<PAGE>
n/i numeric investors Micro Cap Fund
n/i numeric investors Growth Fund
n/i numeric investors Mid Cap 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
DECEMBER 1, 1999
(as revised February 16, 2000)
This Statement of Additional Information ("SAI") provides information about
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 Mid Cap
Fund (the "Mid Cap Fund") (formerly, the n/i numeric investors 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 information
is in addition to the information contained in the n/i numeric investors family
of funds Prospectus dated December 1, 1999 (the "Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Funds' Annual Report dated August 31, 1999. The financial
statements and notes contained in the Annual Report are incorporated by
reference into this SAI. Copies of the Prospectus and Annual Report may be
obtained from Numeric Investors L.P. ("Numeric") by calling toll-free (800)
NUMERIC [(800) 686-3742].
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION................................................. 1
INVESTMENT INSTRUMENTS AND POLICIES................................. 1
INVESTMENT LIMITATIONS.............................................. 14
MANAGEMENT OF THE COMPANY........................................... 17
Directors and Officers......................................... 17
Directors' Compensation........................................ 18
CONTROL PERSONS..................................................... 19
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS........ 27
Advisory Agreements............................................ 27
Custodian Agreements........................................... 30
Transfer Agency Agreements..................................... 30
Co-Administration Agreements................................... 30
Administrative Services Agent.................................. 32
Distributor.................................................... 33
FUND TRANSACTIONS................................................... 34
ADDITIONAL INFORMATION CONCERNING RBB SHARES........................ 36
PURCHASE AND REDEMPTION INFORMATION................................. 38
VALUATION OF SHARES................................................. 39
PERFORMANCE INFORMATION............................................. 40
TAXES............................................................... 43
MISCELLANEOUS....................................................... 43
Counsel........................................................ 43
Independent Accountants........................................ 43
FINANCIAL STATEMENTS................................................ 44
APPENDIX A.......................................................... A-1
<PAGE>
GENERAL INFORMATION
RBB was organized as a Maryland corporation on February 29, 1988 and is an
open-end management investment company currently operating or proposing to
operate 17 separate investment portfolios. This Statement of Additional
Information pertains to Shares representing interests in the diversified Funds
offered by the Prospectus dated December 1, 1999.
INVESTMENT INSTRUMENTS AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Funds.
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 be more
volatile than those of mid and large cap companies. The market for micro cap
securities may be thinly traded and, as a result , greater fluctuations in the
price of micro cap securities may occur.
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.
Futures and Options
The Funds may write covered call options, buy put options, buy call options
and write put options, without limitation except as noted below. 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.
<PAGE>
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.
Futures
Futures Contracts. 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.
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
-2-
<PAGE>
position in order to be prepared to meet redemption requests or other
obligations. In these 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.
The Fund may sell futures contracts to hedge its other investments against
changes in value, or as an alternative to sales of securities. For example, if
the Adviser anticipated a decline in the price of a particular security, but did
not wish to sell such securities owned by the Fund, it could sell a futures
contract in order to lock in a current sale price. If prices subsequently fell,
the futures contract's value would be expected to rise and offset all or a
portion of the loss in the securities that the Fund has 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.
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 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
-3-
<PAGE>
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. The ultimate result of these
factors may be a loss of dollars.
Put and Call Options
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.
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
-4-
<PAGE>
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 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
-5-
<PAGE>
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 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.
-6-
<PAGE>
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 portfolio management or the Fund's ability to meet redemption requests or
other current obligations. Depending on the asset levels that are required to be
segregated, a Fund may be required to sell assets it would not otherwise
liquidate.
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
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.
-7-
<PAGE>
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 "Futures and Options" 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.
Short Sales "Against the Box"
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.
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
-8-
<PAGE>
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. The original
long position must also be held for the sixty days after the short position is
closed.) 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 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.
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.
Borrowing Money
The Funds are permitted to borrow to the extent permitted under the
Investment Company Act of 1940 (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. If the
securities held by a Fund should decline in value while borrowings are
outstanding, the net asset value of a Fund's outstanding shares will decline in
value by proportionately more than the decline in value suffered by a Fund's
securities. As a result, a Fund's share price may be subject to greater
fluctuation until the borrowing is paid off. No Fund will make any additional
investments while borrowings exceed 5% of its total assets.
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.
-9-
<PAGE>
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 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).
-10-
<PAGE>
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 in the process of adopting a single European
currency, the "euro". On January 1, 1999, the euro became legal tender for all
countries participating in the Economic and Monetary Union ("EMU"). A new
European Central Bank was created to manage the monetary policy of the new
unified region. On the same date, the exchange rates were 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.
These changes are 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 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.
-11-
<PAGE>
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.
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.
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.
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
-12-
<PAGE>
involves minimal credit risk to a Fund in determining whether to have the Fund
enter into a repurchase agreement. The seller under a repurchase agreement will
be required to maintain the value of the securities subject to the agreement at
not less than the repurchase price plus accrued interest. 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.
