A" for a
list of commercial paper ratings.
RIGHTS OFFERINGS AND PURCHASE WARRANTS
Rights offerings and purchase warrants are privileges issued by a
corporation which enable the owner to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. Subscription rights normally have a short lifespan to
expiration. The purchase of rights or warrants involves the risk that a Fund
could lose the purchase value of a right or warrant if the right to subscribe to
additional shares is not executed prior to the rights and warrants expiration.
Also, the purchase of rights and/or warrants involves the risk that the
effective price paid for the right and/or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
ILLIQUID SECURITIES
A Fund may not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements which have a maturity of longer than
seven days and securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Mutual funds do not typically hold a significant amount of illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
The Funds may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the
-9-
<PAGE>
Securities Act. These securities will not be considered illiquid so long as it
is determined by the Fund's adviser that an adequate trading market exists for
the securities. This investment practice could have the effect of increasing the
level of illiquidity in a Fund during any period that qualified institutional
buyers become uninterested in purchasing restricted securities.
The Adviser will monitor the liquidity of restricted securities in the
Funds under the supervision of the Board of Directors. In reaching liquidity
decisions, the Adviser may consider, among others, the following factors: (1)
the unregistered nature of the security; (2) the frequency of trades and quotes
for the security; (3) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (4) dealer undertakings
to make a market in the security and (5) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
DEPOSITARY RECEIPTS
The Funds' assets may be invested in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or Global Depositary Receipts ("GDRs"). These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs and EDRs are receipts typically issued by a United
States or European bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. GDRs are depositary receipts
structured like global debt issues to facilitate international trading. The
Funds may invest in ADRs, EDRs and GDRs through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
EUROPEAN CURRENCY UNIFICATION
Many European countries are about to adopt a single European currency, the
euro. On January 1, 1999, the euro will become legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European
Central Bank will be created to manage the monetary policy of the new unified
region. On the same date, the exchange rates will be irrevocably fixed between
the EMU member countries. National currencies will continue to circulate until
they are replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Funds may invest and may result in a Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer
-10-
<PAGE>
profitability and creditworthiness, and lack of participation by some European
countries, may increase the volatility of a Fund's net asset value per
share.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies.
Under the 1940 Act, the Funds' investments in such securities currently are
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of a Fund's net assets with respect to any
one investment company and (iii) 10% of a Fund's net assets in the aggregate.
Investments in the securities of other investment companies will involve
duplication of advisory fees and certain other expenses. The Funds presently
intend to invest in other investment companies only as investment vehicles for
short-term cash. The Funds will only invest in securities of other investment
companies which are purchased on the open market with no commission or profit to
a sponsor or dealer, other than the customary brokers commission, or when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities, such as convertible
debentures, bonds and preferred stock, primarily for their equity
characteristics. Convertible securities may be converted into common stock at a
specified share price or ratio. Because the price of the common stock may
fluctuate above or below the specified price or ratio, a Fund may have the
opportunity to purchase the common stock at below market price. On the other
hand, fluctuations in the price of the common stock could render the right of
conversion worthless.
REPURCHASE AGREEMENTS
The repurchase price under repurchase agreements generally equals the price
paid by the Fund involved plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the securities
underlying the repurchase agreement). Securities subject to repurchase
agreements will be held by RBB's custodian in the Federal Reserve/Treasury book-
entry system or by another authorized securities depository. Repurchase
agreements are considered to be loans by the Fund involved under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of securities held by a 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 1940 Act, and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Fund will maintain in a segregated account with its custodian or a qualified
sub-custodian, cash, U.S. Government securities or other liquid, high-grade debt
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 a Fund may decline below
the price of the securities the Fund is obligated to repurchase.
-11-
<PAGE>
U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, and the Maritime Administration.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. These transactions involve a
commitment by a Fund to purchase or sell particular securities with payment and
delivery taking place at a future date (perhaps one or two months later), and
permit a Fund to lock-in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. When-issued and
forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable that the price or yield
available in the market when the securities delivery takes place. A Fund's when-
issued purchases and forward commitments are not expected to exceed 25% of the
value of its total assets absent unusual market conditions. Each Fund does not
intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of their investment objectives.
PORTFOLIO TURNOVER
The Funds may be subject to a greater degree of turnover and thus a higher
incidence of short-term capital gains taxable as ordinary income than might be
expected from portfolios which invest substantially all of their assets on a
long-term basis, and correspondingly larger brokerage charges and other
transaction costs can be expected to be borne by the Funds. Investment
strategies which require periodic changes to portfolio holdings with the
expectation of outperforming equity indices are called "active" strategies.
These compare with "passive" or "index" strategies which hold only the stocks in
the equity indices. Passive strategies trade infrequently -- only as the indices
change. Most equity mutual funds, including the Funds, pursue active strategies,
which have higher turnover than passive strategies.
High portfolio turnover (100% or more) can adversely affect taxable
investors, especially those in higher marginal tax brackets, in two ways:
First, short term capital gains, which are a by-product or high turnover
investment strategies, are currently taxed at rates comparable to ordinary
income rates. Ordinary income tax rates are higher than long term capital gain
tax rates for middle and upper income taxpayers. Second, the frequent
realization of gains, which causes taxes to be paid frequently, is less
advantageous than infrequent realization of gains. Infrequent realization of
gains allows the payment of taxes to be deferred to later years, allowing more
of the gains to compound before taxes are paid. Consequently after-tax compound
rates of return
-12-
<PAGE>
will generally be higher for taxable investors using investment strategies with
very low turnover, all else being equal.
Although tax considerations should not typically drive an investment
decision, investors should consider their ability to allocate tax-deferred (such
as IRAs and 401(k) plans) versus taxable assets when considering where to
invest. All else being equal, investors will earn better returns investing tax-
deferred assets in active strategies, while using lower turnover passive
strategies for taxable investments. For further information, see "Taxes"
below.
The Portfolio turnover rate is calculated by dividing the lesser of a
Fund'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.
INVESTMENT LIMITATIONS
The Funds have adopted the following fundamental investment limitations
which may not be changed without the affirmative vote of the holders of a
majority of the Funds' outstanding shares (as defined in Section 2(a)(42) of the
1940 Act). The Funds may not:
1. Purchase 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 a 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 a
Fund, except that up to 25% of the value of a Fund's assets may be invested
without regard to such limitation.
2. Borrow money, except to the extent permitted under the 1940 Act or
mortgage, pledge or hypothecate any of their respective assets in connection
with any such borrowing except in amounts not in excess of 125% of the dollar
amounts borrowed. The 1940 Act permits an investment company to borrow in an
amount up to 33 1/3% of the value of such company's total assets. For purposes
of this Investment Restriction, the entry into options, forward contracts,
futures contracts, including those relating to indexes, and options on futures
contracts or indexes shall not constitute borrowing.
3. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of a Fund to be invested in the
obligations of issuers in any industry, provided that there is no limitation
with respect to investments in U.S. Government obligations.
4. Make loans, except that a Fund may purchase or hold debt obligations
in accordance with its investment objective, policies and limitations, may enter
into repurchase agreements for securities, and may lend portfolio securities
against collateral consisting of cash or securities which are consistent with
the Fund's permitted investments, which is equal at all times to at least 100%
of the value of the securities loaned. There is no investment restriction on
-13-
<PAGE>
the amount of securities that may be loaned, except that payments received on
such loans, including amounts received during the loan on account of interest on
the securities loaned, may not (together with all non-qualifying income) exceed
10% of a Fund's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to RBB, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
5. Purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions, and except that the Fund may establish
margin accounts in connection with its use of options, forward contracts,
futures contracts, including those relating to indexes, and options on futures
contracts or indexes.
6. Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, a Fund may be deemed an
underwriter under federal securities laws.
7. Purchase or sell real estate or real estate limited partnership
interests, provided that a Fund may invest in securities secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein or in real estate investment trusts.
8. Purchase or sell commodities or commodity contracts, except that a
Fund may purchase and sell options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
9. Invest in oil, gas or mineral-related exploration or development
programs or leases.
10. Purchase any securities issued by any other investment company, except
to the extent permitted by the 1940 Act and except in connection with the
merger, consolidation or acquisition of all the securities or assets of such an
issuer.
11. Make investments for the purpose of exercising control or management,
but each Fund will vote those securities it owns in its portfolio as a
shareholder in accordance with its views.
12. Issue any senior security, as defined in section 18(f) of the 1940
Act, except to the extent permitted by the 1940 Act.
13. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings as described in Limitation 2 above and
to the extent related to the purchase of securities on a when-issued or forward
commitment basis and the deposit of assets in escrow in connection with writing
covered put and call options and collateral and initial or variation margin
arrangements with respect to options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
-14-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of RBB, their ages, business addresses
and principal occupations during the past five years are:
-15-
<PAGE>
<TABLE>
================================================================================
Name and Address and Age Position Principal Occupation
- ------------------------ with Fund During Past Five Years
--------- ----------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
*Arnold M. Reichman 50 Director Chief Operating Officer of Warburg
466 Lexington Avenue Pincus Asset Management, Inc.;
12th Floor Director and Executive Officer of
New York, NY 10017 Counsellors Securities Inc.;
Director/Trustee of various
investment companies advised by
Warburg Pincus Asset Management,
Inc. Prior to 1997, Managing
Director of Warburg Pincus Asset
Management, Inc.
- --------------------------------------------------------------------------------
*Robert Sablowsky 60 Director Senior Vice President of
Fahnestock & Company, Inc. Fahnestock Co., Inc. (a registered
125 Broad Street broker-dealer); Prior to October
New York, NY 10004 1996, Executive Vice President of
Gruntal & Co., Inc. (a registered
broker-dealer).
- --------------------------------------------------------------------------------
Francis J. McKay 62 Director Since 1963, Executive Vice
Fox Chase Cancer Institute President, Fox Chase Cancer Center
7701 Burholme Avenue (biomedical research and medical
Philadelphia, PA 19111 care).
- --------------------------------------------------------------------------------
Marvin E. Sternberg 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies
Montgomeryville, PA 18936 and precision coated abrasives).
- --------------------------------------------------------------------------------
Julian A. Brodsky 65 Director Director and Vice Chairman, since
1500 Market Street 1969 Comcast Corporation (cable
35th Floor television and communications);
Philadelphia, PA 19102 Director, Comcast U.K.
================================================================================
</TABLE>
-16-
<PAGE>
<TABLE>
================================================================================
<S> <C> <C>
Donald van Roden 74 Director and Self-employed businessman.
1200 Old Mill Lane Chairman of the From February 1980 to March
Wyomissing, PA 19610 Board 1987, Vice Chairman,
SmithKline Beecham Corporation
(pharmaceuticals); Director,
AAA Mid-Atlantic (auto
service); Director, Keystone
Insurance Co.
- --------------------------------------------------------------------------------
Edward J. Roach 74 President Certified Public Accountant;
Suite 100 and Vice Chairman of the Board,
Bellevue Park Treasurer Fox Chase Cancer Center;
Corporate Center Trustee Emeritus, Pennsylvania
400 Bellevue Parkway School for the Deaf; Trustee
Wilmington, DE 19809 Emeritus, Immaculata College;
President and Treasurer of
Municipal Fund for New York
Investors, Inc. (advised by
BlackRock Institutional
Management); Vice President
and Treasurer of various
investment companies advised
by BlackRock Institutional
Management Corporation;
Treasurer of the Chestnut
Street Exchange Fund.
- --------------------------------------------------------------------------------
Morgan R. Jones 59 Secretary Chairman, the law firm of
Drinker Biddle & Reath LLP Drinker Biddle & Reath LLP;
1345 Chestnut Street Director, Nobel Learning
Philadelphia, PA 19107-3496 Communities, Inc., Secretary,
Petroferm, Inc.
================================================================================
</TABLE>
______________________
* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of RBB, as
that term is defined in the 1940 Act, by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to RBB the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of RBB when the Board of Directors is not in session.
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.
-17-
<PAGE>
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 $6,000 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, 1998, each of
the following members of the Board of Directors received compensation from RBB
in the following amounts:
DIRECTORS' COMPENSATION
-----------------------
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL
COMPENSATION AS PART OF FUND BENEFITS UPON
NAME OF PERSON/POSITION FROM REGISTRANT EXPENSES RETIREMENT
- ----------------------- --------------- --------- ------------
<S> <C> <C> <C>
Julian A. Brodsky, $ 16,000 N/A N/A
Director
Francis J. McKay, $ 18,000 N/A N/A
Director
Arnold M. Reichman, $ -0- N/A N/A
Director
Robert Sablowsky, $ 18,000 N/A N/A
Director
Marvin E. Sternberg, $ 17,000 N/A N/A
Director
Donald van Roden, $ 23,000 N/A N/A
Director and Chairman
</TABLE>
_____________________
On October 24, 1990, RBB adopted, as a participating employer, the
Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach) pursuant to which RBB will
contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
RBB's advisers, custodians, administrators and distributor, RBB itself requires
only one part-time employee. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to RBB. No officer, director or employee
of Numeric or the Distributor currently receives any compensation from RBB.
-18-
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENTS
Numeric renders advisory services to the Funds pursuant to Investment
Advisory Agreements. The Advisory Agreements relating to each of the Funds are
dated April 24, 1996, except for the Larger Cap Value Fund, which is dated
December 1, 1997, and the Small Cap Value Fund, which is dated November 30,
1998. Under the Advisory Agreements, Numeric is entitled to receive a fee from
each Fund calculated at an annual rate of 0.75% of a Fund's average daily net
assets. For the fiscal year ended August 31, 1999, Numeric intends to waive its
fees to the extent necessary to maintain an annualized expense ratio for each
Fund of 1.00%. There can be no assurance that Numeric will continue such waivers
indefinitely.