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 and the return
on the cash exchanged for the securities.
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
-13-
<PAGE>
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 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. 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.
* * *
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
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). As used in this Statement of Additional Information and in the
Prospectus, "shareholder approval" and a "majority of the outstanding shares" of
a class, series or Fund 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 Fund represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Fund are present in
-14-
<PAGE>
person or by proxy, or (2) more than 50% of the outstanding shares of such
class, series or Fund.
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 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
-15-
<PAGE>
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.
* * *
If a percentage restriction under one of the Fund's investment policies or
limitations 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).
-16-
<PAGE>
MANAGEMENT OF THE COMPANY
Directors and Officers
The business and affairs of RBB are managed under the direction of RBB's
Board of Directors. The directors and executive officers of RBB, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name and Address and Age Position with Fund During Past Five Years
- ------------------------ ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman - 51 Director Chief Operating Officer of Warburg
c/o 400 Bellevue Parkway Pincus Asset Management, Inc.,
Wilmington, DE 19809 Executive Officer and Director of
Counsellors Securities Inc. and
Director/Trustee of various
investment companies advised by
Warburg Pincus Asset Management,
Inc. until September 15, 1999; Prior
to 1997, Managing Director of
Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 61 Director Executive Vice President of
Fahnestock & Company, Inc. Fahnestock Co., Inc. (a registered
125 Broad Street broker-dealer); Prior to October 1996,
New York, NY 10004 Executive Vice President of Gruntal
& Co., Inc. (a registered broker-
dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President,
Fox Chase Cancer Center Fox Chase Cancer Center (biomedical
7701 Burholme Avenue research and medical care).
Philadelphia, PA 19111
*Marvin E. Sternberg - 65 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Technologies, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 66 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>
-17-
<PAGE>
<TABLE>
<S> <C> <C>
Donald van Roden - 75 Director and Chairman of Self-employed businessman. From
1200 Old Mill Lane the Board February 1980 to March 1987, Vice
Wyomissing, PA 19610 Chairman, SmithKline Beecham
Corporation (pharmaceuticals);
Director AAA Mid-Atlantic (auto
service); Director, Keystone
Insurance Co.
Edward J. Roach - 75 President and Treasurer Certified Public Accountant; Vice
400 Bellevue Parkway Chairman of the Board, Fox Chase
Wilmington, DE 19809 Cancer Center; Trustee Emeritus,
Pennsylvania School for the Deaf;
Trustee Emeritus, Immaculata
College; President or Vice President
and Treasurer of various investment
companies advised by subsidiaries of
PNC Bank Corp. (1981 - 1997);
Treasurer of Chestnut Street
Exchange Fund; Vice President and
Treasurer of Independent Square
Income Securities, Inc.: Director of
the Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker
Drinker Biddle & Reath LLP Biddle & Reath LLP; Director, Nobel
One Logan Square Education Dynamics, Inc.; Secretary,
18th & Cherry Streets Petroferm, Inc.
Philadelphia, PA 19103
</TABLE>
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of RBB,
as that term is defined in the 1940 Act.
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.
Directors' Compensation
RBB currently pays directors $15,000 annually and $1,250 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 are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1999, each of the following
members of the Board of Directors received compensation from RBB in the
following amounts:
-18-
<PAGE>
<TABLE>
<CAPTION>
Aggregate Pension or Retirement
Compensation from Benefits Accrued as Estimated Annual Benefits
Name of Person/Position Registrant Part of Fund Expenses Upon Retirement
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Julian A. Brodsky, Director $19,250 N/A N/A
Francis J. McKay, Director $16,750 N/A N/A
Arnold M. Reichman, Director $ 0 N/A N/A
Robert Sablowsky, Director $18,250 N/A N/A
Marvin E. Sternberg, Director $19,250 N/A N/A
Donald van Roden, Director $25,250 N/A N/A
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.
CONTROL PERSONS
As of November 17, 1999, 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 "Additional
Information Concerning Fund 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>
BEDFORD MUNICIPAL Gabe Nechamkin 7.40%
MONEY MARKET 27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------------------------------------------------------------------
CASH PRESERVATION Harold T. Erfer 6.349%
MONEY MARKET 414 Charles Ln.