For the period from June 3, 1996 (initial public offering Shares) through
August 31, 1996 and for the fiscal years ended August 31, 1997 and August 31,
1998, the Funds paid Numeric advisory fees and Numeric waived advisory fees as
follows:
<TABLE>
<CAPTION>
===================================================================================================
Advisory
Fees Paid
(after waivers and
Fund reimbursements) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal year ended August 31, 1998
- ---------------------------------------------------------------------------------------------------
Micro Cap $912,750 $ 140,740 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $782,298 $ 121,746 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $675,595 $ 136,503 $ 0
- ---------------------------------------------------------------------------------------------------
Larger Cap Value* $ 35,168 $ 46,328 $ 30,869
- ---------------------------------------------------------------------------------------------------
Fiscal year ended August 31, 1997
- ---------------------------------------------------------------------------------------------------
Micro Cap $248,284 $ 120,320 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $355,843 $ 153,302 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 90,762 $ 92,307 $ 21,893
===================================================================================================
Period ended August 31, 1996
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 0 $ 13,959 $ 16,152
- ---------------------------------------------------------------------------------------------------
Growth $ 3,225 $ 20,371 $ 13,652
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 0 $ 3,693 $ 21,812
===================================================================================================
</TABLE>
* The Larger Cap Value Fund commenced operations on December 9, 1997.
-19-
<PAGE>
The Funds bear all of their own expenses not specifically assumed by
Numeric. 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 Fund include, but are not limited to
the expenses listed in the prospectus and the following (or a Fund's share of
the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a Fund and any losses incurred in connection therewith; (b)
expenses of organizing RBB that are not attributable to a class of RBB; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against RBB or a Fund 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)
costs of mailing and tabulating proxies and costs of shareholders' and
directors' meetings; and (g) the cost of investment company literature and other
publications provided by RBB to its directors and officers. Distribution
expenses, transfer agency expenses, expenses of preparation, printing and
mailing prospectuses, statements of additional information, proxy statements and
reports to shareholders, and organizational expenses and registration fees,
identified as belonging to a particular class of RBB, are allocated to such
class.
Under the Advisory Agreements, Numeric will not be liable for any error of
judgment or mistake of law or for any loss suffered by RBB or the Funds in
connection with the performance of an Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Numeric in the performance of its duties or from reckless disregard of its
duties and obligations thereunder.
The Advisory Agreements for the Micro Cap, Growth and Growth & Value Funds
were approved on April 24, 1996 by vote of RBB's Board of Directors, including a
majority of those directors who are not parties to the Advisory Agreements or
interested persons (as defined in the 1940 Act) of such parties. The Advisory
Agreement for the Larger Cap Value Fund was similarly approved on October 15,
1997. The Advisory Agreement for the Small Cap Value Fund was similarly
approved on October 28, 1998. The Advisory Agreements are terminable by vote of
RBB's Board of Directors or by the holders of a majority of the outstanding
voting securities of the Funds, at any time without penalty, on 60 days' written
notice to Numeric. The Advisory Agreements for the Micro Cap, Growth and Growth
& Value Funds became effective on May 20, 1996 and were approved by written
consent of the sole shareholder of each of the Micro Cap, Growth and Growth &
Value Funds on May 28, 1996. The Advisory Agreement for the Larger Cap Value
Fund became effective on December 1, 1997 and was approved by written consent of
the sole shareholder of the Fund on December 1, 1997. The Advisory Agreement
for the Small Cap Value Fund became effective on November 30, 1998 and was
approved by written consent of the sole shareholder of the Fund on November 30,
1998. The Advisory Agreements terminate automatically in the event of
assignment thereof.
The Advisory Agreements provide that Numeric shall at all times have all
rights in and to each Fund's name and all investment models used by or on behalf
of the Funds. Numeric may use each Fund's name or any portion thereof in
connection with any other mutual fund or business activity without the consent
of any shareholder, and RBB has agreed to execute and deliver any and all
documents required to indicate its consent to such use.
-20-
<PAGE>
The Advisory Agreements further provide that no public reference to, or
description of, Numeric or its methodology or work shall be made by RBB, whether
in the Prospectus, Statement of Additional Information or otherwise, without the
prior written consent of Numeric, which consent shall not be unreasonably
withheld. In each case, RBB has agreed to provide Numeric a reasonable
opportunity to review any such reference or description before being asked for
such consent.
CUSTODIAN AGREEMENTS
Custodial Trust Company ("CTC") is custodian of the Funds' assets pursuant
to custodian agreements dated as of May 20, 1996, as amended (the "Custodian
Agreements"). Under the Custodian Agreements, CTC (a) maintains a separate
account or accounts in the name of each of the Funds, (b) holds and transfers
portfolio securities on account of each of the Funds, (c) accepts receipts and
makes disbursements of money on behalf of each of the Funds, (d) collects and
receives all income and other payments and distributions on account of each of
the Funds' portfolio securities and (e) makes periodic reports to RBB's Board of
Directors concerning the Funds' operations. CTC is authorized to select one or
more banks or trust companies to serve as sub-custodian on behalf of the Funds,
provided that CTC remains responsible for the performance of all its duties
under the Custodian Agreements and holds RBB harmless from the acts and
omissions of any sub-custodian. For its services to the Funds under the
Custodian Agreements, CTC receives a fee calculated at .03% of each Fund's
average daily net assets.
TRANSFER AGENCY AGREEMENTS
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Funds pursuant to a Transfer Agency Agreement
dated August 16, 1988, as supplemented (collectively, the "Transfer Agency
Agreement"). Under the Transfer Agency Agreement, PFPC (a) issues and redeems
Shares of each of the Funds, (b) addresses and mails all communications by the
Funds to record owners of shares of the Funds, 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 Funds. For its services to the Funds under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $10 per
account for the Funds, exclusive of out-of-pocket expenses, and also receives
reimbursement of its out-of-pocket expenses.
-21-
<PAGE>
CO-ADMINISTRATION AGREEMENTS
Bear Stearns Funds Management Inc. ("BSFM") serves as co-administrator to
the Funds pursuant to Co-Administration Agreements dated April 24, 1996, as
amended, for each of the Funds (the "BSFM Co-Administration Agreements"). BSFM
has agreed to assist each of the Funds in all significant aspects of their
administration and operations. The BSFM Co-Administration Agreements provide
that BSFM shall not be liable for any error of judgment or mistake of law or any
loss suffered by RBB or the Funds in connection with the performance of the
agreement, except a loss resulting from willful misfeasance, bad faith or
negligence, or reckless disregard of its duties and obligations thereunder. In
consideration for providing services pursuant to the BSFM Co-Administration
Agreements, BSFM receives a fee with respect to each of the Funds calculated at
an annual rate of .05% of the first $150 million of each Fund's average daily
net assets and .02% on all assets above $150 million.
PFPC also serves as co-administrator to Funds pursuant to Co-Administration
Agreements dated as of April 24, 1996, as amended (the "PFPC Co-Administration
Agreements"). PFPC has agreed to calculate the Funds' net asset values, provide
all accounting services for the Funds and assist in related aspects of the
Funds' operations. The PFPC Co-Administration Agreements provide that PFPC shall
not be liable for any error of judgment or mistake of law or any loss suffered
by RBB or the Funds in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, bad faith or negligence, or reckless
disregard of its duties and obligations thereunder. In consideration for
providing services pursuant to the PFPC Co-Administration Agreements, PFPC
receives a fee with respect to each of the Funds calculated at an annual rate of
.125% of each Fund's average daily net assets, exclusive of out-of-pocket
expenses and pricing charges. PFPC is currently waiving fees in excess of .115%
of each Fund's average daily net assets.
For the period from June 3, 1996 (initial public offering of shares) until
August 31, 1996 and for the fiscal years ended August 31, 1997 and August 31,
1998, the Funds paid administration fees to PFPC and BSFM, and PFPC waived
administration fees as follows:
-22-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Co-Administration
Fees Paid
Fund (After Waivers) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the fiscal year ended August 31, 1998.
- ---------------------------------------------------------------------------------------------------
(PFPC)
- ------
- ---------------------------------------------------------------------------------------------------
Micro Cap $161,535 $ 14,047 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $138,620 $ 12,054 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $124,522 $ 11,179 $ 0
- ---------------------------------------------------------------------------------------------------
Larger Cap Value* $ 27,114 $ 27,119 $ 0
- ---------------------------------------------------------------------------------------------------
(BSFM)
- ------
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 70,233 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $ 60,270 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 54,025 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------
Larger Cap Value* $ 5,433 $ 0 $ 0
===================================================================================================
</TABLE>
* The Larger Cap Value Fund commenced operations on December 9, 1997.
<TABLE>
<CAPTION>
===================================================================================================
Co-Administration
Fees Paid
Fund (After Waivers) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the fiscal year ended August 31, 1997.
- ---------------------------------------------------------------------------------------------------
(PFPC)
- ------
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 61,461 $ 26,117 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $ 73,540 $ 20,169 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 39,724 $ 35,276 $ 0
- ---------------------------------------------------------------------------------------------------
(BSFM)
- ------
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 24,574 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $ 33,943 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 12,203 $ 0 $ 0
===================================================================================================
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Co-Administration
Fees Paid
Fund (After Waivers) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the period from June 3, 1996 until August 31, 1996.
- ---------------------------------------------------------------------------------------------------
(PFPC)
- ------
- ---------------------------------------------------------------------------------------------------
Micro Cap $9,062 $9,063 $0
- ---------------------------------------------------------------------------------------------------
Growth $9,062 $9,063 $0
- ---------------------------------------------------------------------------------------------------
Growth & Value $8,958 $8,959 $0
- ---------------------------------------------------------------------------------------------------
(BSFM)
- ------
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 930 $ 0 $0
- ---------------------------------------------------------------------------------------------------
Growth $1,573 $ 0 $0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 245 $ 0 $0
==================================================================================================
</TABLE>
ADMINISTRATIVE SERVICES AGENT
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Funds that are not provided by BSFM or PFPC. These services
include furnishing data processing and clerical services, acting as liaison
between the Funds and various service providers and coordinating the preparation
of proxy statements and annual, semi-annual and quarterly reports. As
compensation for such administrative services, PDI is entitled to a monthly fee
calculated at the annual rate of .15% of each Fund's average daily net assets.
PDI is currently waiving fees in excess of .03% of each fund's average daily net
assets for open funds and .02% of each closed fund's average daily net assets.
Prior to May 29, 1998, Counsellors Funds Service, Inc. ("Counsellors
Service"), a wholly-owned subsidiary of Warburg Pincus Asset Management, Inc.
("Warburg"), acted as Administrative Services Agent pursuant to the same
compensation arrangement as for PDI. Warburg was indirectly controlled by
Warburg, Pincus & Co.
For the period from May 29, 1998 through August 31, 1998, the Funds paid
administrative services fees to PDI, and PDI waived administrative services fees
as follows:
-24-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Administrative Services
Fees Paid
Fund (After Waivers) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the period from May 29, 1998 until August 31, 1998.
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 6,924 $ 44,172 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $ 5,888 $ 37,315 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 11,064 $ 44,256 $ 0
- ---------------------------------------------------------------------------------------------------
Larger Cap Value $ 1,919 $ 7,678 $ 0
===================================================================================================
</TABLE>
For the period from September 1, 1997 through May 29, 1998, the Funds paid
administrative services fees to Counsellors Service, and Counsellors Service
waived administrative services fees as follows:
<TABLE>
<CAPTION>
===================================================================================================
Administrative Services
Fees Paid
Fund (After Waivers) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the period September 1, 1997 through May 29, 1998
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 31,920 $ 127,682 $ 0
- ---------------------------------------------------------------------------------------------------
Growth $ 27,521 $ 110,085 $ 0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 21,420 $ 85,680 $ 0
- ---------------------------------------------------------------------------------------------------
Larger Cap Value* $ 1,341 $ 5,361 $ 0
===================================================================================================
</TABLE>
* The Larger Cap Value Fund commenced operations on December 9, 1997
For the period from June 3, 1996 (initial public offering of shares) through
August 31, 1996 and for the fiscal year ended August 31, 1997, the Funds paid
administrative services fees to Counsellors Services, and Counsellors Service
waived administrative services fees as follows:
-25-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Administrative
Services Fees Paid
Fund (after waivers) Waivers Reimbursements
---- --------------- ------- --------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the fiscal year ended August 31, 1997.
- ---------------------------------------------------------------------------------------------------
Micro Cap $14,744 $58,977 $0
- ---------------------------------------------------------------------------------------------------
Growth $20,366 $81,463 $0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 7,323 $29,291 $0
==================================================================================================
For the period ended August 31, 1996.
- ---------------------------------------------------------------------------------------------------
Micro Cap $ 558 $ 2,231 $0
- ---------------------------------------------------------------------------------------------------
Growth $ 934 $ 3,785 $0
- ---------------------------------------------------------------------------------------------------
Growth & Value $ 147 $ 591 $0
===================================================================================================
</TABLE>
DISTRIBUTOR
PDI serves as distributor of the Shares pursuant to the terms of a
distribution agreement dated as of May 29, 1998 (the "Distribution Agreement")
entered into by PDI and RBB. No compensation is payable by RBB to PDI for
distribution services with respect to the Funds. Counsellors Securities Inc.
("Counsellors") served as distributor of the Shares prior to May 29, 1998.
Counsellors is a wholly-owned subsidiary of Warburg and has a principal business
address at 466 Lexington Avenue, New York 10017-3147.
FUND TRANSACTIONS
Subject to policies established by the Board of Directors, Numeric is
responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Funds. In executing portfolio transactions,
Numeric seeks to obtain the best price and most favorable execution for the
Funds, taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of the order, difficulty of
execution and operational facilities of the firm involved. While Numeric
generally seeks reasonably competitive commission rates, payment of the lowest
commission or spread is not necessarily consistent with obtaining the best price
and execution in particular transactions.