Wynnewood, PA 19096
- ------------------------------------------------------------------------------------------------
Marian E. Kunz 15.602%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------------------------------------------------------------------
Karen M. McElhinny and Contribution Account 8.227%
4943 King Arthur Dr.
Erie, PA 16506
- ------------------------------------------------------------------------------------------------
Luanne M. Garvey and Robert J. Garvey 15.438%
2729 Woodland Ave.
Trooper, PA 19403
- ------------------------------------------------------------------------------------------------
John Robert Estrada and Shirley Ann Estrada 5.260%
1700 Raton Dr.
Arlington, TX 76018
- ------------------------------------------------------------------------------------------------
Dominic and Barbara Pisciotta and Successors 12.785%
in Tr. Under the Dominic Trst. And Barbara
Pisciotta Caring Tr. Dtd. 01/24/92
207 Woodmere Way
St. Charles, MO 63303
- ------------------------------------------------------------------------------------------------
Michael W. Preble 7.456%
1505 W. Cheyenne Dr.
Chandler, AZ 85224
- ------------------------------------------------------------------------------------------------
Anthony K. Bailey and 5.085%
Laura A. Bailey
5819 E. 35th Street
Tuscon AZ 85711
- ------------------------------------------------------------------------------------------------
SANSOM STREET Saxon and Co. 65.047%
MONEY MARKET FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------------------------------------------------------------------
Saxon and Co. 34.953%
c/o PNC Bank, N. A.
F3-F076-02-2
200 Stevens Drive Ste. 260/ACI
Lester, PA 19113
- ------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
CASH PRESERVATION Gary L. Lange 72.206%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln.
Ballwin, MO 63021-6066
- ------------------------------------------------------------------------------------------------
Mark Koehler and 5.800%
Suzanne Koehler
JT TEN WROS
3925 Bower St.
St. Louis, MO 63116
- ------------------------------------------------------------------------------------------------
RBB SELECT MONEY MARKET Warburg Pincus Capital Appreciation Fund 10.649%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Growth Fund 21.770%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
Warburg Pincus Growth & Income Fund 6.831%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
Warburg Pincus Trust Small Company Growth 12.161%
Portfolio
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity 15.203%
Portfolio
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
Warburg Pincus Japan Growth Fund 5.365%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Warburg Pincus Institutional Fund 12.823%
Japan Small Company Fund
Attn: Joe Gajewski/PFPC Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
Warburg Pincus Institutional Fund 6.290%
International Equity Portfolio
Attn: Joe Gajewski/PFPC Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------------------------------------------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.431%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
Gerald T. Reilly 11.249%
TRST RCAB Collective Investors Partnership
U/A DTD 9/19/95
2121 Commonwealth Avenue
Brighton, MA 02135
- ------------------------------------------------------------------------------------------------
Janis Claflin, Bruce Fetzer and 9.068%
Winston Franklin
Robert Lehman Trst.
The John E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------------------------------------------------------------------
Public Inst. For Social Security 17.814%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------------------------------------------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 7.515%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Citibank North America Inc. 43.606%
Trst. Sargent & Lundy Retirement Trust
DTD. 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------------------------------------------------------------------
Louisa Stude Sarofim Foundation 6.333%
c/o Nancy Head
DTD. 01/04/91
1001 Fannin 4700
Houston, TX 77002
- ------------------------------------------------------------------------------------------------
U.S. Equity Investment Portfolio LP 7.965%
1001 N. US Hwy. One Suite 800
Jupiter, FL 33477
- ------------------------------------------------------------------------------------------------
N/I MID CAP FUND Charles Schwab & Co. Inc.
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
National Investors Services Corp. 7.177%
For the Exclusive Benefit of our Customers
S. 55 Water St. 32nd Floor
New York, NY 10041-3299
- ------------------------------------------------------------------------------------------------
N/I LARGER CAP FUND Charles Schwab & Co. Inc 57.838%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
FTC & Co. 10.526%
Attn: Datalynx 241
Attn: Datalynx 273
P. O. Box 173736
Denver, CO 80217-3736
- ------------------------------------------------------------------------------------------------
N/I SMALL CAP VALUE FUND State Street Bank and Trust Company 54.161%
FBO Yale Univ. Ret. Pl. for Staff Emp.
State Street Bank & Tr. Co. Master Tr. Div.
Attn: Kevin Sutton
Solomon Williard Bldg.
One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Yale University 26.939%
Trst. Yale University Ret. Health Bene. Tr.
Attention: Seth Alexander
230 Prospect St.
New Haven, CT 06511
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS LARGE CAP Shady Side Academy Endowment 5.631%
FUND INST SHARES 423 Fox Chapel Rd.
Pittsburgh, PA 15238
- ------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 7.311%
Special Custody Account for Bene. of Cust.
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
Swanee Hunt and Charles Ansbacher 17.122%
Trst.
The Hunt Alternatives Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------------------------------------------------------------------
Union Bank of California 9.643%
FBO Service Employees BP 610001265-01
P. O. Box 85484
San Diego, CA 92186
- ------------------------------------------------------------------------------------------------
US Bank National Association 17.536%
FBO A-Dec Inc. DOT 093098
Attn: Mutual Funds A/C 97307536
P. O. Box 64010
St. Paul, MN 55164-0010
- ------------------------------------------------------------------------------------------------
Northern Trust Company 16.644%
FBO AEFC Pension Trust
A/C 22-53582
P. O. Box 92956
Chicago, IL 60675
- ------------------------------------------------------------------------------------------------
James B. Beam 5.206%
Trst World Publishing Co. Pft Shr Trust
P.O. Box 1511
Wenatchee, WA 98807
- ------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS LARGE CAP Charles Schwab & Co. Inc. 66.397%
FUND INVESTOR SHARES Special Custody Account for Bene. of Cust.