No Fund has any obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. Numeric may, consistent with the
interests of the Funds and subject to the approval of the Board of Directors,
select brokers on the basis of the research, statistical and pricing services
they provide to the Funds and other clients of Numeric. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services
-26-
<PAGE>
required to be performed by Numeric under its respective contracts. A commission
paid to such brokers may be higher than that which another qualified broker
would have charged for effecting the same transaction, provided that Numeric, as
applicable, determines in good faith that such commission is reasonable in terms
either of the transaction or the overall responsibility of Numeric, as
applicable, to a Fund and its other clients and that the total commissions paid
by a Fund will be reasonable in relation to the benefits to a Fund over the
long-term.
For the fiscal year ended August 31, 1998, the Funds paid commissions to
brokers on account of research services as follows:
<TABLE>
<CAPTION>
===========================================================================================
AMOUNT OF AGGREGATE
FUND TRANSACTIONS COMMISSIONS
---- ------------ -----------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Micro Cap $ 476,678,318 $ 706,342
- -------------------------------------------------------------------------------------------
Growth $ 404,189,287 $ 512,762
- -------------------------------------------------------------------------------------------
Growth & Value $ 613,157,265 $ 508,568
- -------------------------------------------------------------------------------------------
Larger Cap Value $ 73,359,189 $ 45,723
===========================================================================================
</TABLE>
Corporate debt and U.S. Government securities and many micro- and small-cap
stocks are generally traded on the over-the-counter market on a "net" basis
without a stated commission, through dealers acting for their own account and
not as brokers. The Funds will primarily engage in transactions with these
dealers or deal directly with the issuer unless a better price or execution
could be obtained by using a broker. Prices paid to a dealer in debt, micro- or
small-cap securities will generally include a "spread," which is the difference
between the prices at which the dealer is willing to purchase and sell the
specific security at the time, and includes the dealer's normal profit.
Numeric may seek to obtain an undertaking from issuers of commercial paper
or dealers selling commercial paper to consider the repurchase of such
securities from the Funds prior to their maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that the Funds' anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Funds would incur a capital loss in liquidating commercial paper (for which
there is no established market), especially if interest rates have risen since
acquisition of the particular commercial paper.
Investment decisions for the Funds and for other investment accounts
managed by Numeric are made independently of each other in the light of
differing conditions. However, the same investment decision may occasionally 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 a Fund is concerned, in other cases it is
believed to be beneficial to the Funds. The Funds will not purchase securities
during the existence of any underwriting or selling group
-27-
<PAGE>
relating to such security of which Numeric or any affiliated person (as defined
in the 1940 Act) thereof is a member except pursuant to procedures adopted by
RBB's Board of Directors pursuant to Rule 10f-3 under the 1940 Act.
In no instance will portfolio securities be purchased from or sold to PDI,
PNC Bank or Numeric or any affiliated person of the foregoing entities except as
permitted by SEC exemptive order or by applicable law.
For the fiscal year ended August 31, 1998, the Funds paid brokerage
commissions on behalf of the Funds as follows:
<TABLE>
<CAPTION>
Fund Brokerage Commissions
---- ---------------------
<S> <C>
Micro Cap $ 706,342
Growth $ 512,762
Growth & Value $ 508,568
Larger Cap Value $ 45,723
</TABLE>
The Funds are required to identify any securities of RBB's regular broker
dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held by
the Funds as of the end of the most recent fiscal year. As of August 31, 1998,
the following Funds held the following securities:
<TABLE>
<CAPTION>
===============================================================================================
Fund Security Value
---- -------- -----
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Growth & Value Bear Stearns Companies, Inc. $ 717,880
- -----------------------------------------------------------------------------------------------
Larger Cap Bear Stearns Companies, Inc. $ 324,348
- -----------------------------------------------------------------------------------------------
Larger Cap Lehman Bros. Holdings, Inc. $ 82,687
===============================================================================================
</TABLE>
PURCHASE AND REDEMPTION INFORMATION
The Funds reserve the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase of a 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 a
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 a 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 a
Fund.
-28-
<PAGE>
Under the 1940 Act, a Fund may suspend the right to redemption or postpone
the date of payment upon redemption for any period during which the New York
Stock Exchange (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. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectus, a Fund may
redeem shares involuntarily to reimburse such Fund for any loss sustained by
reason of the failure of a shareholder to make full payment for shares purchased
by the shareholder or to collect any charge relating to a transaction effected
for the benefit of a shareholder as provided in the Prospectus from time to
time.
An illustration of the computation of the public offering price per share
of each of the Funds, based on the value of the Funds' respective net assets as
of August 31, 1998, is as follows:
<TABLE>
<CAPTION>
=======================================================================================================
Micro Larger Cap
Cap Growth Growth & Value Value
--- ------ -------------- -----
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets $ 99,266,433 $ 77,839,544 $ 110,176,196 $ 25,256,551
- -------------------------------------------------------------------------------------------------------
Outstanding shares 7,931,287 7,980,631 8,286,895 2,330,416
- -------------------------------------------------------------------------------------------------------
Net asset value per share
$ 12.52 $ 9.75 $ 13.30 $ 10.84
- -------------------------------------------------------------------------------------------------------
Maximum sales charge -- -- -- --
- -------------------------------------------------------------------------------------------------------
Maximum Offering Price to
Public $ 12.52 $ 9.75 $ 13.30 $ 10.84
- -------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
VALUATION OF SHARES
The net asset value per share of each Fund is calculated as of the close of
regular trading on the NYSE (generally 4:00 p.m. Eastern Time) on each Business
Day. "Business Day" means each weekday when the NYSE is open. Currently, the
NYSE is closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and on the preceding Friday or subsequent Monday when one of
those holidays falls on a Saturday or Sunday. Securities which are listed on
stock exchanges are valued at the last sale price on the day the securities are
valued or, lacking any sales on such day, at the mean of the bid and asked
prices available prior to the evaluation. In cases where securities are traded
on more than one exchange, the securities are generally valued on the exchange
designated by the Board of Directors as the primary market. Securities traded
in the over-the-counter market and listed on the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ") are valued at the last
trade price listed on the NASDAQ at the close of regular trading (generally 4:00
p.m. Eastern Time); securities listed on NASDAQ for which there were no sales on
that day and other over-the-counter securities are valued at the mean of the bid
and asked prices available prior to valuation. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of RBB's Board of Directors. The amortized
cost method of valuation may also be used with respect to debt obligations with
sixty days or less remaining to maturity. Net asset value per share is
calculated by adding the value of each Fund's securities, cash and other assets,
subtracting the actual and accrued liabilities of the Fund, and dividing the
result by the number of outstanding shares of the Fund.
In determining the approximate market value of portfolio investments, the
Funds 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 Funds' books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by or under the direction of
RBB's Board of Directors.
PERFORMANCE INFORMATION
TOTAL RETURN. For purposes of quoting and comparing the performance of the
Funds to that of other mutual funds and to stock or other relevant indices in
advertisements or in reports to shareholders, performance may be stated in terms
of total return. Under the rules of the Securities and Exchange Commission,
funds advertising performance must include total return quotes calculated
according to the following formula:
-30-
<PAGE>
P(1 + T)/n/ = ERV
Where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of
the 1, 5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertisement for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Funds' registration statement. In calculating the ending redeemable
value, the maximum sales load is deducted from the initial $1,000 payment and
all dividends and distributions by the Funds are assumed to have been reinvested
at net asset value, as described in the Prospectus, on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value. Any sales loads that might in the
future be made applicable at the time to reinvestments would be included as
would any recurring account charges that might be imposed by the Funds.