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
Jupiter & Co. 6.380%
c/o Investors Bank
PO Box 9130 FPG90
Boston, MA 02110
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS MID CAP MAC & CO. 5.642%
VALUE FUND INST. SHARES A/C CHIF1001182
FBO Childrens Hospital LA
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------------------------------------------------------------------
John M. Pontius, Jr. 6.234%
FBO Hartwick College
West Street
Queens, NY 13820
- ------------------------------------------------------------------------------------------------
MAC & CO. 7.976%
A/C LEMF5044062
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------------------------------------------------------------------
The Northern Trust Company 5.046%
FBO Thomas & Betts Master Retirement Trust
Attn: Ellen Shea
8155 T&B Blvd.
Memphis, TN 38123
- ------------------------------------------------------------------------------------------------
Norwest Bank Minnesota 5.194%
FBO McCormick & Co.
PEN-BOSTON A/C 12778825
P.O. Box 1533
Minneapolis, MN 55480
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS MID CAP National Financial Svcs. Corp. for Exclusive 17.061%
VALUE FUND INV SHARES Bene. of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 47.450%
Special Custody Account for Bene. of Cust.
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt. L. P. 26.464%
INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------------------------------------------------------------------
Chiles Foundation 8.499%
111 S.W. Fifth Ave.
Ste. 4050
Portland, OR 97204
- ------------------------------------------------------------------------------------------------
The Roman Catholic Diocese of 53.382%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------------------------------------------------------------------
The Roman Catholic Diocese of 11.654%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS BOND FUND Charles Schwab & Co. Inc 81.125%
INVESTOR SHARES Special Custody Account for Bene. of Cust.
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
Stephen W. Hamilton 16.094%
17 Lakeside Ln.
N. Barrington, IL 60010
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.329%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------------------------------------------------------------------
Boston Partners Asset Mgmt. L. P. 65.889%
Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------------------------------------------------------------------
Wayne Archambo 6.622%
42 DeLopa Circle
Westwood, MA 02090
- ------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
David M. Dabora 6.622%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Services Corp. 29.153%
MICRO CAP VALUE For the Exclusive Bene. of our Customers
FUND- INVESTOR Attn: Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 25.078%
Special Custody Account for Bene. of Cust.
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------
Scott J. Harrington 36.112%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS MARKET Boston Partners Asset Mgmt. L. P. 100.000%
NEUTRAL FUND- Attn: Jan Penney
INSTITUTIONAL SHARES 28 State St.
Boston, MA 02109
- ------------------------------------------------------------------------------------------------
BOSTON PARTNERS MARKET Glenn P. Verrette and Laurie Jo Verrette 6.690%
NEUTRAL FUND- INVESTOR Jt. Ten. Wros.
SHARES 156 Osgood St.
Andover, MA 01810
- ------------------------------------------------------------------------------------------------
Thomas Lannan and Kathleen Lannan 89.987%
Jt. Ten. Wros.
P. O. Box 312
Osterville, MA 02655
- ------------------------------------------------------------------------------------------------
SCHNEIDER SMALL CAP VALUE Arnold C. Schneider III 13.637%
FUND SEP IRA
826 Turnbridge Rd.
Wayne, PA 19087
- ------------------------------------------------------------------------------------------------
SCM Retirement Plan 5.466%
Profit Sharing Plan
460 E. Swedesford Rd. Ste. 1080
Wayne, PA 19087
- ------------------------------------------------------------------------------------------------
Ronald L. Gault 5.399%
IRA
439 W. Nelson St.
Lexington VA 24450
- ------------------------------------------------------------------------------------------------
John Frederick Lyness 12.964%
81 Hillcrest Ave.
Summit, NJ 07901
- ------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF
FUND HELD
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------------------------------------------------------------------
</TABLE>
As of November 17, 1999, the directors and officers as a group owned less
than 1% of RBB's Shares.
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. Until December 31, 2000, Numeric has agreed to waive its advisory fees
and/or reimburse expenses (other than brokerage commissions, extraordinary
items, interest and taxes) in excess of its advisory 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 and reimbursements
thereafter.
Until January 1, 2001, Numeric is entitled to a management fee of 0.75% of
the Fund's average daily net assets of the Growth, Mid Cap and Small Cap Value
Funds. Thereafter for the Growth, Mid Cap and Small Cap Value Funds, Numeric is
entitled to a performance based fee calculated at the end of each month using a
basic fee of 0.85% of average daily net assets and a performance fee adjustment
based upon the Fund's performance during the last rolling 12 month period. The
current fee of 0.75% would only increase if performance exceeds benchmark by
4% or more in a given 12-month period and would be less than the current fee
if performance does not exceed benchmark by 3% in a given 12-month period.
Under this arrangement, the investment advisory fee would never be greater
than 1.35% nor less than 0.35% of each of the Growth, Mid Cap and Small Cap
Value Funds' average daily net assets for the preceding month. The table below
details the performance based fee arrangements.
<TABLE>
<CAPTION>
Percentage Point Difference Between
Fund Performance (Net of
Expenses Including Advisory Performance
Fees) and Change in Basic Adjustment Total
Benchmark Index Fee Rate Advisory Fee
--------------- --- ---- ------------
<S> <C> <C> <C>
+9% or more...................... 0.85% 0.50% 1.35%
+8% or more but less than +9%.... 0.85% 0.40% 1.25%
+7% or more but less than +8%.... 0.85% 0.30% 1.15%
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
+6% or more but less than +7%.... 0.85% 0.20% 1.05%
+5% or more but less than +6%.... 0.85% 0.10% 0.95%
+4% or more but less than +5%.... 0.85% None 0.85%
+3% or more but less than +4%.... 0.85% -0.10% 0.75%
+2% or more but less than +3%.... 0.85% -0.20% 0.65%
+1% or more but less than +2%.... 0.85% -0.30% 0.55%
+0% or more but less than +1%.... 0.85% -0.40% 0.45%
Less than 0%..................... 0.85% -0.50% 0.35%
</TABLE>
From January 1, 2001 through December 31, 2001 Numeric has agreed to waive
its advisory fee and/or reimburse expenses (other than brokerage commissions,
extraordinary items, interest and taxes) in an aggregate amount equal to the
amount by which the Growth, Mid Cap and/or Small Cap Value Funds' total
operating expenses (other than investment advisory fees, brokerage commissions,
extraordinary items, interest and taxes) exceeds a total operating expense
ratio (other than investment advisory fees, brokerage commissions,
extraordinary items, interest and taxes) of 0.50% of such Fund's average daily
net assets.
For the fiscal years ended August 31, 1997, 1998 and 1999, the Funds paid
Numeric advisory fees and Numeric waived advisory fees and reimbursed expenses
in excess of its 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, 1999
Micro Cap $630,289 $125,805 $ 0
Growth $451,504 $121,919 $ 0
Mid Cap $488,857 $171,847 $ 0
Larger Cap Value $ 77,347 $ 73,497 $ 6,861
Small Cap Value* $ 931 $ 54,759 $14,836
Fiscal year ended August 31, 1998
Micro Cap $912,750 $140,740 $ 0
Growth $782,298 $121,746 $ 0
Mid Cap $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
Mid Cap $ 90,762 $ 92,307 $21,893
</TABLE>
* The Small Cap Value Fund commenced operations on November 30, 1998.
** The Larger Cap Value Fund commenced operations on December 9, 1997.
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
-28-
<PAGE>
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 Mid Cap 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 Mid
Cap 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 Mid Cap 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.
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.
-29-
<PAGE>
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.
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
-30-
<PAGE>
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.
-31-
<PAGE>
For the fiscal years ended August 31, 1997, 1998 and 1999, the Funds paid
administration fees to PFPC and BSFM, and PFPC waived administration fees as
follows:
<TABLE>
<CAPTION>
Co-Administration Fees
Fund Paid (After Waivers) Waivers Reimbursements
- ---------------------------------------------------------------------------------------------------------------------
For the fiscal year ended August 31, 1999.
(PFPC)
- -----
<S> <C> <C> <C>
Micro Cap $115,935 $ 10,081 $0
Growth $ 87,944 $ 7,646 $0
Mid Cap $103,317 $ 8,809 $0
Larger Cap Value $ 37,498 $ 37,501 $0
Small Cap Value* $ 28,123 $ 28,126 $0
(BSFM)
- -----
Micro Cap $ 50,406 $ 0 $0
Growth $ 38,228 $ 0 $0
Mid Cap $ 44,047 $ 0 $0
Larger Cap Value $ 10,056 $ 0 $0
Small Cap Value* $ 3,775 $ 0 $0
For the fiscal year ended August 31, 1998
(PFPC)
- -----
Micro Cap $161,535 $14,047 $0
Growth $138,620 $12,054 $0
Mid Cap $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
Mid Cap $ 54,025 $ 0 $0
Larger Cap Value** $ 5,433 $ 0 $0
For the fiscal year ended August 31, 1997.
(PFPC)
- -----
Micro Cap $ 61,461 $26,117 $0
Growth $ 73,540 $20,169 $0
Mid Cap $ 39,724 $35,276 $0
(BSFM)
- -----
Micro Cap $ 24,574 $ 0 $0
Growth $ 33,943 $ 0 $0
Mid Cap $ 12,203 $ 0 $0
</TABLE>
* The Small Cap Value Fund commenced operations on November 30, 1998.