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 non-recurring charges at the end of the
measuring period.
PERFORMANCE. From time to time, the Funds may advertise their average
annual total return over various periods of time. These total return figures
show the average percentage change in value of an investment in a Fund from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of a Fund's shares assuming that any income
dividends and/or capital gain distributions made by a Fund during the period
were reinvested in shares of the Fund. Total return will be shown for recent
one-, five- and
-31-
<PAGE>
ten-year periods, and may be shown for other periods as well (such as from
commencement of a Fund's operations or on a year-by-year, quarterly or current
year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that a Fund's annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one
year, investors should bear in mind that the Funds seek long-term appreciation
and that such return may not be representative of a Fund's return over a longer
market cycle. The Funds may also advertise aggregate total return figures for
various periods, representing the cumulative change in value of an investment in
a Fund for the specific period (again reflecting changes in a Fund's share
prices and assuming reinvestment of dividends and distributions). Aggregate and
average total returns may be shown by means of schedules, charts or graphs, may
indicate various components of total return (i.e., change in value of initial
investment, income dividends and capital gain distributions) and would be quoted
separately for each class of a Fund's shares.
Calculated according to the SEC Rules, the average annual total return for
the Funds was as follows:
<TABLE>
<CAPTION>
====================================================================================
Average
Fund Return
---- ------
- ------------------------------------------------------------------------------------
<S> <C>
For August 31, 1998.
- ------------------------------------------------------------------------------------
Micro Cap 9.29%
- ------------------------------------------------------------------------------------
Growth (1.62)%
- ------------------------------------------------------------------------------------
Growth & Value 12.68%
- ------------------------------------------------------------------------------------
Larger Cap Value* N/A
- ------------------------------------------------------------------------------------
For August 31, 1997.
- ------------------------------------------------------------------------------------
Micro Cap 41.43%
- ------------------------------------------------------------------------------------
Growth 27.86%
- ------------------------------------------------------------------------------------
Growth & Value 33.71%
- ------------------------------------------------------------------------------------
For the period June 3, 1996 (initial public offering) to August 31, 1996.
- ------------------------------------------------------------------------------------
Micro Cap N/A
- ------------------------------------------------------------------------------------
Growth N/A
- ------------------------------------------------------------------------------------
Growth & Value N/A
====================================================================================
</TABLE>
* The Larger Cap Value Fund commenced operations on December 9, 1997.
-32-
<PAGE>
Calculated according to the above formula, the aggregate total return for
the Funds was as follows:
<TABLE>
<CAPTION>
===================================================================================
Average
Fund Return
---- ------
- -----------------------------------------------------------------------------------
<S> <C>
For the fiscal year ended August 31, 1998.
- -----------------------------------------------------------------------------------
Micro Cap 22.10 %
- -----------------------------------------------------------------------------------
Growth (3.59)%
- -----------------------------------------------------------------------------------
Growth & Value 30.76 %
- -----------------------------------------------------------------------------------
Larger Cap Value* (9.67)%
- -----------------------------------------------------------------------------------
For the fiscal year ended August 31, 1997.
- -----------------------------------------------------------------------------------
Micro Cap 58.41 %
- -----------------------------------------------------------------------------------
Growth 37.69 %
- -----------------------------------------------------------------------------------
Growth & Value 49.11 %
- -----------------------------------------------------------------------------------
For the period June 3, 1996 (initial public offering) to August 31, 1996.
- -----------------------------------------------------------------------------------
Micro Cap 54.05 %
- -----------------------------------------------------------------------------------
Growth 35.85 %
- -----------------------------------------------------------------------------------
Growth & Value 43.64 %
===================================================================================
</TABLE>
* The Larger Cap Value Fund commenced operations on December 9, 1997.
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance.
In reports or other communications to investors or in advertising material,
the Funds may describe general economic and market conditions affecting the
Funds and may compare their performance with (1) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (2) with their benchmark indices, as well as
the S&P 500 or (3) other appropriate indices of investment securities or with
data developed by Numeric derived from such indices. Performance information
may also include evaluation of the Funds 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.
-33-
<PAGE>
In reports or other communications to investors or in advertising, the
Funds may also describe the general biography or work experience of the
portfolio managers of the Funds and may include quotations attributable to the
portfolio managers describing approaches taken in managing the Funds'
investments, research methodology, underlying stock selection or the Funds'
investment objective. The Funds may also discuss the continuum of risk and
return relating to different investments, and the potential impact of foreign
stock on a portfolio otherwise composed of domestic securities. In addition, the
Funds may from time to time compare their expense ratios to those of investment
companies with similar objective and policies, as advertised by Lipper
Analytical Services, Inc. or similar investment services that monitor mutual
funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion in this Statement of Additional Information and in the Prospectus is
not intended as a substitute for careful tax planning. Investors are urged to
consult their tax advisers with specific reference to their own tax situation.
Each Fund has elected to be taxed as a regulated investment company
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue
Code of 1986, as amended (the "Code"). As a regulated investment company, each
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 each Fund's taxable year, at least 50% of the value of a 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 a 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
-34-
<PAGE>
ordinary income, regardless of whether such distributions are paid in cash or
are reinvested in shares. Shareholders receiving any distribution from a 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.
Each 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 long-term capital gain, regardless of the length
of time the shareholder has held his shares, whether such gain was recognized by
each 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 a 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 each Fund to shareholders not later than 60 days after
the close of such Fund's taxable year.
In the case of shareholders that are corporations, distributions
(other than capital gain dividends) of a Fund for any taxable year generally
qualify for the dividends received deduction to the extent of the gross amount
of "qualifying dividends" received by such 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 a
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. Each 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 a Fund were to fail to qualify as a regulated
investment company, all of its taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions would be taxable as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions would be
eligible for the dividends received deduction in the case of corporate
shareholders.
A shareholder will recognize gain or loss upon a redemption of shares
or an exchange of shares of a Fund for shares of another N/I NUMERIC INVESTORS
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. However, any loss
realized on a sale of shares of a 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 a Fund in the form of shares within the 61-day period would be
treated as a purchase for this purpose.
-35-
<PAGE>
The Code imposes a nondeductible 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 a Fund may in certain
circumstances be required to liquidate investments in order to make sufficient
distributions to avoid excise tax liability.
Each Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that he is not subject to backup withholding or
that he is an "exempt recipient."
The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each 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.