** The Larger Cap Value Fund commenced operations on December 9, 1997.
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
-32-
<PAGE>
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.
For the fiscal years ended August 31, 1997, 1998 and 1999, the Funds paid
administrative services fees to PDI and Counsellors Service, and PDI and
Counsellors Service waived administrative services fees as follows:
<TABLE>
<CAPTION>
Administrative Services
Fund Fees Paid (After Waivers) Waivers Reimbursements
- -------------------------------------------------------------------------------------------------------------------
For the fiscal year ended August 31, 1999
(PDI)
- ----
<S> <C> <C> <C>
Micro Cap $20,163 $131,056 $0
Growth $15,292 $ 99,393 $0
Mid Cap $26,428 $105,713 $0
Larger Cap Value $ 6,034 $ 24,135 $0
Small Cap Value* $ 2,265 $ 9,059 $0
For the period from May 29, 1998 through August 31, 1998
(PDI)
- ----
Micro Cap $ 6,924 $ 44,172 $0
Growth $ 5,888 $ 37,315 $0
Mid Cap $11,064 $ 44,256 $0
Larger Cap Value** $ 1,919 $ 7,678 $0
For the period from September 1, 1997 through May 29, 1998
(Counsellors Service)
- --------------------
Micro Cap $31,920 $127,682 $0
Growth $27,521 $110,085 $0
Mid Cap $21,420 $ 85,680 $0
Larger Cap Value** $ 1,341 $ 5,361 $0
For the fiscal year ended August 31, 1997
(Counsellors Service)
- --------------------
Micro Cap $14,744 $ 58,977 $0
Growth $20,366 $ 81,463 $0
Mid Cap $ 7,323 $ 29,291 $0
</TABLE>
* The Small Cap Value Fund commenced operations on November 30, 1998.
** The Larger Cap Value Fund commenced operations on December 9, 1997.
Distributor
PDI serves as distributor of the Shares pursuant to the terms of a
distribution agreement dated as of June 25, 1999 (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.
-33-
<PAGE>
FUND TRANSACTIONS
Subject to policies established by the Board of Directors and applicable
rules, 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 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, 1999, the Funds paid aggregate
commissions to brokers on account of research services as follows:
<TABLE>
<CAPTION>
Fund Brokerage Commissions
---------------------------------------------
<S> <C>
Micro Cap $140,589
Growth $ 75,767
Mid Cap $ 72,732
Larger Cap Value $ 17,107
Small Cap Value $ 5,230
</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
-34-
<PAGE>
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 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 years ended August 31, 1997, 1998 and 1999, the Funds paid
brokerage commissions on behalf of the Funds as follows:
<TABLE>
<CAPTION>
Aggregate
Commissions
Fund 1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C>
Micro Cap $16,350 $706,342 $568,754
Growth $27,840 $512,762 $395,555
Mid Cap $14,821 $508,568 $514,406
Larger Cap Value* $ N/A $ 45,723 $114,975
Small Cap Value** $ N/A $ N/A $ 58,795
</TABLE>
*The Larger Cap Value Fund commenced operations on December 9, 1997.
**The Small Cap Value Fund commenced operations on November 30, 1998.
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, 1999,
the following Funds held the following securities:
<TABLE>
<CAPTION>
Fund Security Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Mid Cap Bear Stearns Companies Inc. (The) $187,312
Lehman Brothers Holdings Inc. 478,375
Larger Cap Value Bear Stearns Companies Inc. (The) $120,712
Lehman Brothers Holdings Inc. 123,625
Morgan Stanley, Dean Witter & Co. 34,325
</TABLE>
-35-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of 30 billion shares of Common Stock at a par
value of $0.001 per share. Currently, 20.026 billion shares have been
classified into 99 classes as shown in the table below. Shares of the Classes
FF, GG, HH, XX and MMM Common Stock constitute the Micro Cap, Growth, Mid Cap,
Larger Cap Value and Small Cap Value Funds, respectively. Under RBB's charter,
the Board of Directors has the power to classify and reclassify any unissued
shares of Common Stock from time to time.
<TABLE>
<CAPTION>
Number of Number of
Authorized Authorized
Class of Common Stock Shares (millions) Class of Common Stock Shares (millions)
- -------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
A (Growth & Income) 100 YY (Schneider Capital Small Cap Value) 100
B 100 ZZ 100
C (Balanced) 100 AAA 100
D (Tax-Free) 100 BBB 100
E (Money) 500 CCC 100
F (Municipal Money) 500 DDD (Boston Partners Institutional Micro
Cap) 100
G (Money) 500 EEE (Boston Partners Investors Micro Cap) 100
H (Municipal Money) 500 FFF 100
I (Sansom Money) 1500 GGG 100
J (Sansom Municipal Money) 500 HHH 100
K (Sansom Government Money) 500 III (Boston Partners Institutional
Market Neutral) 100
L (Bedford Money) 1500 JJJ (Boston Partners Investors Market
Neutral) 100
M (Bedford Municipal Money) 500 KKK (Boston Partners Institutional
Long-Short Equity) 100
N (Bedford Government Money) 500 LLL (Boston Partners Investors
Long-Short Equity) 100
O (Bedford N.Y. Money) 500 MMM (n/i numeric Small Cap Value) 100
P (RBB Government) 100 Class NNN (Bogle Institutional Small
Cap Growth) 100
Q 100 Class OOO (Bogle Investors Small Cap
Growth) 100
R (Municipal Money) 500 Janney (Money) 3000
S (Government Money) 500 Janney (Municipal Money) 200
T 500 Janney (Government Money) 700
U 500 Janney (N.Y. Money) 100
V 500 Select (Money) 700
W 100 Beta 2 (Municipal Money) 1
X 50 Beta 3 (Government Money) 1
Y 50 Beta 4 (N.Y. Money) 1
Z 50 Principal Class (Money) 700
AA 50 Gamma 2 (Municipal Money) 1
BB 50 Gamma 3 (Government Money) 1
CC 50 Gamma 4 (N.Y. Money) 1
DD 100 Delta 1 (Money) 1
EE 100 Delta 2 (Municipal Money) 1
FF (n/i numeric Micro Cap) 50 Delta 3 (Government Money) 1
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Authorized Authorized
Class of Common Stock Shares (millions) Class of Common Stock Shares (millions)
- ------------------------------------------------------------ --------------------------------------------------------------
<S> <C> <C> <C>
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) Epsilon 1 (Money) 1
50
II 100 Epsilon 2 (Municipal Money) 1
JJ 100 Epsilon 3 (Government Money) 1
KK 100 Epsilon 4 (N.Y. Money) 1
LL 100 Zeta 1 (Money) 1
MM 100 Zeta 2 (Municipal Money) 1
NN 100 Zeta 3 (Government Money) 1
OO 100 Zeta 4 (N.Y. Money) 1
PP 100 Eta 1 (Money) 1
QQ (Boston Partners Institutional Eta 2 (Municipal Money) 1
Large Cap) 100
RR (Boston Partners Investors Large Eta 3 (Government Money) 1
Cap) 100
SS (Boston Partners Advisor Large Eta 4 (N.Y. Money) 1
Cap) 100
TT (Boston Partners Investors Mid Theta 1 (Money) 1
Cap) 100
UU (Boston Partners Institutional Theta 2 (Municipal Money) 1
Mid Cap) 100
VV (Boston Partners Institutional Theta 3 (Government Money) 1
Bond) 100
WW (Boston Partners Investors Bond) 100 Theta 4 (N.Y. Money) 1
XX (n/i numeric Larger Cap) 50
</TABLE>
The classes of Common Stock have been grouped into 15 separate "families";
the Cash Preservation Family, the Sansom Street Family, the Bedford Family, the
Principal (Gamma) Family, the Janney Montgomery Scott Family, the Select (Beta)
Family, the Schneider Capital Management Family, the n/i numeric family of
funds, the Boston Partners Family, the Bogle Family, the Delta Family, the
Epsilon Family, the Theta Family, the Eta Family, and the Zeta Family. 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 and Government Obligations 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 Bogle Family represents interest in one non-
money market portfolio; the Schneider 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, New York Municipal Money Market and Government Obligations Money
Market Portfolios.
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
-37-
<PAGE>
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 in the 1940 Act) of such portfolio.
However, the Rule also provides that the ratification of the selection of
independent public accountants and the election of directors are not subject to
the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of RBB's common stock (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law (for example by Rule
18f-2 discussed above), or by RBB's Articles of Incorporation, RBB may take or
authorize such action upon the favorable vote of the holders of more than 50% of
all of the outstanding shares of Common Stock 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.
PURCHASE AND REDEMPTION INFORMATION
You may purchase shares through an account maintained by your brokerage
firm and you may also purchase shares directly by mail or wire. 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. A shareholder will
bear the risk of a decline in market value and any tax consequences associated
with a redemption in securities.
Under the 1940 Act, the Company may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange, Inc. (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which the SEC restricts trading on the NYSE or
determines 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 the recordation of the transfer of
its shares upon the occurrence of any of the foregoing conditions.)
-38-
<PAGE>
Shares of the Company are subject to redemption by the Company, at the
redemption price of such shares as in effect from time to time, including,
without limitation: to reimburse a 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; if
such redemption is, in the opinion of the Company's Board of Directors,
desirable in order to prevent the Company or any Fund from being deemed a
"personal holding company" within the meaning of the Internal Revenue Code of
1986, as amended; or if the net income with respect to any particular class of
common stock should be negative or it should otherwise be appropriate to carry
out the Company's responsibilities under the 1940 Act.