DESCRIPTION OF SHARES
RBB has authorized capital of thirty billion shares of Common Stock, $.001
par value per share, of which 18.326 billion shares are currently classified in
97 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 five hundred million 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
-36-
<PAGE>
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, 500 million shares are classified as Class U Common Stock,
500 million shares are classified as Class V Common Stock, 100 million shares
are classified as Class W Common Stock, 50 million shares are classified as
Class X Common Stock, 50 million shares are classified as Class Y Common Stock,
50 million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 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, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 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 Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-
-37-
<PAGE>
Short Equity) 100 million shares are classified as Class LLL common stock
(Boston Partners Investor Long-Short Equity), 100 million shares are classified
as Class MMM Common Stock (n/i Small Cap Value), 1.5 billion shares are
classified as Class Janney Money Common Stock (Money), 200 million shares are
classified as Class Janney Municipal Money Common Stock (Municipal Money), 200
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), 700 million shares are classified as
Class Select 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), 700 million shares are classified as Principal
Class Money Common Stock, 1 million shares are classified as Gamma 2 Common
Stock (Municipal Money), 1 million shares are classified as Gamma 3 Common Stock
(Government Money), 1 million shares are classified as Gamma 4 Common Stock
(N.Y. Money), 1 million shares are classified as Delta 1 Common Stock (Money), 1
million shares are classified as Delta 2 Common Stock (Municipal Money), 1
million shares are classified as Delta 3 Common Stock (Government Money), 1
million shares are classified as Delta 4 Common Stock (N.Y. Money), 1 million
shares are classified as Epsilon 1 Common Stock (Money), 1 million shares are
classified as Epsilon 2 Common Stock (Municipal Money), 1 million shares are
classified as Epsilon 3 Common Stock (Government Money), 1 million shares are
classified as Epsilon 4 Common Stock (N.Y. Money), 1 million shares are
classified as Zeta 1 Common Stock (Money), 1 million shares are classified as
Zeta 2 Common Stock (Municipal Money), 1 million shares are classified as Zeta 3
Common Stock (Government Money), 1 million shares are classified as Zeta 4
Common Stock (N.Y. Money), 1 million shares are classified as Eta 1 Common Stock
(Money), 1 million shares are classified as Eta 2 Common Stock (Municipal
Money), 1 million shares are classified as Eta 3 Common Stock (Government
Money), 1 million shares are classified as Eta 4 Common Stock (N.Y. Money), 1
million shares are classified as Theta 1 Common Stock (Money), 1 million shares
are classified as Theta 2 Common Stock (Municipal Money), 1 million shares are
classified as Theta 3 Common Stock (Government Money), and 1 million shares are
classified as Theta 4 Common Stock (N.Y. Money). Shares of the Classes FF, GG,
HH, XX and MMM Common Stock constitute the N/I NUMERIC INVESTORS Micro Cap,
Growth, Growth & Value, Larger Cap Value and Small Cap Value Funds,
respectively. Under RBB's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to
time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the N/I NUMERIC INVESTORS family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Portfolios; the Sansom Street Family represents
interests in the Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios; the Bedford Family represents interests in the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the N/I NUMERIC INVESTORS family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
-38-
<PAGE>
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the 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.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
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 collectively 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.
Holders of shares of each class of RBB will vote in the aggregate and not
by class on all matters, except where otherwise required by law. 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 such Act or applicable state law,
or otherwise, to the holders of the outstanding voting 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 the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by the holders of a majority of the
outstanding voting securities (as defined by the 1940 Act) of such portfolio.
However, the Rule also provides that the ratification of the selection of
independent public accountants, the approval of principal underwriting contracts
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 Charter,
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). The name "N/I
NUMERIC INVESTORS" may be used in the name of other portfolios managed by
Numeric.
-39-
<PAGE>
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, Philadelphia National
Bank Building, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496,
serves as counsel to RBB and RBB's non-interested directors.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103 serves as RBB's independent
accountants.
CONTROL PERSONS. As of November 16, 1998, to RBB's knowledge, the
following named persons at the addresses shown below owned of record
approximately 5% or more of the total outstanding shares of the class of RBB
indicated below. See "Description of Shares" above. RBB does not know whether
such persons also beneficially own such shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY Jewish Family and Children's Agency of
MARKET Phil Capital Campaign 44.097%
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- -------------------------------------------------------------------------------------------------------
Marian E. Kunz
52 Weiss Ave. 11.070%
Flourtown, PA 19031
- -------------------------------------------------------------------------------------------------------
Dominic & Barbara Pisciotta
And Successors In Tr Under The Dominic 5.734%
TRST & Barbara Pisciotta
Caring TR DTD 01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- -------------------------------------------------------------------------------------------------------
Betty L. Thomas
TRST Thomas Living Trust 5.045%
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- -------------------------------------------------------------------------------------------------------
SAMSON STREET MONEY MARKET Saxon and Co.
FBO Paine Webber 75.343%
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- -------------------------------------------------------------------------------------------------------
Wasner & Co. for Account of
Paine Webber and Managed Assets Sundry 24.017%
Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- -------------------------------------------------------------------------------------------------------
CASH PRESERVATOIN Gary L. Lange
MUNICIPAL MONEY MARKET and Susan D. Lange 40.150%
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- -------------------------------------------------------------------------------------------------------
Andrew Diederich and
Doris Diederich 5.236%
JT TEN
1003 Lindeman
Des Peres, MO 63131
- -------------------------------------------------------------------------------------------------------
Kenneth Farwell
and Valerie Farwell JT TEN 7.228%
3854 Sullivan
St. Louis, MO 63107
- -------------------------------------------------------------------------------------------------------
Terry H. Williams
and Nancy L. Williams 13.686%
JT TEN
2508 Janel Ct
Oakville, MO 63129
- -------------------------------------------------------------------------------------------------------
Emil R. Hunter and
Mary J. Hunter JT TEN 8.325%
428 W. Jefferson
Kirkwood, MO 63122
- -------------------------------------------------------------------------------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc
Special Custody Account for the 11.848%
Exclusive Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
Janis Claflin, Bruce Fetzer and
Winston Franklin, Robert Lehman Trst 5.431%
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
1001 19th St., N. 16th Flr. 7.614%
Arlington, VA 22209
- -------------------------------------------------------------------------------------------------------
Portland General Holdings Inc.
DTD 01/29/90 19.715%
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- -------------------------------------------------------------------------------------------------------
State Street Bank and Trust Company
FBO Yale Univ. Ret. Pln for Staff Emp 8.823%
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
Special Custody Account for the 18.352%
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
Citibank North America Inc.
Trst Sargent & Lundy Retirement Trust 21.781%
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
1001 N. US Hwy One Suite 800 6.526%
Jupiter, FL 33477
- -------------------------------------------------------------------------------------------------------
Union Bank of California
Trst Sunkist Growers-Match-Svgs Pln 5.882%
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- -------------------------------------------------------------------------------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc.
Special Custody Account for the 19.824%
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
The John E. Fetzer Institute Inc.
Attn: Christina Adams 8.505%
9292 W. KL Ave.
Kalamazoo, MI 49009
- -------------------------------------------------------------------------------------------------------
Bankers Trust Cust Pge-Enron Foundation
Attn: Procy Fernandez 5.829%
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- -------------------------------------------------------------------------------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc
Special Custody Account for the 14.989%
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
Bank of America NT & SA
FBO Community Hospital Central Cal Pn Pl 17.543%
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- -------------------------------------------------------------------------------------------------------
The John E. Fetzer Institute, Inc.