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, 1999, is as follows:
<TABLE>
<CAPTION>
Larger Cap Small Cap
Micro Cap Growth Mid Cap Value Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets $76,348,825 $62,375,823 $49,155,781 $8,255,991 $11,498,290
Outstanding shares $ 4,235,134 $ 4,190,064 $ 2,910,851 $ 622,361 $ 894,247
Net asset value per share $ 18.03 $ 14.89 $ 16.89 $ 13.27 $ 12.86
Maximum sales charge -- -- -- -- --
Maximum Offering Price to
Public $ 18.03 $ 14.89 $ 16.89 $ 13.27 $ 12.86
</TABLE>
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
-39-
<PAGE>
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:
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
-40-
<PAGE>
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 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 returns for
the Funds were as follows:
<TABLE>
<CAPTION>
Fund Average Return
--------------------------------------------------------------------
<S> <C>
For August 31, 1999.
Micro Cap 21.97%
Growth 12.66%
Mid Cap 20.90%
Larger Cap Value 7.79%
Small Cap Value* N/A
For August 31, 1998.
Micro Cap 9.29%
Growth (1.62)%
Mid Cap 12.68%
Larger Cap Value** N/A
For August 31, 1997.
Micro Cap 41.43%
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
Fund Average Return
-------------------------------------------------------------------------
<S> <C>
Growth 27.86%
Mid Cap 33.71%
For the period June 3, 1996 (initial public offering) to August 31, 1996.
Micro Cap N/A
Growth N/A
Mid Cap N/A
</TABLE>
* The Small Cap Value Fund commenced operations on November 30, 1998.
** The Larger Cap Value Fund commenced operations on December 9, 1997.
Calculated according to the above formula, the aggregate total return for
the Funds was as follows:
<TABLE>
<CAPTION>
Fund Aggregate Return
------------------------------------------------------------------------
<S> <C>
For August 31, 1999.
Micro Cap 56.09%
Growth 52.80%
Mid Cap 41.61%
Larger Cap Value 26.01%
Small Cap Value* 7.17%
For August 31, 1998.
Micro Cap (20.74)%
Growth (29.03)%
Mid Cap (8.97)%
Larger Cap Value** (9.67)%
For August 31, 1997.
Micro Cap 58.41%
Growth 37.69%
Mid Cap 49.11%
For the period June 3, 1996 (initial public offering) to August 31, 1996.
Micro Cap (2.75)%
Growth (1.33)%
Mid Cap (3.67)%
</TABLE>
* The Small Cap Value Fund commenced operations on November 30, 1998.
** 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
-42-
<PAGE>
publications.
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 Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income to
shareholders each year, so that the Fund itself generally will be relieved of
federal income and excise taxes. If the Fund were to fail to so qualify: (1) the
Fund would be taxed at regular corporate rates without any deduction for
distributions to shareholders; and (2) shareholders would be taxed as if they
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction.
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, One Logan Square,
18th and Cherry Streets, Philadelphia, Pennsylvania 19103-6996, 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. PricewaterhouseCoopers LLP performs an annual audit of the
RBB's financial statements.
-43-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Funds' Annual
Report to Shareholders (the "1999 Annual Report") for the fiscal year ended
August 31, 1999 (the "Financial Statements") are incorporated by reference into
this Statement of Additional Information. No other parts of the 1999 Annual
Report are incorporated by reference herein. The financial statements included
in the 1999 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 1999 Annual Report may be
obtained free of charge by telephoning PFPC at (800) 348-5031.
-44-
<PAGE>
APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current opinion of
the creditworthiness of an obligor with respect to financial obligations 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 Standard & Poor's 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:
A-1
<PAGE>
"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.
"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.
A-2
<PAGE>
"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 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 best 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 Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial 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 Financial 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."
A-3
<PAGE>
"TBW-3" - This designation represents Thomson Financial 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 Financial 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 nonpayment
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.
"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.
A-4
<PAGE>
"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 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 Standard & Poor's
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.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an 'r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Not rated. Debt obligations of issuers outside the United
States and its
A-5
<PAGE>
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
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 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" indicates 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
A-6
<PAGE>
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. This is the
lowest investment grade category.
"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
A-7
<PAGE>
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. This is the lowest
investment grade category.
"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 change 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. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated "DDD" have the highest prospect for resumption
of performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch
IBCA ratings from and including "AA" to "CCC" may be modified by the addition of
a plus (+) or minus (-) sign to denote relative standing within these major
rating categories.
'NR' indicates the Fitch IBCA does not rate the issuer or issue in
question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount
of information available to be inadequate for rating purposes, or when an
obligation matures, is
A-8
<PAGE>
called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial 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 Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment 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 note rating reflects the liquidity factors and
market access
A-9
<PAGE>
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's 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 a
very strong capacity to pay debt service 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. Margins of
protection 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 margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