Attn. Christina Adams 46.381%
9292 W. KL Ave.
Kalamazoo, MI 49009
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS LARGE CAP Dr. Janice B. Yost
FUND INST SHARES Trst Mary Black Foundation Inc. 12.275%
Bell Hill-945 E. Main St.
Spartanburg, SC 29302
- -------------------------------------------------------------------------------------------------------
US Bank National Association
FBO A-DEC Inc DOT 093098 10.754%
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- -------------------------------------------------------------------------------------------------------
Irving Fireman's Relief & Ret Fund
Attn: Edith Auston 5.774%
825 W. Irving Blvd.
Irvin, TX 75060
- -------------------------------------------------------------------------------------------------------
Miter & Co.
c/o M&I Trust 10.207%
PO Box 2977
Milwaukee, WI 53202
- -------------------------------------------------------------------------------------------------------
Union Bank of California
FBO Service Employers 5.676%
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- -------------------------------------------------------------------------------------------------------
Swanee Hunt and Charles Ansbacher
Trst The Swanee Hunt Family Fund 5.939%
C/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS LARGE CAP National Financial Services Corp.
FUND INVESTOR SHARES For the Exclusive Bene of Our Customers 17.202%
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- -------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
Special Custody Account for Bene of Cust 73.563%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS MID CAP Donaldson Lufkin & Jenrette
VALUE FUND INST. SHARES Securities Corporation 8.340%
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- -------------------------------------------------------------------------------------------------------
The Northern Trust Company
FBO Thomas & Betts Master 12.001%
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- -------------------------------------------------------------------------------------------------------
NAIDOT & CO.
C/O Bessemer Trust Co. 5.988%
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- -------------------------------------------------------------------------------------------------------
MAC & CO.
A/C BPHF 3006002 6.901%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- -------------------------------------------------------------------------------------------------------
Coastal Insurance Enterprises Inc.
Attn: Chris Baldwin 6.311%
P.O. Box 240429
Montgomery, AL 36124
- -------------------------------------------------------------------------------------------------------
U P Plumbers & Pipefitters
Pension Fund 5.298%
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS MID CAP National Financial Svcs Corp. for
VALUE FUND INV SHARES Exclusive Bene of Our Customers 16.614%
Sal Vella
200 Liberty St.
New York, NY 10281
- -------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
Special Custody Account for Bene of Cust 40.369%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
Jupiter & Co.
c/o Investors Bank 5.488%
P.O. Box 9130 FPG 90
Boston, MA 02110
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP
INSTITUTIONAL SHARES 28 State Street 31.956%
Boston, MA 02109
- -------------------------------------------------------------------------------------------------------
Chiles Foundation
111 S.W. Fifth Ave. 25.779%
Ste 4050
Portland, OR 97204
- -------------------------------------------------------------------------------------------------------
The Roman Catholic Diocese of
Raleigh, NC 34.191%
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- -------------------------------------------------------------------------------------------------------
The Roman Catholic Diocese of
Raleigh, NC 8.035%
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS BOND FUND Charles Schwab & Co. Inc
INVESTOR SHARES Special Custody Account for Bene of Cust 77.073%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
Stephen W. Hamilton
17 Lakeside Ln 15.291%
N. Barrington, IL 60010
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS Desmond J. Heathwood
MICRO CAP VALUE 41 Chestnut St. 8.339%
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- -------------------------------------------------------------------------------------------------------
Boston Partners Asset Mgmt LP
28 State Street 65.971%
Boston, MA 02109
- -------------------------------------------------------------------------------------------------------
Wayne Archambo
42 DeLopa Cir 6.630%
Westwood, MA 02090
- -------------------------------------------------------------------------------------------------------
David M. Dabora
11 White Plains Ct. 6.630%
San Anselmo, CA 94960
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Services Corp.
MICRO CAP VALUE For the Exclusive Bene of our Customers 32.992%
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- -------------------------------------------------------------------------------------------------------
Scott J. Harrington
54 Torino Ct. 41.867%
Danville, CA 94526
- -------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
Special Custody Account 18.035%
For Bene of Cust
Attn Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS Boston Partners Asset
MARKET NEUTRAL Mgmt LP 100.00%
FUND- INSTITUTIONAL 28 State Street
SHARES Boston, MA 02109
- -------------------------------------------------------------------------------------------------------
BOSTON PARTNERS Boston Partners Asset
MARKET NEUTRAL Mgmt LP 100.00%
FUND- INVESTOR 28 State Street
SHARES Boston, MA 02109
- -------------------------------------------------------------------------------------------------------
SCHNEIDER SMALL CAP VALUE Arnold C. Schneider III
FUND SEP IRA 28.607%
826 Turnbridge Rd
Wayne, PA 19087
- -------------------------------------------------------------------------------------------------------
SCM Retirement Plan
Profit Sharing Plan 15.660%
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- -------------------------------------------------------------------------------------------------------
Durward A. Huckabay
and Susan S. Huckabay 9.176%
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- -------------------------------------------------------------------------------------------------------
John Frederic Lyness
81 Hillcrest Ave 27.193%
Summit NJ 07901
- -------------------------------------------------------------------------------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- -------------------------------------------------------------------------------------------------------
</TABLE>
As of the same date, directors and officers as a group owned less than
one percent of the shares of the Fund.
BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. Blackrock Investment Management Company ("BIMC"),
PNC Bank and other institutions that are banks or bank affiliates are subject to
such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for RBB
contemplated by their respective agreements with RBB without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for RBB.
If such were to occur, it is expected that the Board of Directors would
recommend that RBB enter into new agreements or would consider the possible
termination of RBB. Any new advisory or sub-advisory agreement would normally be
subject to shareholder approval. It is not anticipated that any change in RBB's
method of operations as a result of these occurrences would affect its net asset
value per share or result in a financial loss to any shareholder.
-40-
<PAGE>
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Funds' Annual
Report to Shareholders (the "1998 Annual Report") for the fiscal year ended
August 31, 1998 (the "Financial Statements") are incorporated by reference into
this Statement of Additional Information. No other parts of the 1998 Annual
Report are incorporated by reference herein. The financial statements included
in the 1998 Annual Report have been audited by RBB's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference, and such financial statements have been
incorporated herein in reliance upon such reports given upon their authority as
experts in accounting and auditing. Copies of the 1998 Annual Report may be
obtained free of charge by telephoning PFPC at (800) 348-5031. No financial
statements are supplied for the Small Cap Value Fund because, as of the date of
the Prospectus and this Statement of Additional Information, the Fund had no
operating history.
-41-
<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" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category 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. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
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 effect 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.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3"- Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has 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.
Obligations rated "BB," "B," "CCC," "CC" and "C" - are 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" - An obligation rated "BB" 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" - An obligation rated "B" is more vulnerable to nonpayment 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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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
nonpayment.
"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. The "D" rating
category 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. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a 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 symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are 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 risk appear somewhat larger than
the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
"BBB" - Debt possesses below-average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings
is considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade category
and indicates an acceptable capacity to repay principal and interest. Issues
rated "BBB" are more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to
pay principal and interest. Those issues determined to possess very strong
characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins of
protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments in
this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-4
